Revenues Revenues (Notes)

12 Months Ended

Dec. 31, 2019

Revenues

The following tables disaggregates our revenue:



	Twelve Months Ended December 31, 2019
	Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated
(In thousands)	Unaudited
Store
Rentals and fees	$	1,585,997	$	587,502	$	50,903	$	—	$	2,224,402
Merchandise sales	140,372		161,235		3,023		—		304,630
Installment sales	70,434		—		—		—		70,434
Other	3,683		523		34		555		4,795
Total store revenues	1,800,486		749,260		53,960		555		2,604,261
Franchise
Merchandise sales	—		—		—		49,135		49,135
Royalty income and fees	—		—		—		16,456		16,456
Total revenues	$	1,800,486	$	749,260	$	53,960	$	66,146	$	2,669,852



	Twelve Months Ended December 31, 2018
	Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated
(In thousands)	Unaudited
Store
Rentals and fees	$	1,640,839	$	557,592	$	46,429	$	—	$	2,244,860
Merchandise sales	136,878		164,432		3,145		—		304,455
Installment sales	69,572		—		—		—		69,572
Other	8,423		538		39		—		9,000
Total store revenues	1,855,712		722,562		49,613		—		2,627,887
Franchise
Merchandise sales	—		—		—		19,087		19,087
Royalty income and fees	—		—		—		13,491		13,491
Total revenues	$	1,855,712	$	722,562	$	49,613	$	32,578	$	2,660,465

Rental-Purchase Agreements

Rent-A-Center Business, Preferred Lease, and Mexico

Rentals and Fees. Rental merchandise is leased to customers pursuant to rental purchase agreements which provide for weekly, semi-monthly or monthly rental terms with non-refundable rental payments. At the expiration of each rental term customers renew the rental agreement for the next rental term. Generally, the customer has the right to acquire title of the merchandise either through

a purchase option or through payment of all required rental terms. Customers can terminate the agreement at the end of any rental term without penalty. Therefore, rental transactions are accounted for as operating leases.

Rental payments received at our Rent-A-Center Business, Preferred Lease (excluding virtual) and Mexico locations must be prepaid and revenue is recognized over the rental term. Under the virtual business model, revenues are earned prior to the rental payment due date. Therefore, revenue is accrued prior to receipt of the rental payment, net of estimated returns and uncollectible renewal payments. See Note C for additional information regarding accrued rental revenue and the related allowances for returns and uncollectible payments.

Cash received for rental payments, including fees, prior to the period in which it should be recognized is deferred and recognized according to the rental term. At December 31, 2019 and 2018, we had $39.9 million and $42.1 million, respectively, in deferred revenue included in accrued liabilities related to our rental purchase agreements. Revenue related to various payment, reinstatement or late fees is recognized when paid by the customer at the point service is provided. Rental merchandise is depreciated using the income forecasting method and is recognized in cost of sales over the rental term.

We also offer additional product plans along with our rental agreements which provide customers with liability protection against significant damage or loss of a product, and club membership benefits, including various discount programs and product service and replacement benefits in the event merchandise is damaged or lost. Customers renew product plans in conjunction with their rental term renewals, and can cancel the plans at any time. Revenue for product plans is recognized over the term of the plan. Costs incurred related to product plans are primarily recognized in cost of sales.

Revenue from contracts with customers

Rent-A-Center Business, Preferred Lease, and Mexico

Merchandise Sales. Merchandise sales include payments received for the exercise of the early purchase option offered through our rental purchase agreements or merchandise sold through point of sale transactions. Revenue for merchandise sales is recognized when payment is received and ownership of the merchandise passes to the customer. The remaining net value of merchandise sold is recorded to cost of sales at the time of the transaction.

Installment Sales. Revenue from the sale of merchandise in our retail installment stores is recognized when the installment note is signed and control of the merchandise has passed to the customer. The cost of merchandise sold through installment agreements is recognized in cost of sales at the time of the transaction. We offer extended service plans with our installment agreements which are administered by third parties and provide customers with product service maintenance beyond the term of the installment agreement. Payments received for extended service plans are deferred and recognized, net of related costs, when the installment payment plan is complete and the service plan goes into effect. Customers can cancel extended service plans at any time during the installment agreement and receive a refund for payments previously made towards the plan. At December 31, 2019 and 2018, we had $2.9 million and $3.0 million, respectively, in deferred revenue included in accrued liabilities related to extended service plans.

Other. Other revenue primarily consisted of external maintenance and repair services provided by the Company’s service department, in addition to other miscellaneous product plans offered to our rental and installment customers. We completed the shutdown of our service department operations early in the first quarter of 2019. Revenue for other product plans is recognized in accordance with the terms of the applicable plan agreement.

Franchising

Merchandise Sales. Revenue from the sale of rental merchandise is recognized upon shipment of the merchandise to the franchisee.

Royalty Income and Fees. Franchise royalties, including franchisee contributions to corporate advertising funds, represent sales-based royalties calculated as a percentage of gross rental payments and sales. Royalty revenue is recognized as rental payments and sales occur. Franchise fees are initial fees charged to franchisees for new or converted franchise stores. Franchise fee revenue is recognized on a straight-line basis over the term of the franchise agreement. At December 31, 2019 and 2018, we had $4.5 million and $4.1 million, respectively, in deferred revenue included in accrued liabilities related to franchise fees.