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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-38047
Rent-A-Center, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
45-0491516
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
5501 Headquarters Drive
Plano, Texas 75024
(Address, including zip code of registrant's
principal executive offices)
Registrant's telephone number, including area code: 972-801-1100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Exchange on Which Registered
Common Stock, par value $0.01 per share
RCII
The Nasdaq Stock Market LLC
 
 
 
Securities registered pursuant to Section 12(g) of the Act: None
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes     No 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes    No 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer      Accelerated filer      Non-accelerated filer 
Smaller reporting company  Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No 
Aggregate market value of the 48,830,414 shares of Common Stock held by non-affiliates of the registrant at the closing sales price as reported on The Nasdaq Global Select Market, Inc. on June 30, 2019
$
1,300,353,876

Number of shares of Common Stock outstanding as of the close of business on February 21, 2020:
55,230,574

Documents incorporated by reference:
Portions of the definitive proxy statement relating to the 2020 Annual Meeting of Stockholders of Rent-A-Center, Inc. are incorporated by reference into Part III of this report.

.



TABLE OF CONTENTS 
 
 
Page
 
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
 
 
 
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
 
 
 
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
 
 
 
SIGNATURES


i


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could,” “may,” “aims,” “intends,” or “projects.” A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. These forward-looking statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Annual Report on Form 10-K and any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. Factors that could cause or contribute to these differences include, but are not limited to:
the general strength of the economy and other economic conditions affecting consumer preferences and spending;
factors affecting the disposable income available to our current and potential customers;
changes in the unemployment rate;
capital market conditions, including availability of funding sources for us;
changes in our credit ratings;
difficulties encountered in improving the financial and operational performance of our business segments;
risks associated with pricing changes and strategies being deployed in our businesses;
our ability to continue to realize benefits from our initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working capital improvements;
our ability to continue to effectively execute our strategic initiatives;
failure to manage our store labor and other store expenses;
disruptions caused by the operation of our store information management systems;
our ability to realize the strategic benefits from the Merchants Preferred Acquisition, including achieving expected synergies and operating efficiencies from the acquisition;
our ability to successfully integrate Merchants Preferred's operations which may be more difficult, time-consuming or costly than expected;
operating costs, loss of retail partners and business disruption arising from the Merchants Preferred Acquisition;
the ability to retain certain key employees at Merchants Preferred;
risks related to our virtual lease-to-own business, including our ability to continue to develop and successfully implement the necessary technologies;
our ability to achieve the benefits expected from our recently announced integrated retail preferred offering, Preferred Lease, including our ability to integrate our historic retail partner business (Acceptance Now) and the Merchants Preferred business under the Preferred Lease offering;
our transition to more-readily scalable "cloud-based" solutions;
our ability to develop and successfully implement digital or E-commerce capabilities, including mobile applications;
disruptions in our supply chain;
limitations of, or disruptions in, our distribution network;
rapid inflation or deflation in the prices of our products;
our ability to execute and the effectiveness of a store consolidation, including our ability to retain the revenue from customer accounts merged into another store location as a result of a store consolidation;
our available cash flow and our ability to generate sufficient cash flow to continue paying dividends;
our ability to identify and successfully market products and services that appeal to our customer demographic;

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consumer preferences and perceptions of our brands;
our ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores;
our ability to enter into new and collect on our rental or lease purchase agreements;
changes in the enforcement of existing laws and regulations and the enactment of new laws and regulations adversely affecting our business;
our compliance with applicable statutes or regulations governing our businesses;
changes in interest rates;
changes in tariff policies;
adverse changes in the economic conditions of the industries, countries or markets that we serve;
information technology and data security costs;
the impact of any breaches in data security or other disturbances to our information technology and other networks and our ability to protect the integrity and security of individually identifiable data of our customers and employees;
changes in estimates relating to self-insurance liabilities and income tax and litigation reserves;
changes in our effective tax rate;
fluctuations in foreign currency exchange rates;
our ability to maintain an effective system of internal controls;
litigation or administrative proceedings to which we are or may be a party to from time to time; and
the other risks detailed from time to time in our reports furnished or filed with the Securities and Exchange Commission.

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PART I
Item 1. Business.
History of Rent-A-Center
Unless the context indicates otherwise, references to “we,” “us” and “our” refer to the consolidated business operations of Rent-A-Center, Inc., the parent, and any or all of its direct and indirect subsidiaries. For any references in this document to Note A through Note U, refer to the Notes to Consolidated Financial Statements in Item 8.
We are a lease-to-own industry leader, focused on improving the lives of our customers by providing them the opportunity to obtain ownership of the high-quality products they need and want such as furniture and accessories, appliances, consumer electronics, computers, tablets and smartphones, and a variety of other products, under flexible lease purchase agreements with no long-term obligation. We were incorporated in the State of Delaware in 1986, and our common stock is traded on the Nasdaq Global Select Market under the symbol "RCII."
Our principal executive offices are located at 5501 Headquarters Drive, Plano, Texas 75024. Our telephone number is (972) 801-1100 and our company website is www.rentacenter.com. We do not intend for information contained on our website to be part of this Annual Report on Form 10-K. We file annual reports on Form 10-K, quarterly reports on Form 10-Q, periodic reports on Form 8-K, proxy statements and other information with the United States Securities and Exchange Commission ("SEC"). The public may obtain copies of these reports and any amendments at the SEC's Internet site, www.sec.gov. Additionally, we make available free of charge on or through our website our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also provide electronic or paper copies of our filings free of charge upon request.
The Rental Purchase Transaction
The rental purchase transaction is a flexible alternative for consumers to obtain use and enjoyment of brand name merchandise with no long-term obligation. Key features of the rental purchase transaction include:
Brand name merchandise. In our store locations and through our retail partnerships, we offer merchandise from well-known brands such as Ashley home furnishings; LG, Samsung, and Sony home electronics; Frigidaire, Whirlpool, Amana, and Maytag appliances; HP, Dell, Acer, Apple, Asus, Samsung and Toshiba computers and/or tablets; and Samsung and Apple smartphones.
Convenient payment options. Our customers make payments on a weekly, semi-monthly or monthly basis in our stores, at our retail partner locations, online or by telephone. We accept cash, credit or debit cards. Rental payments received at our store or retail partner locations are generally made in advance. Under the virtual business model, payments are generally made in arrears at the end of the lease term. Rental payments together with applicable fees, constitute our primary revenue source. Approximately 78% and 93% of our rental purchase agreements are on weekly terms in our Rent-A-Center Business and our Mexico segments, respectively. Payments are generally made on a biweekly or monthly basis in our Preferred Lease segment.
No long term obligation. A customer may terminate a rental purchase agreement at any time without penalty.
No credit needed. Generally, we do not conduct a formal credit investigation of our customers. In the Rent-A-Center Business segment, we primarily verify a customer’s residence and sources of income. References provided by the customer are also contacted to verify certain information contained in the rental purchase order form. In our Preferred Lease segment customers complete the application process through a variety of resources, including online digital waterfall technology, retail partner electronic portals, online e-commerce websites, and a robust proprietary automated decision engine process used to confirm certain customer information for approval of the rental purchase agreement.
Delivery & set-up included. We generally offer same-day or next-day delivery and installation of our merchandise at no additional cost to the customer in our lease-to-own stores. Our Preferred Lease locations rely on our third-party retail partners to deliver merchandise rented by the customer. Such third-party retail partners typically charge us a fee for delivery, which we pass on to the customer.
Product maintenance & replacement. We provide any required service or repair without additional charge, except for damage in excess of normal wear and tear. The cost to repair the merchandise may be reimbursed by the vendor if the item is still under factory warranty. If the product cannot be repaired at the customer’s residence, we provide a temporary replacement while the product is being repaired. If the product cannot be repaired, we will replace it with a product of comparable quality, age and condition.

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Lifetime reinstatement. If a customer is temporarily unable to make payments on a piece of rental merchandise and returns the merchandise, that customer generally may later re-rent the same piece of merchandise (or if unavailable, a substitute of comparable quality, age and condition) on the terms that existed at the time the merchandise was returned, and pick up payments where they left off without losing what they previously paid.
Flexible options to obtain ownership. Ownership of the merchandise generally transfers to the customer if the customer has continuously renewed the rental purchase agreement for a period of seven to 30 months, depending upon the product type, or exercises a specified early purchase option.
Our Strategy
Our strategy is focused on growing our business model through emphasis on the following key initiatives:
Executing on large market opportunities using a virtual platform via our Preferred Lease offering and e-commerce
Continue solid trends in our Rent-A-Center Business segment driven by accelerating e-commerce momentum, expanding product categories, and improving the customer experience
Generating favorable EBITDA margin and strong free cash flow to fund strategic priorities and return capital to shareholders
As we pursue our strategy, we may take advantage of merger and acquisition opportunities from time to time that advance our key initiatives, and to engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or dispositions or other transactions, although there can be no assurance that any such activities will be consummated.
Our Operating Segments
We report financial operating performance under four operating segments. To better reflect the Company's current strategic focus, our retail partner business operations are now reported as the Preferred Lease segment (formerly Acceptance Now), which includes our virtual, staffed and hybrid business models; and our company-owned stores, and e-commerce platform through rentacenter.com, are now reported as the Rent-A-Center Business segment (formerly Core U.S.). In addition we report operating results for our Mexico and Franchising segments. Additional information regarding our operating segments is presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 of this Annual Report on Form 10-K, and financial information regarding these segments and revenues by geographic area are provided in Note S to the consolidated financial statements contained in this Annual Report on Form 10-K. Substantially all of our revenues for the past three years originated in the United States.
Rent-A-Center Business
Our Rent-A-Center Business segment is our largest operating segment, comprising approximately 67% of our consolidated net revenues for the year ended December 31, 2019. Approximately 80% of our business in this segment is from repeat customers.
At December 31, 2019, we operated 1,973 company-owned stores in the United States and Puerto Rico, including 44 retail installment sales stores under the names “Get It Now” and “Home Choice.” We routinely evaluate the markets in which we operate to optimize our store network.
Preferred Lease
Our Preferred Lease segment, which operates in the United States and Puerto Rico, and includes the operations of the recently acquired Merchants Preferred, generally provides an on-site lease-to-own option at a third-party retailer’s location, including staffed options, un-manned or virtual options, or a combination of the two (the hybrid model). In the event a retail purchase credit application is declined, the customer can be introduced to an in-store Preferred Lease representative at our staffed locations, or work with a representative of the third party retailer or directly with our virtual solution to initiate the lease-to-own transaction to obtain the merchandise. Because we neither require nor perform a formal credit investigation for the approval of the rental purchase transaction, we use a proprietary automated process to confirm certain customer information for approval of the rental purchase agreement. We believe our Preferred Lease model is beneficial for both the retailer and the consumer. The retailer captures more sales because we buy the merchandise directly from them. We believe consumers also benefit from our Preferred Lease model because they are able to obtain the products they want and need without the necessity of credit. We pay the retail price for merchandise purchased from our retail partners and subsequently leased to the customer. Through certain retail partners, we offer our customers the option to obtain ownership of the product at or slightly above the full retail price if they pay within 90 days. In some cases, the retailer provides us a rebate on the cost of the merchandise if the customer exercises this 90-day option.

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Our Preferred Lease operating model is highly agile and dynamic because we can open and close locations quickly and efficiently. Generally, our Preferred Lease staffed locations consist of an area with a computer, desk and chairs. We occupy the space without charge by agreement with each retailer. In our virtual locations, transactions are initiated through an electronic portal accessible by retail partners on their store computers. Accordingly, capital expenditures with respect to new Preferred Lease locations are minimal.
We rely on our third-party retail partners to deliver merchandise rented by the customer. Such third-party retail partners typically charge us a fee for delivery, which we pass on to the customer. In the event the customer returns rented merchandise, we pick it up at no additional charge. Merchandise returned from a Preferred Lease location is subsequently offered for rental at one of our Rent-A-Center Business stores.
As of December 31, 2019, we operated 998 staffed locations inside retailers located in 41 states and Puerto Rico.
Mexico
Our Mexico segment currently consists of our company-owned lease-to-own stores in Mexico. At December 31, 2019, we operated 123 stores in this segment.
Franchising
The stores in our Franchising segment use Rent-A-Center's, ColorTyme's or RimTyme’s trade names, service marks, trademarks and logos, and operate under distinctive operating procedures and standards. Franchising's primary source of revenue is the sale of rental merchandise to its franchisees who, in turn, offer the merchandise to the general public for rent or purchase under a lease-to-own transaction.
At December 31, 2019, this segment franchised 372 stores in 33 states operating under the Rent-A-Center (305 stores), ColorTyme (30 stores) and RimTyme (37 stores) names. These lease-to-own stores primarily offer high quality products such as furniture and accessories, consumer electronics, appliances, computers, wheels and tires.
As franchisor, Franchising receives royalties of 2.0% to 6.0% of the franchisees’ monthly gross revenue and, generally, an initial fee up to $10,000 per new location.
The following table summarizes our locations allocated among these operating segments as of December 31:
 
2019
 
2018
 
2017
Rent-A-Center Business
1,973

 
2,158

 
2,381

Preferred Lease(1)
998

 
1,106

 
1,106

Mexico
123

 
122

 
131

Franchising
372

 
281

 
225

Total locations(1)
3,466

 
3,667

 
3,843

(1) Does not include virtual locations.
The following discussion applies generally to all of our operating segments, unless otherwise noted.
Rent-A-Center Operations
Store Expenses
Our expenses primarily relate to merchandise costs and the cost of operating 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 other expenses.
Product Selection
The stores in our Rent-A-Center Business, Mexico, and Franchise segments generally offer merchandise from certain basic product categories: furniture and accessories, appliances, consumer electronics, computers, tablets and smartphones. In addition, in the Rent-A-Center Business segment, we have recently expanded into other product categories including tools, tires, jewelry and other accessories. Although we seek to maintain sufficient inventory in our stores to offer customers a wide variety of models, styles and brands, we generally limit merchandise to prescribed levels to maintain strict inventory controls. We seek to provide a wide variety of high quality merchandise to our customers, and we emphasize products from name-brand manufacturers. Customers may request either new merchandise or previously rented merchandise. Previously rented merchandise is generally offered at a

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similar weekly, semi-monthly, or monthly rental rate as is offered for new merchandise, but with an opportunity to obtain ownership of the merchandise after fewer rental payments.
Our furniture products include dining room, living room and bedroom furniture featuring a number of styles, materials and colors. Accessories include lamps and tables and are typically rented as part of a package of items, such as a complete room of furniture. Showroom displays enable customers to visualize how the product will look in their homes and provide a showcase for accessories. Appliances include refrigerators, freezers, washing machines, dryers, and ranges. Consumer electronic products offered by our stores include high definition televisions, home theater systems, video game consoles and stereos. We offer desktop, laptop, tablet computers and smartphones.
The merchandise assortment may vary in our non-U.S. stores according to market characteristics and consumer demand unique to the particular country in which we are operating. For example, in Mexico, the appliances we offer are sourced locally, providing our customers in Mexico the look and feel to which they are accustomed in that product category.
Preferred Lease locations offer the merchandise available for sale at the applicable third-party retailer, primarily furniture and accessories, consumer electronics and appliances.
For the year ended December 31, 2019, furniture and accessories accounted for approximately 44% of our consolidated rentals and fees revenue, consumer electronic products for 16%, appliances for 16%, computers for 5%, smartphones for 3% and other products and services for 17%.
Product Turnover
On average, in the Rent-A-Center Business segment, a rental term of 16 months or exercising an early purchase option is generally required to obtain ownership of new merchandise. Product turnover is the number of times a product is rented to a different customer. On average, a product is rented (turned over) to multiple customers before a customer acquires ownership. Merchandise returned in the Preferred Lease segment is moved to a Rent-A-Center Business store where it is offered for rent. Ownership is attained in approximately 35% of rental purchase agreements in the Rent-A-Center Business segment. The average total life for each product in our Rent-A-Center Business segment is approximately 15 months, which includes the initial rental period, all re-rental periods and idle time in our system. To cover the higher operating expenses generated by the key benefits of rental purchase transactions and product turnover, rental purchase agreements require higher aggregate payments than are generally charged under other types of purchase plans, such as installment purchase or credit plans.
Collections
Store managers use our management information system to track collections on a daily basis. If a customer fails to make a rental payment when due, store personnel will attempt to contact the customer to obtain payment and reinstate the agreement, or will terminate the account and arrange to regain possession of the merchandise. We attempt to recover the rental items as soon as possible following termination or default of a rental purchase agreement. Collection efforts are enhanced by the personal and job-related references required of customers, the personal nature of the relationships between our employees and customers, and the availability of lifetime reinstatement. Currently, we track past due amounts using a guideline of seven days in our Rent-A-Center Business segment and 30 days in the Preferred Lease segment. These metrics align with the majority of the rental purchase agreements in each segment, since payments are generally made weekly in the Rent-A-Center Business segment and monthly in the Preferred Lease segment.
If a customer does not return the merchandise or make payment, the remaining book value of the rental merchandise associated with delinquent accounts is generally charged off on or before the 90th day following the time the account became past due in the Rent-A-Center Business and Mexico segments, and during the month following the 150th day in the Preferred Lease segment.
Purchasing
In our Rent-A-Center Business and Mexico segments, we purchase our rental merchandise from a variety of suppliers. In 2019, approximately 22% of our merchandise purchases were attributable to Ashley Furniture Industries and approximately 11% were attributable to Whirlpool Corporation. No other brand accounted for more than 10% of merchandise purchased during these periods. We do not generally enter into written contracts with our suppliers that obligate us to meet certain minimum purchasing levels. Although we expect to continue relationships with our existing suppliers, we believe there are numerous sources of products available, and we do not believe the success of our operations is dependent on any one or more of our present suppliers.
In our Preferred Lease segment, we purchase the merchandise selected by the customer from the applicable third-party retailer at the time such customer enters into a rental purchase agreement with us.

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With respect to our Franchising segment, the franchise agreement requires the franchised stores to exclusively offer for rent or sale only those brands, types and models of products that Franchising has approved. The franchised stores are required to maintain an adequate mix of inventory that consists of approved products for rent as dictated by Franchising policy manuals. Franchisees can purchase product through us or directly from various approved suppliers.
Management
Our executive management team has extensive lease-to-own or similar retail experience and has demonstrated the ability to grow and manage our business through their operational leadership and strategic vision. In addition, our regional and district managers generally have long tenures with us, and we have a history of promoting management personnel from within. We believe this extensive industry and company experience will allow us to effectively execute our strategies.
Marketing
We promote our products and services through television and digital radio commercials, print advertisements, store telemarketing, digital display advertisements, direct email campaigns, social networks, paid and organic search, website and store signage. Our advertisements emphasize such features as product and name-brand selection, the opportunity to pay as you go without credit, long-term contracts or obligations, delivery and set-up at no additional cost, product repair and loaner services at no extra cost, lifetime reinstatement and multiple options to acquire ownership, including 180-day option pricing, an early purchase option or through a fixed number of payments. In addition, we promote the “RAC Worry-Free Guarantee®” to further highlight these aspects of the rental purchase transaction. We believe that by leveraging our advertising efforts to highlight the benefits of the rental purchase transaction, we will continue to educate our customers and potential customers about the lease-to-own alternative to credit as well as solidify our reputation as a leading provider of high-quality, branded merchandise and services.
Franchising has established national advertising funds for the franchised stores, whereby Franchising has the right to collect up to 3% of the monthly gross revenue from each franchisee as contributions to the fund. Franchising directs the advertising programs of the fund, generally consisting of television and radio commercials and print advertisements. Franchising also has the right to require franchisees to expend up to 3% of their monthly gross revenue on local advertising.
Industry & Competition
According to data released by the Fair Isaac Corporation on September 10, 2019, consumers in the “subprime” category (those with credit scores below 650) made up approximately 28% of the United States population. Two-thirds of U.S. consumers have incomes below $75,000 and may lack access to traditional credit. The lease-to-own industry provides customers the opportunity to obtain merchandise they might otherwise be unable to obtain due to insufficient cash resources or a lack of access to credit.
Our stores, kiosks, and other lease-to-own operations compete with other national, regional and local lease-to-own businesses, including on-line only competitors, as well as with rental stores that do not offer their customers a purchase option. With respect to customers desiring to purchase merchandise for cash or on credit, we also compete with retail stores, online competitors, and non-traditional lenders. Competition is based primarily on convenience, store location, product selection and availability, customer service, rental rates and terms.
The growing lease-to-own industry is contributing to this already highly competitive environment for our business. The lease-to-own industry has experienced steady growth, and revenue gains have accelerated since 2015. The lease-to-own industry is introducing rapid change with the emergence of virtual and kiosk-based operations at retail partner locations, such as our Preferred Lease offering which consists of staffed kiosks at retail partner locations options, un-manned or virtual lease-to-own options, or a combination of the two (the hybrid model). These new industry participants are disrupting traditional lease-to-own stores by attracting customers and making the lease-to-own transaction more acceptable to potential customers. In addition, banks and consumer finance companies are developing products and services designed to compete for the traditional lease-to-own customer.
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. Generally, our customers will more frequently exercise the 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, primarily due to the receipt of federal income tax refunds.
Trademarks
We own various trademarks and service marks, including Rent-A-Center® and RAC Worry-Free Guarantee® that are used in connection with our operations and have been registered with the United States Patent and Trademark Office. The duration of our

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trademarks is unlimited, subject to periodic renewal and continued use. In addition, we have obtained trademark registrations in Mexico, Canada and certain other foreign jurisdictions. We believe we hold the necessary rights for protection of the trademarks and service marks essential to our business. The products held for rent in our stores also bear trademarks and service marks held by their respective manufacturers.
Franchising licenses the use of the Rent-A-Center and ColorTyme trademarks and service marks to its franchisees under the franchise agreement. Franchising owns various trademarks and service marks, including ColorTyme® and RimTyme®, that are used in connection with its operations and have been registered with the United States Patent and Trademark office. The duration of these marks is unlimited, subject to periodic renewal and continued use.
Employees
As of February 21, 2020, we had approximately 14,500 employees.
Government Regulation
Rent-A-Center Business & Preferred Lease
State Regulation.    Currently, 46 states, the District of Columbia and Puerto Rico have rental purchase statutes that recognize and regulate rental purchase transactions as separate and distinct from credit sales. We believe this existing legislation is generally favorable to us, as it defines and clarifies the various disclosures, procedures and transaction structures related to the lease-to-own business with which we must comply. With some variations in individual states, most related state legislation requires the lessor to make prescribed disclosures to customers about the rental purchase agreement and transaction, and provides time periods during which customers may reinstate agreements despite having failed to make a timely payment. Some state rental purchase laws prescribe grace periods for non-payment, prohibit or limit certain types of collection or other practices, and limit certain fees that may be charged. Eleven states limit the total rental payments that can be charged to amounts ranging from 2.0 times to 2.4 times the disclosed cash price or the retail value of the rental product. Six states limit the cash price of merchandise to amounts ranging from 1.56 to 2.5 times our cost for each item.
Although Minnesota has a rental purchase statute, the rental purchase transaction is also treated as a credit sale subject to consumer lending restrictions pursuant to judicial decision. Therefore, we offer our customers in Minnesota an opportunity to purchase our merchandise through an installment sale transaction in our Home Choice stores. We operate 17 Home Choice stores in Minnesota.
North Carolina has no rental purchase legislation. However, the retail installment sales statute in North Carolina expressly provides that lease transactions which provide for more than a nominal purchase price at the end of the agreed rental period are not credit sales under the statute. We operate 88 lease-to-own stores and 45 Preferred Lease Staffed locations in North Carolina.
Courts in Wisconsin and New Jersey, which do not have rental purchase statutes, have rendered decisions which classify rental purchase transactions as credit sales subject to consumer lending restrictions. Accordingly, in Wisconsin, we offer our customers an opportunity to purchase our merchandise through an installment sale transaction in our Get It Now stores. In New Jersey, we have modified our typical rental purchase agreements to provide disclosures, grace periods, and pricing that we believe comply with the retail installment sales act. We operate 27 Get It Now stores in Wisconsin and 42 Rent-A-Center stores in New Jersey.
There can be no assurance as to whether changes in the enforcement of existing laws or regulations or the enactment of new laws or regulations that may unfavorably impact the lease-to-own industry would have a material and adverse effect on us.
Federal Regulation.    To date, no comprehensive federal legislation has been enacted regulating or otherwise impacting the rental purchase transaction. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) does not regulate leases with terms of 90 days or less. Because the lease-to-own transaction is for a term of week to week, or at most, month to month, and established federal law deems the term of a lease to be its minimum term regardless of extensions or renewals, if any, we believe the lease-to-own transaction is not covered by the Dodd-Frank Act.
From time to time, we have supported legislation introduced in Congress that would regulate the rental purchase transaction. While both beneficial and adverse legislation may be introduced in Congress in the future, any adverse federal legislation, if enacted, could have a material and adverse effect on us.
Mexico
No comprehensive legislation regulating the lease-to-own transaction has been enacted in Mexico. We use substantially the same rental purchase transaction in Mexico as in the U.S. stores, but with such additional provisions as we believe may be necessary to comply with Mexico’s specific laws and customs.

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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 Annual Report on Form 10-K, including our consolidated financial statements and related notes.
Our success depends on the effective implementation and continued execution of our strategies.
We are focused on our mission to provide cash- and credit-constrained consumers with affordable and flexible access to durable goods that promote a higher quality of living. In 2019, we accelerated our virtual growth strategy through the acquisition of Merchants Preferred and launch of our Preferred Lease offering with a focus towards executing on large market opportunities through national and regional retail partners. We intend to capitalize on key differentiators in our Preferred Lease offering, as well as grow our business through expansion in our product verticals, e-commerce platform enhancements, and improving the customer experience.
Growth of our business model, including through the launch of new product offerings, requires us to invest in or expand our information and technology capabilities, engage and retain experienced management, and otherwise incur additional costs. Our inability to address these concerns or otherwise to achieve targeted results associated with our initiatives could adversely affect our results of operations, or negatively impact our ability to successfully execute future strategies, which may result in an adverse impact on our business and financial results.
As we pursue our strategies, we may take advantage of merger and acquisition opportunities from time to time that will advance our key initiatives; any such activities may not prove successful and may subject us to additional risks.
From time to time, we may take advantage of merger and acquisition opportunities that will advance our key strategic initiatives. Such merger and acquisition opportunities involve numerous risks, including the following:
difficulties in integrating the operations, systems, technologies, products and personnel of the acquired businesses;
difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets may have stronger market positions;
diversion of management's attention from normal daily operations of the business and the challenges of managing larger and more widespread operations;
the potential loss of key employees, vendors and other business partners of the businesses we acquire; and
increased amounts of debt incurred in connection with such activities or dilutive issuance of common stock.
Mergers and acquisitions are inherently risky and subject to many factors outside of our control. We cannot assure you that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results or financial condition. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results.
We are highly dependent on the financial performance of our Rent-A-Center Business segment.
Our financial performance is highly dependent on our Rent-A-Center Business segment, which comprised approximately 67% of our consolidated net revenues for the year ended December 31, 2019. Any significant decrease in the financial performance of the Rent-A-Center Business segment may also have a material adverse impact on our ability to implement our growth strategies.
A future lowering or withdrawal of the ratings assigned to our debt by rating agencies may increase our future borrowing costs and reduce our access to capital.
Our indebtedness currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes in our business, warrant. Our indebtedness was upgraded by Standard & Poor’s in June 2019 and Moody's improved our outlook in July 2019. Any downgrade by any ratings agency may increase the interest rate on our future indebtedness, limit our access to vendor financing on favorable terms or otherwise result in higher borrowing costs, and likely would make it more difficult or more expensive for us to obtain additional debt financing or recapitalize our existing debt structure.
Our arrangements with our suppliers and vendors may be impacted by our financial results or financial position.
Substantially all of our merchandise suppliers and vendors sell to us on open account purchase terms. There is a risk that our key suppliers and vendors could respond to any actual or apparent decrease in, or any concern with, our financial results or liquidity by requiring or conditioning their sale of merchandise to us on more stringent or more costly payment terms, such as by requiring standby letters of credit, earlier or advance payment of invoices, payment upon delivery or other assurances or credit support or by choosing not to sell merchandise to us on a timely basis or at all. Our arrangements with our suppliers and vendors may also

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be impacted by media reports regarding our financial position or other factors relating to our business. Our need for additional liquidity could significantly increase and our supply of inventory could be materially disrupted if a significant portion of our key suppliers and vendors took one or more of the actions described above, which could have a material adverse effect on our sales, customer satisfaction, cash flows, liquidity and financial position.
Failure to effectively manage our costs could have a material adverse effect on our profitability.
Certain elements of our cost structure are largely fixed in nature. Consumer spending remains uncertain, which makes it more challenging for us to maintain or increase our operating income in the Rent-A-Center Business segment. The competitive environment in our industry and increasing price transparency means that the focus on achieving efficient operations is greater than ever. As a result, we must continuously focus on managing our cost structure. Failure to manage our overall cost of operations, labor and benefit rates, advertising and marketing expenses, operating leases, charge-offs due to customer stolen merchandise, other store expenses or indirect spending could materially adversely affect our profitability.
We face additional risks in our retail partner business that differ in some potentially significant respects from the risks of the traditional rent-to-own business conducted in Rent-A-Center Business store locations. These risks could have a material negative effect on Preferred Lease, which could negatively impact our ability to grow the Preferred Lease segment and result in a material adverse effect on our results of operations.
Our Preferred Lease segment offers the lease-to-own transaction through the stores or websites of third-party retailers. In addition to the risks associated with the integration of our historic retail partner business (Acceptance Now) with the Merchants Preferred business model under our Preferred Lease offering, the Preferred Lease segment faces risks different from those that have historically been associated with our traditional lease-to-own business conducted in our Rent-A-Center Business store locations. These potential risks include, among others:
reliance on the ability of unaffiliated third-party retailers to attract customers and to maintain quality and consistency in their operations and their ability to continue to provide products and services;
the loss of the third-party retailer relationships and our inability to replace them. In 2019, approximately 69% of the total revenue of the Preferred Lease segment originated at our Preferred Lease kiosks located in stores operated by four retail partners.
reliance on these unaffiliated third-party retailers for many important business functions, from advertising through assistance with lease transaction applications, including, for example, explaining the nature of the lease-to-own transaction to potential customers, and that the transaction is with Preferred Lease and not with the third-party retailer;
potential that regulators may target the virtual lease-to-own transaction and/or adopt new regulations or legislation (or existing laws and regulations may be interpreted in a manner) that negatively impact Preferred Lease’s ability to offer virtual lease-to-own programs through third-party retail partners, and/or that regulators may attempt to force the application of laws and regulations on Preferred Lease’s virtual lease-to-own business in inconsistent and unpredictable ways that could increase the compliance-related costs incurred by us, and negatively impact our financial and operational performance;
reliance on automatic bank account drafts for lease payments, which may become disfavored as a payment method for these transactions by regulators and/or providers, or may otherwise become unavailable;
more product diversity within Preferred Lease's merchandise inventory relative to our traditional store-based lease-to-own business, which can complicate matters such as merchandise repair and disposition of merchandise that is returned:
lower barriers to entry and start-up capital costs to launch a competitor due to the reliance of Preferred Lease and its competitors on the store locations and inventories of third-party retailers, and online connections with retailers, rather than incurring the cost to obtain and maintain brick and mortar locations and in-store or in-warehouse inventories; and
indemnification obligations to Preferred Lease’s retail partners and their service providers for losses stemming from Preferred Lease’s failure to perform with respect to its products and services.
These risks could have a material negative effect on Preferred Lease, which could negatively impact our ability to grow the Preferred Lease segment and result in a material adverse effect on our results of operations.
Our strategy to grow the retail partner business depends on our ability to develop and offer robust virtual lease-to-own technology, including algorithmic decisioning programs and waterfall integrations.
Our retail partner business began as a staffed model and we believe our staffed lease-to-own kiosks inside third-party retailers are superior to virtual-only models in locations with sufficient volume. Our strategy to grow the retail partner business, though, depends on also offering an un-staffed or virtual lease-to-own solution, either alone or in combination with the staffed model (the hybrid model). The acquisition of Merchants Preferred’s scalable technology offering, robust decision engine, enhanced

10




infrastructure and experienced management team in August 2019 accelerated the development of our virtual lease-to-own offering. We may not realize the strategic benefits we intended from the Merchants Preferred Acquisition and the software technology and decision programming may not work to our expectations or may fail. We are integrating the Preferred Lease and Merchants Preferred businesses and technologies under the Preferred Lease offering which may be more difficult, time-consuming or costly than expected. In addition, our Preferred Lease business operates in a highly competitive environment.
The success of our business is dependent on factors affecting consumer spending that are not under our control.
Consumer spending is affected by general economic conditions and other factors including levels of employment, disposable consumer income, prevailing interest rates, consumer debt and availability of credit, costs of fuel, inflation, recession and fears of recession, war and fears of war, pandemics, inclement weather, tariff policies, tax rates and rate increases, timing of receipt of tax refunds, consumer confidence in future economic conditions and political conditions, and consumer perceptions of personal well-being and security. Unfavorable changes in factors affecting discretionary spending could reduce demand for our products and services resulting in lower revenue and negatively impacting the business and its financial results.
If we are unable to compete effectively with the growing e-commerce sector, our business and results of operations may be materially adversely affected.
With the continued expansion of Internet use, as well as mobile computing devices and smartphones, competition from the e-commerce sector continues to grow. To compete in this e-commerce sector, we must be able to innovate and develop technologies and digital solutions that appeal to our customer. We have launched virtual capabilities within our Preferred Lease and Rent-A-Center Business segments. There can be no assurance we will be successful in developing the technologies and digital solutions necessary to grow our e-commerce business in a profitable manner. Certain of our competitors, and a number of e-commerce retailers, have established e-commerce operations against which we compete for customers. It is possible that the increasing competition from the e-commerce sector may reduce ore prevent us from growing our market share, gross and operating margins, and may materially adversely affect our business and results of operations in other ways.
Disruptions in our supply chain and other factors affecting the distribution of our merchandise could adversely impact our business.
Any disruption in our supply chain could result in our inability to meet our customers’ expectations, higher costs, an inability to stock our stores, or longer lead time associated with distributing merchandise. Any such disruption within our supply chain network could also result in decreased net sales, increased costs and reduced profits.
Our senior secured asset-based revolving credit facility limits our borrowing capacity to the value of certain of our assets. In addition, our senior secured asset-based revolving credit facility is secured by substantially all of our assets, and lenders may exercise remedies against the collateral in the event of our default.
Under our Asset Based Loan Credit Agreement entered into in August 2019 (the "ABL Credit Agreement"), we have access to a five-year asset-based revolving credit facility (the "ABL Credit Facility"). Our borrowing capacity under our ABL Credit Facility varies according to our eligible rental contracts, eligible installment sales accounts, and inventory net of certain reserves. In the event of any material decrease in the amount of or appraised value of these assets, our borrowing capacity would similarly decrease, which could adversely impact our business and liquidity. The ABL Credit Agreement contains customary affirmative and negative covenants and certain restrictions on operations become applicable if our available credit falls below certain thresholds. These covenants could impose significant operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business. Our obligations under the ABL Credit Agreement are secured by liens with respect to inventory, accounts receivable, deposit accounts and certain related collateral. In the event of a default that is not cured or waived within any applicable cure periods, the lenders’ commitment to extend further credit under our ABL Credit Agreement could be terminated, our outstanding obligations could become immediately due and payable, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral, which generally consists of substantially all of our tangible and intangible assets, including intellectual property and the capital stock of our U.S. subsidiaries. If we are unable to borrow under our ABL Credit Facility, we may not have the necessary cash resources for our operations and, if any event of default occurs, there is no assurance that we would have the cash resources available to repay such accelerated obligations, refinance such indebtedness on commercially reasonable terms, or at all, or cash collateralize our letters of credit, which would have a material adverse effect on our business, financial condition, results of operations and liquidity.
Our current insurance program may expose us to unexpected costs and negatively affect our financial performance.
Our insurance coverage is subject to deductibles, self-insured retentions, limits of liability and similar provisions that we believe are prudent based on our operations. Because we self-insure a significant portion of expected losses under our workers' compensation, general liability, vehicle and group health insurance programs, unanticipated changes in any applicable actuarial

11




assumptions and management estimates underlying our recorded liabilities for these losses, including potential increases in medical and indemnity costs, could result in materially different amounts of expense than expected under these programs. This could have a material adverse effect on our financial condition and results of operations.
Our transactions are regulated by and subject to the requirements of various federal and state laws and regulations, which may require significant compliance costs and expose us to litigation. Any negative change in these laws or regulations or the passage of unfavorable new laws or regulations or the manner in which any of these are enforced could require us to alter our business practices in a manner that may be materially adverse to us.
Currently, 46 states, the District of Columbia and Puerto Rico have passed laws that regulate rental purchase transactions as separate and distinct from credit sales. One additional state has a retail installment sales statute that excludes leases, including lease-to-own transactions, from its coverage if the lease provides for more than a nominal purchase price at the end of the rental period. 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 eleven states limit the total amount that may be charged over the life of a rental purchase agreement and the laws of six states limit the cash prices for which we may offer merchandise.
Similar to other consumer transactions, our rental purchase transaction is also governed by various federal and state consumer protection statutes. These consumer protection statutes, as well as the rental purchase statutes under which we operate, provide various consumer remedies, including monetary penalties, for violations. 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 in a manner that could have a material adverse effect on our business, financial condition and results of operations.
Our reputation, ability to do business and operating results may be impaired by improper conduct by any of our employees, agents or business partners.
Our operations in the U.S. and abroad are subject to certain laws generally prohibiting companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, such as the U.S. Foreign Corrupt Practices Act, and similar anti-bribery laws in other jurisdictions. Violations by our employees, contractors or agents of policies and procedures we have implemented to ensure compliance with these laws could subject us to civil or criminal investigations in the U.S. and in other jurisdictions, could lead to substantial civil and criminal, monetary and non-monetary penalties, and related shareholder lawsuits, could cause us to incur significant legal fees, and could damage our reputation.
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 and capital resources. The failure to pay any material judgment would be a default under our ABL Credit Agreement and our $200 million Term Loan Credit Agreement entered into in August 2019 (the "Term Loan Credit Agreement").
To attempt to limit costly and lengthy consumer, employee and other litigation, including class actions, we require our customers and employees to sign arbitration agreements, including class action waivers. In addition to opt-out provisions contained in such agreements, recent judicial and regulatory actions have attempted to restrict or eliminate the enforceability of such agreements and waivers. If we are not permitted to use arbitration agreements and/or class action waivers, or if the enforceability of such agreements and waivers is restricted or eliminated, we could incur increased costs to resolve legal actions brought by customers, employees and others, as we would be forced to participate in more expensive and lengthy dispute resolution processes.
Our operations are dependent on effective information management systems. Failure of these systems could negatively impact our business, financial condition and results of operations.
We utilize integrated information management systems. The efficient operation of our business is dependent on these systems to effectively manage our financial and operational data. The failure of our information management systems to perform as designed due to “bugs,” crashes, internet failures and outages, operator error, or catastrophic events, and any associated loss of data or interruption of such information management systems for a significant period of time could disrupt our business. If the information

12




management systems sustain repeated failures, we may not be able to manage our store operations, which could have a material adverse effect on our business, financial condition and results of operations.
We invest in new information management technology and systems and implement modifications and upgrades to existing systems. These investments include replacing legacy systems, making changes to existing systems, building redundancies, and acquiring new systems and hardware with updated functionality. We take actions and implement procedures designed to ensure the successful implementation of these investments, including the testing of new systems and the transfer of existing data, with minimal disruptions to the business. These efforts may take longer and may require greater financial and other resources than anticipated, may cause distraction of key personnel, may cause disruptions to our existing systems and our business, and may not provide the anticipated benefits. A disruption in our information management systems, or our inability to improve, upgrade, integrate or expand our systems to meet our evolving business requirements, could impair our ability to achieve critical strategic initiatives and could materially adversely impact our business, financial condition and results of operations.
If we fail to protect the integrity and security of customer and employee information, we could be exposed to litigation or regulatory enforcement and our business could be adversely impacted.
We collect and store certain personal information provided to us by our customers and employees in the ordinary course of our business. Despite instituted safeguards for the protection of such information, our systems continue to be subject to the risk of attack when computer hackers attempt to penetrate our network security and, if successful, misappropriate confidential customer or employee information. In addition, one of our employees, contractors or other third party with whom we do business may attempt to circumvent our security measures in order to obtain such information, or inadvertently cause a breach involving such information. Loss of customer or employee information could disrupt our operations, damage our reputation, and expose us to claims from customers, employees, regulators and other persons, any of which could have an adverse effect on our business, financial condition and results of operations. In addition, the costs associated with information security, such as increased investment in technology, the costs of compliance with privacy laws, and costs incurred to prevent or remediate information security breaches, could adversely impact our business.
A change in 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.
Under our ABL Credit Agreement and our Term Loan Credit Agreement, an event of default would result if a third party became the beneficial owner of 40.0% or more of our voting stock or certain changes in the composition of Rent-A-Center’s Board of Directors during a twelve month period which were not recommended or approved by at least a majority of directors who were directors at the beginning of such twelve month period. As of December 31, 2019, we had a $239.5 million outstanding balance under our ABL Credit Facility and our Term Loan Credit Agreement, collectively.
If a specified change in control occurs and the lenders under our debt instruments accelerate these obligations, we may not have sufficient liquid assets to repay amounts outstanding under these agreements.
Rent-A-Center's organizational documents and our debt instruments contain provisions that may prevent or deter another group from paying a premium over the market price to Rent-A-Center's stockholders to acquire its stock.
Rent-A-Center’s 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 ABL Credit Agreement and Term Loan Credit Agreement contain various change in control provisions which, in the event of a change in 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 in control involving us that could include a premium over the market price of Rent-A-Center’s common stock that some or a majority of Rent-A-Center’s 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 ABL Credit Agreement and Term Loan Credit Agreement. The ability of Rent-A-Center’s subsidiaries to pay dividends or make other payments to it is subject to applicable state laws. Should one or more of Rent-A-Center’s subsidiaries be unable to pay dividends or make distributions, Rent-A-Center's ability to meet its ongoing obligations could be materially and adversely impacted.

13




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:
our ability to meet market expectations with respect to the growth and profitability of each of our operating segments;
quarterly variations in our results of operations, which may be impacted by, among other things, changes in same store sales, invoice volume or when and how many locations we acquire, open, sell or close;
quarterly variations in our competitors’ results of operations;
changes in earnings estimates or buy/sell recommendations by financial analysts; 
how our actual financial performance compares to the financial performance guidance we provide;
state or federal legislative or regulatory proposals, initiatives, actions or changes that are, or are perceived to be, adverse to our business;
the stock price performance of comparable companies; and
the unpredictability of global and regional economic and political conditions.
In addition, the stock market as a whole historically has experienced 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.
There can be no assurance as to the level of dividends that we may pay on our common stock.
Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. Although we initiated a cash dividend on our common stock in 2019, we are not required to declare or pay dividends and there may be circumstances under which we may be unable to declare and pay dividends under applicable Delaware law or might otherwise eliminate our common stock divided in the future. This could adversely affect the market price of our common stock.
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 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 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease space for all of our Rent-A-Center Business and Mexico stores under operating leases expiring at various times through 2026. In addition we lease space for certain support facilities under operating leases expiring at various times through 2032. Most of our store leases are five year leases and approximately half contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed-upon formulas. Store sizes average approximately 4,800 square feet. Approximately 75% of each store’s space is generally used for showroom space and 25% for offices and storage space. Our Preferred Lease kiosks occupy space without charge in the retailer's location with no lease commitment.
We believe suitable store space generally is available for lease and we would be able to relocate any of our stores or support facilities without significant difficulty should we be unable to renew a particular lease. We also expect additional space is readily available at competitive rates to open new stores or support facilities, as necessary.

14




Item 3. Legal Proceedings.
From time to time, we, along with our subsidiaries, are party to various legal proceedings arising in the ordinary course of business. We reserve for loss contingencies that are both probable and reasonably estimable. We regularly monitor developments related to these legal proceedings, and review the adequacy of our legal reserves on a quarterly basis. We do not expect these losses to have a material impact on our consolidated financial statements if and when such losses are incurred.
We are subject to unclaimed property audits by states in the ordinary course of business. The property subject to review in this audit process included unclaimed wages, vendor payments and customer refunds. State escheat laws generally require entities to report and remit abandoned and unclaimed property to the state. Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself. We routinely remit escheat payments to states in compliance with applicable escheat laws. The negotiated settlements did not have a material adverse impact to our financial statements.
Blair v. Rent-A-Center, Inc. This matter was a state-wide class action complaint originally filed on March 13, 2017 in the Federal District Court for the Northern District of California. The complaint alleged various claims, including that our cash sales and total rent to own prices exceeded the pricing permitted under California's Karnette Rental-Purchase Act. Following a court-ordered mediation on March 28, 2019, we reached an agreement in principle to settle this matter for a total of $13 million, including attorneys’ fees. The settlement was approved by the court in October 2019. We have denied any liability in the settlement and agreed to the settlement in order to avoid additional expensive, time-consuming litigation. We recorded the pre-tax charge for this settlement in the first quarter of 2019, and the settlement amount was paid in November 2019.
Velma Russell v. Acceptance Now. This purported class action arising out of calls made by Acceptance Now to customers’ reference (s) was filed on January 29, 2019 in Massachusetts state court. Specifically, plaintiffs sought to certify a class representing any references of customers (within the state of Massachusetts) during the 4 years prior to the filing date that were contacted by Acceptance Now more frequently during a 12 month period than is permitted by Massachusetts state law. The plaintiffs were seeking injunctive relief and statutory damages of $25 per reference which may be tripled to $75 per reference. References are not parties to our consumer arbitration agreement. We operate 12 Acceptance Now locations in Massachusetts. Mediation took place in September 2019. We reached an agreement in principle in December 2019 to settle this matter. The settlement amount is immaterial and we recorded a pre-tax charge for such settlement in the fourth quarter of 2019.
Federal Trade Commission civil investigative demand.As previously disclosed, in April 2019 Rent-A-Center, Inc. (the “Company”) received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (“FTC”) seeking information regarding certain transactions involving the purchase and sale of customer lease agreements, and whether such transactions violated the FTC Act. On February 21, 2020, the FTC notified the Company that it had accepted for public comment an Agreement Containing Consent Order ("Agreement"). We expect the Agreement to be finally approved by the FTC following the 30-day public comment period which commenced on February 26, 2020. This Agreement is for settlement purposes only. While not admitting any wrongdoing, the Company chose to settle the CID after many months of legal expenses and cooperating with the FTC investigation, and no fines or penalties were assessed against the Company. The settlement permits us to continue purchasing and selling customer lease agreements so long as such agreements are not contractually interdependent or contingent on a reciprocal transaction, and does not require any material changes to the Company's current business practices.
Item 4. Mine Safety Disclosures.
Not applicable. 

15




PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock has been listed on the Nasdaq Global Select Market® and its predecessors under the symbol “RCII” since January 25, 1995, the date we commenced our initial public offering.
As of February 21, 2020, there were approximately 38 record holders of our common stock.
Future decisions to pay cash dividends on our common stock continue to be at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, contractual restrictions, financial condition, future prospects and any other factors our Board of Directors may deem relevant. Cash dividend payments are subject to certain restrictions in our debt agreements. Please see Note J to the consolidated financial statements for further discussion of such restrictions.
Under our current common stock repurchase program, our Board of Directors has authorized the purchase, from time to time, in the open market and privately negotiated transactions, up to an aggregate of $1.25 billion of Rent-A-Center common stock. As of December 31, 2019, we had purchased a total of 37,053,383 shares of Rent-A-Center common stock for an aggregate purchase price of $996.1 million under this common stock repurchase program. In the fourth quarter of 2019, we repurchased 58,730 shares. No shares were repurchased during 2018. Common stock repurchases are subject to certain restrictions in our debt agreements. Please see Note J to the consolidated financial statements for further discussion of such restrictions.
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total number of shares purchased as part of publicly announced plans or programs
 
Maximum dollar value that may yet be purchased under the program (in millions)
November 1, 2019 - November 30, 2019
 
58,730

 
$
21.99

 
58,730

 
$
253.9



16




Stock Performance Graph
The following chart represents a comparison of the five year total return of our common stock to the NASDAQ Composite Index and the S&P 1500 Specialty Retail Index. We selected the S&P 1500 Specialty Retail Index for comparison because we use this published industry index as the comparator group to measure our relative total shareholder return for purposes of determining vesting of performance stock units granted under our long-term incentive compensation program. The graph assumes $100 was invested on December 31, 2014, and dividends, if any, were reinvested for all years ending December 31.
https://cdn.kscope.io/7760048d3293520cddeb75b7f9817b0a-chart-61297e79b0ae5349a35.jpg

17




Item 6. Selected Financial Data.
The selected financial data presented below for the five years ended December 31, 2019, have been derived from our audited consolidated financial statements. The historical financial data are qualified in their entirety by, and should be read in conjunction with, the consolidated financial statements and the notes thereto, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included in this report.
 
Year Ended December 31,
 
 (In thousands, except per share data)
2019
 
2018
 
2017
 
2016
 
2015(10)
 
Consolidated Statements of Operations
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
Store
 
 
 
 
 
 
 
 
 
 
Rentals and fees
$
2,224,402

 
$
2,244,860

 
$
2,267,741

 
$
2,500,053

 
$
2,781,315

 
Merchandise sales
304,630

 
304,455

 
331,402

 
351,198

 
377,240

 
Installment sales
70,434

 
69,572

 
71,651

 
74,509

 
76,238

 
Other
4,795

 
9,000

 
9,620

 
12,706

 
19,158

 
Franchise
 
 
 
 
 
 
 
 
 
 
Merchandise sales
49,135

 
19,087

 
13,157

 
16,358

 
15,577

 
Royalty income and fees
16,456

 
13,491

 
8,969

 
8,428

 
8,892

 
Total revenues
2,669,852

 
2,660,465

 
2,702,540

 
2,963,252

 
3,278,420

 
Cost of revenues
 
 
 
 
 
 
 
 
 
 
Store
 
 
 
 
 
 
 
 
 
 
Cost of rentals and fees
634,878

 
621,860

 
625,358

 
664,845

 
728,706

 
Cost of merchandise sold
319,006


308,912

 
322,628

 
323,727

 
356,696

 
Cost of installment sales
23,383

 
23,326

 
23,622

 
24,285

 
25,677

 
Other charges

 

 

 

 
34,698

(11) 
Franchise cost of merchandise sold
48,514

 
18,199

 
12,390

 
15,346

 
14,534

 
Total cost of revenues
1,025,781

 
972,297

 
983,998

 
1,028,203

 
1,160,311

 
Gross profit
1,644,071

 
1,688,168

 
1,718,542

 
1,935,049

 
2,118,109

 
Operating expenses
 
 
 
 
 
 
 
 
 
 
Store expenses
 
 
 
 
 
 
 
 
 
 
Labor
630,096

 
683,422

 
732,466

 
789,049

 
854,610

 
Other store expenses
617,106

 
656,894

 
744,187

 
791,614

 
833,914

 
General and administrative expenses
142,634

 
163,445

 
171,090

 
168,907

 
166,102

 
Depreciation, amortization and write-down of intangibles
61,104

 
68,946

 
74,639

 
80,456

 
80,720

 
Goodwill impairment charge

 

 

 
151,320

(8) 
1,170,000

(12) 
Other (gains) and charges
(60,728
)
(1) 
59,324

(3) 
59,219

(5) 
20,299

(9) 
20,651

(13) 
Total operating expenses
1,390,212

 
1,632,031

 
1,781,601

 
2,001,645

 
3,125,997

 
Operating profit (loss)
253,859

 
56,137

 
(63,059
)
 
(66,596
)
 
(1,007,888
)
 
Write-off of debt issuance costs
2,168

(2) 
475

(4) 
1,936

(6) 

 

 
Interest expense, net
27,908

 
41,821

 
45,205

 
46,678

 
48,692

 
Earnings (loss) before income taxes
223,783

 
13,841

 
(110,200
)
 
(113,274
)
 
(1,056,580
)
 
Income tax expense (benefit)
50,237

 
5,349

 
(116,853
)
(7) 
(8,079
)
 
(103,060
)
(14) 
Net earnings (loss)
$
173,546

 
$
8,492

 
$
6,653

 
$
(105,195
)
 
$
(953,520
)
 
Basic earnings (loss) per common share
$
3.19

 
$
0.16

 
$
0.12

 
$
(1.98
)
 
$
(17.97
)
 
Diluted earnings (loss) per common share
$
3.10

 
$
0.16

 
$
0.12

 
$
(1.98
)
 
$
(17.97
)
 
Cash dividends declared per common share
$
0.54

 
$

 
$
0.16

 
$
0.32

 
$
0.96

 


18




Item 6. Selected Financial Data — Continued.
 
December 31,
 (Dollar amounts in thousands)
2019
 
2018
 
2017
 
2016
 
2015(10)
Consolidated Balance Sheet Data
 
 
 
 
 
 
 
 
 
Rental merchandise, net
$
835,688

 
$
807,470

 
$
868,991

 
$
1,001,954

 
$
1,136,472

Intangible assets, net
78,979

 
57,344

 
57,496

 
60,560

 
213,899

Total assets
1,582,798

 
1,396,917

 
1,420,781

 
1,602,741

 
1,974,468

Total debt
230,913

 
540,042

 
672,887

 
724,230

 
955,833

Total liabilities
1,123,835

 
1,110,400

 
1,148,338

 
1,337,808

 
1,590,878

Total stockholders' equity
458,963

 
286,517

 
272,443

 
264,933

 
383,590

 
 
 
 
 
 
 
 
 
 
Operating Data (Unaudited)
 
 
 
 
 
 
 
 
 
Rent-A-Center Business and Mexico stores open at end of period
2,096

 
2,280

 
2,512

 
2,593

 
2,815

Preferred Lease Staffed locations open at end of period
998

 
1,106

 
1,106

 
1,431

 
1,444

Same store revenue growth (decrease)
4.6
%
 
4.7
%
 
(5.4
)%
 
(6.2
)%
 
5.7
%
Franchise stores open at end of period
372

 
281

 
225

 
229

 
227

(1) 
Includes $92.5 million related to the receipt of a settlement related to a terminated merger transaction, $21.8 million related to the gain on sale of our corporate headquarters, and $1.1 million of insurance proceeds related to the 2017 hurricanes, partially offset by $20.1 million in merger termination and other incremental legal and professional fees, $13.0 million related to the Blair class action settlement, $10.2 million related to cost savings initiatives, $7.3 million related to store closure costs, $2.4 million related to state tax audit assessments, $1.4 million in transaction fees for the Merchants Preferred Acquisition, and $0.3 million related to other litigation settlements.
(2) 
Includes the effects of a $2.2 million financing expense related to the write-off of unamortized financing costs.
(3) 
Includes $30.4 million related to cost savings initiatives, $16.4 million in incremental legal and advisory fees, $11.6 million related to store closure costs, $1.2 million in capitalized software write-downs, and $(0.3) million related to the 2018 and 2017 hurricane impacts.
(4) 
Includes the effects of a $0.5 million financing expense related to the write-off of unamortized financing costs.
(5) 
Includes $24.0 million related to the closure of Preferred Lease locations, $18.2 million for capitalized software write-downs, $6.5 million for incremental legal and advisory fees, $5.4 million for 2017 hurricane impacts, $3.4 million for reductions at the field support center, $1.1 million for previous store closure plans, and $0.6 million in legal settlements.
(6) 
Includes the effects of a $1.9 million financing expense related to the write-off of unamortized financing costs.
(7) 
Includes a $77.5 million gain resulting from the Tax Cuts and Jobs Act.
(8) 
Includes a $151.3 million goodwill impairment charge in the Rent-A-Center Business segment.
(9) 
Includes $22.5 million primarily related to the closure of Rent-A-Center Business stores, Preferred Lease locations, and Mexico stores, partially offset by a $2.2 million legal settlement.
(10) 
Includes revisions for immaterial correction of deferred tax error associated with our goodwill impairment reported in the fourth quarter of 2015.
(11) 
Includes a $34.7 million write-down of smartphones.
(12) 
Includes a $1,170.0 million goodwill impairment charge in the Rent-A-Center Business segment.
(13) 
Includes a $7.5 million loss on the sale of Rent-A-Center Business and Canada stores, a $7.2 million charge related to the closure of Rent-A-Center Business and Mexico stores, $2.8 million of charges for start-up and warehouse closure expenses related to our sourcing and distribution initiative, a $2.0 million corporate reduction charge and $1.1 million of losses for other store sales and closures.
(14) 
Includes $6.0 million of discrete adjustments to income tax reserves.




19




Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recent Developments
Sale/Partial Leaseback of Corporate Headquarters
On December 27, 2019, we completed the sale of our corporate headquarters for proceeds of $43.2 million, and entered into a lease agreement for a reduced portion, approximately 60%, of the total square footage of the building. In connection with the sale, we recorded a gain of approximately $21.8 million in the fourth quarter of 2019. The lease includes an initial term of 12 years, with two five year renewal option periods at our discretion.
Results of Operations
We report financial operating performance under four operating segments. To better reflect the Company's current strategic focus, our retail partner business operations are now reported as the Preferred Lease segment (formerly Acceptance Now), which includes our virtual, staffed and hybrid business models; and our company-owned stores and e-commerce platform through rentacenter.com, are now reported as the Rent-A-Center Business segment (formerly Core U.S.). In addition, we report operating results for our Mexico and Franchising segments.
The following discussion focuses on our results of operations and issues related to our liquidity and capital resources. You should read this discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
Trends and Uncertainties
Virtual Business Model
On August 13, 2019, we completed the acquisition of substantially all of the assets of C/C Financial Corp. dba Merchants Preferred ("Merchants Preferred"), a nationwide provider of virtual lease-to-own services, accelerating our growth in the virtual lease-to-own industry. In addition, in January 2020, we announced plans for our new integrated retail partner offering under Preferred Lease, which combines our staffed and virtual lease-to-own business models to meet the needs and expectations of both our customers and retail partners. While we believe the acquisition of the Merchants Preferred virtual business model and rollout of our Preferred Lease integrated offering positions us for significant revenue and earnings growth, we are exposed to potential operating margin degradation due to the higher cost of merchandise in our retail partner business and potential for higher merchandise losses.
Cost Savings Initiatives
In 2018, we initiated and executed multiple cost savings initiatives, resulting in reductions in overhead and supply chain costs. While these initiatives have led to significant decreases in operating expenses and corresponding improvement in operating profit on a year-over-year basis in our 2018 and 2019 consolidated operating results, we do not expect to continue to realize cost reduction benefits at the same annualized rate in future periods.
Overview
During the twelve months ended December 31, 2019, consolidated revenues decreased approximately $9.4 million, primarily driven by the sale of company owned stores to franchisees and closures of certain Rent-A-Center Business stores, partially offset by increased same store sales. Operating profit, however, increased approximately $197.7 million for the twelve months ended December 31, 2019, primarily due to receipt of a payment of $92.5 million in cash in May 2019 relating to the settlement on April 22, 2019 of all litigation with Vintage Rodeo Parent, LLC, Vintage Rodeo Acquisition, Inc., Vintage Capital Management, LLC and B. Riley Financial, Inc. (the "Vintage Settlement"); and gain recorded on the sale of our corporate headquarters, reduced operating expenses related to costs savings initiatives and store closures.
Revenues in our Rent-A-Center Business segment decreased approximately $55.2 million for the twelve months ended December 31, 2019, driven by the refranchising of approximately 100 locations in the past 12 months and rationalization of the Rent-A-Center Business store base, partially offset by an increase in same store sales. Operating profit increased $88.2 million for the twelve months ended December 31, 2019, primarily due to decreases in store labor and other store expenses driven by lower store count and cost savings initiatives.
The Preferred Lease segment revenues increased approximately $26.7 million for the twelve months ended December 31, 2019, primarily due to the acquisition of Merchants Preferred and an increase in same store sales. Gross profit as a percent of revenue decreased 2.4% primarily due to value proposition changes. Operating profit as a percent of revenue decreased 1.9% primarily

20




due to a decrease in gross profit, in addition to higher merchandise losses, as discussed further in the segment performance section below.
The Mexico segment revenues increased by 8.8% for the twelve months ended December 31, 2019, driving an increase in operating profit of 105.6%, or $2.8 million.
Cash flow from operations was $215.4 million for the twelve months ended December 31, 2019. We paid down debt by $303.2 million during the year, ending the period with $70.5 million of cash and cash equivalents.

The following table is a reference for the discussion that follows.
 
Year Ended December 31,
 
2019-2018 Change
 
2018-2017 Change
(Dollar amounts in thousands)
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Store
 
 
 
 
 
 
 
 
 
 
 
 
 
Rentals and fees
$
2,224,402

 
$
2,244,860

 
$
2,267,741

 
$
(20,458
)
 
(0.9
)%
 
$
(22,881
)
 
(1.0
)%
Merchandise sales
304,630

 
304,455

 
331,402

 
175

 
0.1
 %
 
(26,947
)
 
(8.1
)%
Installment sales
70,434

 
69,572

 
71,651

 
862

 
1.2
 %
 
(2,079
)
 
(2.9
)%
Other
4,795

 
9,000

 
9,620

 
(4,205
)
 
(46.7
)%
 
(620
)
 
(6.4
)%
Total store revenues
2,604,261

 
2,627,887

 
2,680,414

 
(23,626
)
 
(0.9
)%
 
(52,527
)
 
(2.0
)%
Franchise
 
 
 
 
 
 
 
 
 
 
 
 
 
Merchandise sales
49,135

 
19,087

 
13,157

 
30,048

 
157.4
 %
 
5,930

 
45.1
 %
Royalty income and fees
16,456

 
13,491

 
8,969

 
2,965

 
22.0
 %
 
4,522

 
50.4
 %
Total revenues
2,669,852

 
2,660,465

 
2,702,540

 
9,387

 
0.4
 %
 
(42,075
)
 
(1.6
)%
Cost of revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Store
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of rentals and fees
634,878

 
621,860

 
625,358

 
13,018

 
2.1
 %
 
(3,498
)
 
(0.6
)%
Cost of merchandise sold
319,006

 
308,912

 
322,628

 
10,094

 
3.3
 %
 
(13,716
)
 
(4.3
)%
Cost of installment sales
23,383

 
23,326

 
23,622

 
57

 
0.2
 %
 
(296
)
 
(1.3
)%
Total cost of store revenues
977,267

 
954,098

 
971,608

 
23,169

 
2.4
 %
 
(17,510
)
 
(1.8
)%
Franchise cost of merchandise sold
48,514

 
18,199

 
12,390

 
30,315

 
166.6
 %
 
5,809

 
46.9
 %
Total cost of revenues
1,025,781

 
972,297

 
983,998

 
53,484

 
5.5
 %
 
(11,701
)
 
(1.2
)%
Gross profit
1,644,071

 
1,688,168

 
1,718,542

 
(44,097
)
 
(2.6
)%
 
(30,374
)
 
(1.8
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Store expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Labor
630,096

 
683,422

 
732,466

 
(53,326
)
 
(7.8
)%
 
(49,044
)
 
(6.7
)%
Other store expenses
617,106

 
656,894

 
744,187

 
(39,788
)
 
(6.1
)%
 
(87,293
)
 
(11.7
)%
General and administrative
142,634

 
163,445

 
171,090

 
(20,811
)
 
(12.7
)%
 
(7,645
)
 
(4.5
)%
Depreciation, amortization and write-down of intangibles
61,104

 
68,946

 
74,639

 
(7,842
)
 
(11.4
)%
 
(5,693
)
 
(7.6
)%
Other (gains) and charges
(60,728
)
 
59,324

 
59,219

 
(120,052
)
 
(202.4
)%
 
105

 
0.2
 %
Total operating expenses
1,390,212

 
1,632,031

 
1,781,601

 
(241,819
)
 
(14.8
)%
 
(149,570
)
 
(8.4
)%
Operating profit (loss)
253,859

 
56,137

 
(63,059
)
 
197,722

 
352.2
 %
 
119,196

 
189.0
 %
Write-off of debt issuance costs
2,168

 
475

 
1,936

 
1,693

 
356.4
 %
 
(1,461
)
 
(75.5
)%
Interest, net
27,908

 
41,821

 
45,205

 
(13,913
)
 
(33.3
)%
 
(3,384
)
 
(7.5
)%
Income (loss) before income taxes
223,783

 
13,841

 
(110,200
)
 
209,942

 
1,516.8
 %
 
124,041

 
112.6
 %
Income tax expense (benefit)
50,237

 
5,349

 
(116,853
)
 
44,888

 
839.2
 %
 
122,202

 
104.6
 %
Net earnings
$
173,546

 
$
8,492

 
$
6,653

 
$
165,054

 
1,943.6
 %
 
$
1,839

 
27.6
 %

21




Comparison of the Years Ended December 31, 2019 and 2018
Store Revenue. Total store revenue decreased by $23.6 million, or 0.9%, to $2,604.3 million for the year ended December 31, 2019, from $2,627.9 million for 2018. This was primarily due to a decrease of approximately $55.2 million in the Rent-A-Center Business segment, partially offset by an increase of $26.7 million in the Preferred Lease segment, as discussed further in the segment performance section below.
Same store revenue is reported on a constant currency basis and generally represents revenue earned in 2,762 locations that were operated by us for 13 months or more, excluding any store that receives a certain level of customer accounts from another store (acquisition or merger). Receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth full month following the account transfer. In addition, due to the severity of the impact of hurricanes, we instituted a change to the same store sales store selection criteria to exclude stores in geographically impacted regions for 18 months. Same store revenues increased by $82.4 million, or 4.6%, to $1,873.8 million for the year ended December 31, 2019, as compared to $1,791.4 million in 2018. The increase in same store revenues was primarily attributable to an improvement in the Rent-A-Center Business segment, as discussed further in the segment performance section below.
Cost of Rentals and Fees. Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the year ended December 31, 2019 increased by $13.0 million, or 2.1%, to $634.9 million, as compared to $621.9 million in 2018. The increase in cost of rentals and fees was primarily attributable to an increase of $31.5 million in the Preferred Lease segment as a result of higher rentals and fees revenue, partially offset by a decrease of $19.9 million in the Rent-A-Center Business segment. Cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 28.5% for the year ended December 31, 2019 as compared to 27.7% in 2018.
Cost of Merchandise Sold. Cost of merchandise sold represents the net book value of rental merchandise at time of sale. Cost of merchandise sold increased by $10.1 million, or 3.3%, to $319.0 million for the year ended December 31, 2019, from $308.9 million in 2018, primarily attributable to increases of $9.3 million and $1.0 million in the Rent-A-Center Business and Preferred Lease segments, respectively. The gross margin percent of merchandise sales decreased to (4.7)% for the year ended December 31, 2019, from (1.5)% in 2018.
Gross Profit. Gross profit decreased by $44.1 million, or 2.6%, to $1,644.1 million for the year ended December 31, 2019, from $1,688.2 million in 2018, due primarily to decreases of $44.7 million and $5.8 million in the Rent-A-Center Business and Preferred Lease segments, respectively partially offset by increases of $3.3 million and $3.1 million in the Franchising and Mexico segments, respectively, in each case as discussed further in the segment performance section below. Gross profit as a percentage of total revenue decreased to 61.6% in 2019 compared to 63.5% in 2018.
Store Labor. Store labor includes all salaries and wages paid to store-level employees and district managers' salaries, together with payroll taxes and benefits. Store labor decreased by $53.3 million, or 7.8%, to $630.1 million for the year ended December 31, 2019, as compared to $683.4 million in 2018, primarily attributable to a decrease of $53.7 million in the Rent-A-Center Business segment, driven by our cost savings initiatives and lower Rent-A-Center Business store base (see Note M to the consolidated financial statements for additional detail). Store labor expressed as a percentage of total store revenue was 24.2% for the year ended December 31, 2019, as compared to 26.0% in 2018.
Other Store Expenses. Other store expenses include occupancy, charge-offs due to customer stolen merchandise, delivery, advertising, selling, insurance, travel and other store-level operating expenses. Other store expenses decreased by $39.8 million, or 6.1%, to $617.1 million for the year ended December 31, 2019, as compared to $656.9 million in 2018, primarily attributable to a decrease of $55.1 million in the Rent-A-Center Business segment, as a result of lower Rent-A-Center Business store base, partially offset by an increase of $13.1 million in the Preferred Lease segment primarily related to merchandise losses. Other store expenses expressed as a percentage of total store revenue decreased to 23.7% for the year ended December 31, 2019, from 25.0% in 2018.
General and Administrative Expenses. General and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries, payroll taxes and benefits, stock-based compensation, occupancy, administrative and other operating expenses, as well as salaries and labor costs for our regional directors, divisional vice presidents and executive vice presidents. General and administrative expenses decreased by $20.8 million, or 12.7%, to $142.6 million for the year ended December 31, 2019, as compared to $163.4 million in 2018, primarily as a result of our cost savings initiatives. General and administrative expenses expressed as a percentage of total revenue decreased to 5.3% for the year ended December 31, 2019, compared to 6.1% in 2018.
Other (Gains) and Charges. Other charges decreased by $120.0 million, or 202.4%, to $(60.7) million in 2019, as compared to $59.3 million in 2018. Other gains for the year ended December 31, 2019 were primarily related to receipt of the Vintage Settlement

22




Proceeds and gain recorded on the sale of our corporate headquarters, partially offset by merger termination and other incremental legal and professional fees, legal settlements, state sales tax audit assessments, acquisition transaction fees, and charges related to cost savings initiatives and store closures. See Note M to the consolidated financial statements for additional detail regarding these other charges.
Operating Profit. Operating profit increased $197.8 million, or 352.2%, to $253.9 million for the year ended December 31, 2019, as compared to $56.1 million in 2018, primarily due to an increase of $114.9 million in the Corporate segment primarily due to the other gains discussed above, and an increase of $88.2 million in the Rent-A-Center Business segment, as discussed further in the segment performance sections below. Operating profit expressed as a percentage of total revenue was 9.5% for the year ended December 31, 2019, as compared to 2.1% for 2018. Excluding other charges, profit was $193.1 million or 7.2% of revenue for the year ended December 31, 2019, compared to $115.5 million or 4.3% of revenue for the comparable period of 2018.
Income Tax Expense. Income tax expense for the twelve months ended December 31, 2019 was $50.2 million, as compared to $5.3 million in 2018. The effective tax rate was 22.4% for the twelve months ended December 31, 2019, compared to 38.6% in 2018.
Comparison of the Years Ended December 31, 2018 and 2017
Store Revenue. Total store revenue decreased by $52.5 million, or 2.0%, to $2,627.9 million for the year ended December 31, 2018, from $2,680.4 million for 2017. This was primarily due to a decrease of approximately $75.4 million in the Preferred Lease segment, partially offset by an increase of $20.3 million in the Rent-A-Center Business segment, as discussed further in the segment performance section below.
Same store revenue is reported on a constant currency basis and generally represents revenue earned in 2,575 locations that were operated by us for 13 months or more, excluding any store that receives a certain level of customer accounts from another store (acquisition or merger). Receiving stores will be eligible for inclusion in the same store sales base in the twenty-fourth full month following the account transfer. In addition, due to the severity of the hurricane impacts, we instituted a change to the same store sales store selection criteria to exclude stores in geographically impacted regions for 18 months. Same store revenues increased by $74.8 million, or 4.7%, to $1,653.4 million for the year ended December 31, 2018, as compared to $1,578.6 million in 2017. The increase in same store revenues was primarily attributable to an improvement in the Rent-A-Center Business segment, as discussed further in the segment performance section below.
Cost of Rentals and Fees. Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the year ended December 31, 2018 decreased by $3.5 million, or 0.6%, to $621.9 million, as compared to $625.4 million in 2017. This decrease in cost of rentals and fees was primarily attributable to a decrease of $8.1 million in the Rent-A-Center Business segment as a result of lower rentals and fees revenue, partially offset by an increase of $3.8 million in the Preferred Lease segment. Cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 27.7% for the year ended December 31, 2018 as compared to 27.6% in 2017.
Cost of Merchandise Sold. Cost of merchandise sold represents the net book value of rental merchandise at time of sale. Cost of merchandise sold decreased by $13.7 million, or 4.3%, to $308.9 million for the year ended December 31, 2018, from $322.6 million in 2017, primarily attributable to a decrease of $18.8 million in the Preferred Lease segment, partially offset by an increase of $5.1 million in the Rent-A-Center Business segment. The gross margin percent of merchandise sales decreased to (1.5)% for the year ended December 31, 2018, from 2.6% in 2017.
Gross Profit. Gross profit decreased by $30.3 million, or 1.8%, to $1,688.2 million for the year ended December 31, 2018, from $1,718.5 million in 2017, due primarily to a decrease of $60.4 million in the Preferred Lease segment, partially offset by an increase of $23.6 million and $4.6 million in the Rent-A-Center Business and Franchising segments, respectively, as discussed further in the segment performance section below. Gross profit as a percentage of total revenue decreased to 63.5% in 2018 compared to 63.6% in 2017.
Store Labor. Store labor includes all salaries and wages paid to store-level employees and district managers' salaries, together with payroll taxes and benefits. Store labor decreased by $49.1 million, or 6.7%, to $683.4 million for the year ended December 31, 2018, as compared to $732.5 million in 2017, primarily attributable to a decrease of $29.4 million and $19.8 million in the Preferred Lease and Rent-A-Center Business segments, respectively, driven by cost savings initiatives and lower Rent-A-Center Business store base. Store labor expressed as a percentage of total store revenue was 26.0% for the year ended December 31, 2018, as compared to 27.3% in 2017.
Other Store Expenses. Other store expenses include occupancy, charge-offs due to customer stolen merchandise, delivery, advertising, selling, insurance, travel and other store-level operating expenses. Other store expenses decreased by $87.3 million,

23




or 11.7%, to $656.9 million for the year ended December 31, 2018, as compared to $744.2 million in 2017, primarily attributable to decreases of $51.6 million and $37.5 million in the Preferred Lease and Rent-A-Center Business segments, respectively, as a result of lower customer stolen merchandise losses for Preferred Lease and lower Rent-A-Center Business store base. Other store expenses expressed as a percentage of total store revenue decreased to 25.0% for the year ended December 31, 2018, from 27.8% in 2017.
General and Administrative Expenses. General and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries, payroll taxes and benefits, stock-based compensation, occupancy, administrative and other operating expenses, as well as salaries and labor costs for our regional directors, divisional vice presidents and executive vice presidents. General and administrative expenses decreased by $7.7 million, or 4.5%, to $163.4 million for the year ended December 31, 2018, as compared to $171.1 million in 2017. General and administrative expenses expressed as a percentage of total revenue decreased to 6.1% for the year ended December 31, 2018, compared to 6.3% in 2017.
Other Charges. Other charges increased by $0.1 million, or 0.2%, to $59.3 million in 2018, as compared to $59.2 million in 2017. Other charges for the year ended December 31, 2018 primarily related to cost savings initiatives, including reductions in overhead and supply chain, incremental legal and advisory fees, Rent-A-Center Business store closures, and write-down of capitalized software assets. See Note L to the consolidated financial statements for additional detail regarding these other charges.
Operating Profit (Loss). Operating profit increased $119.2 million, or 189.0%, to $56.1 million for the year ended December 31, 2018, as compared to operating loss of $63.1 million in 2017, primarily due to increases of $61.6 million and $45.3 million in the Rent-A-Center Business and Preferred Lease segments, respectively, as discussed further in the segment performance sections below. Operating profit (loss) expressed as a percentage of total revenue was 2.1% for the year ended December 31, 2018, as compared to (2.3)% for 2017. Excluding other charges, profit was $115.5 million or 4.3% of revenue or the year ended December 31, 2018, compared to $(3.8) million or (0.1)% of revenue for the comparable period of 2017.
Income Tax Expense (Benefit). Income tax expense for the twelve months ended December 31, 2018 was $5.3 million, as compared to an income tax benefit of $116.9 million in 2017, primarily due to the impact of the Tax Cuts and Jobs Act of 2017 (“Tax Act”) on our deferred tax balances in the prior year. The effective tax rate was 38.6% for the twelve months ended December 31, 2018, compared to 106.0% in 2017. Excluding impacts from the Tax Act, the effective tax rate was 41.5% for the twelve months ended December 31, 2017.
Net Earnings. Net earnings were $8.5 million for the year ended December 31, 2018 as compared to $6.7 million in 2017. Excluding impacts from other charges and the Tax Act, net earnings were $57.8 million for the year ended December 31, 2018 as compared to net loss of $28.7 million in 2017.
Segment Performance
Rent-A-Center Business segment. 
 
Year Ended December 31,
 
2019-2018 Change
 
2018-2017 Change
(Dollar amounts in thousands)
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Revenues
$
1,800,486

 
$
1,855,712

 
$
1,835,422

 
$
(55,226
)
 
(3.0
)%
 
$
20,290

 
1.1
%
Gross profit
1,255,153

 
1,299,809

 
1,276,212

 
(44,656
)
 
(3.4
)%
 
23,597

 
1.8
%
Operating profit
235,964

 
147,787

 
86,196

 
88,177

 
59.7
 %
 
61,591

 
71.5
%
Change in same store revenue
 
 
 
 
 
 


 
4.1
 %
 


 
4.4
%
Stores in same store revenue calculation
 
 
 
 
 
 
 
 
1,795

 
 
 
1,904

Revenues. The decrease in revenue for the year ended December 31, 2019 was driven primarily by a decrease in rentals and fees revenue of $54.8 million, as compared to 2018. This decrease is primarily due to our refranchising efforts and the rationalization of our Rent-A-Center Business store base, partially offset by increases in same store sales.
Gross Profit. Gross profit decreased in 2019 primarily due to the decreases in revenue described above, in addition to an increase in cost of merchandise sold of $9.3 million, related to our strategy to enhance our value proposition. Gross profit as a percentage of segment revenues decreased to 69.7% in 2019 from 70.0% in 2018.
Operating Profit. Operating profit as a percentage of segment revenues was 13.1% for 2019 compared to 8.0% for 2018, primarily due to decreases in other store expenses of $55.1 million and store labor of $53.7 million. Declines in store labor and other store expenses were driven primarily by lower store count and cost savings initiatives. Charge-offs in our Rent-A-Center Business lease-to-own stores due to customer stolen merchandise, expressed as a percentage of Rent-A-Center Business lease-to-own revenues,

24




were approximately 3.8% for the year ended December 31, 2019, compared to 3.3% in 2018. Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims. Charge-offs in our Rent-A-Center Business lease-to-own stores due to other merchandise losses, expressed as a percentage of revenues, were approximately 1.3% for the year ended December 31, 2019, compared to 1.6% in 2018.
Preferred Lease segment. 
 
Year Ended December 31,
 
2019-2018 Change
 
2018-2017 Change
(Dollar amounts in thousands)
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Revenues
$
749,260

 
$
722,562

 
$
797,987

 
$
26,698

 
3.7
 %
 
$
(75,425
)
 
(9.5
)%
Gross profit
333,798

 
339,616

 
400,002

 
(5,818
)
 
(1.7
)%
 
(60,386
)
 
(15.1
)%
Operating profit
83,066

 
93,951

 
48,618

 
(10,885
)
 
(11.6
)%
 
45,333

 
93.2
 %
Change in same store revenue
 
 
 
 
 
 


 
5.8
 %
 
 
 
5.9
 %
Stores in same store revenue calculation
 
 
 
 
 
 
 
 
859

 
 
 
563

Revenues. Revenues for the year ended December 31, 2019 increased compared to 2018, primarily due to the acquisition of Merchants Preferred and an increase in same store sales.
Gross Profit. Gross profit decreased for the year ended December 31, 2019 compared to 2018, primarily due to our strategy to enhance our value proposition. Gross profit as a percentage of segment revenue decreased to 44.6% in 2019 as compared to 47.0% in 2018.
Operating Profit. Operating profit decreased by 11.6% compared to 2018, primarily due to decline in gross profit described above and higher merchandise losses. Charge-offs in our Preferred Lease locations due to customer stolen merchandise, expressed as a percentage of revenues, were approximately 10.7% in 2019 as compared to 9.0% in 2018. Other merchandise losses include unrepairable merchandise and loss/damage waiver claims. Charge-offs in our Preferred Lease locations due to other merchandise losses, expressed as a percentage of revenues, were approximately 0.3% and 0.6% in 2019 and 2018, respectively.
Mexico segment. 
 
Year Ended December 31,
 
2019-2018 Change
 
2018-2017 Change
(Dollar amounts in thousands)
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Revenues
$
53,960

 
$
49,613

 
$
47,005

 
$
4,347

 
8.8
%
 
$
2,608

 
5.5
%
Gross profit
37,488

 
34,364

 
32,592

 
3,124

 
9.1
%
 
1,772

 
5.4
%
Operating profit (loss)
5,357

 
2,605

 
(260
)
 
2,752

 
105.6
%
 
2,865

 
1,101.9
%
Change in same store revenue
 
 
 
 
 
 


 
9.7
%
 
 
 
8.5
%
Stores in same store revenue calculation
 
 
 
 
 
 
 
 
108

 
 
 
108

Revenues. Revenues for 2019 were positively impacted by exchange rate fluctuations of approximately $0.1 million, as compared to 2018. On a constant currency basis, revenues for the year ended December 31, 2019 increased approximately $4.2 million.
Gross Profit. Gross profit for the year ended December 31, 2019 was minimally impacted by the exchange rate fluctuations as compared to 2018. Gross profit as a percentage of segment revenues increased to 69.5% in 2019, compared to 69.3% in 2018.
Operating Profit. Operating profit for the year ended December 31, 2019 was minimally impacted by exchange rate fluctuations compared to 2018. Operating profit as a percentage of segment revenues increased to 9.9% in 2019, compared to 5.3% in 2018.
Franchising segment. 
 
Year Ended December 31,
 
2019-2018 Change
 
2018-2017 Change
(Dollar amounts in thousands)
2019
 
2018
 
2017
 
$
 
%
 
$
 
%
Revenues
$
66,146

 
$
32,578

 
$
22,126

 
$
33,568

 
103.0
%
 
$
10,452

 
47.2
 %
Gross profit
17,632

 
14,379

 
9,736

 
3,253

 
22.6
%
 
4,643

 
47.7
 %
Operating profit
7,205

 
4,385

 
5,081

 
2,820

 
64.3
%
 
(696
)
 
(13.7
)%
Revenues. Revenues increased for the year ended December 31, 2019, compared to 2018, primarily due to an increase in franchise locations, as a result of refranchising previous corporate owned stores, resulting in higher merchandise sales.

25




Gross Profit. Gross profit as a percentage of segment revenues decreased to 26.7% in 2019 from 44.1% in 2018, primarily due to changes in revenue mix between franchise royalties and fees, and rental merchandise sales, primarily as a result of the increase in franchise locations described above.
Operating Profit. Operating profit as a percentage of segment revenues decreased to 10.9% in 2019 from 13.5% for 2018, primarily due to the decline in gross profit described above.
Quarterly Results
The following table contains certain unaudited historical financial information for the quarters indicated:
(In thousands, except per share data)
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Year Ended December 31, 2019
 
 
 
 
 
 
 
Revenues
$
696,694

 
$
655,925

 
$
649,371

 
$
667,862

Gross profit
424,866

 
408,071

 
399,996

 
411,138

Operating profit
17,349

 
129,829

 
38,847

 
67,834

Net earnings
7,323

 
94,455

 
31,277

 
40,491

Basic earnings per common share
$
0.14

 
$
1.74

 
$
0.57

 
$
0.74

Diluted earnings per common share
$
0.13

 
$
1.70

 
$
0.56

 
$
0.72

(In thousands, except per share data)
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Year Ended December 31, 2018
 
 
 
 
 
 
 
Revenues
$
698,043

 
$
655,730

 
$
644,942

 
$
661,750

Gross profit
436,978

 
423,886

 
407,740

 
419,564

Operating (loss) profit
(10,270
)
 
27,151

 
25,632

 
13,624

Net (loss) earnings
(19,843
)
 
13,753

 
12,918

 
1,664

Basic (loss) earnings per common share
$
(0.37
)
 
$
0.26

 
$
0.24

 
$
0.03

Diluted (loss) earnings per common share
$
(0.37
)
 
$
0.25

 
$
0.24

 
$
0.03

(As a percentage of revenues)
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Year Ended December 31, 2019
 
 
 
 
 
 
 
Revenues
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Gross profit
61.0
%
 
62.2
%
 
61.6
%
 
61.6
%
Operating profit
2.5
%
 
19.8
%
 
6.0
%
 
10.2
%
Net earnings
1.1
%
 
14.4
%
 
4.8
%
 
6.1
%
(As a percentage of revenues)
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
Year Ended December 31, 2018
 
 
 
 
 
 
 
Revenues
100.0
 %
 
100.0
%
 
100.0
%
 
100.0
%
Gross profit
62.6
 %
 
64.6
%
 
63.2
%
 
63.4
%
Operating profit (loss)
(1.5
)%
 
4.1
%
 
4.0
%
 
2.1
%
Net (loss) earnings
(2.8
)%
 
2.1
%
 
2.0
%
 
0.3
%
Liquidity and Capital Resources
Overview. For the year ended December 31, 2019, we generated $215.4 million in operating cash flow, including approximately $80 million of net pre-tax proceeds from the Vintage Settlement. We paid down debt by $303.2 million, and used cash of $28.9 million for the acquisition of businesses, and $21.2 million for capital expenditures. In addition, we received proceeds from the sale of property assets of $69.7 million, ending the year with $70.5 million of cash and cash equivalents.
Analysis of Cash Flow. Cash provided by operating activities decreased by $12.1 million to $215.4 million in 2019 from $227.5 million in 2018. The decrease was primarily attributable to higher inventory purchases during the twelve months ended December

26




31, 2019, in addition to the prior year receipt of our federal income tax refund in 2018 of approximately $35.2 million, partially offset by the receipt of the Vintage Settlement Proceeds in 2019.
Cash provided by investing activities increased approximately $25.5 million to $20.8 million in 2019 from $(4.7) million in 2018, due primarily to an increase in proceeds from the sale of property assets of approximately $44.4 million, partially offset by an increase of approximately $26.9 million in cash used for the acquisition of businesses.
Cash used in financing activities increased by $181.3 million to $321.6 million in 2019 from $140.3 million in 2018, primarily driven by our net reduction in debt of $303.2 million in 2019, as compared to a net decrease in debt of $139.3 million in 2018. In addition, we increased dividend payments by $13.7 million during the twelve months ended December 31, 2019.
Liquidity Requirements. Our primary liquidity requirements are for rental merchandise purchases. Other capital requirements include expenditures for property assets, debt service, and dividends. Our primary sources of liquidity have been cash provided by operations. Should we require additional funding sources, we maintain a five-year asset-based revolving credit facility (the "ABL Credit Facility"), with commitments of $300 million, provided for under the Asset Based Loan Credit Agreement, entered into on August 5, 2019 (the "ABLE Credit Agreement"). We utilize our ABL 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 ABL Credit Facility for general corporate purposes. Amounts are drawn as needed due to the timing of cash flows and are generally paid down as cash is generated by our operating activities.
We believe cash flow generated from operations and availability under our ABL Credit Facility, will be sufficient to fund our operations during the next 12 months. At February 21, 2020, we had approximately $36.2 million in cash on hand, and $168.2 million available under our ABL Credit Agreement at December 31, 2019.
Deferred Taxes. Certain federal tax legislation enacted during the period 2009 to 2017 permitted bonus first-year depreciation deductions ranging from 50% to 100% of the adjusted basis of qualified property placed in service during such years. The depreciation benefits associated with these tax acts are now reversing. The Protecting Americans from Tax Hikes Act of 2015 ("PATH") extended the 50% bonus depreciation to 2015 and through September 26, 2017, when it was updated by the Tax Act. The Tax Act allows 100% bonus depreciation for certain property placed in service between September 27, 2017 and December 31, 2022, at which point it will begin to phase out. The bonus depreciation provided by the Tax Act resulted in an estimated benefit of $194 million for us in 2019. We estimate the remaining tax deferral associated with bonus depreciation from this act is approximately $239 million at December 31, 2019, of which approximately 78%, or $189 million, will reverse in 2020, and the majority of the remainder will reverse between 2021 and 2022.
Merchandise Losses. Merchandise losses consist of the following: 
 
Year Ended December 31,
(In thousands)
2019
 
2018
 
2017
Customer stolen merchandise
$
158,324

 
$
136,705

 
$
161,912

Other merchandise losses(1)
25,830

 
33,219

 
47,596

Total merchandise losses
$
184,154

 
$
169,924

 
$
209,508

(1) 
Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims.
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, and investment in information technology. We spent $21.2 million, $28.0 million and $65.5 million on capital expenditures in the years 2019, 2018 and 2017, respectively.

27




Acquisitions and New Location Openings. On August 13, 2019, we completed the previously announced acquisition of substantially all of the assets of C/C Financial Corp d/b/a Merchants Preferred ("Merchants Preferred"), a nationwide virtual lease-to-own provider, for total consideration of approximately $46.3 million. In addition, during 2019, we acquired four new Rent-A-Center Business locations and customer accounts for an aggregate purchase price of approximately $0.5 million in three transactions. See Note G to the consolidated financial statements for information about cash used to acquire locations and accounts.
The tables below summarize the location activity for the years ended December 31, 2019, 2018 and 2017.
 
Year Ended December 31, 2019
 
Rent-A-Center Business
 
Preferred Lease Staffed
 
Mexico
 
Franchising
 
Total
Locations at beginning of period(1)
2,158

 
1,106

 
122

 
281

 
3,667

New location openings

 
109

 
1

 
2

 
112

Conversions
(97
)
 
(55
)