e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-25370
Rent-A-Center, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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45-0491516
(I.R.S. Employer
Identification No.) |
5501 Headquarters Drive
Plano, Texas 75024
(Address, including zip code of registrants
principal executive offices)
Registrants telephone number, including area code: 972-801-1100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
October 27, 2009:
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Class |
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Outstanding |
Common stock, $.01 par value per share
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66,105,786 |
TABLE OF CONTENTS
The accompanying notes are an integral part of these statements.
i
RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 1. Financial Statements.
CONSOLIDATED STATEMENTS OF EARNINGS
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Three months ended September 30, |
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(In thousands, except per share data) |
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2009 |
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2008 |
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Unaudited |
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Revenues |
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Store |
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Rentals and fees |
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$ |
576,124 |
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$ |
621,290 |
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Merchandise sales |
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59,085 |
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57,062 |
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Installment sales |
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12,983 |
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10,554 |
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Other |
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15,236 |
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10,704 |
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Franchise |
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Merchandise sales |
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6,663 |
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7,969 |
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Royalty income and fees |
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1,160 |
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1,176 |
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671,251 |
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708,755 |
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Operating expenses |
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Direct store expenses |
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Cost of rentals and fees |
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130,183 |
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142,314 |
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Cost of merchandise sold |
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42,940 |
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44,714 |
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Cost of installment sales |
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4,511 |
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4,065 |
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Salaries and other expenses |
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389,573 |
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417,354 |
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Franchise cost of merchandise sold |
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6,378 |
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7,640 |
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573,585 |
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616,087 |
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General and administrative expenses |
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32,714 |
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30,361 |
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Amortization and write-down of intangibles |
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585 |
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3,545 |
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Restructuring charge |
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213 |
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Total operating expenses |
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606,884 |
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650,206 |
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Operating profit |
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64,367 |
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58,549 |
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Interest expense |
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4,866 |
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15,040 |
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Interest income |
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(153 |
) |
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(2,073 |
) |
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Earnings before income taxes |
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59,654 |
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45,582 |
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Income tax expense |
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22,814 |
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16,203 |
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NET EARNINGS |
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$ |
36,840 |
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$ |
29,379 |
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Basic earnings per common share |
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$ |
0.56 |
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$ |
0.44 |
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Diluted earnings per common share |
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$ |
0.55 |
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$ |
0.44 |
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See accompanying notes to consolidated financial statements.
1
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
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Nine months ended September 30, |
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(In thousands, except per share data) |
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2009 |
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2008 |
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Unaudited |
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Revenues |
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Store |
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Rentals and fees |
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$ |
1,763,199 |
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$ |
1,896,594 |
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Merchandise sales |
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211,826 |
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198,104 |
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Installment sales |
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37,699 |
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29,685 |
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Other |
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41,818 |
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30,912 |
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Franchise |
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Merchandise sales |
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20,872 |
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25,386 |
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Royalty income and fees |
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3,629 |
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3,741 |
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2,079,043 |
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2,184,422 |
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Operating expenses |
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Direct store expenses |
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Cost of rentals and fees |
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398,278 |
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433,987 |
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Cost of merchandise sold |
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150,704 |
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153,206 |
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Cost of installment sales |
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13,201 |
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11,875 |
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Salaries and other expenses |
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1,175,991 |
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1,241,340 |
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Franchise cost of merchandise sold |
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19,987 |
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24,270 |
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1,758,161 |
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1,864,678 |
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General and administrative expenses |
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101,581 |
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93,986 |
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Amortization and write-down of intangibles |
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2,428 |
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12,137 |
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Litigation expense (credit) |
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(4,869 |
) |
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Restructuring charge |
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3,098 |
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Total operating expenses |
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1,857,301 |
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1,973,899 |
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Operating profit |
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221,742 |
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210,523 |
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Interest expense |
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22,143 |
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52,706 |
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Interest income |
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(689 |
) |
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(6,226 |
) |
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Earnings before income taxes |
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200,288 |
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164,043 |
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Income tax expense |
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76,127 |
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60,565 |
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NET EARNINGS |
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$ |
124,161 |
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$ |
103,478 |
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Basic earnings per common share |
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$ |
1.88 |
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$ |
1.55 |
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Diluted earnings per common share |
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$ |
1.86 |
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$ |
1.54 |
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See accompanying notes to consolidated financial statements.
2
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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(In thousands, except share and par value data) |
|
2009 |
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2008 |
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Unaudited |
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ASSETS |
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Cash and cash equivalents |
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$ |
39,905 |
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$ |
87,382 |
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Receivables, net of allowance for doubtful accounts of $7,948 in
2009 and $7,256 in 2008 |
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59,943 |
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51,766 |
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Prepaid expenses and other assets |
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54,472 |
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59,217 |
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Rental merchandise, net |
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On rent |
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547,418 |
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634,946 |
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Held for rent |
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175,743 |
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184,108 |
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Merchandise held for installment sale |
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3,889 |
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3,433 |
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Property assets, net |
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204,906 |
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208,897 |
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Goodwill, net |
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1,269,046 |
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1,265,249 |
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Other intangible assets, net |
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|
979 |
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|
1,704 |
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$ |
2,356,301 |
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$ |
2,496,702 |
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LIABILITIES |
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Accounts payable trade |
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$ |
96,750 |
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$ |
93,496 |
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Accrued liabilities |
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|
272,129 |
|
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|
289,701 |
|
Deferred income taxes |
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|
119,085 |
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|
87,216 |
|
Senior debt |
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|
659,080 |
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|
721,712 |
|
Subordinated notes payable |
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|
225,375 |
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1,147,044 |
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1,417,500 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY |
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Common stock, $.01 par value; 250,000,000 shares authorized;
104,887,410 and 104,769,382 shares issued in 2009 and
2008, respectively |
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|
1,049 |
|
|
|
1,047 |
|
Additional paid-in capital |
|
|
685,470 |
|
|
|
681,067 |
|
Retained earnings |
|
|
1,333,659 |
|
|
|
1,208,009 |
|
Treasury stock, 38,787,849 shares at cost in 2009 and 2008 |
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|
(810,921 |
) |
|
|
(810,921 |
) |
|
|
|
|
|
|
|
|
|
|
1,209,257 |
|
|
|
1,079,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,356,301 |
|
|
$ |
2,496,702 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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|
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|
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|
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|
Nine months ended |
|
|
|
September 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
|
Unaudited |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
124,161 |
|
|
$ |
103,478 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities |
|
|
|
|
|
|
|
|
Depreciation of rental merchandise |
|
|
390,126 |
|
|
|
425,314 |
|
Bad debt expense |
|
|
10,387 |
|
|
|
9,236 |
|
Stock-based compensation expense |
|
|
2,920 |
|
|
|
2,680 |
|
Depreciation of property assets |
|
|
50,187 |
|
|
|
54,569 |
|
Loss (gain) on sale or disposal of property assets |
|
|
6,686 |
|
|
|
(6,157 |
) |
Amortization of intangibles |
|
|
1,043 |
|
|
|
10,628 |
|
Amortization of financing fees |
|
|
1,664 |
|
|
|
1,696 |
|
Deferred income taxes |
|
|
31,869 |
|
|
|
70,795 |
|
Tax benefit related to stock option exercises |
|
|
(208 |
) |
|
|
(537 |
) |
Restructuring charge |
|
|
|
|
|
|
3,098 |
|
Changes in operating assets and liabilities, net of effects of
acquisitions |
|
|
|
|
|
|
|
|
Rental merchandise |
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|
(293,258 |
) |
|
|
(319,139 |
) |
Accounts receivable |
|
|
(18,460 |
) |
|
|
(11,579 |
) |
Prepaid expenses and other assets |
|
|
3,060 |
|
|
|
(3,567 |
) |
Accounts payable trade |
|
|
3,255 |
|
|
|
(5,228 |
) |
Accrued liabilities |
|
|
(14,083 |
) |
|
|
(20,485 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
299,349 |
|
|
|
314,802 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of property assets |
|
|
(53,644 |
) |
|
|
(41,194 |
) |
Proceeds from sale of property assets |
|
|
2,147 |
|
|
|
5,776 |
|
Acquisitions of businesses, net of cash acquired |
|
|
(7,025 |
) |
|
|
(8,320 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(58,522 |
) |
|
|
(43,738 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
(3,111 |
) |
Exercise of stock options |
|
|
1,276 |
|
|
|
2,685 |
|
Tax benefit related to stock option exercises |
|
|
208 |
|
|
|
537 |
|
Payments on capital leases |
|
|
(1,781 |
) |
|
|
(4,366 |
) |
Proceeds from debt |
|
|
68,385 |
|
|
|
185,755 |
|
Repayments of debt |
|
|
(131,017 |
) |
|
|
(391,126 |
) |
Repurchase of subordinated notes |
|
|
(225,375 |
) |
|
|
(59,625 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(288,304 |
) |
|
|
(269,251 |
) |
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS |
|
|
(47,477 |
) |
|
|
1,813 |
|
Cash and cash equivalents at beginning of period |
|
|
87,382 |
|
|
|
97,375 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
39,905 |
|
|
$ |
99,188 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. |
|
Significant Accounting Policies and Nature of Operations. |
The interim 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. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have
been condensed or omitted pursuant to the Commissions rules and regulations, although we believe
the disclosures are adequate to make the information presented not misleading. We suggest that
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, 2008. 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.
Principles of Consolidation and Nature of Operations. 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 all of
its direct and indirect subsidiaries.
Our primary operating segment consists of leasing 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. At September 30, 2009, we operated 3,004 company-owned stores nationwide and in Canada
and Puerto Rico, including 37 retail installment sales stores under the names Get It Now and
Home Choice and 15 rent-to-own stores in Canada under the names Rent-A-Centre and Better
Living.
We also offer an array of financial services in certain of our existing rent-to-own stores under
the names RAC Financial Services and Cash AdvantEdge. The financial services we offer
include, but are not limited to, short term secured and unsecured loans, debit cards, check
cashing and money transfer services. As of September 30, 2009, we offered financial services in
345 of our existing rent-to-own stores in 17 states.
ColorTyme, Inc., an indirect wholly-owned subsidiary of Rent-A-Center, is a nationwide franchisor
of rent-to-own stores. At September 30, 2009, ColorTyme had 213 franchised stores operating in
33 states. ColorTymes 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 program. The balance of ColorTymes revenue is generated primarily from royalties
based on franchisees monthly gross revenues.
New Accounting Pronouncements. In June 2009, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Codification 105, Generally Accepted Accounting Principles (ASC
105). ASC 105 is the single source of authoritative nongovernmental U.S. generally accepted
accounting principles (GAAP), superseding existing FASB, American Institute of Certified Public
Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting literature.
ASC 105 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and
displays them using a consistent structure. Also included is relevant Securities and Exchange
Commission guidance organized using the same topical structure in separate sections. ASC 105 is
effective for financial statements issued for reporting periods ending after September 15, 2009.
All references to authoritative accounting literature in our financial statements issued for
reporting periods ending after September 15, 2009 are referenced in accordance with ASC 105.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to
FASB Interpretation No. 46(R) (SFAS 167), which changes various aspects of accounting for and
disclosures of interests in variable interest entities. SFAS 167 is effective for interim and
annual periods beginning after November 15, 2009. We are currently evaluating the impact on us
of the provisions of SFAS 167.
In May 2009, the FASB issued ASC 855, Subsequent Events. ASC 855 establishes general standards
of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available
to be issued. ASC 855 applies prospectively to both interim and annual financial periods ending
after June 15, 2009. The adoption of ASC 855 did not result in any material change to our
policies.
5
RENT-A-CENTER, INC. AND SUBSIDIARIES
In April 2009, the FASB issued ASC 825-10-65, Financial Instruments. ASC 825-10-65 amends FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments, and Accounting
Principles Board Opinion No. 28, Interim Financial Reporting, to require disclosures about fair
value of financial instruments for interim periods of publicly traded companies as well as in
annual financial statements. ASC 825-10-65 is effective for interim reporting periods ending
after June 15, 2009. The adoption of ASC 825-10-65 had no material effect on our disclosures in
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 in
these financial statements and notes or in our financial statements and notes included in our
Annual Report on Form 10-K for the year ended December 31, 2008, 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.
2. |
|
Intangible Assets and Acquisitions. |
|
|
Intangibles consist of the following (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Avg. |
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Life |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
(years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements |
|
|
3 |
|
|
$ |
6,090 |
|
|
$ |
6,012 |
|
|
$ |
6,281 |
|
|
$ |
5,957 |
|
Customer relationships |
|
|
2 |
|
|
|
62,650 |
|
|
|
61,781 |
|
|
|
62,110 |
|
|
|
60,950 |
|
Other intangibles |
|
|
3 |
|
|
|
3,264 |
|
|
|
3,232 |
|
|
|
3,264 |
|
|
|
3,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
72,004 |
|
|
|
71,025 |
|
|
|
71,655 |
|
|
|
69,951 |
|
Intangible assets not subject
to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
1,368,198 |
|
|
|
99,152 |
|
|
|
1,364,401 |
|
|
|
99,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles |
|
|
|
|
|
$ |
1,440,202 |
|
|
$ |
170,177 |
|
|
$ |
1,436,056 |
|
|
$ |
169,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated remaining amortization expense, assuming current intangible balances and no new
acquisitions, for each of the years ending December 31, is as follows:
|
|
|
|
|
|
|
Estimated |
|
|
|
Amortization Expense |
|
|
|
(In thousands) |
|
2009 |
|
$ |
272 |
|
2010 |
|
|
601 |
|
2011 |
|
|
106 |
|
|
|
|
|
Total |
|
$ |
979 |
|
|
|
|
|
Changes in the net carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Balance as of January 1, |
|
$ |
1,265,249 |
|
|
$ |
1,255,163 |
|
Additions from acquisitions |
|
|
4,753 |
|
|
|
9,692 |
|
Write-down of goodwill related to stores sold |
|
|
(1,385 |
) |
|
|
(4,048 |
) |
Post purchase price allocation adjustments |
|
|
429 |
|
|
|
4,442 |
|
|
|
|
|
|
|
|
Balance as of the end of the period |
|
$ |
1,269,046 |
|
|
$ |
1,265,249 |
|
|
|
|
|
|
|
|
The post purchase price allocation adjustments were primarily attributable to inventory
charge-offs for unrentable or missing merchandise acquired and other items.
6
RENT-A-CENTER, INC. AND SUBSIDIARIES
|
|
Additions to goodwill due to acquisitions in the first nine months of 2009 were tax deductible. |
|
3. |
|
Restructuring. On December 3, 2007, we announced our plan to close approximately 280 stores
and incur restructuring expenses in the range of $36.0 million to $43.0 million. The decision
to close these stores was based on our analysis and evaluation of every market in which we
operated based on operating results, competitive positioning, and growth potential. We
recorded restructuring expenses in the amount of $146,000 and $4.5 million for the nine months
ended September 30, 2009 and for the twelve months ended December 31, 2008, respectively. The
following table presents the range of estimated charges as of December 31, 2007 and the total
store consolidation plan charges and other restructuring items recorded through September 30,
2009. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Plan Estimate |
|
|
Expenses Recognized |
|
|
Estimated Remaining |
|
|
|
As of December 31, 2007 |
|
|
Through 2009 |
|
|
Charges as of September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Lease obligations |
|
$ |
26,061 |
|
- |
$ |
29,223 |
|
|
$ |
25,826 |
|
|
$ |
235 |
|
- |
$ |
3,397 |
|
Fixed asset disposals |
|
|
11,006 |
|
- |
|
11,516 |
|
|
|
11,476 |
|
|
|
0 |
|
- |
|
40 |
|
Other costs |
|
|
2,468 |
|
- |
|
6,704 |
|
|
|
6,054 |
|
|
|
0 |
|
- |
|
650 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,535 |
|
- |
$ |
47,443 |
|
|
$ |
43,356 |
|
|
$ |
235 |
|
- |
$ |
4,087 |
|
|
|
|
|
|
|
|
|
|
|
Changes in the accrual balance, which relate to lease obligations, from December 31, 2008 to
September 30, 2009 for the store consolidation plan are as follows:
|
|
|
|
|
|
|
(In thousands) |
|
Balance as of December 31, 2008 |
|
$ |
7,357 |
|
Charges to expense |
|
|
146 |
|
Cash payments |
|
|
(4,602 |
) |
|
|
|
|
Balance as of September 30, 2009 |
|
$ |
2,901 |
|
|
|
|
|
The total amount of cash used in the store consolidation plan through September 30, 2009 was
approximately $21.5 million. We expect to use approximately $2.9 million of cash on hand for
future payments to satisfy the lease obligations at the stores. We expect the lease obligations
will be totally completed no later than the second quarter of 2013.
4. |
|
Subordinated Notes Payable. In May 2009, we repurchased $150.0 million of our subordinated
notes at a redemption price equal to 100% of the principal amount outstanding, plus accrued
interest to the redemption date. In July 2009, we repurchased the remaining $75.4 million of
our subordinated notes at a redemption price equal to 100% of the principal amount
outstanding, plus accrued interest to the redemption date. All of our 71/2% senior subordinated
notes due May 2010 were redeemed in accordance with their terms on their respective redemption
dates and are now paid in full. |
5. |
|
Income Taxes. We are subject to federal, state, local and foreign income taxes. We are no
longer subject to U.S. federal, state, foreign and local income tax examinations by tax
authorities for years before 2001. The appeals process related to the IRS audit for the
taxable years 2001 through 2003 has been completed. We have agreed with the results of the
appeals process with the exception of one issue with respect to the 2003 tax year. This
disputed issue arises also in our 2004 and 2005 tax years, the examination of which is
currently in the appeals process as discussed below. We believe the position and supporting
case law applied by the IRS are incorrectly applied to our situation and that our fact pattern
is distinguishable from the IRS position. We intend to vigorously defend our position on the
issue and, accordingly, on April 3, 2009 we filed a petition for the issue to be heard in the
United States Tax Court. The IRS has concluded its examination of our income tax returns for
2004 and 2005. To date, we have had two conferences with the IRS Appeals Office to discuss
the 2004 and 2005 proposed adjustments related to the disputed issue from our 2003 examination
and, as a result of these conferences, we are in the process of providing the Appeals Office
with additional information. The remaining 2001 through 2003, as well as the 2004 and 2005
contested adjustments have been resolved. We do not anticipate that adjustments, if any,
regarding the 2003, 2004 and 2005 disputed issue will result in a material change to our
consolidated statement of earnings, financial condition, statement of cash flows or earnings
per share. Our 2006 and 2007 taxable years are under IRS audit. |
In determining the quarterly provision for income taxes, we use an estimated annual effective tax
rate based on forecasted annual income, permanent items, statutory tax rates and tax planning
opportunities in the various jurisdictions in which we operate. Significant factors that could
impact the annual effective tax rate include managements assessment of certain
7
RENT-A-CENTER, INC. AND SUBSIDIARIES
tax matters and the composition of taxable income between the various jurisdictions in which we
operate. We recognize the impact of significant discrete items separately in the quarter in
which they occur.
We provide for uncertain tax positions and related interest and penalties and adjust our
unrecognized tax benefits, accrued interest and penalties in the normal course of our business.
At September 30, 2009, our unrecognized tax benefits are unchanged from December 31, 2008.
6. |
|
Fair Value of Financial Instruments. At September 30, 2009, our financial instruments
include cash and cash equivalents, receivables, payables, and senior debt, and, at December
31, 2008, also included subordinated notes payable. The carrying amount of cash and cash
equivalents, receivables and payables approximates fair value at September 30, 2009 and
December 31, 2008, 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 the subordinated
notes payable was estimated based on discounted cash flow analysis using interest rates
offered for loans with similar terms to borrowers of similar credit quality using unobservable
inputs based on managements own assumptions. At December 31, 2008, the fair value of the
subordinated notes was $206.2 million, which was $19.2 million below their carrying value of
$225.4 million. |
|
|
Basic and diluted earnings per common share is computed based on the following information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
(In thousands, except per share data) |
|
Net Earnings |
|
|
Average Shares |
|
|
Per Share |
|
Basic earnings per common share |
|
$ |
36,840 |
|
|
|
66,077 |
|
|
$ |
0.56 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
36,840 |
|
|
|
66,693 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Net Earnings |
|
|
Average Shares |
|
|
Per Share |
|
Basic earnings per common share |
|
$ |
29,379 |
|
|
|
66,696 |
|
|
$ |
0.44 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
29,379 |
|
|
|
67,473 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
(In thousands, except per share data) |
|
Net Earnings |
|
|
Average Shares |
|
|
Per Share |
|
Basic earnings per common share |
|
$ |
124,161 |
|
|
|
66,034 |
|
|
$ |
1.88 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
124,161 |
|
|
|
66,612 |
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
8
RENT-A-CENTER, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2008 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Net Earnings |
|
|
Average Shares |
|
|
Per Share |
|
Basic earnings per common share |
|
$ |
103,478 |
|
|
|
66,697 |
|
|
$ |
1.55 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
103,478 |
|
|
|
67,336 |
|
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2009 and 2008, the number of stock options that were
outstanding but not included in the computation of diluted earnings per common share because
their exercise price was greater than the average market price of the common stock, and therefore
anti-dilutive, was 2,816,883 and 2,693,730, respectively.
For the nine months ended September 30, 2009 and 2008, the number of stock options that were
outstanding but not included in the computation of diluted earnings per common share because
their exercise price was greater than the average market price of the common stock, and therefore
anti-dilutive, was 2,973,518 and 3,042,236, respectively.
8. |
|
Subsequent Events. We have evaluated events occurring subsequent to the date of our
financial statements through October 30, 2009, which is the date our financial statements were
issued. We have recognized the effects of all subsequent events that provide additional
evidence about conditions that existed at our balance sheet date of September 30, 2009,
including estimates inherent in the process of preparing our financial statements. |
9
RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The statements, other than statements of historical facts, included in this report are
forward-looking statements. Forward-looking statements generally can be identified by the use of
forward-looking terminology such as may, will, would, expect, intend, could,
estimate, should, anticipate or believe. We believe the expectations reflected in such
forward-looking statements are accurate. However, we cannot assure you that these expectations
will occur. Our actual future performance could differ materially from such statements. Factors
that could cause or contribute to these differences include, but are not limited to:
|
|
uncertainties regarding the ability to open new rent-to-own stores; |
|
|
|
our ability to acquire additional rent-to-own stores or customer accounts on favorable
terms; |
|
|
|
our ability to control costs and increase profitability; |
|
|
|
our ability to successfully add financial services locations within our existing
rent-to-own stores; |
|
|
|
our ability to identify and successfully enter new lines of business offering products and
services that appeal to our customer demographic, including our financial services products; |
|
|
|
our ability to enhance the performance of acquired stores; |
|
|
|
our ability to retain the revenue associated with acquired customer accounts; |
|
|
|
our ability to identify and successfully market products and services that appeal to our
customer demographic; |
|
|
|
our ability to enter into new and collect on our rental purchase agreements; |
|
|
|
our ability to enter into new and collect on our short term loans; |
|
|
|
the passage of legislation adversely affecting the rent-to-own or financial services
industries; |
|
|
|
our failure to comply with statutes or regulations governing the rent-to-own or financial
services industries; |
|
|
|
interest rates; |
|
|
|
increases in the unemployment rate; |
|
|
|
economic pressures, such as high fuel and utility costs, affecting the disposable income
available to our targeted consumers; |
|
|
|
changes in our stock price and the number of shares of common stock that we may or may not
repurchase; |
|
|
|
changes in estimates relating to self-insurance liabilities and income tax and litigation
reserves; |
|
|
|
changes in our effective tax rate; |
|
|
|
our ability to maintain an effective system of internal controls; |
|
|
|
changes in the number of share-based compensation grants, methods used to value future
share-based payments and changes in estimated forfeiture rates with respect to share-based
compensation; |
|
|
|
the resolution of any material litigation; and |
|
|
|
the other risks detailed from time to time in our SEC reports. |
10
RENT-A-CENTER, INC. AND SUBSIDIARIES
Additional important factors that could cause our actual results to differ materially from our
expectations are discussed under Risk Factors later in this report as well as our Annual Report
on Form 10-K for our fiscal year ended December 31, 2008. You should not unduly rely on these
forward-looking statements, which speak only as of the date of this report. Except as required by
law, we are not obligated to publicly release any revisions to these forward-looking statements to
reflect events or circumstances occurring after the date of this report or to reflect the
occurrence of unanticipated events.
Our Business
We are the largest operator in the United States rent-to-own industry with an approximate 35%
market share based on store count. At September 30, 2009, we operated 3,004 company-owned stores
nationwide and in Canada and Puerto Rico, including 37 retail installment sales stores under the
names Get It Now and Home Choice and 15 rent-to-own stores located in Canada under the names
Rent-A-Centre and Better Living. Our subsidiary, ColorTyme, is a national franchisor of
rent-to-own stores. At September 30, 2009, ColorTyme had 213 franchised rent-to-own stores in 33
states. These franchise stores represent an additional 3% market share based on store count.
Our stores generally offer high quality durable products such as major consumer electronics,
appliances, computers, and furniture and accessories under flexible rental purchase agreements that
generally allow the customer to obtain ownership of the merchandise at the conclusion of an
agreed-upon rental period. The rental purchase transaction is a flexible alternative for consumers
to obtain use and enjoyment of brand name merchandise without incurring debt. Key features of the
rental purchase transaction include:
|
|
|
convenient payment options in-store, over the phone or online; |
|
|
|
|
no long-term obligations; |
|
|
|
|
right to terminate without penalty; |
|
|
|
|
no requirement of a credit history; |
|
|
|
|
set-up and delivery included at no additional charge; |
|
|
|
|
product maintenance; |
|
|
|
|
lifetime reinstatement; and |
|
|
|
|
flexible options to obtain ownership 90 days same as cash, early purchase options, or
payment through the term of the agreement. |
Rental payments are made generally on a weekly basis and, together with applicable fees, constitute
our primary revenue source.
Our expenses primarily relate to merchandise costs and the operations of our stores, including
salaries and benefits for our employees, occupancy expense for our leased real estate, advertising
expenses, lost, damaged, or stolen merchandise, fixed asset depreciation, and corporate and other
expenses.
From 1993 to 2006, we pursued an aggressive growth strategy in which we sought to acquire
underperforming rent-to-own stores to which we could apply our operating model as well as open new
stores. As a result, the acquired stores have generally experienced more significant revenue growth
during the initial periods following their acquisition than in subsequent periods. Typically, a
newly opened rent-to-own store is profitable on a monthly basis in the ninth to twelfth month after
its initial opening. Historically, a typical store has achieved cumulative break-even profitability
in 18 to 24 months after its initial opening. Total financing requirements of a typical new store
approximate $500,000, with roughly 75% of that amount relating to the purchase of rental
merchandise inventory. A newly opened store historically has achieved results consistent with other
stores that have been operating within the system for greater than two years by the end of its
third year of operation. As a result, our quarterly earnings are impacted by how many new stores we
opened during a particular quarter and the quarters preceding it. Because of significant growth
since our formation, our historical results of operations and period-to-period comparisons of such
results and other financial data, including the rate of earnings growth, may not be meaningful or
indicative of future results.
11
RENT-A-CENTER, INC. AND SUBSIDIARIES
In addition, we strategically open or acquire stores near market areas served by existing stores
(cannibalize) to enhance service levels, gain incremental sales and increase market penetration.
This planned cannibalization may negatively impact our same store revenue and cause us to grow at a
slower rate. There can be no assurance that we will open any new rent-to-own stores in the future,
or as to the number, location or profitability thereof.
We also offer financial services products, such as short term secured and unsecured loans, debit
cards, check cashing, tax preparation and money transfer services, in some of our existing
rent-to-own stores under the trade names RAC Financial Services and Cash AdvantEdge. As of
September 30, 2009, we offered some or all of these financial services products in 345
Rent-A-Center store locations in 17 states. We continue to focus our resources on improving the
operations in these existing financial services store locations and expect to have approximately
400 Rent-A-Center store locations offering financial services by the end of 2010. There can be no
assurance that we will be successful in our efforts to improve and expand our financial services
operations or that such operations, should they be added, will prove to be profitable.
Critical Accounting Policies Involving Critical Estimates, Uncertainties or Assessments in Our
Financial Statements
The preparation of our consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of contingent losses and
liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. In applying accounting principles, we must often
make individual estimates and assumptions regarding expected outcomes or uncertainties. Our
estimates, judgments and assumptions are continually evaluated based on available information and
experience. Because of the use of estimates inherent in the financial reporting process, actual
results could differ from those estimates. We believe the following are areas where the degree of
judgment and complexity in determining amounts recorded in our consolidated financial statements
make the accounting policies critical.
Self-Insurance Liabilities. We have self-insured retentions with respect to losses under our
workers compensation, general liability and auto liability insurance policies. We establish
reserves for our liabilities associated with these losses by obtaining forecasts for the ultimate
expected losses and estimating amounts needed to pay losses within our self-insured retentions.
We continually institute procedures to manage our loss exposure and increases in health care costs
associated with our insurance claims through a greater focus on the risk management function, a
transitional duty program for injured workers, ongoing safety and accident prevention training, and
various programs designed to minimize losses and improve our loss experience in our store
locations. We make assumptions on our liabilities within our self-insured retentions using
actuarial loss forecasts, company specific development factors, general industry loss development
factors, and third party claim administrator loss estimates which are based on known facts
surrounding individual claims. These assumptions incorporate expected increases in health care
costs. Periodically, we reevaluate our estimate of liability within our self-insured retentions. At
that time, we evaluate the adequacy of our accruals by comparing amounts accrued on our balance
sheet for anticipated losses to our updated actuarial loss forecasts and third party claim
administrator loss estimates, and make adjustments to our accruals as needed.
As of September 30, 2009, the amount accrued for losses within our self-insured retentions with
respect to workers compensation, general liability and auto liability insurance was $126.9
million, as compared to $117.9 million at December 31, 2008 and $117.2 million at September 30,
2008. If any of the factors that contribute to the overall cost of insurance claims were to change,
the actual amount incurred for our self-insurance liability would be directly affected. While we
believe our loss prevention programs will reduce our total cost for self-insurance claims, our
actual cost could be greater than the amounts currently accrued.
Litigation Reserves. We are the subject of litigation in the ordinary course of our business.
Historically, our litigation has involved lawsuits alleging various regulatory violations. In
preparing our financial statements at a given point in time, we accrue for loss contingencies that
are both probable and reasonably estimable.
Each quarter, we make estimates of our probable losses, if reasonably estimable, and record such
amounts in our consolidated financial statements. These amounts represent our best estimate, or may
be the minimum range of probable loss when no single best estimate is determinable. We, together
with our counsel, monitor developments related to these legal matters and, when appropriate,
adjustments are made to reflect current facts and circumstances. We expense legal fees and
expenses incurred in connection with the defense of all of our litigation at the time such amounts
are invoiced or otherwise made known to us.
12
RENT-A-CENTER, INC. AND SUBSIDIARIES
Our accruals relating to probable losses for our outstanding litigation follow:
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
At September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In millions) |
|
Shafer/Johnson Matter |
|
$ |
|
|
|
$ |
11.0 |
|
California Attorney General Settlement |
|
|
|
|
|
|
9.1 |
|
Other Litigation |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Total Accrual |
|
$ |
|
|
|
$ |
20.2 |
|
|
|
|
|
|
|
|
As with most litigation, the ultimate outcome of our pending litigation is uncertain. Additional
developments in our litigation or other adverse or positive developments or rulings in our
litigation could affect our assumptions and, thus, our accrual. Our estimates with respect to
accrual for our litigation expenses reflect our judgment as to the appropriate accounting charge at
the end of a period. Factors that we consider in evaluating our litigation reserves include:
|
|
the procedural status of the matter; |
|
|
|
our views and the views of our counsel as to the probability of a loss in the matter; |
|
|
|
the relative strength of the parties arguments with respect to liability and damages in the
matter; |
|
|
|
settlement discussions, if any, between the parties; |
|
|
|
how we intend to defend ourselves in the matter; and |
|
|
|
our experience. |
Significant factors that may cause us to increase or decrease our accrual with respect to a matter
include:
|
|
judgments or finding of liability against us in the matter by a trial court; |
|
|
|
the granting of, or declining to grant, a motion for class certification in the matter; |
|
|
|
definitive decisions by appellate courts in the requisite jurisdiction interpreting or
otherwise providing guidance as to applicable law; |
|
|
|
favorable or unfavorable decisions as the matter progresses; |
|
|
|
settlements agreed to in principle by the parties in the matter, subject to court approval;
and |
|
|
|
final settlement of the matter. |
Income Taxes. Our annual tax rate is affected by many factors, including the mix of our earnings,
legislation and acquisitions, and is based on our income, statutory tax rates and tax planning
opportunities available to us in the jurisdictions in which we operate. Tax laws are complex and
subject to differing interpretations between the taxpayer and the taxing authorities. Significant
judgment is required in determining our tax expense, evaluating our tax positions and evaluating
uncertainties. We recognize the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon the ultimate settlement with the relevant tax authority. We
review our tax positions quarterly and adjust the balance as new information becomes available.
If we make changes to our accruals with respect to our self-insurance liabilities, or litigation or
income tax reserves in accordance with the policies described above, our earnings would be
impacted. Increases to our accruals would reduce earnings and, similarly, reductions to our
accruals would increase our earnings. A pre-tax change of $1.1 million in our estimates would
result in a corresponding $0.01 change in our earnings per common share.
13
RENT-A-CENTER, INC. AND SUBSIDIARIES
Stock-Based Compensation Expense. We recognize share-based payment awards to our employees and
directors at the estimated fair value on the grant date. Determining the fair value of any
share-based awards requires information about several variables including, but not limited to,
expected stock volatility over the terms of the awards, expected dividend yields and the predicted
employee exercise behavior. We base expected life on historical exercise and post-vesting
employment-termination experience, and expected volatility on historical realized volatility
trends. In addition, all stock-
based compensation expense is recorded net of an estimated forfeiture rate. The forfeiture rate is
based upon historical activity and is analyzed at least quarterly as actual forfeitures occur.
Stock options granted during the nine months ended September 30, 2009 were valued using the
binomial method pricing model with the following assumptions for employee options: expected
volatility of 45.30% to 66.50%, a risk-free interest rate of 0.40% to 2.04%, no dividend yield, and
an expected life of 5.34 years. During the nine months ended September 30, 2009, we recognized
$2.9 million in pre-tax compensation expense related to stock options and restricted stock units
granted.
Based on an assessment of our accounting policies and the underlying judgments and uncertainties
affecting the application of those policies, we believe our consolidated financial statements
provide a meaningful and fair perspective of our company. However, we do not suggest that other
general risk factors, such as those discussed later in this report and in our Annual Report on Form
10-K for our fiscal year ended December 31, 2008 as well as changes in our growth objectives or
performance of new or acquired stores, could not adversely impact our consolidated financial
position, results of operations and cash flows in future periods.
Significant Accounting Policies
Our significant accounting policies are summarized below and in Note A to our consolidated
financial statements included in our Annual Report on Form 10-K.
Revenue. Merchandise is rented to customers pursuant to rental purchase agreements which provide
for weekly, semi-monthly or monthly rental terms with non-refundable rental payments. Generally,
the customer has the right to acquire title either through a purchase option or through payment of
all required rentals. Rental revenue and fees are recognized over the rental term and merchandise
sales revenue is recognized when the customer exercises the purchase option and pays the cash price
due. Cash received prior to the period in which it should be recognized is deferred and recognized
according to the rental term. Revenue is accrued for uncollected amounts due based on historical
collection experience. However, the total amount of the rental purchase agreement is not accrued
because the customer can terminate the rental agreement at any time and we cannot enforce
collection for non-payment of future rents.
Revenue from the sale of merchandise in our retail installment stores is recognized when the
installment note is signed, the customer has taken possession of the merchandise and collectability
is reasonably assured.
The revenue from our financial services is recognized depending on the type of transaction. Fees
collected on loans are recognized ratably over the term of the loan. For money orders, wire
transfers, check cashing and other customer service type transactions, fee revenue is recognized at
the time the service is performed.
Franchise Revenue. Revenue from the sale of rental merchandise is recognized upon shipment of the
merchandise to the franchisee. Franchise fee revenue is recognized upon completion of substantially
all services and satisfaction of all material conditions required under the terms of the franchise
agreement.
Depreciation of Rental Merchandise. Depreciation of rental merchandise is included in the cost of
rentals and fees on our statement of earnings. Generally, we depreciate our rental merchandise
using the income forecasting method. Under the income forecasting method, merchandise held for rent
is not depreciated and merchandise on rent is depreciated in the proportion of rents received to
total rents provided in the rental contract, which is an activity-based method similar to the units
of production method. Effective July 1, 2009, we depreciate merchandise held for rent (except for
computers) that is at least 270 days old and held for rent for at least 180 consecutive days using
the straight-line method for a period generally not to exceed 20 months. This change in
depreciation method had no material impact on our consolidated financial statements.
On computers that are 24 months old or older and which have become idle, depreciation is recognized
using the straight-line method for a period of at least six months, generally not to exceed an
aggregate depreciation period of 30 months.
Cost of Merchandise Sold. Cost of merchandise sold represents the net book value of rental
merchandise at time of sale. Cost of merchandise sold also includes the cost of services offered
by us, such as prepaid telephone and electric services.
14
RENT-A-CENTER, INC. AND SUBSIDIARIES
Salaries and Other Expenses. Salaries and other expenses include all salaries and wages paid to
store level employees, together with district managers salaries, travel and occupancy, including
any related benefits and taxes, as well as all store level general and administrative expenses and
selling, advertising, insurance, occupancy, delivery, fixed asset depreciation and other operating
expenses.
General and Administrative Expenses. General and administrative expenses include all corporate
overhead expenses related to our headquarters such as salaries, taxes and benefits, occupancy,
administrative and other operating expenses.
Results of Operations
Nine Months Ended September 30, 2009 compared to Nine Months Ended September 30, 2008
Store Revenue. Total store revenue decreased by $100.8 million, or 4.7%, to $2,054.5 million for
the nine months ended September 30, 2009 as compared to $2,155.3 million for the nine months ended
September 30, 2008. This decrease in total store revenue was primarily attributable to a decrease
in same store sales of 3.9% and the anticipated revenue attrition from approximately 365 stores
that received customer agreements from stores closed in the 2007 restructuring plan.
Same store revenues represent those revenues earned in 2,294 stores that were operated by us for
each of the entire nine month periods ended September 30, 2009 and 2008. Same store revenues
decreased by $61.1 million, or 3.9%, to $1,504.8 million for the nine months ended September 30,
2009 as compared to $1,565.9 million in 2008. This decrease in same store revenues was primarily
attributable to a decrease in the number of units per customer in the first nine months of 2009 as
compared to 2008.
Franchise Revenue. Total franchise revenue decreased by $4.6 million, or 15.9%, to $24.5 million
for the nine months ended September 30, 2009 as compared to $29.1 million in 2008. This decrease
was primarily attributable to a decrease in the number of products sold to franchisees in the first
nine months of 2009 as compared to the first nine months of 2008 due to fewer franchise stores in
2009.
Cost of Rentals and Fees. Cost of rentals and fees consists of depreciation of rental merchandise
and the costs associated with our membership programs. Cost of rentals and fees for the nine months
ended September 30, 2009 decreased by $35.7 million, or 8.2%, to $398.3 million as compared to
$434.0 million in 2008. This decrease in cost of rentals and fees is primarily attributable to a
decrease in the number of units on rent in the first nine months of 2009 as compared to 2008. Cost
of rentals and fees expressed as a percentage of store rentals and fees revenue decreased slightly
to 22.6% for the nine months ended September 30, 2009 as compared to 22.9% in 2008.
Cost of Merchandise Sold. Cost of merchandise sold decreased by $2.5 million, or 1.6%, to $150.7
million for the nine months ended September 30, 2009 from $153.2 million in 2008. The gross margin
percent of merchandise sales increased to 28.9% for the nine months ended September 30, 2009 from
22.7% in 2008. This percentage increase was primarily attributable to a higher margin on early
purchase option transactions during the 2009 period.
Salaries and Other Expenses. Salaries and other expenses decreased by $65.3 million, or 5.3%, to
$1,176.0 million for the nine months ended September 30, 2009 as compared to $1,241.3 million in
2008. This decrease was primarily attributable to a decrease in store level expenses due to our
cost control initiatives such as improvements in management of labor expense, delivery costs and
inventory losses. Charge offs in our rental stores due to customer stolen merchandise, expressed
as a percentage of rental store revenues, were approximately 2.3% for the nine months ended
September 30, 2009 as compared to 2.5% in 2008. Salaries and other expenses expressed as a
percentage of total store revenue decreased slightly to 57.2% for the nine months ended September
30, 2009 from 57.6% in 2008.
Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold decreased by $4.3 million,
or 17.6%, to $20.0 million for the nine months ended September 30, 2009 as compared to $24.3
million in 2008. This decrease was primarily attributable to a decrease in the number of products
sold to franchisees in the first nine months of 2009 as compared to 2008.
General and Administrative Expenses. General and administrative expenses increased by $7.6
million, or 8.1%, to $101.6 million for the nine months ended September 30, 2009 as compared to
$94.0 million in 2008. General and administrative expenses expressed as a percentage of total
revenue increased slightly to 4.9% for the nine months ended
15
RENT-A-CENTER, INC. AND SUBSIDIARIES
September 30, 2009 from 4.3% in 2008. These increases are primarily attributable to additional
personnel and related expansion at our corporate office to support our strategic initiatives.
Amortization and Write-Down of Intangibles. Amortization of intangibles decreased by $9.7 million,
or 80.0%, to $2.4 million for the nine months ended September 30, 2009 from $12.1 million in 2008.
This decrease was due to intangible assets associated with the acquisition of Rent-Way that were
fully amortized in 2009 as compared to 2008.
Operating Profit. Operating profit increased by $11.2 million, or 5.3%, to $221.7 million for the
nine months ended September 30, 2009 as compared to $210.5 million in 2008. Operating profit as a
percentage of total revenue increased to 10.7% for the nine months ended September 30, 2009 from
9.6% for 2008. This increase was primarily attributable to a reduction in expenses and an
improvement in gross margins offset by lower revenue in the 2009 period as compared to 2008.
Interest Expense. Interest expense decreased by $30.6 million, or 58.0%, to $22.1 million for the
nine months ended September 30, 2009 as compared to $52.7 million in 2008. This decrease was
primarily attributable to a decrease in our outstanding indebtedness in 2009 as compared to 2008,
as well as a decrease in our weighted average interest rate to 3.54% during the first nine months
of 2009 as compared to 6.38% during the first nine months of 2008 due to a decrease in the
Eurodollar rate in 2009 as compared to 2008.
Net Earnings. Net earnings increased by $20.7 million, or 20.0%, to $124.2 million for the nine
months ended September 30, 2009 as compared to $103.5 million in 2008. This increase was primarily
attributable to an increase in operating profit and a decrease in interest expense, offset by an
increase in income tax expense in 2009 as compared to 2008.
Three Months Ended September 30, 2009 compared to Three Months Ended September 30, 2008
Store Revenue. Total store revenue decreased by $36.2 million, or 5.2%, to $663.4 million for the
three months ended September 30, 2009 as compared to $699.6 million for the three months ended
September 30, 2008. This decrease in total store revenue was primarily the result of a decrease in
same store sales of 6.1%.
Same store revenues represent those revenues earned in 2,693 stores that were operated by us for
each of the entire three month periods ended September 30, 2009 and 2008. Same store revenues
decreased by $37.1 million, or 6.1%, to $573.2 million for the three months ended September 30,
2009 as compared to $610.3 million in 2008. This decrease in same store revenues was primarily
attributable to a decrease in the number of units per customer in the third quarter of 2009 as
compared to 2008 and the anticipated revenue attrition from approximately 365 stores that received
customer agreements from stores closed in the 2007 restructuring plan.
Franchise Revenue. Total franchise revenue decreased by $1.3 million, or 14.5%, to $7.8 million
for the three months ended September 30, 2009 as compared to $9.1 million in 2008. This decrease
was primarily attributable to a decrease in the
number of products sold to franchisees in the third quarter of 2009 as compared to the third
quarter of 2008 due to fewer franchise stores in the third quarter of 2009.
Cost of Rentals and Fees. Cost of rentals and fees consists of depreciation of rental merchandise
and the costs associated with our membership programs. Cost of rentals and fees for the three
months ended September 30, 2009 decreased by $12.1 million, or 8.5%, to $130.2 million as compared
to $142.3 million in 2008. This decrease in cost of rentals and fees is primarily attributable to a
decrease in the number of units on rent in the third quarter of 2009 as compared to 2008. Cost of
rentals and fees expressed as a percentage of store rentals and fees revenue decreased slightly to
22.6% for the three months ended September 30, 2009 as compared to 22.9% in 2008.
Cost of Merchandise Sold. Cost of merchandise sold decreased by $1.8 million, or 4.0%, to $42.9
million for the three months ended September 30, 2009 from $44.7 million in 2008. The gross margin
percent of merchandise sales increased to 27.3% for the three months ended September 30, 2009 from
21.6% in 2008. This percentage increase was primarily attributable to a higher margin on
merchandise sales during the 2009 period.
Salaries and Other Expenses. Salaries and other expenses decreased by $27.8 million, or 6.7%, to
$389.6 million for the three months ended September 30, 2009 as compared to $417.4 million in 2008.
This decrease was primarily attributable to a decrease in store level expenses due to our cost
control initiatives such as improvements in management of labor expense, delivery costs and
inventory losses. Charge offs in our rental stores due to customer stolen merchandise, expressed
as a
percentage of rental store revenues, were approximately 2.4% for the three months ended September
30, 2009 as compared to
16
RENT-A-CENTER, INC. AND SUBSIDIARIES
2.6% in 2008. Salaries and other expenses expressed as a percentage of total store revenue
decreased to 58.7% for the three months ended September 30, 2009 from 59.7% in 2008.
Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold decreased by $1.2 million,
or 16.5%, to $6.4 million for the three months ended September 30, 2009 as compared to $7.6 million
in 2008. This decrease was primarily attributable to a decrease in the number of products sold to
franchisees in the third quarter of 2009 as compared to 2008.
General and Administrative Expenses. General and administrative expenses increased by $2.3
million, or 7.8%, to $32.7 million for the three months ended September 30, 2009 as compared to
$30.4 million in 2008. General and administrative expenses expressed as a percentage of total
revenue increased to 4.9% for the three months ended September 30, 2009 from 4.3% in 2008. These
increases are primarily attributable to additional personnel and related expansion at our corporate
office to support our strategic initiatives.
Amortization and Write-Down of Intangibles. Amortization of intangibles decreased by $2.9 million,
or 83.5%, to approximately $600,000 for the three months ended September 30, 2009 from $3.5 million
in 2008. This decrease was due to intangible assets associated with the acquisition of Rent-Way
that were fully amortized in 2009 as compared to 2008.
Operating Profit. Operating profit increased by $5.9 million, or 9.9%, to $64.4 million for the
three months ended September 30, 2009 as compared to $58.5 million in 2008. Operating profit as a
percentage of total revenue increased to 9.6% for the three months ended September 30, 2009 from
8.3% for 2008. This increase was primarily attributable to a reduction in expenses and an
improvement in gross margins offset by lower revenue in the 2009 period as compared to 2008.
Interest Expense. Interest expense decreased by $10.1 million, or 67.6%, to $4.9 million for the
three months ended September 30, 2009 as compared to $15.0 million in 2008. This decrease was
primarily attributable to a decrease in our outstanding indebtedness in 2009 as compared to 2008,
as well as a decrease in our weighted average interest rate to 2.70% during the third quarter of
2009 as compared to 5.81% during the third quarter of 2008 due to a decrease in the Eurodollar rate
in 2009 as compared to 2008.
Net Earnings. Net earnings increased by $7.4 million, or 25.4%, to $36.8 million for the three
months ended September 30, 2009 as compared to $29.4 million in 2008. This increase was primarily
attributable to an increase in operating profit and a decrease in interest expense, offset by an
increase in income tax expense in 2009 as compared to 2008.
Liquidity and Capital Resources
Cash provided by operating activities decreased by $15.5 million to $299.3 million for the nine
months ended September 30, 2009 from $314.8 million in 2008. This decrease is primarily
attributable to a decrease in deferred taxes, partially offset by an increase in earnings.
Cash used in investing activities increased by $14.8 million to $58.5 million for the nine months
ended September 30, 2009 from $43.7 million in 2008. This increase is primarily attributable to an
increase in capital expenditures related to our strategic initiatives.
Cash used in financing activities increased by $19.0 million to $288.3 million for the nine months
ended September 30, 2009 from $269.3 million in 2008. This increase in 2009 as compared to 2008 is
primarily related to the payments on our senior debt in 2008, offset by the repurchase of our
subordinated notes in 2009.
Liquidity Requirements. Our primary liquidity requirements are for debt service, rental
merchandise purchases, capital expenditures, litigation expenses, including settlements or
judgments, and implementation of our growth strategies, including investment in our financial
services business. Our primary sources of liquidity have been cash provided by operations and
borrowings. In the future, to provide any additional funds necessary for the continued pursuit of
our operating and growth strategies, we may incur from time to time additional short-term or
long-term bank indebtedness and may issue, in public or private transactions, equity and debt
securities. The availability and attractiveness of any outside sources of financing will depend on
a number of factors, some of which relate to our financial condition and performance, and some of
which are beyond our control, such as prevailing interest rates and general financing and economic
conditions. The global financial markets continue to experience adverse conditions and such
volatility in the capital markets may affect our ability to access additional sources of financing.
There can be no assurance that additional financing will be available, or if available, that it
will be on terms we find acceptable.
17
RENT-A-CENTER, INC. AND SUBSIDIARIES
We believe the cash flow generated from operations, together with amounts available under our
senior credit facilities, will be sufficient to fund our liquidity requirements as discussed above
(including mandatory principal payments) during the next twelve months. Our revolving credit
facilities, including our $20.0 million line of credit at Intrust Bank, provide us with revolving
loans in an aggregate principal amount not exceeding $420.0 million, of which $300.5 million was
available at October 27, 2009. At October 27, 2009, we had $42.8 million in cash. To the extent
we have available cash that is not necessary to fund the items listed above, we intend to make
additional payments to service our existing debt, and may repurchase additional shares of our
common stock. While our operating cash flow has been strong and we expect this strength to
continue, our liquidity could be negatively impacted if we do not remain as profitable as we
expect.
A change in control would result in an event of default under our senior credit facilities, which
would allow our lenders to accelerate the indebtedness owed to them. In the event a change in
control occurs, we cannot be sure we would have enough funds to immediately pay our accelerated
senior credit facility obligations or that we would be able to obtain financing to do so on
favorable terms, if at all.
Litigation. In our history, we have defended class action lawsuits alleging various regulatory
violations and have paid material amounts to settle such claims. Significant settlement amounts or
final judgments could materially and adversely affect our liquidity. Please refer to Legal
Proceedings later in this report.
Deferred Taxes. The 2008 Stimulus Act provided for accelerated depreciation by allowing a bonus
first-year depreciation deduction of 50% of the adjusted basis of qualified property placed in
service during 2008. Accordingly, our cash flow benefited in 2008 from having a lower cash tax
obligation which, in turn, provided additional cash flow from operations. We estimate that our
2008 operating cash flow increased by approximately $75.0 million as a result of the 2008 Stimulus
Act with the associated deferral expected to begin to reverse over a three year period beginning in
2009. However, on February 17, 2009, President Obama signed into law the American Recovery and
Reinvestment Act of 2009 (the 2009 Recovery Act) which extends the bonus depreciation provision
of the 2008 Stimulus Act by continuing the bonus first-year depreciation deduction of 50% of the
adjusted basis of qualified property placed in service during 2009. We estimate the cash tax
benefit of the 2009 Recovery Act to be approximately $75.0 million, of which $59.0 million will
offset the 2008 deferral that reverses in 2009, and the remaining $16.0 million will increase our
2009 operating cash flow. We estimate that at December 31, 2009 the remaining tax deferral
associated with the 2008 Stimulus Act and the 2009 Recovery Act will be approximately $92.0 million
of which approximately 79% will reverse in 2010 and the remainder will reverse between 2011 and
2012.
Merchandise Inventory. A reconciliation of merchandise inventory, which includes purchases,
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
(In thousands) |
|
Beginning merchandise value |
|
$ |
755,906 |
|
|
$ |
883,600 |
|
Inventory additions through acquisitions |
|
|
664 |
|
|
|
405 |
|
Purchases |
|
|
159,813 |
|
|
|
155,342 |
|
Depreciation of rental merchandise |
|
|
(127,573 |
) |
|
|
(139,518 |
) |
Cost of goods sold |
|
|
(37,629 |
) |
|
|
(36,858 |
) |
Skips and stolens |
|
|
(15,845 |
) |
|
|
(18,259 |
) |
Other inventory
deletions
(1) |
|
|
(8,286 |
) |
|
|
(8,388 |
) |
|
|
|
|
|
|
|
Ending merchandise value |
|
$ |
727,050 |
|
|
$ |
836,324 |
|
|
|
|
|
|
|
|
18
RENT-A-CENTER, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Nine months ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
(In thousands) |
|
Beginning merchandise value |
|
$ |
822,487 |
|
|
$ |
940,304 |
|
Inventory additions through acquisitions |
|
|
1,654 |
|
|
|
2,147 |
|
Purchases |
|
|
501,194 |
|
|
|
541,598 |
|
Depreciation of rental merchandise |
|
|
(390,126 |
) |
|
|
(425,314 |
) |
Cost of goods sold |
|
|
(135,499 |
) |
|
|
(137,642 |
) |
Skips and stolens |
|
|
(45,697 |
) |
|
|
(53,872 |
) |
Other inventory deletions
(1) |
|
|
(26,963 |
) |
|
|
(30,897 |
) |
|
|
|
|
|
|
|
Ending merchandise value |
|
$ |
727,050 |
|
|
$ |
836,324 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other inventory deletions include loss/damage waiver claims and
unrepairable and missing merchandise, as well as acquisition write-offs. |
Capital Expenditures. We make capital expenditures in order to maintain our existing operations as
well as for new capital assets in new and acquired stores. We spent $53.6 million and $41.2 million
on capital expenditures during the nine month periods ended September 30, 2009 and 2008,
respectively, and expect to spend approximately $15.0 million for the remainder of 2009.
Acquisitions and New Store Openings. During the first nine months of 2009, we acquired accounts
from 23 locations, opened 31 new stores, acquired one store, consolidated 54 stores into existing
locations and sold 11 stores. Additionally, during the first nine months of 2009, we added
financial services to four existing rent-to-own store locations, acquired accounts from one
location, closed three stores and consolidated seven stores with financial services into existing
locations, ending the third quarter of 2009 with a total of 345 stores providing these services.
The acquired stores and accounts were the result of 18 separate transactions with an aggregate
purchase price of approximately $6.2 million.
The profitability of our stores tends to grow at a slower rate approximately five years from the
time we open or acquire them. As a result of the increasing maturity of our store base, in order
for us to show improvements in our profitability, it is important for us to increase revenue in our
existing stores. We intend to accomplish such revenue growth by offering new products and
services, such as our financial services products, in our existing rent-to-own stores, and by
acquiring customer accounts on favorable terms. There can be no assurance that we will be
successful in adding financial services products to our existing rent-to-own stores, or that such
operations will be as profitable as we expect, or at all. We also cannot assure you that we will
be able to acquire customer accounts on favorable terms, or at all, or that we will be able to
maintain the revenue from any such acquired customer accounts at the rates we expect, or at all.
Senior Credit Facilities. Our $1,322.5 million senior credit facility consists of a $197.5 million
five-year term loan, with the loans thereunder being referred to by us as the tranche A term
loans, a $725.0 million six-year term loan, with the loans thereunder being referred to by us as
the tranche B term loans, and a $400.0 million five-year revolving credit facility. The tranche A
term loans are payable in seven remaining consecutive quarterly installments equal to $5.0 million
from December 31, 2009 through June 30, 2010 and $37.5 million from September 30, 2010 through June
30, 2011. The tranche B term loans are repayable in 11 remaining consecutive quarterly installments
equal to approximately $1.8 million from December 31, 2009 through June 30, 2011 and approximately
$172.6 million from September 30, 2011 through June 30, 2012.
The table below shows the scheduled maturity dates of our senior term loans outstanding at
September 30, 2009.
|
|
|
|
|
Year Ending December 31, |
|
(In thousands) |
|
2009 |
|
$ |
6,689 |
|
2010 |
|
|
91,756 |
|
2011 |
|
|
239,728 |
|
2012 |
|
|
320,907 |
|
|
|
|
|
|
|
$ |
659,080 |
|
|
|
|
|
19
RENT-A-CENTER, INC. AND SUBSIDIARIES
The full amount of the revolving credit facility may be used for the issuance of letters of credit,
of which $119.5 million had been utilized as of October 27, 2009. As of October 27, 2009, $280.5
million was available under our revolving facility. The revolving credit facility expires in July
2011.
Borrowings under our senior credit facilities bear interest at varying rates equal to the
Eurodollar rate plus .75% to 1.75%, or the prime rate plus up to .75%, at our election. Interest
periods range from seven days (for borrowings under the revolving credit facility only) to one,
two, three or six months, at our election. The weighted average Eurodollar rate on our outstanding
debt was 0.25% at September 30, 2009 and at October 27, 2009. The margins on the Eurodollar rate and on the prime rate, which are
initially 1.75 and 0.75, respectively, may fluctuate dependent upon an increase or decrease in our
consolidated leverage ratio as defined by a pricing grid included in the credit agreement. We have
not entered into any interest rate protection agreements with respect to term loans under the
senior credit facilities. A commitment fee equal to 0.15% 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 leverage ratio. The initial commitment fee is equal to 0.50% of the unused portion
of the revolving facility.
Our senior credit facilities are secured by a security interest in substantially all of our
tangible and intangible assets, including intellectual property. Our senior credit facilities are
also secured by a pledge of the capital stock of our wholly-owned U.S. subsidiaries (other than
certain specified subsidiaries).
Our senior credit facilities contain, without limitation, covenants that generally limit our
ability to:
|
|
incur additional debt in excess of $150.0 million at any one time outstanding; |
|
|
repurchase our capital stock and pay cash dividends in the event the pro forma senior
leverage ratio is greater than 2.50x; |
|
|
incur liens or other encumbrances; |
|
|
merge, consolidate or sell substantially all our property or business; |
|
|
sell assets, other than inventory, in the ordinary course of business; |
|
|
make investments or acquisitions unless we meet financial tests and other requirements; |
|
|
make capital expenditures; or |
|
|
enter into an unrelated line of business. |
Our senior credit facilities require us to comply with several financial covenants. The table
below shows the required and actual ratios under our credit facilities calculated as of September
30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Required Ratio |
|
|
Actual Ratio |
|
Maximum consolidated leverage ratio |
|
No greater than |
|
|
3.25:1 |
|
|
|
1.84:1 |
|
Minimum fixed charge coverage ratio |
|
No less than |
|
|
1.35:1 |
|
|
|
1.96:1 |
|
These financial covenants, as well as the related components of their computation, are defined in
the amended and restated credit agreement governing our senior credit facility, which is included
as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008. In
accordance with the credit agreement, the maximum consolidated leverage ratio was calculated by
dividing the consolidated funded debt outstanding at September 30, 2009 ($647.4 million) by
consolidated EBITDA for the nine month period ended September 30, 2009 ($352.7 million). For
purposes of the covenant calculation, (i) consolidated funded debt is defined as outstanding
indebtedness less cash in excess of $25 million, and (ii) consolidated EBITDA is generally
defined as consolidated net income (a) plus the sum of income taxes, interest expense, depreciation
and amortization expense, extraordinary non-cash expenses or losses, and other non-cash charges,
and (b) minus the sum of interest income, extraordinary income or gains, and other non-cash income.
Consolidated EBITDA is a non-GAAP financial
measure that is presented not as a measure of operating results, but rather as a measure used to
determine covenant compliance under our senior credit facilities.
20
RENT-A-CENTER, INC. AND SUBSIDIARIES
The minimum fixed charge coverage ratio was calculated pursuant to the credit agreement by dividing
consolidated EBITDA for the nine month period ended September 30, 2009, as adjusted for certain
capital expenditures ($464.4 million), by consolidated fixed charges for the nine month period
ended September 30, 2009 ($236.4 million). For purposes of the covenant calculation, consolidated
fixed charges is defined as the sum of interest expense, lease expense, and mandatory debt
repayments.
Events of default under our senior credit facilities 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 senior credit facility 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 certain changes in Rent-A-Centers Board of Directors occurs. An event of default would
also occur if one or more judgments were entered against us of $30.0 million or more and such
judgments were not satisfied or bonded pending appeal within 30 days after entry.
We utilize our revolving credit 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 credit facility for general
corporate purposes. The funds drawn on individual occasions have varied in amounts of up to $98.0
million, with total amounts outstanding ranging from $2.0 million up to $108.0 million. The amounts
drawn are generally outstanding for a short period of time and are generally paid down as cash is
received from our operating activities.
Lehman Brothers Holdings Inc. (Lehman) is one of the lenders participating in our revolving
credit facility. Lehmans commitment under the $400.0 million revolving credit facility is
approximately $37.3 million, all of which is unfunded. On September 15, 2008, Lehman filed for
protection under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court in
the Southern District of New York. We cannot be certain that Lehman will participate in any
requests by us for funding under our revolving credit facility or whether another lender might
assume Lehmans commitment. We do not believe the Lehman bankruptcy will have a material adverse
effect on our liquidity.
71/2% Senior Subordinated Notes. In May 2009, we repurchased $150.0 million of our subordinated
notes at a redemption price equal to 100% of the principal amount outstanding, plus accrued
interest to the redemption date. In July 2009, we repurchased the remaining $75.4 million of our
subordinated notes at a redemption price equal to 100% of the principal amount outstanding, plus
accrued interest to the redemption date. All of our 71/2% senior subordinated notes due May 2010
were redeemed in accordance with their terms on their respective redemption dates and are now paid
in full.
Store Leases. We lease space for substantially all of our stores and service center locations, as
well as regional offices, under operating leases expiring at various times through 2019. Most of
our store leases are five year leases and contain renewal options for additional periods ranging
from three to five years at rental rates adjusted according to agreed-upon formulas.
ColorTyme Guarantee. ColorTyme is a party to an agreement with Wells Fargo Foothill, Inc. (Wells
Fargo), who provides $35.0 million in aggregate financing to qualifying franchisees of ColorTyme
generally up to five times their average monthly revenues. Under the Wells Fargo agreement, upon an
event of default by the franchisee under agreements governing this financing and upon the
occurrence of certain other events, Wells Fargo can assign the loans and the collateral securing
such loans to ColorTyme, with ColorTyme paying the outstanding debt to Wells Fargo and then
succeeding to the rights of Wells Fargo under the debt agreements, including the right to foreclose
on the collateral. The Wells Fargo agreement expires on September 30, 2010. An additional $20.0
million of financing is provided by Texas Capital Bank, National Association (Texas Capital Bank)
under an agreement similar to the Wells Fargo financing. Rent-A-Center East, Inc., a subsidiary of
Rent-A-Center, guarantees the obligations of ColorTyme under each of these agreements, excluding
the effects of any amounts that could be recovered under collateralization provisions, up to a
maximum amount of $55.0 million, of which $19.3 million was outstanding as of September 30, 2009.
Contractual Cash Commitments. The table below summarizes debt, lease and other minimum cash
obligations outstanding as of September 30, 2009:
21
RENT-A-CENTER, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
Contractual Cash Obligations |
|
Total |
|
|
2009 |
|
|
2010-2011 |
|
|
2012-2013 |
|
|
Thereafter |
|
Senior Debt (including current portion) |
|
$ |
659,080 |
(1) |
|
$ |
6,689 |
|
|
$ |
331,484 |
|
|
$ |
320,907 |
|
|
$ |
|
|
Operating Leases |
|
|
530,360 |
|
|
|
45,724 |
|
|
|
296,420 |
|
|
|
158,841 |
|
|
|
29,375 |
|
Capital Leases |
|
|
3,202 |
|
|
|
419 |
|
|
|
2,482 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (2) |
|
$ |
1,192,642 |
|
|
$ |
52,832 |
|
|
$ |
630,386 |
|
|
$ |
480,049 |
|
|
$ |
29,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts due under the Intrust line of credit. Amount
referenced does not include interest payments. Our senior credit facilities
bear interest at varying rates equal to the Eurodollar rate plus .75% to 1.75%
or the prime rate plus up to .75% at our election. The weighted average
Eurodollar rate on our outstanding debt at September 30, 2009 was 0.25%. |
|
(2) |
|
As of September 30, 2009, we have $2.1 million in uncertain tax
positions, net of federal benefit. Because of the uncertainty of the amounts
to be ultimately paid as well as the timing of such payments, these liabilities
are not reflected in the contractual obligations table. |
Repurchases of Outstanding Securities. Our Board of Directors has authorized a common stock
repurchase program, permitting us to purchase, from time to time, in the open market and privately
negotiated transactions, up to an aggregate of $500.0 million of Rent-A-Center common stock. As of
September 30, 2009, we had purchased a total of 19,412,750 shares of Rent-A-Center common stock for
an aggregate of $457.8 million under this common stock repurchase program.
Economic Conditions. Although our performance has not suffered in previous economic downturns, we
cannot assure you that demand for our products, particularly in higher price ranges, will not
significantly decrease in the event of a prolonged recession. Fluctuations in our targeted
customers monthly disposable income or high levels of unemployment could adversely impact our
results of operations.
Restructuring. The total amount of cash used in the store consolidation plan and other
restructuring items through September 30, 2009 was approximately $21.5 million, which primarily
related to lease terminations. We expect to use approximately $2.9 million of cash on hand for
future payments to satisfy the lease obligations at the stores. We expect the lease obligations
will be totally completed no later than the second quarter of 2013. Please refer to Note 3,
Restructuring, in the Notes to Consolidated Financial Statements on page 7 of this report for more
information on our 2007 store consolidation plan.
Seasonality. Our revenue mix is moderately seasonal, with the first quarter of each fiscal year
generally providing higher merchandise sales than any other quarter during a fiscal year, primarily
related to federal income tax refunds. Generally, our customers will more frequently exercise their
early purchase option on their existing rental purchase agreements or purchase pre-leased
merchandise off the showroom floor during the first quarter of each fiscal year. We expect this
trend to continue in future periods. Furthermore, we tend to experience slower growth in the
number of rental purchase agreements on rent in the third quarter of each fiscal year when compared
to other quarters throughout the year. As a result, we would expect revenues for the third quarter
of each fiscal year to remain relatively flat with the prior quarter. We expect this trend to
continue in future periods unless we add significantly to our store base during the third quarter
of future fiscal years as a result of new store openings or opportunistic acquisitions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Sensitivity
As of September 30, 2009, we had $659.1 million in term loans at interest rates indexed to the
Eurodollar rate.
Market Risk
Market risk is the potential change in an instruments value caused by fluctuations in interest
rates. Our primary market risk exposure is fluctuations in interest rates. Monitoring and
managing this risk is a continual process carried out by our senior management. We manage our
market risk based on an ongoing assessment of trends in interest rates and economic developments,
giving consideration to possible effects on both total return and reported earnings. As a result of
such assessment, we may enter into swap contracts or other interest rate protection agreements from
time to time to mitigate this risk.
22
RENT-A-CENTER, INC. AND SUBSIDIARIES
Interest Rate Risk
We hold long-term debt with variable interest rates indexed to prime or Eurodollar rates that
exposes us to the risk of increased interest costs if interest rates rise. As of September 30,
2009, we have not entered into any interest rate swap agreements. The credit markets continue to
experience adverse conditions, including wide fluctuations in rates. Such continued volatility in
the credit markets may increase the costs associated with our existing long-term debt. Based on
our overall interest rate exposure at September 30, 2009, a hypothetical 1.0% increase or decrease
in interest rates would have the effect of causing a $6.7 million additional pre-tax charge or
credit to our statement of earnings.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. An evaluation was performed under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as
of the end of the period covered by this quarterly report. Our disclosure controls and procedures
are designed to ensure that information required to be disclosed by us in the reports we file or
submit under the Securities Exchange Act of 1934, as amended, is (1) recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms and (2) accumulated and communicated to our management, including our
Chief Executive Officer, to allow timely decisions regarding required disclosure. Based on that
evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer,
concluded that our disclosure controls and procedures were effective.
Changes in internal controls. For the quarter ended September 30, 2009, there have been no changes
in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
23
RENT-A-CENTER, INC. AND SUBSIDIARIES
PART II Other Information
Item 1. Legal Proceedings.
From time to time, we, along with our subsidiaries, are party to various legal proceedings arising
in the ordinary course of business. In our history, we have defended class action lawsuits
alleging various regulatory violations and have paid material amounts to settle such claims. We
accrue for litigation loss contingencies that are both probable and reasonably estimable. We
expense legal fees and expenses incurred in connection with the defense of all of our litigation at
the time such amounts are invoiced or otherwise made known to us. As of September 30, 2009, we had
no accrual relating to probable losses for our outstanding litigation.
We continue to monitor our litigation exposure, and will review the adequacy of our legal reserves
on a quarterly basis in accordance with applicable accounting rules. Please refer to Managements
Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting
Policies Involving Critical Estimates, Uncertainties or Assessments in Our Financial Statements
regarding our process for evaluating our litigation reserves. Based on our review, we have not
established any reserves for our outstanding litigation.
Item 1A. Risk Factors.
You should carefully consider the risks described below before making an investment decision. We
believe these are all the material risks currently facing our business. Our business, financial
condition or results of operations could be materially adversely affected by these risks. The
trading price of our common stock could decline due to any of these risks, and you may lose all or
part of your investment. You should also refer to the other information included in this report,
including our financial statements and related notes.
We may not be able to successfully increase revenue in our rent-to-own stores, which could cause
our future earnings to grow more slowly or even decrease.
Our continued growth depends on our ability to increase sales in our existing rent-to-own stores.
For the nine months ended September 30, 2009, our same store sales decreased by 3.9% compared to
the nine months ended September 30, 2008. Our same store sales increased by 2.3%, 2.1% and 1.9%
for all of 2008, 2007 and 2006, respectively. As a result of new store openings in existing
markets and because mature stores will represent an increasing proportion of our store base over
time, our same store revenues in future periods may be lower than historical levels. If we are
unable to increase revenue in our rent-to-own stores, our earnings may grow more slowly or even
decrease.
If we fail to effectively manage the growth, integration and profitability of our financial
services business, we may not realize the economic benefit of our financial investment in such
operations.
We face risks associated with integrating our financial services business into our existing
operations, including further development of information technology and financial reporting
systems. In addition, a newly opened financial services location generally does not attain
positive cash flow during its first year of operations. Also, the financial services industry is
highly competitive and regulated by federal, state and local laws.
Our expansion into the financial services business could place a significant demand on our
management and our financial and operational resources. If we are unable to effectively implement
our financial services business, we may not realize the operational benefits of our investment in
the financial services business that we currently expect.
Rent-to-own transactions are regulated by law in most states. Any adverse change in these laws or
the passage of adverse new laws could expose us to litigation or require us to alter our business
practices.
As is the case with most businesses, we are subject to various governmental regulations, including
in our case, regulations specifically regarding rent-to-own transactions. Currently, 47 states, the
District of Columbia and Puerto Rico have passed
laws regulating rental purchase transactions. One additional state has a retail installment sales
statute that excludes rent-to-own transactions from its coverage if certain criteria are met. The
specific rental purchase laws generally require certain contractual and advertising disclosures.
They also provide varying levels of substantive consumer protection, such as requiring a grace
period for late fees and contract reinstatement rights in the event the rental purchase agreement
is terminated. The rental purchase laws of nine states limit the total amount that may be charged
over the life of a rental
24
RENT-A-CENTER, INC. AND SUBSIDIARIES
purchase agreement and the laws of four states limit the cash prices for which we may offer
merchandise. Most states also regulate rental purchase transactions, as well as other consumer
transactions, under various consumer protection statutes. In our history, we have been the subject
of litigation alleging that we have violated some of these statutory provisions.
Although there is currently no comprehensive federal legislation regulating rental purchase
transactions, adverse federal legislation may be enacted in the future. From time to time, both
favorable and adverse legislation seeking to regulate our business has been introduced in Congress.
In addition, various legislatures in the states where we currently do business may adopt new
legislation or amend existing legislation that could require us to alter our business practices.
Financial services transactions are regulated by federal law as well as the laws of certain states.
Any adverse changes in these laws or the passage of adverse new laws with respect to the financial
services business could slow our growth opportunities, expose us to litigation or alter our
business practices in a manner that we may deem to be unacceptable.
Our financial services business is subject to federal statutes and regulations such as the USA
Patriot Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending
Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, the Anti-Money Laundering
Act, and similar state laws. In addition, we are subject to various state regulations regarding the
terms of our short term consumer loans and our policies, procedures and operations relating to
those loans, including the fees we may charge, as well as fees we may charge in connection with our
other financial services products. The failure to comply with such regulations may result in the
imposition of material fines, penalties, or injunctions. Congress and/or the various legislatures
in the states where we currently operate or intend to offer financial services products may adopt
new legislation or amend existing legislation with respect to our financial services business that
could require us to alter our business practices in a manner that we may deem to be unacceptable,
which could slow our growth opportunities.
We may be subject to legal proceedings from time to time which seek material damages. The costs we
incur in defending ourselves or associated with settling any of these proceedings, as well as a
material final judgment or decree against us, could materially adversely affect our financial
condition by requiring the payment of the settlement amount, a judgment or the posting of a bond.
In our history, we have defended class action lawsuits alleging various regulatory violations and
have paid material amounts to settle such claims. Significant settlement amounts or final
judgments could materially and adversely affect our liquidity. The failure to pay any material
judgment would be a default under our senior credit facilities.
Our senior credit facilities impose restrictions on us which may limit or prohibit us from engaging
in certain transactions. If a default were to occur, our lenders could accelerate the amounts of
debt outstanding, and holders of our secured indebtedness could force us to sell our assets to
satisfy all or a part of what is owed.
Covenants under our senior credit facilities restrict our ability to pay dividends, engage in
various operational matters, as well as require us to maintain specified financial ratios. Our
ability to meet these financial ratios may be affected by events beyond our control. These
restrictions could limit our ability to obtain future financing, make needed capital expenditures
or other investments, repurchase our outstanding debt or equity, withstand a future downturn in our
business or in the economy, dispose of operations, engage in mergers, acquire additional stores or
otherwise conduct necessary corporate activities. Various transactions that we may view as
important opportunities, such as specified acquisitions, are also subject to the consent of lenders
under the senior credit facilities, which may be withheld or granted subject to conditions
specified at the time that may affect the attractiveness or viability of the transaction.
If a default were to occur, the lenders under our senior credit facilities could accelerate the
amounts outstanding under the credit facilities. In addition, the lenders under these agreements
could terminate their commitments to lend to us. If the
lenders under these agreements accelerate the repayment of borrowings, we may not have sufficient
liquid assets at that time to repay the amounts then outstanding under our indebtedness or be able
to find additional alternative financing. Even if we could obtain additional alternative financing,
the terms of the financing may not be favorable or acceptable to us.
The existing indebtedness under our senior credit facilities is secured by substantially all of our
assets. Should a default or acceleration of this indebtedness occur, the holders of this
indebtedness could sell the assets to satisfy all or a part of what is owed.
A change of control could accelerate our obligation to pay our outstanding indebtedness, and we may
not have sufficient liquid assets at that time to repay these amounts.
25
RENT-A-CENTER, INC. AND SUBSIDIARIES
Under our senior credit facilities, an event of default would result if a third party became the
beneficial owner of 35.0% or more of our voting stock or upon certain changes in the constitution
of Rent-A-Centers Board of Directors. As of September 30, 2009, $659.1 million was outstanding
under our senior debt. If a specified change in control occurs and the lenders under our senior
credit facilities accelerate these obligations, we may not have sufficient liquid assets to repay
amounts outstanding under these agreements.
Rent-A-Centers organizational documents and our senior credit facilities contain provisions that
may prevent or deter another group from paying a premium over the market price to Rent-A-Centers
stockholders to acquire its stock.
Rent-A-Centers organizational documents contain provisions that classify its Board of Directors,
authorize its Board of Directors to issue blank check preferred stock and establish advance notice
requirements on its stockholders for director nominations and actions to be taken at meetings of
the stockholders. In addition, as a Delaware corporation, Rent-A-Center is subject to Section 203
of the Delaware General Corporation Law relating to business combinations. Our senior credit
facilities contain change of control provisions which, in the event of a change of control, would
cause a default under those provisions. These provisions and arrangements could delay, deter or
prevent a merger, consolidation, tender offer or other business combination or change of control
involving us that could include a premium over the market price of Rent-A-Centers common stock
that some or a majority of Rent-A-Centers stockholders might consider to be in their best
interests.
Rent-A-Center is a holding company and is dependent on the operations and funds of its
subsidiaries.
Rent-A-Center is a holding company, with no revenue generating operations and no assets other than
its ownership interests in its direct and indirect subsidiaries. Accordingly, Rent-A-Center is
dependent on the cash flow generated by its direct and indirect operating subsidiaries and must
rely on dividends or other intercompany transfers from its operating subsidiaries to generate the
funds necessary to meet its obligations, including the obligations under the senior credit
facilities. The ability of Rent-A-Centers subsidiaries to pay dividends or make other payments to
it is subject to applicable state laws. Should one or more of Rent-A-Centers subsidiaries be
unable to pay dividends or make distributions, its ability to meet its ongoing obligations could be
materially and adversely impacted.
Our stock price is volatile, and you may not be able to recover your investment if our stock price
declines.
The price of our common stock has been volatile and can be expected to be significantly affected by
factors such as:
|
|
quarterly variations in our results of operations, which may be impacted by, among other
things, changes in same store sales, when and how many rent-to-own stores we acquire or open,
and the rate at which we add financial services to our existing rent-to-own stores; |
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quarterly variations in our competitors results of operations; |
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changes in earnings estimates or buy/sell recommendations by financial analysts; and |
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the stock price performance of comparable companies. |
In addition, the stock market as a whole has experienced extreme price and volume fluctuations that
have affected the market price of many specialty retailers in ways that may have been unrelated to
these companies operating performance.
Failure to achieve and maintain effective internal controls could have a material adverse effect on
our business and stock price.
Effective internal controls are necessary for us to provide reliable financial reports. If we
cannot provide reliable financial reports, our brand and operating results could be harmed. All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
While we continue to evaluate and improve our internal controls, we cannot be certain that these
measures will ensure that we implement and maintain adequate controls over our financial processes
and reporting in the future. Any failure to implement
26
RENT-A-CENTER, INC. AND SUBSIDIARIES
required new or improved controls, or difficulties encountered in their implementation, could harm
our operating results or cause us to fail to meet our reporting obligations.
If we fail to maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal
control environment could cause investors to lose confidence in our reported financial information,
which could have a material adverse effect on our stock price.
Item 6. Exhibits.
The exhibits required to be furnished pursuant to Item 6 are listed in the Exhibit Index filed
herewith, which Exhibit Index is incorporated herein by reference.
27
RENT-A-CENTER, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this Report to be signed on its behalf by the undersigned duly
authorized officer.
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RENT-A-CENTER, INC.
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By: |
/s/ Robert D. Davis
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Robert D. Davis |
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Executive Vice President-Finance,
Chief Financial Officer and Treasurer |
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Date: October 30, 2009
28
RENT-A-CENTER, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
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3.1
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Certificate of Incorporation of
Rent-A-Center, Inc., as amended (Incorporated
herein by reference to Exhibit 3.1 to the
registrants Current Report on Form 8-K dated
as of December 31, 2002.) |
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3.2
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Certificate of Amendment to the Certificate
of Incorporation of Rent-A-Center, Inc.,
dated May 19, 2004 (Incorporated herein by
reference to Exhibit 3.2 to the registrants
Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004.) |
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3.3
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Amended and Restated Bylaws of Rent-A-Center,
Inc. (Incorporated herein by reference to
Exhibit 3.1 to the registrants Current
Report on Form 8-K dated as of December 11,
2008.) |
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4.1
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Form of Certificate evidencing Common Stock
(Incorporated herein by reference to Exhibit
4.1 to the registrants Registration
Statement on Form S-4/A filed on January 13,
1999.) |
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10.1
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Amended and Restated Rent-A-Center, Inc.
Long-Term Incentive Plan (Incorporated herein
by reference to Exhibit 10.1 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2003.) |
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10.2
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Amended and Restated Guarantee and Collateral
Agreement, dated as of May 28, 2003, as
amended and restated as of July 14, 2004,
made by Rent-A-Center, Inc. and certain of
its Subsidiaries in favor of JPMorgan Chase
Bank, as Administrative Agent (Incorporated
herein by reference to Exhibit 10.2 to the
registrants Current Report on Form 8-K dated
July 15, 2004.) |
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10.3
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Franchisee Financing Agreement, dated April
30, 2002, but effective as of June 28, 2002,
by and between Texas Capital Bank, National
Association, ColorTyme, Inc. and
Rent-A-Center, Inc. (Incorporated herein by
reference to Exhibit 10.14 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002.) |
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10.4
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Supplemental Letter Agreement to Franchisee
Financing Agreement, dated May 26, 2003, by
and between Texas Capital Bank, National
Association, ColorTyme, Inc. and
Rent-A-Center, Inc. (Incorporated herein by
reference to Exhibit 10.23 to the
registrants Registration Statement on Form
S-4 filed July 11, 2003.) |
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10.5
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First Amendment to Franchisee Financing
Agreement, dated August 30, 2005, by and
among Texas Capital Bank, National
Association, ColorTyme, Inc. and
Rent-A-Center East, Inc. (Incorporated herein
by reference to Exhibit 10.7 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2005.) |
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10.6
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Amended and Restated Franchise Financing
Agreement, dated October 1, 2003, by and
among Wells Fargo Foothill, Inc., ColorTyme,
Inc. and Rent-A-Center East, Inc.
(Incorporated herein by reference to Exhibit
10.22 to the registrants Quarterly Report on
Form 10-Q for the quarter ended September 30,
2003.) |
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10.7
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First Amendment to Amended and Restated
Franchisee Financing Agreement, dated
December 15, 2003, by and among Wells Fargo
Foothill, Inc., ColorTyme, Inc. and
Rent-A-Center East, Inc. (Incorporated herein
by reference to Exhibit 10.23 to the
registrants Annual Report on Form 10-K/A for
the year ended December 31, 2003.) |
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10.8
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Second Amendment to Amended and Restated
Franchisee Financing Agreement, dated as of
March 1, 2004, by and among Wells Fargo
Foothill, Inc., ColorTyme, Inc. and
Rent-A-Center East, Inc. (Incorporated herein
by reference to Exhibit 10.24 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended March 31, 2004.) |
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10.9
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Third Amendment to Amended and Restated
Franchisee Financing Agreement, dated as of
September 29, 2006, by and among Wells Fargo
Foothill, Inc., ColorTyme, Inc. and
Rent-A-Center East, Inc. (Incorporated herein
by reference to Exhibit 10.10 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2006.) |
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10.10
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Fourth Amendment to Amended and Restated
Franchisee Financing Agreement, dated as of
December 19, 2006, by and among Wells Fargo
Foothill, Inc., ColorTyme, Inc. and
Rent-A-Center East, Inc. (Incorporated herein
by reference to Exhibit 10.10 to the
registrants Annual Report on Form 10-K for
the year ended December 31, 2006.) |
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10.11
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Form of Stock Option Agreement issuable to
Directors pursuant to the Amended and
Restated Rent-A-Center, Inc. Long-Term
Incentive Plan (Incorporated herein by
reference to Exhibit 10.20 to the
registrants Annual Report on Form 10-K for
the year ended December 31, 2004.) |
29
RENT-A-CENTER, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
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10.12
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Form of Stock Option Agreement issuable to
management pursuant to the Amended and
Restated Rent-A-Center, Inc. Long-Term
Incentive Plan (Incorporated herein by
reference to Exhibit 10.21 to the
registrants Annual Report on Form 10-K for
the year ended December 31, 2004.) |
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10.13
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Summary of Director Compensation
(Incorporated herein by reference to Exhibit
10.13 to the registrants Annual Report on
Form 10-K for the year ended December 31,
2008.) |
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10.14
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Form of Stock Compensation Agreement issuable
to management pursuant to the Amended and
Restated Rent-A-Center, Inc. Long-Term
Incentive Plan (Incorporated herein by
reference to Exhibit 10.15 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006.) |
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10.15
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Form of Long-Term Incentive Cash Award
issuable to management pursuant to the
Amended and Restated Rent-A-Center, Inc.
Long-Term Incentive Plan (Incorporated herein
by reference to Exhibit 10.16 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006.) |
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10.16
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Form of Loyalty and Confidentiality Agreement
entered into with management (Incorporated
herein by reference to Exhibit 10.17 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006.) |
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10.17
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Rent-A-Center, Inc. 2006 Long-Term Incentive
Plan (Incorporated herein by reference to
Exhibit 10.17 to the registrants Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2006.) |
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10.18
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Form of Stock Option Agreement issuable to
management pursuant to the Rent-A-Center,
Inc. 2006 Long-Term Incentive Plan
(Incorporated herein by reference to Exhibit
10.18 to the registrants Quarterly Report on
Form 10-Q for the quarter ended June 30,
2006.) |
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10.19
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Form of Stock Compensation Agreement issuable
to management pursuant to the Rent-A-Center,
Inc. 2006 Equity Incentive Plan (Incorporated
herein by reference to Exhibit 10.19 to the
registrants Annual Report on Form 10-K for
the year ended December 31, 2006.) |
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10.20
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Form of Long-Term Incentive Cash Award
issuable to management pursuant to the
Rent-A-Center, Inc. 2006 Long-Term Incentive
Plan (Incorporated herein by reference to
Exhibit 10.20 to the registrants Annual
Report on Form 10-K for the year ended
December 31, 2006.) |
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10.21
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Rent-A-Center, Inc. 2006 Equity Incentive
Plan and Amendment (Incorporated herein by
reference to Exhibit 4.5 to the registrants
Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on
January 4, 2007.) |
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10.22
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Form of Stock Option Agreement issuable to
management pursuant to the Rent-A-Center,
Inc. 2006 Equity Incentive Plan (Incorporated
herein by reference to Exhibit 10.22 to the
registrants Annual Report on Form 10-K for
the year ended December 31, 2006.) |
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10.23
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Form of Stock Compensation Agreement issuable
to management pursuant to the Rent-A-Center,
Inc. 2006 Long-Term Incentive Plan
(Incorporated herein by reference to Exhibit
10.23 to the registrants Annual Report on
Form 10-K for the year ended December 31,
2006.) |
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10.24
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Form of Stock Option Agreement issuable to
Directors pursuant to the Rent-A-Center, Inc.
2006 Long-Term Incentive Plan (Incorporated
herein by reference to Exhibit 10.24 to the
registrants Annual Report on Form 10-K for
the year ended December 31, 2006.) |
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10.25
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Form of Deferred Stock Unit Award Agreement
issuable to Directors pursuant to the
Rent-A-Center, Inc. 2006 Long-Term Incentive
Plan (Incorporated herein by reference to
Exhibit 10.25 to the registrants Annual
Report on Form 10-K for the year ended
December 31, 2008.) |
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10.26
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Form of Executive Transition Agreement
entered into with management (Incorporated
herein by reference to Exhibit 10.21 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2006.) |
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10.27
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Employment Agreement, dated October 2, 2006,
between Rent-A-Center, Inc. and Mark E.
Speese (Incorporated herein by reference to
Exhibit 10.22 to the registrants Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2006.) |
30
RENT-A-CENTER, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
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Exhibit No. |
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Description |
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10.28
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Non-Qualified Stock Option Agreement, dated
October 2, 2006, between Rent-A-Center, Inc.
and Mark E. Speese (Incorporated herein by
reference to Exhibit 10.23 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2006.) |
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10.29
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Rent-A-Center, Inc. Non-Qualified Deferred
Compensation Plan (Incorporated herein by
reference to Exhibit 10.28 to the
registrants Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007.) |
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10.30
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Rent-A-Center, Inc. 401-K Plan (Incorporated
herein by reference to Exhibit 10.30 to the
registrants Annual Report on Form 10-K for
the year ended December 31, 2008.) |
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10.31
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Third Amended and Restated Credit Agreement,
dated as of November 15, 2006, among
Rent-A-Center, Inc., the several banks and
other financial institutions or entities from
time to time parties thereto, Union Bank of
California, N.A., as documentation agent,
Lehman Commercial Paper Inc., as syndication
agent, and JPMorgan Chase Bank, N.A., as
administrative agent (Incorporated herein by
reference to Exhibit 10.1 to the registrants
Current Report on Form 8-K dated November 15,
2006.) |
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21.1
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Subsidiaries of Rent-A-Center, Inc.
(Incorporated herein by reference to Exhibit
21.1 to the registrants Annual Report on
Form 10-K for the year ended December 31,
2008.) |
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31.1*
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Certification pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934
implementing Section 302 of the
Sarbanes-Oxley Act of 2002 by Mark E. Speese |
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31.2*
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Certification pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934
implementing Section 302 of the
Sarbanes-Oxley Act of 2002 by Robert D. Davis |
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32.1*
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Certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by Mark E.
Speese |
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32.2*
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Certification pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by Robert D.
Davis |
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Management contract or compensatory plan or arrangement |
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Filed herewith. |
31