ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 45-0491516 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Large accelerated filer | ý | Accelerated filer | ¨ | ||
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | 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 for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨ |
Class | Outstanding | |
Common stock, $.01 par value per share | 53,301,924 |
Page No. | ||
PART I. | FINANCIAL INFORMATION | |
Item 1. | Condensed Consolidated Financial Statements | |
Condensed Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2017 and 2016 | ||
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three-month and six-month periods ended June 30, 2017 and 2016 | ||
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 | ||
Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2017 and 2016 | ||
Notes to Condensed Consolidated Financial Statements | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 6. | Exhibits | |
SIGNATURES |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In thousands, except per share data) | Unaudited | Unaudited | |||||||||||||
Revenues | |||||||||||||||
Store | |||||||||||||||
Rentals and fees | $ | 575,411 | $ | 645,710 | $ | 1,170,825 | $ | 1,320,005 | |||||||
Merchandise sales | 76,773 | 76,777 | 198,495 | 208,484 | |||||||||||
Installment sales | 17,657 | 17,672 | 34,414 | 36,092 | |||||||||||
Other | 2,519 | 3,280 | 5,171 | 7,368 | |||||||||||
Total store revenues | 672,360 | 743,439 | 1,408,905 | 1,571,949 | |||||||||||
Franchise | |||||||||||||||
Merchandise sales | 3,214 | 4,023 | 6,535 | 8,970 | |||||||||||
Royalty income and fees | 2,061 | 2,157 | 4,181 | 4,352 | |||||||||||
Total revenues | 677,635 | 749,619 | 1,419,621 | 1,585,271 | |||||||||||
Cost of revenues | |||||||||||||||
Store | |||||||||||||||
Cost of rentals and fees | 159,276 | 169,139 | 321,309 | 345,380 | |||||||||||
Cost of merchandise sold | 77,055 | 70,903 | 186,179 | 184,789 | |||||||||||
Cost of installment sales | 5,708 | 5,662 | 10,892 | 11,687 | |||||||||||
Total cost of store revenues | 242,039 | 245,704 | 518,380 | 541,856 | |||||||||||
Franchise cost of merchandise sold | 3,063 | 3,757 | 6,045 | 8,313 | |||||||||||
Total cost of revenues | 245,102 | 249,461 | 524,425 | 550,169 | |||||||||||
Gross profit | 432,533 | 500,158 | 895,196 | 1,035,102 | |||||||||||
Operating expenses | |||||||||||||||
Store expenses | |||||||||||||||
Labor | 179,447 | 199,992 | 371,554 | 409,379 | |||||||||||
Other store expenses | 177,050 | 192,856 | 374,490 | 404,663 | |||||||||||
General and administrative expenses | 47,097 | 40,135 | 86,869 | 83,196 | |||||||||||
Depreciation, amortization and impairment of intangibles | 18,708 | 20,776 | 37,249 | 40,600 | |||||||||||
Other charges | 11,104 | 18,849 | 24,755 | 21,284 | |||||||||||
Total operating expenses | 433,406 | 472,608 | 894,917 | 959,122 | |||||||||||
Operating (loss) profit | (873 | ) | 27,550 | 279 | 75,980 | ||||||||||
Debt refinancing charges | 1,936 | — | 1,936 | — | |||||||||||
Interest expense | 11,263 | 11,737 | 22,893 | 23,714 | |||||||||||
Interest income | (159 | ) | (108 | ) | (315 | ) | (205 | ) | |||||||
(Loss) earnings before income taxes | (13,913 | ) | 15,921 | (24,235 | ) | 52,471 | |||||||||
Income tax (benefit) expense | (5,020 | ) | 5,975 | (8,663 | ) | 17,464 | |||||||||
Net (loss) earnings | $ | (8,893 | ) | $ | 9,946 | $ | (15,572 | ) | $ | 35,007 | |||||
Basic (loss) earnings per common share | $ | (0.17 | ) | $ | 0.19 | $ | (0.29 | ) | $ | 0.66 | |||||
Diluted (loss) earnings per common share | $ | (0.17 | ) | $ | 0.19 | $ | (0.29 | ) | $ | 0.66 | |||||
Cash dividends declared per common share | $ | 0.08 | $ | 0.08 | $ | 0.16 | $ | 0.16 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(In thousands) | Unaudited | Unaudited | |||||||||||||
Net (loss) earnings | $ | (8,893 | ) | $ | 9,946 | $ | (15,572 | ) | $ | 35,007 | |||||
Other comprehensive (loss) income: | |||||||||||||||
Foreign currency translation adjustments | 1,181 | (1,377 | ) | 6,736 | 1,073 | ||||||||||
Total other comprehensive (loss) income | 1,181 | (1,377 | ) | 6,736 | 1,073 | ||||||||||
Comprehensive (loss) income | $ | (7,712 | ) | $ | 8,569 | $ | (8,836 | ) | $ | 36,080 |
June 30, 2017 | December 31, 2016 | ||||||
(In thousands, except share and par value data) | Unaudited | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 73,831 | $ | 95,396 | |||
Receivables, net of allowance for doubtful accounts of $2,681 and $3,593 in 2017 and 2016, respectively | 64,379 | 69,785 | |||||
Prepaid expenses and other assets | 56,363 | 54,989 | |||||
Rental merchandise, net | |||||||
On rent | 706,086 | 795,118 | |||||
Held for rent | 200,223 | 206,836 | |||||
Merchandise held for installment sale | 3,811 | 3,629 | |||||
Property assets, net of accumulated depreciation of $552,653 and $522,101 in 2017 and 2016, respectively | 311,687 | 316,428 | |||||
Goodwill | 55,424 | 55,308 | |||||
Other intangible assets, net | 794 | 5,252 | |||||
Total assets | $ | 1,472,598 | $ | 1,602,741 | |||
LIABILITIES | |||||||
Accounts payable – trade | $ | 112,997 | $ | 108,238 | |||
Accrued liabilities | 322,260 | 332,196 | |||||
Deferred income taxes | 152,847 | 173,144 | |||||
Senior debt, net | 97,579 | 186,747 | |||||
Senior notes, net | 538,118 | 537,483 | |||||
Total liabilities | 1,223,801 | 1,337,808 | |||||
STOCKHOLDERS’ EQUITY | |||||||
Common stock, $.01 par value; 250,000,000 shares authorized; 109,671,676 and 109,519,369 shares issued in 2017 and 2016, respectively | 1,096 | 1,095 | |||||
Additional paid-in capital | 828,355 | 827,107 | |||||
Retained earnings | 776,519 | 800,640 | |||||
Treasury stock at cost, 56,369,752 shares in 2017 and 2016 | (1,347,677 | ) | (1,347,677 | ) | |||
Accumulated other comprehensive loss | (9,496 | ) | (16,232 | ) | |||
Total stockholders' equity | 248,797 | 264,933 | |||||
Total liabilities and stockholders' equity | $ | 1,472,598 | $ | 1,602,741 |
Six Months Ended June 30, | |||||||
2017 | 2016 | ||||||
(In thousands) | Unaudited | ||||||
Cash flows from operating activities | |||||||
Net (loss) earnings | $ | (15,572 | ) | $ | 35,007 | ||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities | |||||||
Depreciation of rental merchandise | 318,099 | 341,186 | |||||
Bad debt expense | 6,395 | 6,800 | |||||
Stock-based compensation expense | 1,079 | 4,814 | |||||
Depreciation of property assets | 36,705 | 38,857 | |||||
Loss on sale or disposal of property assets | 1,167 | 2,942 | |||||
Amortization and impairment of intangibles | 4,439 | 1,224 | |||||
Amortization of financing fees | 1,914 | 1,558 | |||||
Debt refinancing fees | 1,936 | — | |||||
Deferred income taxes | (20,296 | ) | (20,965 | ) | |||
Changes in operating assets and liabilities, net of effects of acquisitions | |||||||
Rental merchandise | (223,387 | ) | (211,536 | ) | |||
Receivables | (990 | ) | (1,881 | ) | |||
Prepaid expenses and other assets | (1,305 | ) | 96,008 | ||||
Accounts payable – trade | 4,759 | (3,244 | ) | ||||
Accrued liabilities | (3,059 | ) | 12,407 | ||||
Net cash provided by operating activities | 111,884 | 303,177 | |||||
Cash flows from investing activities | |||||||
Purchase of property assets | (40,159 | ) | (28,183 | ) | |||
Proceeds from sale of stores | 912 | 2,918 | |||||
Acquisitions of businesses | (215 | ) | (3,089 | ) | |||
Net cash used in investing activities | (39,462 | ) | (28,354 | ) | |||
Cash flows from financing activities | |||||||
Exercise of stock options | 170 | — | |||||
Shares withheld for payment of employee tax withholdings | (218 | ) | (127 | ) | |||
Proceeds from debt | 87,580 | 51,610 | |||||
Repayments of debt | (174,705 | ) | (284,305 | ) | |||
Dividends paid | (8,539 | ) | (17,034 | ) | |||
Net cash used in financing activities | (95,712 | ) | (249,856 | ) | |||
Effect of exchange rate changes on cash | 1,725 | 2,840 | |||||
Net (decrease) increase in cash and cash equivalents | (21,565 | ) | 27,807 | ||||
Cash and cash equivalents at beginning of period | 95,396 | 60,363 | |||||
Cash and cash equivalents at end of period | $ | 73,831 | $ | 88,170 |
• | incur additional debt; |
• | repurchase capital stock, repurchase 6.625% notes and 4.75% notes and/or pay cash dividends when the Consolidated Total Leverage Ratio is greater than 3.75:1 (subject to an exception for cash dividends in an amount not to exceed $15 million annually); |
• | incur liens or other encumbrances; |
• | merge, consolidate or sell substantially all property or business; |
• | sell, lease or otherwise transfer assets (other than in the ordinary course of business); |
• | make investments or acquisitions (unless they meet financial tests and other requirements); or |
• | enter into an unrelated line of business. |
• | the maximum Consolidated Total Leverage Ratio was removed; |
• | the maximum Consolidated Senior Secured Leverage Ratio was removed; |
• | the minimum Consolidated Fixed Charge Coverage Ratio was reduced from 1.50:1 to 1.10:1 and the definitions of Consolidated Fixed Charges and Consolidated Fixed Charge Coverage Ratio were modified. In addition, the sole consequence of a breach of this covenant shall be that a Minimum Availability Period shall result, which impacts the borrowing capacity under the Loans; |
• | any guarantee obligations of Foreign Subsidiaries may not exceed an aggregate of $10 million outstanding at any time; |
• | indebtedness, including Capital Lease Obligations, mortgage financings and purchase money obligations that are secured by Liens permitted under the Credit Agreement, may not exceed an aggregate outstanding amount of $10 million, unless such Indebtedness was outstanding on the effective date of the Fourth Amendment; and |
• | removed certain Permitted Investments, and modified Permitted Acquisitions, which is now tied to certain performance criteria, including the Borrowing Base. |
Required Ratio | Actual Ratio | ||||
Consolidated Fixed Charge Coverage Ratio | No less than | 1.10:1 | 0.77:1 |
(in thousands) | Term Loan | Revolving Facility | INTRUST Line of Credit | Total | |||||||||||
2017 | $ | 1,125 | $ | — | $ | — | $ | 1,125 | |||||||
2018 | 2,250 | — | — | 2,250 | |||||||||||
2019 | 2,250 | 55,000 | — | 57,250 | |||||||||||
2020 | 2,250 | — | — | 2,250 | |||||||||||
2021 | 41,813 | — | — | 41,813 | |||||||||||
Thereafter | — | — | — | — | |||||||||||
Total senior debt | $ | 49,688 | $ | 55,000 | $ | — | $ | 104,688 |
• | incur additional debt; |
• | sell assets or our subsidiaries; |
• | grant liens to third parties; |
• | pay cash dividends or repurchase stock when total leverage is greater than 2.50:1 (subject to an exception for cash dividends in an amount not to exceed $20 million annually); and |
• | engage in a merger or sell substantially all of our assets. |
June 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
(in thousands) | Carrying Value | Fair Value | Difference | Carrying Value | Fair Value | Difference | |||||||||||||||||
6.625% senior notes | $ | 292,740 | $ | 274,444 | $ | (18,296 | ) | $ | 292,740 | $ | 266,393 | $ | (26,347 | ) | |||||||||
4.75% senior notes | 250,000 | 226,250 | (23,750 | ) | 250,000 | 206,250 | (43,750 | ) | |||||||||||||||
Total senior notes | $ | 542,740 | $ | 500,694 | $ | (42,046 | ) | $ | 542,740 | $ | 472,643 | $ | (70,097 | ) |
(in thousands) | Accrued Charges at December 31, 2016 | Charges & Adjustments | Payments | Accrued Charges at June 30, 2017 | |||||||||||
Cash charges: | |||||||||||||||
Labor reduction costs | $ | 1,393 | $ | 2,824 | $ | (2,385 | ) | $ | 1,832 | ||||||
Lease obligation costs | 6,628 | 15 | (2,997 | ) | 3,646 | ||||||||||
Other miscellaneous | — | 531 | (531 | ) | — | ||||||||||
Total cash charges | $ | 8,021 | 3,370 | $ | (5,913 | ) | $ | 5,478 | |||||||
Non-cash charges: | |||||||||||||||
Rental merchandise losses | 12,174 | ||||||||||||||
Loss on sale of fixed assets | 351 | ||||||||||||||
Impairment of intangible asset | 3,895 | ||||||||||||||
Other(1) | 4,965 | ||||||||||||||
Total other charges | $ | 24,755 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Revenues | |||||||||||||||
Core U.S. | $ | 457,025 | $ | 530,612 | $ | 947,924 | $ | 1,114,977 | |||||||
Acceptance Now | 203,321 | 199,516 | 437,867 | 429,912 | |||||||||||
Mexico | 12,014 | 13,311 | 23,114 | 27,060 | |||||||||||
Franchising | 5,275 | 6,180 | 10,716 | 13,322 | |||||||||||
Total revenues | $ | 677,635 | $ | 749,619 | $ | 1,419,621 | $ | 1,585,271 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Gross profit | |||||||||||||||
Core U.S. | $ | 318,006 | $ | 383,129 | $ | 655,960 | $ | 795,018 | |||||||
Acceptance Now | 103,934 | 105,352 | 218,363 | 216,494 | |||||||||||
Mexico | 8,381 | 9,254 | 16,202 | 18,581 | |||||||||||
Franchising | 2,212 | 2,423 | 4,671 | 5,009 | |||||||||||
Total gross profit | $ | 432,533 | $ | 500,158 | $ | 895,196 | $ | 1,035,102 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Operating (loss) profit | |||||||||||||||
Core U.S. | $ | 30,980 | $ | 38,715 | $ | 55,382 | $ | 100,951 | |||||||
Acceptance Now | 18,597 | 27,547 | 39,216 | 56,916 | |||||||||||
Mexico | (41 | ) | 572 | 120 | (2,038 | ) | |||||||||
Franchising | 1,092 | 1,425 | 2,533 | 2,838 | |||||||||||
Total segments | 50,628 | 68,259 | 97,251 | 158,667 | |||||||||||
Corporate | (51,501 | ) | (40,709 | ) | (96,972 | ) | (82,687 | ) | |||||||
Total operating (loss) profit | $ | (873 | ) | $ | 27,550 | $ | 279 | $ | 75,980 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Depreciation, amortization and impairment of intangibles | |||||||||||||||
Core U.S. | $ | 7,882 | $ | 10,563 | $ | 15,990 | $ | 21,455 | |||||||
Acceptance Now | 629 | 828 | 1,415 | 1,665 | |||||||||||
Mexico | 526 | 864 | 1,053 | 1,803 | |||||||||||
Franchising | 44 | 44 | 88 | 89 | |||||||||||
Total segments | 9,081 | 12,299 | 18,546 | 25,012 | |||||||||||
Corporate | 9,627 | 8,477 | 18,703 | 15,588 | |||||||||||
Total depreciation, amortization and impairment of intangibles | $ | 18,708 | $ | 20,776 | $ | 37,249 | $ | 40,600 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Capital expenditures | |||||||||||||||
Core U.S. | $ | 8,600 | $ | 3,456 | $ | 14,708 | $ | 7,227 | |||||||
Acceptance Now | 612 | 305 | 1,095 | 597 | |||||||||||
Mexico | 24 | 76 | 47 | 223 | |||||||||||
Total segments | 9,236 | 3,837 | 15,850 | 8,047 | |||||||||||
Corporate | 8,875 | 9,906 | 24,309 | 20,136 | |||||||||||
Total capital expenditures | $ | 18,111 | $ | 13,743 | $ | 40,159 | $ | 28,183 |
(in thousands) | June 30, 2017 | December 31, 2016 | |||||
On rent rental merchandise, net | |||||||
Core U.S. | $ | 373,907 | $ | 426,845 | |||
Acceptance Now | 318,099 | 354,486 | |||||
Mexico | 14,080 | 13,787 | |||||
Total on rent rental merchandise, net | $ | 706,086 | $ | 795,118 |
(in thousands) | June 30, 2017 | December 31, 2016 | |||||
Held for rent rental merchandise, net | |||||||
Core U.S. | $ | 181,773 | $ | 192,718 | |||
Acceptance Now | 11,477 | 7,489 | |||||
Mexico | 6,973 | 6,629 | |||||
Total held for rent rental merchandise, net | $ | 200,223 | $ | 206,836 |
(in thousands) | June 30, 2017 | December 31, 2016 | |||||
Assets by segment | |||||||
Core U.S. | $ | 781,141 | $ | 872,551 | |||
Acceptance Now | 396,092 | 432,383 | |||||
Mexico | 33,978 | 31,415 | |||||
Franchising | 2,402 | 2,197 | |||||
Total segments | 1,213,613 | 1,338,546 | |||||
Corporate | 258,985 | 264,195 | |||||
Total assets | $ | 1,472,598 | $ | 1,602,741 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Numerator: | |||||||||||||||
Net (loss) earnings | $ | (8,893 | ) | $ | 9,946 | $ | (15,572 | ) | $ | 35,007 | |||||
Denominator: | |||||||||||||||
Weighted-average shares outstanding | 53,292 | 53,092 | 53,255 | 53,089 | |||||||||||
Effect of dilutive stock awards(1) | — | 289 | — | 273 | |||||||||||
Weighted-average dilutive shares | 53,292 | 53,381 | 53,255 | 53,362 | |||||||||||
Basic (loss) earnings per common share | $ | (0.17 | ) | $ | 0.19 | $ | (0.29 | ) | $ | 0.66 | |||||
Diluted (loss) earnings per common share | $ | (0.17 | ) | $ | 0.19 | $ | (0.29 | ) | $ | 0.66 | |||||
Anti-dilutive securities excluded from diluted (loss) earnings per common share: | |||||||||||||||
Anti-dilutive restricted share units | 1,568 | 876 | 1,568 | 876 | |||||||||||
Anti-dilutive stock options | 3,251 | 2,652 | 3,251 | 2,646 |
(1) | There was no dilutive effect to the loss per common share for the three and six months ended June 30, 2017 due to the net loss incurred for both periods. |
• | the general strength of the economy and other economic conditions affecting consumer preferences and spending: |
• | factors affecting the disposable income available to our current and potential customers; |
• | changes in the unemployment rate; |
• | difficulties encountered in improving the financial and operational performance of our business segments; |
• | our chief executive officer and chief financial officer transitions, including our ability to effectively operate and execute our strategies during the interim period and difficulties or delays in identifying and/or attracting a permanent chief financial officer with the required level of experience and expertise; |
• | failure to manage our store labor and other store expenses; |
• | our ability to develop and successfully execute strategic initiatives; |
• | disruptions, including capacity-related outages, caused by the implementation and operation of our new store information management system; |
• | our transition to more-readily scalable, "cloud-based" solutions; |
• | our ability to develop and successfully implement digital or E-commerce capabilities; |
• | disruptions in our supply chain; |
• | limitations of, or disruptions in, our distribution network; |
• | rapid inflation or deflation in the prices of our products; |
• | our ability to execute and the effectiveness of a store consolidation, including our ability to retain the revenue from customer accounts merged into another store location as a result of a store consolidation; |
• | our available cash flow; |
• | our ability to identify and successfully market products and services that appeal to our customer demographic; |
• | consumer preferences and perceptions of our brands; |
• | uncertainties regarding the ability to open new locations; |
• | our ability to acquire additional stores or customer accounts on favorable terms; |
• | our ability to control costs and increase profitability; |
• | our ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores; |
• | our ability to enter into new and collect on our rental or lease purchase agreements; |
• | the passage of legislation adversely affecting the Rent-to-Own industry; |
• | our compliance with applicable statutes or regulations governing our transactions; |
• | changes in interest rates; |
• | adverse changes in the economic conditions of the industries, countries or markets that we serve; |
• | information technology and data security costs; |
• | the impact of any breaches in data security or other disturbances to our information technology and other networks and our ability to protect the integrity and security of individually identifiable data of our customers and employees; |
• | changes in our stock price, the number of shares of common stock that we may or may not repurchase, and future dividends, if any; |
• | changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; |
• | changes in our effective tax rate; |
• | fluctuations in foreign currency exchange rates; |
• | our ability to maintain an effective system of internal controls; |
• | the resolution of our litigation; and |
• | the other risks detailed from time to time in our reports to the Securities and Exchange Commission. |
• | Enhance value proposition and facilitate ownership |
• | Optimize product mix |
• | Stabilize and upgrade the workforce |
• | Improve account management |
• | Drive efficiencies in-store |
• | Optimize footprint |
• | Enhance value proposition and facilitate ownership |
• | Optimize partner relationships |
• | Centralize account management |
• | Grow Acceptance Now unstaffed solutions |
• | Enhance decision engine |
• | Leverage technology investments |
• | Build digital capabilities to support omni-channel platform |
• | Expand Acceptance Now to new channels, customers and products |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
(dollar amounts in thousands) | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | |||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||
Store | |||||||||||||||||||||||||||||
Rentals and fees | $ | 575,411 | $ | 645,710 | $ | (70,299 | ) | (10.9 | )% | $ | 1,170,825 | $ | 1,320,005 | $ | (149,180 | ) | (11.3 | )% | |||||||||||
Merchandise sales | 76,773 | 76,777 | (4 | ) | — | % | 198,495 | 208,484 | (9,989 | ) | (4.8 | )% | |||||||||||||||||
Installment sales | 17,657 | 17,672 | (15 | ) | (0.1 | )% | 34,414 | 36,092 | (1,678 | ) | (4.6 | )% | |||||||||||||||||
Other | 2,519 | 3,280 | (761 | ) | (23.2 | )% | 5,171 | 7,368 | (2,197 | ) | (29.8 | )% | |||||||||||||||||
Total store revenue | 672,360 | 743,439 | (71,079 | ) | (9.6 | )% | 1,408,905 | 1,571,949 | (163,044 | ) | (10.4 | )% | |||||||||||||||||
Franchise | |||||||||||||||||||||||||||||
Merchandise sales | 3,214 | 4,023 | (809 | ) | (20.1 | )% | 6,535 | 8,970 | (2,435 | ) | (27.1 | )% | |||||||||||||||||
Royalty income and fees | 2,061 | 2,157 | (96 | ) | (4.5 | )% | 4,181 | 4,352 | (171 | ) | (3.9 | )% | |||||||||||||||||
Total revenues | 677,635 | 749,619 | (71,984 | ) | (9.6 | )% | 1,419,621 | 1,585,271 | (165,650 | ) | (10.4 | )% | |||||||||||||||||
Cost of revenues | |||||||||||||||||||||||||||||
Store | |||||||||||||||||||||||||||||
Cost of rentals and fees | 159,276 | 169,139 | (9,863 | ) | (5.8 | )% | 321,309 | 345,380 | (24,071 | ) | (7.0 | )% | |||||||||||||||||
Cost of merchandise sold | 77,055 | 70,903 | 6,152 | 8.7 | % | 186,179 | 184,789 | 1,390 | 0.8 | % | |||||||||||||||||||
Cost of installment sales | 5,708 | 5,662 | 46 | 0.8 | % | 10,892 | 11,687 | (795 | ) | (6.8 | )% | ||||||||||||||||||
Total cost of store revenues | 242,039 | 245,704 | (3,665 | ) | (1.5 | )% | 518,380 | 541,856 | (23,476 | ) | (4.3 | )% | |||||||||||||||||
Franchise cost of merchandise sold | 3,063 | 3,757 | (694 | ) | (18.5 | )% | 6,045 | 8,313 | (2,268 | ) | (27.3 | )% | |||||||||||||||||
Total cost of revenues | 245,102 | 249,461 | (4,359 | ) | (1.7 | )% | 524,425 | 550,169 | (25,744 | ) | (4.7 | )% | |||||||||||||||||
Gross profit | 432,533 | 500,158 | (67,625 | ) | (13.5 | )% | 895,196 | 1,035,102 | (139,906 | ) | (13.5 | )% | |||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||||
Store expenses | |||||||||||||||||||||||||||||
Labor | 179,447 | 199,992 | (20,545 | ) | (10.3 | )% | 371,554 | 409,379 | (37,825 | ) | (9.2 | )% | |||||||||||||||||
Other store expenses | 177,050 | 192,856 | (15,806 | ) | (8.2 | )% | 374,490 | 404,663 | (30,173 | ) | (7.5 | )% | |||||||||||||||||
General and administrative expenses | 47,097 | 40,135 | 6,962 | 17.3 | % | 86,869 | 83,196 | 3,673 | 4.4 | % | |||||||||||||||||||
Depreciation, amortization and impairment of intangibles | 18,708 | 20,776 | (2,068 | ) | (10.0 | )% | 37,249 | 40,600 | (3,351 | ) | (8.3 | )% | |||||||||||||||||
Other charges | 11,104 | 18,849 | (7,745 | ) | (41.1 | )% | 24,755 | 21,284 | 3,471 | 16.3 | % | ||||||||||||||||||
Total operating expenses | 433,406 | 472,608 | (39,202 | ) | (8.3 | )% | 894,917 | 959,122 | (64,205 | ) | (6.7 | )% | |||||||||||||||||
Operating (loss) profit | (873 | ) | 27,550 | (28,423 | ) | (103.2 | )% | 279 | 75,980 | (75,701 | ) | (99.6 | )% | ||||||||||||||||
Debt refinancing charges | 1,936 | — | 1,936 | 100.0 | % | 1,936 | — | 1,936 | 100.0 | % | |||||||||||||||||||
Interest, net | 11,104 | 11,629 | (525 | ) | (4.5 | )% | 22,578 | 23,509 | (931 | ) | (4.0 | )% | |||||||||||||||||
(Loss) earnings before income taxes | (13,913 | ) | 15,921 | (29,834 | ) | (187.4 | )% | (24,235 | ) | 52,471 | (76,706 | ) | (146.2 | )% | |||||||||||||||
Income tax (benefit) expense | (5,020 | ) | 5,975 | (10,995 | ) | (184.0 | )% | (8,663 | ) | 17,464 | (26,127 | ) | (149.6 | )% | |||||||||||||||
Net (loss) earnings | $ | (8,893 | ) | $ | 9,946 | $ | (18,839 | ) | (189.4 | )% | $ | (15,572 | ) | $ | 35,007 | $ | (50,579 | ) | (144.5 | )% |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
(dollar amounts in thousands) | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | |||||||||||||||||||||
Revenues | $ | 457,025 | $ | 530,612 | $ | (73,587 | ) | (13.9 | )% | $ | 947,924 | $ | 1,114,977 | $ | (167,053 | ) | (15.0 | )% | |||||||||||
Gross profit | 318,006 | 383,129 | (65,123 | ) | (17.0 | )% | 655,960 | 795,018 | (139,058 | ) | (17.5 | )% | |||||||||||||||||
Operating profit | 30,980 | 38,715 | (7,735 | ) | (20.0 | )% | 55,382 | 100,951 | (45,569 | ) | (45.1 | )% | |||||||||||||||||
Change in same store revenue | (10.2 | )% | (11.4 | )% | |||||||||||||||||||||||||
Stores in same store revenue calculation | 1,891 | 1,938 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
(dollar amounts in thousands) | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | |||||||||||||||||||||
Revenues | $ | 203,321 | $ | 199,516 | $ | 3,805 | 1.9 | % | $ | 437,867 | $ | 429,912 | $ | 7,955 | 1.9 | % | |||||||||||||
Gross profit | 103,934 | 105,352 | (1,418 | ) | (1.3 | )% | 218,363 | 216,494 | 1,869 | 0.9 | % | ||||||||||||||||||
Operating profit | 18,597 | 27,547 | (8,950 | ) | (32.5 | )% | 39,216 | 56,916 | (17,700 | ) | (31.1 | )% | |||||||||||||||||
Change in same store revenue | 6.7 | % | 4.1 | % | |||||||||||||||||||||||||
Stores in same store revenue calculation | 552 | 1,064 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
(dollar amounts in thousands) | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | |||||||||||||||||||||
Revenues | $ | 12,014 | $ | 13,311 | $ | (1,297 | ) | (9.7 | )% | $ | 23,114 | $ | 27,060 | $ | (3,946 | ) | (14.6 | )% | |||||||||||
Gross profit | 8,381 | 9,254 | (873 | ) | (9.4 | )% | 16,202 | 18,581 | (2,379 | ) | (12.8 | )% | |||||||||||||||||
Operating (loss) profit | (41 | ) | 572 | (613 | ) | (107.2 | )% | 120 | (2,038 | ) | 2,158 | 105.9 | % | ||||||||||||||||
Change in same store revenue | (6.9 | )% | (6.4 | )% | |||||||||||||||||||||||||
Stores in same store revenue calculation | 118 | 118 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 30, | Change | June 30, | Change | ||||||||||||||||||||||||||
(dollar amounts in thousands) | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | |||||||||||||||||||||
Revenues | $ | 5,275 | $ | 6,180 | $ | (905 | ) | (14.6 | )% | $ | 10,716 | $ | 13,322 | $ | (2,606 | ) | (19.6 | )% | |||||||||||
Gross profit | 2,212 | 2,423 | (211 | ) | (8.7 | )% | 4,671 | 5,009 | (338 | ) | (6.7 | )% | |||||||||||||||||
Operating profit | 1,092 | 1,425 | (333 | ) | (23.4 | )% | 2,533 | 2,838 | (305 | ) | (10.7 | )% |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Customer stolen merchandise (1) | $ | 37,734 | $ | 37,944 | $ | 83,295 | $ | 82,108 | |||||||
Other merchandise losses (2) | 9,977 | 11,484 | 21,481 | 22,503 | |||||||||||
Total merchandise losses | $ | 47,711 | $ | 49,428 | $ | 104,776 | $ | 104,611 |
(1) | Customer stolen merchandise for the three and six months ended June 30, 2017 includes inventory losses related to the closure of hhgregg and Conn's locations. See other charges in Note 5 to the condensed consolidated financial statements. |
(2) | Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims. |
Core U.S. | Acceptance Now Staffed | Acceptance Now Direct | Mexico | Franchising | Total | ||||||||||||||||||
Locations at beginning of period | 2,463 | 1,431 | 478 | 130 | 229 | 4,731 | |||||||||||||||||
New location openings | — | 133 | 5 | 1 | — | 139 | |||||||||||||||||
Acquired locations remaining open | — | — | — | — | 3 | 3 | |||||||||||||||||
Conversions | — | (5 | ) | 5 | — | — | — | ||||||||||||||||
Closed locations | |||||||||||||||||||||||
Merged with existing locations | (20 | ) | (370 | ) | (381 | ) | — | — | (771 | ) | |||||||||||||
Sold or closed with no surviving location | (6 | ) | — | (1 | ) | — | (4 | ) | (11 | ) | |||||||||||||
Locations at end of period | 2,437 | 1,189 | 106 | 131 | 228 | 4,091 | |||||||||||||||||
Acquired locations closed and accounts merged with existing locations | 1 | — | — | — | — | 1 | |||||||||||||||||
Total approximate purchase price of acquired stores (in millions) | $ | 0.2 | $ | — | $ | — | $ | — | $ | — | $ | 0.2 |
Payments Due by Period | |||||||||||||||||||
(in thousands) | Total | 2017 | 2018-2019 | 2020-2021 | Thereafter | ||||||||||||||
Senior Term Debt(1) | $ | 49,688 | $ | 1,125 | $ | 4,500 | $ | 44,063 | $ | — | |||||||||
Revolving Facility(2) | 55,000 | — | 55,000 | — | — | ||||||||||||||
6.625% Senior Notes(3) | 360,619 | 9,697 | 38,788 | 312,134 | — | ||||||||||||||
4.75% Senior Notes(4) | 297,500 | 5,938 | 23,750 | 267,812 | — | ||||||||||||||
Operating Leases | 480,069 | 84,176 | 257,262 | 123,561 | 15,070 | ||||||||||||||
Total(5) | $ | 1,242,876 | $ | 100,936 | $ | 379,300 | $ | 747,570 | $ | 15,070 |
(1) | Does not include interest payments. Our senior term debt bears interest at varying rates equal to the Eurodollar rate (not less than 0.75%) plus 3.00% or the prime rate plus 2.00% at our election. The Eurodollar rate on our senior term debt at June 30, 2017, was 1.23%. |
(2) | Does not include interest payments. Our Revolving Facility bears interest at varying rates equal to the Eurodollar rate plus 1.50% to 3.00% or the prime rate plus 0.50% to 2.00% at our election. The weighted average Eurodollar rate on our Revolving Facility at June 30, 2017 was 1.19%. |
(3) | Includes interest payments of $9.7 million on each May 15 and November 15 of each year. |
(4) | Includes interest payments of $5.9 million on each May 1 and November 1 of each year. |
(5) | As of June 30, 2017, we have $33.1 million in uncertain tax positions. Because of the uncertainty of the amounts to be ultimately paid as well as the timing of such payments, uncertain tax positions are not reflected in the contractual obligations table. |
RENT-A-CENTER, INC. | ||
By: | /S/ MAUREEN B. SHORT | |
Maureen B. Short | ||
Interim Chief Financial Officer |
Exhibit No. | Description |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
4.1 | |
4.2 | |
4.3 | |
4.4 | |
10.1† | |
10.2 | |
10.3 | |
10.4 | |
10.5 | |
10.6 | |
10.7 | |
10.8 | |
10.9† | |
10.10† | |
10.11† | |
10.12† | |
10.13† | |
10.14† | |
10.15† | |
10.16† | |
10.17† | |
10.18† | |
10.19† | |
10.20† | |
10.21† | |
10.22† | |
10.23† | |
10.24† | |
10.25† | |
10.26† | |
10.27† | |
10.28 |
10.29† | |
10.30 | |
10.31 | |
10.32 | |
10.33 | |
10.34 | |
10.35 | |
10.36† | |
10.37† | |
10.38† | |
10.39 | |
10.40† | |
10.41† | |
10.42† | |
10.43 | |
10.44 | |
18.1 |
21.1 | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
101.INS* | XBRL Instance Document |
101.SCH* | XBRL Taxonomy Extension Schema Document |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
† | Management contract or compensatory plan or arrangement |
* | Filed herewith |
(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 within those 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
(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 within those 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Document and Company Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jul. 24, 2017 |
|
Document And Entity Information | ||
Entity Registrant Name | RENT A CENTER INC DE | |
Entity Central Index Key | 0000933036 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | RCII | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 53,301,924 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes |
Condensed Consolidated Statements of Operations - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Store | ||||
Rentals and fees | $ 575,411 | $ 645,710 | $ 1,170,825 | $ 1,320,005 |
Merchandise sales | 76,773 | 76,777 | 198,495 | 208,484 |
Installment sales | 17,657 | 17,672 | 34,414 | 36,092 |
Other | 2,519 | 3,280 | 5,171 | 7,368 |
Total store revenues | 672,360 | 743,439 | 1,408,905 | 1,571,949 |
Franchise | ||||
Merchandise sales | 3,214 | 4,023 | 6,535 | 8,970 |
Royalty income and fees | 2,061 | 2,157 | 4,181 | 4,352 |
Total revenues | 677,635 | 749,619 | 1,419,621 | 1,585,271 |
Store | ||||
Cost of rentals and fees | 159,276 | 169,139 | 321,309 | 345,380 |
Cost of merchandise sold | 77,055 | 70,903 | 186,179 | 184,789 |
Cost of installment sales | 5,708 | 5,662 | 10,892 | 11,687 |
Total cost of store revenues | 242,039 | 245,704 | 518,380 | 541,856 |
Franchise | ||||
Franchise cost of merchandise sold | 3,063 | 3,757 | 6,045 | 8,313 |
Total cost of revenues | 245,102 | 249,461 | 524,425 | 550,169 |
Gross profit | 432,533 | 500,158 | 895,196 | 1,035,102 |
Operating expenses | ||||
Labor | 179,447 | 199,992 | 371,554 | 409,379 |
Other store expenses | 177,050 | 192,856 | 374,490 | 404,663 |
General and administrative expenses | 47,097 | 40,135 | 86,869 | 83,196 |
Depreciation, amortization and impairment of intangibles | 18,708 | 20,776 | 37,249 | 40,600 |
Other charges | 11,104 | 18,849 | 24,755 | 21,284 |
Total operating expenses | 433,406 | 472,608 | 894,917 | 959,122 |
Operating (loss) profit | (873) | 27,550 | 279 | 75,980 |
Debt refinancing charges | 1,936 | 0 | 1,936 | 0 |
Interest expense | 11,263 | 11,737 | 22,893 | 23,714 |
Interest income | (159) | (108) | (315) | (205) |
(Loss) earnings before income taxes | (13,913) | 15,921 | (24,235) | 52,471 |
Income tax (benefit) expense | (5,020) | 5,975 | (8,663) | 17,464 |
Net (loss) earnings | $ (8,893) | $ 9,946 | $ (15,572) | $ 35,007 |
Basic (loss) earnings per common share | $ (0.17) | $ 0.19 | $ (0.29) | $ 0.66 |
Diluted (loss) earnings per common share | (0.17) | 0.19 | (0.29) | 0.66 |
Cash dividends declared per common share | $ 0.08 | $ 0.08 | $ 0.16 | $ 0.16 |
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | ||||
Net (loss) earnings | $ (8,893) | $ 9,946 | $ (15,572) | $ 35,007 |
Foreign currency translation adjustments | 1,181 | (1,377) | 6,736 | 1,073 |
Total other comprehensive (loss) income | 1,181 | (1,377) | 6,736 | 1,073 |
Comprehensive (loss) income | $ (7,712) | $ 8,569 | $ (8,836) | $ 36,080 |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 2,681 | $ 3,593 |
Property assets, accumulated depreciation | $ 552,653 | $ 522,101 |
Common stock - par value | $ 0.01 | $ 0.01 |
Common stock - shares authorized | 250,000,000 | 250,000,000 |
Common stock - shares issued | 109,671,676 | 109,519,369 |
Treasury stock - shares at cost | 56,369,752 | 56,369,752 |
Basis of Presentation |
6 Months Ended |
---|---|
Jun. 30, 2017 | |
Basis of Presentation [Abstract] | |
Basis of Presentation | 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 (“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, 2016. 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. These financial statements 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: Core U.S., Acceptance Now, Mexico and Franchising. Our Core U.S. segment consists of company-owned rent-to-own stores in the United States, Canada and Puerto Rico that lease household durable goods to customers on a rent-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 Acceptance Now segment, which operates in the United States and Puerto Rico, generally offers the rent-to-own transaction to consumers who do not qualify for financing from the traditional retailer through kiosks located within such retailers’ locations. Those kiosks can be staffed by an Acceptance Now employee (staffed locations) or employ a virtual solution where customers initiate the rent-to-own transaction online in the retailers' locations using our tablet computer and our virtual solution (direct locations). Our Mexico segment consists of our company-owned rent-to-own stores in Mexico that lease household durable goods to customers on a rent-to-own basis. Rent-A-Center Franchising International, Inc., an indirect, wholly owned subsidiary of Rent-A-Center, is a franchisor of rent-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 rent-to-own transaction. The balance of our Franchising segment’s revenue is generated primarily from royalties based on franchisees’ monthly gross revenues. New Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB approved a one-year deferral of the effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends ASU 2014-09 relating to how and when a company recognizes revenue when another party is involved in providing a good or service to a customer. Under Topic 606, a company will recognize revenue on a gross basis when it provides a good or service to a customer (acts as the principal in a transaction), and on a net basis when it arranges for the good or service to be provided to the customer by another party (acts as an agent in a transaction). ASU 2016-08 provides additional guidance for determining whether a company acts as a principal or agent, depending primarily on whether a company controls goods or services before delivery to the customer. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides additional guidance related to the identification of performance obligations within the contract, and licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides additional guidance related to certain technical areas within ASU 2014-09. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which provides additional guidance related to certain technical areas within ASU 2014-09. The adoption of these additional ASUs must be concurrent with the adoption of ASU 2014-09, which will be required for us beginning January 1, 2018, with early adoption permitted as of the original effective date. These ASUs allow adoption with either retrospective application to each prior period presented, or modified retrospective application with the cumulative effect recognized as of the date of initial application. We are currently in the process of evaluating the potential impact this new pronouncement will have on our financial statements and do not anticipate early adoption. We have not completed our evaluation and therefore cannot conclude whether the pronouncement will have a significant impact on our financial statements at this time. We expect to complete our evaluation by the end of 2017. We currently anticipate that we will utilize the modified retrospective method of adoption, however, this expectation may change following the completion of our evaluation of the impact of this pronouncement on our financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which replaces existing accounting literature relating to the classification of, and accounting for, leases. Under ASU 2016-02, a company must recognize for all leases (with the exception of leases with terms less than 12 months) a liability representing a lessee's obligation to make lease payments arising from a lease, and a right-of-use asset representing the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged, with certain improvements to align lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The adoption of ASU 2016-02 will be required for us beginning January 1, 2019, with early adoption permitted. The ASU must be adopted using a modified retrospective transition, applying the new criteria to all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We are currently in the process of determining what impact the adoption of this ASU will have on our financial position, results of operations and cash flows, and we are evaluating the adoption date and transition alternatives. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. Rent-A-Center adopted ASU 2016-09 beginning January 1, 2017. We adopted the recognition of excess tax benefits in the provision for income taxes rather than paid-in-capital, and the classification of excess tax benefits on the statement of cash flows on a prospective basis. We elected to continue to estimate forfeitures expected to occur in our determination of compensation cost recognized each period. Furthermore, we adopted the minimum statutory withholding requirements and classification of employee taxes paid on the statement of cash flows on a modified retrospective and full retrospective basis, respectively. Additional amendments included in the accounting standard update were not applicable to us. Impacts resulting from adoption were immaterial to the consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the treatment of cash receipts and cash payments for certain types of cash transactions, to eliminate diversity in practice in the presentation of the cash flow statement. The adoption of ASU 2016-15 will be required for us on a retrospective basis beginning January 1, 2018, with early adoption permitted. We are currently in the process of determining the adoption date and what impact the adoption of this ASU will have on our presentation of cash flows. 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. The adoption of ASU 2017-04 will be required for us on a prospective basis beginning January 1, 2020, with early adoption permitted. We are currently in the process of determining the adoption date and what impact the adoption of this ASU will have on our financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is required if the fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award immediately before the original award is modified. The adoption of ASU 2017-09 will be required for us on a prospective basis beginning January 1, 2018, with early adoption permitted. We are currently in the process of determining the adoption date and what impact the adoption of this ASU will have on our financial statements. From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of any other recently issued standards that are not yet effective are either not applicable to us at this time or will not have a material impact on our consolidated financial statements upon adoption. |
Senior Debt |
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Senior Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior Debt | Senior Debt On March 19, 2014, we entered into a Credit Agreement (the "Credit Agreement") among the Company, the several lenders from time to time parties to the Credit Agreement, Bank of America, N.A., BBVA Compass Bank, Wells Fargo Bank, N.A., and SunTrust Bank, as syndication agents, and JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement initially provided a $900.0 million senior credit facility consisting of $225.0 million in term loans (the "Term Loans") and a $675.0 million revolving credit facility (the "Revolving Facility"). The Credit Agreement was previously amended on February 1, 2016 (the “First Amendment”), on September 30, 2016 (the “Second Amendment”), and on March 31, 2017 (the "Third Amendment and Waiver"). These amendments are referenced in the Index to Exhibits in this Quarterly Report on Form 10-Q, as exhibits 10.35, 10.39 and 10.43, respectively. On June 6, 2017, we entered into a Fourth Amendment (the “Fourth Amendment”), effective as of June 6, 2017, with JPMorgan Chase Bank, N.A., as administrative agent, the other agents party thereto and the lenders party thereto, to the Credit Agreement. The amounts outstanding under the Term Loans were $49.7 million and $191.8 million at June 30, 2017 and December 31, 2016, respectively. The amount outstanding under the Revolving Facility was $55.0 million at June 30, 2017 and there were no outstanding borrowings under the Revolving Facility at December 31, 2016. Outstanding borrowings for senior debt at June 30, 2017 and December 31, 2016 were reduced by total unamortized issuance costs of $7.1 million and $5.1 million, respectively. The Term Loans are scheduled to mature on March 19, 2021, and the Revolving Facility has a scheduled maturity of March 19, 2019. The Term Loans are payable in consecutive quarterly installments each in an aggregate principal amount of $562,500, with a final installment equal to the remaining principal balance of the Term Loans due on March 19, 2021. In the event our Consolidated Total Leverage Ratio (as such term is defined in the Credit Agreement) exceeds 2.5:1, we are also required to pay down the Term Loans by a percentage of annual excess cash flow, as defined in the Credit Agreement. Additional payments will be equal to 25% of annual excess cash flows if the Consolidated Total Leverage Ratio is between 2.5:1 and 3.0:1, increasing to 50% of annual excess cash flows if the Consolidated Total Leverage Ratio is greater than 3.0:1. We made a mandatory excess cash flow prepayment in March 2017 with respect to our results for the year ended December 31, 2016, of approximately $141 million and in March 2016 with respect to our results for the year ended December 31, 2015, of approximately $27 million. We are further required to pay down the Term Loans with proceeds from certain asset sales or borrowings as defined in the Credit Agreement. Borrowings under the Revolving Facility bear interest at varying rates equal to either the Eurodollar rate plus 1.50% to 3.00%, or the prime rate plus 0.50% to 2.00% (ABR), at our election (pursuant to the Fourth Amendment discussed below). The margins on the Eurodollar loans and on the ABR loans for borrowings under the Revolving Facility, which were 3.00% and 2.00%, respectively, at June 30, 2017, may fluctuate based upon an increase or decrease in our Consolidated Total Leverage Ratio as defined by a pricing grid included in the Credit Agreement. The margins on the Eurodollar loans and on the ABR loans for Term Loans are 3.00% and 2.00%, respectively, but may also fluctuate in the event the all-in pricing for any subsequent incremental Term Loan exceeds the all-in pricing for prior Term Loans by more than 0.50% per annum. A commitment fee equal to 0.30% to 0.50% of the unused portion of the Revolving Facility is payable quarterly, and fluctuates dependent upon an increase or decrease in our Consolidated Total Leverage Ratio. The commitment fee during the second quarter of 2017 was equal to 0.50% of the unused portion of the Revolving Facility. Our borrowings under the Credit Agreement are, subject to certain exceptions, secured by a security interest in substantially all of our tangible and intangible assets, including intellectual property, and are also secured by a pledge of the capital stock of our U.S. subsidiaries. Subject to a number of exceptions, the Credit Agreement contains, without limitation, covenants that generally limit our ability and the ability of our subsidiaries to:
Since the Consolidated Total Leverage Ratio at June 30, 2017 is greater than 3.75:1, we are limited to a maximum of $15 million in dividend payments for the fiscal year. As of June 30, 2017, we have paid dividends of $8.5 million and declared additional dividends of $4.3 million. The Fourth Amendment removed or modified certain covenants under the Credit Agreement, including:
As a result of the Fourth Amendment, we are no longer required to maintain a certain Consolidated Total Leverage Ratio or Consolidated Senior Secured Leverage Ratio, and we are prohibited from repurchasing our common stock and senior notes for the remaining term of the Credit Agreement. In addition, under the Fourth Amendment, we agreed to provide additional collateral protections to secure the obligations under the Credit Agreement. The Fourth Amendment reduced the total capacity of the Revolving Facility from $675 million to $350 million. The Fourth Amendment also modified the borrowing terms of the revolving loans under the Credit Agreement, which, as amended, establishes that the aggregate outstanding amounts (including after any draw request) not exceed the Borrowing Base. The Borrowing Base is tied to the Company’s Eligible Installment Sales Accounts, Inventory and Eligible Rental Contracts, in addition to Reserves and the Term Loan Reserve. We will provide to the Agent information necessary to calculate the Borrowing Base within 30 days of the end of each calendar month, unless the remaining availability of the Revolving Facility is less than 20% of the maximum borrowing capacity of the Revolving Facility or $60 million, in which case the Company must provide weekly information. The Credit Agreement as modified by the Fourth Amendment permits us to increase the amount of the Term Loans and/or the Revolving Facility from time to time on up to three occasions, in an aggregate amount of no more than $100 million. We may request an Incremental Revolving Loan or Incremental Term Loan, provided that at the time of such request, we are not in default, have obtained the consent of the administrative agent and the lenders providing such increase, and after giving effect thereto, (i) the Consolidated Fixed Charge Coverage Ratio on a pro forma basis is no less than 1.10:1, (ii) the Total Revolving Extensions of Credit do not exceed the Borrowing Base, and (iii) if the request occurs during a Minimum Availability Period, the Availability must be more than the Availability Threshold Amount. The Fourth Amendment permits the Agent, in its sole discretion, to make loans to us that it deems necessary or desires (i) to preserve or protect the Collateral, (ii) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (iii) to pay any other amount chargeable to or requirement to be paid by the Company pursuant to the terms of the Credit Agreement. The aggregate amount of such Protective Advances outstanding at any time may not exceed $35 million. In connection with the Fourth Amendment, we recorded a write-down of previously unamortized debt issuance costs of approximately $1.9 million. In addition, we paid arrangement and amendment fees to the Agent and the lenders that provided their consent to the Amendment of approximately $5.1 million, which were capitalized and will be amortized to interest expense over the remaining term of the agreement. We also utilize our Revolving Facility for the issuance of letters of credit, as well as to manage normal fluctuations in operational cash flow caused by the timing of cash receipts. In that regard, we may from time to time draw funds under the Revolving Facility for general corporate purposes. Amounts are drawn as needed due to the timing of cash flows and are generally paid down as cash is generated by our operating activities. We believe the cash flow generated from operations, together with amounts available under our Credit Agreement, will be sufficient to fund our operations during the next 12 months. As of June 30, 2017, we have issued letters of credit of $91.1 million. The Fourth Amendment is included as an exhibit to our Current Report on Form 8-K dated as of June 6, 2017. The table below shows the required and actual ratios under the Credit Agreement calculated as of June 30, 2017:
The actual Consolidated Fixed Charge Coverage ratio was calculated pursuant to the Credit Agreement by dividing the sum of consolidated EBITDA minus Unfinanced Capital Expenditures minus the excess (to the extent positive) of (i) expenses for income taxes paid in cash minus (ii) cash income tax refunds received) for the 12-month period ending June 30, 2017 ($36.8 million), by consolidated fixed charges for the 12-month period ending June 30, 2017 ($48.0 million). For purposes of the calculation, “consolidated fixed charges” is defined as the sum of consolidated interest expense and scheduled principal payments on indebtedness actually made during such period. The actual Consolidated Fixed Charge Coverage Ratio of 0.77:1 as of June 30, 2017 was below the minimum requirement of 1.10:1 as defined in the Fourth Amendment modifications above. As a result of being out of compliance with this covenant, we must maintain $50.0 million of excess availability on the Revolving Facility. Availability under our Revolving Facility was $143.4 million at June 30, 2017, net of the $50 million of excess availability we must maintain on the Revolving Facility. Events of default under the Credit Agreement include customary events, such as a cross-acceleration provision in the event that we default on other debt. In addition, an event of default under the Credit Agreement would occur if a change of control occurs. This is defined to include the case where a third party becomes the beneficial owner of 35% or more of our voting stock or a majority of Rent-A-Center’s Board of Directors are not Continuing Directors (all of the current members of our Board of Directors are Continuing Directors under the Credit Agreement). An event of default would also occur if one or more judgments were entered against us of $50.0 million or more and such judgments were not satisfied or bonded pending appeal within 30 days after entry. In addition to the Revolving Facility discussed above, we maintain a $20 million unsecured, revolving line of credit with INTRUST Bank, N.A. to facilitate cash management. The availability of our INTRUST line of credit is restricted if the borrowing capacity under our Revolving Facility drops below $10 million. There were no outstanding borrowings against this line of credit at June 30, 2017 or December 31, 2016. The line of credit generally renews on August 21 of each year. Borrowings under the line of credit bear interest at the greater of a variable rate or 2.00%. The table below shows the scheduled maturity dates of our outstanding debt at June 30, 2017 for each of the years ending December 31:
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Subsidiary Guarantors - Senior Notes |
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Subsidiary Guarantors - Senior Notes [Abstract] | |||||||||||||||||||||
Subsidiary Guarantors - Senior Notes | Subsidiary Guarantors – Senior Notes On November 2, 2010, we issued $300.0 million in senior unsecured notes due November 2020, bearing interest at 6.625%, pursuant to an indenture dated November 2, 2010, among Rent-A-Center, Inc., its subsidiary guarantors and The Bank of New York Mellon Trust Company, as trustee. A portion of the proceeds of this offering were used to repay approximately $200.0 million of outstanding term debt under our Prior Credit Agreement. The remaining net proceeds were used to repurchase shares of our common stock. The principal amount of the 6.625% notes outstanding as of June 30, 2017 and December 31, 2016, was $292.7 million, reduced by $2.1 million and $2.5 million of unamortized issuance costs, respectively. On May 2, 2013, we issued $250.0 million in senior unsecured notes due May 2021, bearing interest at 4.75%, pursuant to an indenture dated May 2, 2013, among Rent-A-Center, Inc., its subsidiary guarantors and The Bank of New York Mellon Trust Company, as trustee. A portion of the proceeds of this offering were used to repurchase shares of our common stock under a $200.0 million accelerated stock buyback program. The remaining net proceeds were used to repay outstanding revolving debt under our Prior Credit Agreement. The principal amount of the 4.75% notes outstanding as of June 30, 2017 and December 31, 2016, was $250.0 million, reduced by $2.5 million and $2.8 million of unamortized issuance costs, respectively. The indentures governing the 6.625% notes and the 4.75% notes are substantially similar. Each indenture contains covenants that limit our ability to:
Events of default under each indenture include customary events, such as a cross-acceleration provision in the event that we default in the payment of other debt due at maturity or upon acceleration for default in an amount exceeding $50.0 million, as well as in the event a judgment is entered against us in excess of $50.0 million that is not discharged, bonded or insured. The 6.625% notes may be redeemed on or after November 15, 2015, at our option, in whole or in part, at a premium declining from 103.313%. The 6.625% notes may be redeemed on or after November 15, 2018, at our option, in whole or in part, at par. The 6.625% notes also require that upon the occurrence of a change of control (as defined in the 2010 indenture), the holders of the notes have the right to require us to repurchase the notes at a price equal to 101% of the original aggregate principal amount, together with accrued and unpaid interest, if any, to the date of repurchase. The 4.75% notes may be redeemed on or after May 1, 2016, at our option, in whole or in part, at a premium declining from 103.563%. The 4.75% notes may be redeemed on or after May 1, 2019, at our option, in whole or in part, at par. The 4.75% notes also require that upon the occurrence of a change of control (as defined in the 2013 indenture), the holders of the notes have the right to require us to repurchase the notes at a price equal to 101% of the original aggregate principal amount, together with accrued and unpaid interest, if any, to the date of repurchase. Any mandatory repurchase of the 6.625% notes and/or the 4.75% notes would trigger an event of default under our Credit Agreement. We are not required to maintain any financial ratios under either of the indentures. Rent-A-Center and its subsidiary guarantors have fully, jointly and severally, and unconditionally guaranteed the obligations of Rent-A-Center with respect to the 6.625% notes and the 4.75% notes. Rent-A-Center has no independent assets or operations, and each subsidiary guarantor is 100% owned directly or indirectly by Rent-A-Center. The only direct or indirect subsidiaries of Rent-A-Center that are not guarantors are minor subsidiaries. There are no restrictions on the ability of any of the subsidiary guarantors to transfer funds to Rent-A-Center in the form of loans, advances or dividends, except as provided by applicable law. |
Fair Value |
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Fair Value | Fair Value We follow a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values, in determining the fair value of our non-financial assets and non-financial liabilities, which consist primarily of goodwill. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. There were no changes in the methods and assumptions used in measuring fair value during the period. At June 30, 2017, our financial instruments include cash and cash equivalents, receivables, payables, senior debt and senior notes. The carrying amount of cash and cash equivalents, receivables and payables approximates fair value at June 30, 2017 and December 31, 2016, because of the short maturities of these instruments. Our senior debt is variable rate debt that re-prices frequently and entails no significant change in credit risk and, as a result, fair value approximates carrying value. The fair value of our senior notes is based on Level 1 inputs and was as follows at June 30, 2017 and December 31, 2016:
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Other Charges |
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Other Charges | Other Charges Acceptance Now Store Closures. During the first six months of 2017, we closed 319 Acceptance Now manned locations and 9 Acceptance Now direct locations, resulting in pre-tax charges of $13.0 million consisting primarily of rental merchandise losses, disposal of fixed assets, and other miscellaneous labor and shutdown costs. In addition, as a result of the plan to close certain Acceptance Now locations, we recorded a pre-tax impairment charge of $3.9 million to our intangible assets, related to a vendor relationship. Corporate Cost Rationalization. During the first quarter of 2017, we executed a head count reduction that impacted approximately 6% of our field support center workforce. This resulted in pre-tax charges for severance and other payroll-related costs of approximately $2.5 million for the six months ended June 30, 2017. U.S Core Store and Acceptance Now Consolidation Plan. During the second quarter of 2016, we closed 167 U.S. Core and 96 Acceptance Now locations, resulting in a pre-tax restructuring charge of $18.8 million for the three months ended June 30, 2016. Restructuring charges consisted of lease obligation costs of $15.0 million, of which $1.0 million was paid as of June 30, 2016, disposal of fixed assets of $2.6 million, and other miscellaneous costs. Mexico Store Consolidation Plan. During the first quarter of 2016, we closed 14 stores in Mexico, resulting in pre-tax restructuring charges of $2.3 million in the Mexico segment for disposal of rental merchandise, fixed assets and leasehold improvements and other charges to decommission the stores. Activity with respect to other charges for the six months ended June 30, 2017 is summarized in the below table:
(1) Other primarily includes litigation settlements, and incremental legal and advisory fees related to shareholder proposals. |
Segment Information |
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Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment Information The operating segments reported below are the segments for which separate financial information is available and for which segment results are evaluated by the chief operating decision makers. Our operating segments are organized based on factors including, but not limited to, type of business transactions, geographic location and store ownership. All operating segments offer merchandise from four basic product categories: consumer electronics, appliances, computers, furniture and accessories. Our Core U.S. and Franchising segments also offer smartphones. Segment information for the three and six months ended June 30, 2017 and 2016 is as follows:
We recorded an impairment of intangibles of $3.9 million in the Acceptance Now segment during the first six months of 2017 that is not included in the table above. The impairment charge was recorded to Other Charges in the Condensed Consolidated Statement of Operations.
Segment information - Selected balance sheet data:
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Stock-Based Compensation |
6 Months Ended |
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Jun. 30, 2017 | |
Stock-Based Compensation [Abstract] | |
Stock-Based Compensation | Stock-Based Compensation We recognized $1.8 million and $2.5 million in pre-tax compensation expense related to stock options and restricted stock units during the three months ended June 30, 2017 and 2016, respectively, and $1.1 million and $4.8 million during the six months ended June 30, 2017 and 2016, respectively. During the six months ended June 30, 2017, we granted approximately 756,000 stock options, 490,000 market-based performance restricted stock units and 466,000 time-vesting restricted stock units. The stock options granted were valued using a Black-Scholes pricing model with the following assumptions: an expected volatility of 43.75% to 52.52%, a risk-free interest rate of 1.54% to 2.07%, an expected dividend yield of 2.84% to 3.85% and an expected term of 3.5 years to 5.75 years. The weighted-average exercise price of the options granted during the six months ended June 30, 2017 was $8.97 and the weighted-average grant-date fair value was $2.73. Performance-based restricted stock units are valued using a Monte Carlo simulation. Time-vesting restricted stock units are valued using the closing price on the trading day immediately preceding the day of the grant. The weighted-average grant date fair value of the restricted stock units granted during the six months ended June 30, 2017 was $9.00. |
Contingencies |
6 Months Ended |
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Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies | Contingencies From time to time, the Company, along with our subsidiaries, is party to various legal proceedings arising in the ordinary course of business. We reserve for loss contingencies that are both probable and reasonably estimable. We regularly monitor developments related to these legal proceedings, and review the adequacy of our legal reserves on a quarterly basis. We do not expect these losses to have a material impact on our condensed consolidated financial statements if and when such losses are incurred. We are subject to unclaimed property audits by states in the ordinary course of business. A comprehensive multi-state unclaimed property audit is currently in progress. The property subject to review in this audit process includes unclaimed wages, vendor payments and customer refunds. State escheat laws generally require entities to report and remit abandoned and unclaimed property to the state. Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself. We routinely remit escheat payments to states in compliance with applicable escheat laws. We do not expect the ultimate outcome of the audit or any negotiated settlements to have a material adverse impact to our financial statements. |
Guarantees | Our subsidiary, ColorTyme Finance, Inc. (“ColorTyme Finance”), is a party to an agreement with Citibank, N.A., pursuant to which Citibank provides up to $27.0 million in aggregate financing to qualifying franchisees of Franchising. Under the Citibank agreement, upon an event of default by the franchisee under agreements governing this financing and upon the occurrence of certain other events, Citibank can assign the loans and the collateral securing such loans to ColorTyme Finance, with ColorTyme Finance paying or causing to be paid the outstanding debt to Citibank and then succeeding to the rights of Citibank under the debt agreements, including the right to foreclose on the collateral. Rent-A-Center and ColorTyme Finance guarantee the obligations of the franchise borrowers under the Citibank facility. An additional $20.0 million of financing is provided by Texas Capital Bank, National Association under an agreement similar to the Citibank financing, which is guaranteed by Rent-A-Center East, Inc., a subsidiary of Rent-A-Center. The maximum guarantee obligations under these agreements, excluding the effects of any amounts that could be recovered under collateralization provisions, are $47.0 million, of which $2.1 million was outstanding as of June 30, 2017. |
Earnings (Loss) Per Common Share |
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Earnings (Loss) Per Common Share | Earnings (Loss) Per Common Share Summarized basic and diluted earnings per common share were calculated as follows:
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Basis of Presentation (Policies) |
6 Months Ended |
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Jun. 30, 2017 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | These financial statements include the accounts of Rent-A-Center, Inc. and its direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated. |
New Accounting Pronouncements | In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB approved a one-year deferral of the effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends ASU 2014-09 relating to how and when a company recognizes revenue when another party is involved in providing a good or service to a customer. Under Topic 606, a company will recognize revenue on a gross basis when it provides a good or service to a customer (acts as the principal in a transaction), and on a net basis when it arranges for the good or service to be provided to the customer by another party (acts as an agent in a transaction). ASU 2016-08 provides additional guidance for determining whether a company acts as a principal or agent, depending primarily on whether a company controls goods or services before delivery to the customer. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides additional guidance related to the identification of performance obligations within the contract, and licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides additional guidance related to certain technical areas within ASU 2014-09. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which provides additional guidance related to certain technical areas within ASU 2014-09. The adoption of these additional ASUs must be concurrent with the adoption of ASU 2014-09, which will be required for us beginning January 1, 2018, with early adoption permitted as of the original effective date. These ASUs allow adoption with either retrospective application to each prior period presented, or modified retrospective application with the cumulative effect recognized as of the date of initial application. We are currently in the process of evaluating the potential impact this new pronouncement will have on our financial statements and do not anticipate early adoption. We have not completed our evaluation and therefore cannot conclude whether the pronouncement will have a significant impact on our financial statements at this time. We expect to complete our evaluation by the end of 2017. We currently anticipate that we will utilize the modified retrospective method of adoption, however, this expectation may change following the completion of our evaluation of the impact of this pronouncement on our financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which replaces existing accounting literature relating to the classification of, and accounting for, leases. Under ASU 2016-02, a company must recognize for all leases (with the exception of leases with terms less than 12 months) a liability representing a lessee's obligation to make lease payments arising from a lease, and a right-of-use asset representing the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged, with certain improvements to align lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The adoption of ASU 2016-02 will be required for us beginning January 1, 2019, with early adoption permitted. The ASU must be adopted using a modified retrospective transition, applying the new criteria to all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We are currently in the process of determining what impact the adoption of this ASU will have on our financial position, results of operations and cash flows, and we are evaluating the adoption date and transition alternatives. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. Rent-A-Center adopted ASU 2016-09 beginning January 1, 2017. We adopted the recognition of excess tax benefits in the provision for income taxes rather than paid-in-capital, and the classification of excess tax benefits on the statement of cash flows on a prospective basis. We elected to continue to estimate forfeitures expected to occur in our determination of compensation cost recognized each period. Furthermore, we adopted the minimum statutory withholding requirements and classification of employee taxes paid on the statement of cash flows on a modified retrospective and full retrospective basis, respectively. Additional amendments included in the accounting standard update were not applicable to us. Impacts resulting from adoption were immaterial to the consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the treatment of cash receipts and cash payments for certain types of cash transactions, to eliminate diversity in practice in the presentation of the cash flow statement. The adoption of ASU 2016-15 will be required for us on a retrospective basis beginning January 1, 2018, with early adoption permitted. We are currently in the process of determining the adoption date and what impact the adoption of this ASU will have on our presentation of cash flows. 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. The adoption of ASU 2017-04 will be required for us on a prospective basis beginning January 1, 2020, with early adoption permitted. We are currently in the process of determining the adoption date and what impact the adoption of this ASU will have on our financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is required if the fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award immediately before the original award is modified. The adoption of ASU 2017-09 will be required for us on a prospective basis beginning January 1, 2018, with early adoption permitted. We are currently in the process of determining the adoption date and what impact the adoption of this ASU will have on our financial statements. From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of any other recently issued standards that are not yet effective are either not applicable to us at this time or will not have a material impact on our consolidated financial statements upon adoption. |
Senior Debt (Tables) |
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Financial Covenants Ratios | The table below shows the required and actual ratios under the Credit Agreement calculated as of June 30, 2017:
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Schedule of Maturities of Long-term Debt | The table below shows the scheduled maturity dates of our outstanding debt at June 30, 2017 for each of the years ending December 31:
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Fair Value Fair Value (Tables) |
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Fair Value Measurements, Nonrecurring | The fair value of our senior notes is based on Level 1 inputs and was as follows at June 30, 2017 and December 31, 2016:
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Other Charges (Tables) |
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Restructuring Costs and Asset Impairment Charges [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Charges [Table Text Block] | Activity with respect to other charges for the six months ended June 30, 2017 is summarized in the below table:
(1) Other primarily includes litigation settlements, and incremental legal and advisory fees related to shareholder proposals. |
Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment information for the three and six months ended June 30, 2017 and 2016 is as follows:
We recorded an impairment of intangibles of $3.9 million in the Acceptance Now segment during the first six months of 2017 that is not included in the table above. The impairment charge was recorded to Other Charges in the Condensed Consolidated Statement of Operations.
Segment information - Selected balance sheet data:
|
Earnings (Loss) Per Common Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Common Share | Summarized basic and diluted earnings per common share were calculated as follows:
|
Contingencies (Details) $ in Millions |
Jun. 30, 2017
USD ($)
|
---|---|
Guarantor Obligations [Line Items] | |
Maximum financing amount | $ 47.0 |
Amount outstanding | 2.1 |
Citibank [Member] | |
Guarantor Obligations [Line Items] | |
Maximum financing amount | 27.0 |
Texas Capital Bank [Member] | |
Guarantor Obligations [Line Items] | |
Maximum financing amount | $ 20.0 |
Earnings (Loss) Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Net (loss) earnings | $ (8,893) | $ 9,946 | $ (15,572) | $ 35,007 |
Weighted average shares outstanding | 53,292 | 53,092 | 53,255 | 53,089 |
Effect of dilutive stock awards | 0 | 289 | 0 | 273 |
Weighted-average dilutive shares | 53,292 | 53,381 | 53,255 | 53,362 |
Basic (loss) earnings per common share | $ (0.17) | $ 0.19 | $ (0.29) | $ 0.66 |
Diluted (loss) earnings per common share | $ (0.17) | $ 0.19 | $ (0.29) | $ 0.66 |
Restricted Stock [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive stock options | 1,568 | 876 | 1,568 | 876 |
Employee Stock Option [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Anti-dilutive stock options | 3,251 | 2,652 | 3,251 | 2,646 |
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