4MAR202107192510
2021 Proxy Statement
2020 Annual Report
7APR202108544840
RENT-A-CENTER, INC.
5501 Headquarters Drive
Plano, Texas 75024
Dear Fellow Stockholder:
It is our pleasure to invite you to attend Rent-A-Center, Inc.’s 2021 Annual Meeting of Stockholders
(the ‘‘2021 Annual Meeting’’). The 2021 Annual Meeting will be held as a virtual meeting conducted
exclusively via live webcast at www.virtualshareholdermeeting.com/RCII2021 on Tuesday, June 8, 2021,
at 8:00 a.m. Central Time.
In connection with the 2021 Annual Meeting, the attached Notice of Annual Meeting and Proxy
Statement describe the business items we plan to address at the meeting. We also plan to have a
question and answer session during which our stockholders will have the opportunity to ask questions of
management regarding our business.
In accordance with the Securities and Exchange Commission’s ‘‘Notice and Access’’ model, we are
furnishing proxy materials to our stockholders via the Internet. On or about April 26, 2021, we began
mailing a Notice of Internet Availability of Proxy Materials detailing how to access the proxy materials
electronically and how to submit your proxy via the Internet. The Notice of Internet Availability of Proxy
Materials also provides instructions on how to request and obtain paper copies of the proxy materials and
proxy card or voting instruction form, as applicable. We believe this process provides our stockholders
with a convenient way to access the proxy materials and submit their proxies online, while allowing us to
reduce our environmental impact as well as the costs of printing and distribution.
Your vote is very important so we encourage you to review the information contained in the proxy
materials and submit your proxy, regardless of the number of shares you own. It is important that
beneficial owners of our common stock instruct their brokers on how they want to vote their shares.
Please note that you will need the control number provided on your Notice of Internet Availability of Proxy
Materials in order to submit your proxy online and, if desired, attend the 2021 Annual Meeting virtually.
We look forward to seeing you online on June 8, 2021.
Sincerely,
/s/ Jeffrey Brown
Jeffrey Brown
Chairman of the Board
/s/ Mitchell Fadel
Mitchell Fadel
Chief Executive Officer and Director
7APR202108544840
Notice of 2021 Annual Meeting of
Stockholders
Tuesday, June 8, 2021
8:00 a.m. Central Time
The 2021 annual meeting of stockholders of Rent-A-Center, Inc. will be held as a virtual meeting conducted
exclusively via live webcast at www.virtualshareholdermeeting.com/RCII2021 on Tuesday, June 8, 2021, at
8:00 a.m. Central Time, for the following purposes:
1. To elect or re-elect the two Class III directors nominated by the Board of Directors;
2. To ratify the Audit & Risk Committee’s selection of Ernst & Young LLP as our independent registered public
accounting firm for the year ending December 31, 2021;
3. To conduct an advisory vote approving the compensation of the named executive officers for the year
ended December 31, 2020, as set forth in the proxy statement;
4. To approve the Rent-A-Center, Inc. 2021 Long-Term Incentive Plan;
5. To approve amendments to the Company’s Certificate of Incorporation to declassify the Board of
Directors; and
6. To transact other business that properly comes before the meeting and any adjournments or postponement
thereof.
The foregoing items of business are more fully described in the proxy statement which is attached to, and made a
part of, this notice. The Board of Directors has fixed the close of business on April 12, 2021 as the record date for
determining the stockholders entitled to receive notice of, and to vote at, the 2021 annual meeting of stockholders
and at any and all adjournments or postponements thereof.
We are using the ‘‘Notice and Access’’ method of furnishing proxy materials to our stockholders via the Internet.
Instructions on how to access and review the proxy materials on the Internet can be found on the Notice of Internet
Availability of Proxy Materials (the ‘‘Notice’’) mailed to stockholders of record on or about April 26, 2021. The Notice
also contains instructions on how to receive a paper copy of the proxy materials.
Your vote is important, and whether or not you plan to attend the virtual 2021 annual meeting of stockholders, please
vote as promptly as possible. We encourage you to vote via the Internet, as it is the most convenient and
cost-effective method of voting. You may also vote by telephone or by mail (if you receive paper copies of the proxy
materials or request a paper proxy card). Instructions regarding all three methods of voting are included in the Notice,
the proxy card and the proxy statement.
Thank you in advance for voting and for your support of Rent-A-Center.
By Order of the Board of Directors,
/s/ Bryan Pechersky
Bryan Pechersky
Executive Vice President — General Counsel
and Corporate Secretary
Rent-A-Center, Inc.
5501 Headquarters Drive, Plano, Texas 75024
April 26, 2021
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE 2021 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 8, 2021
This Notice of Annual Meeting, the proxy statement and our annual report on Form 10-K for the year ended
December 31, 2020 (the ‘‘2020 Form 10-K’’) (which we are distributing in lieu of a separate annual report to
stockholders) are available on our website at investor.rentacenter.com, in the ‘‘Financial Information — Annual
Reports and Proxies’’ subsection. Additionally, you may access the Notice of Annual Meeting, the proxy statement
and the 2020 Form 10-K at www.proxyvote.com.
TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUESTIONS AND ANSWERS ABOUT THE 2021 ANNUAL MEETING AND VOTING
PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who may vote? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What constitutes a quorum? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How do I vote? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How will the proxies be voted? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How do I revoke my proxy if desired? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How many votes must each proposal receive to be adopted? . . . . . . . . . . . . . . . . . . . . . .
What are broker non-votes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How will stockholders be able to participate in and ask questions at the 2021 Annual
Meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who is soliciting my proxy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL ONE: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominees for Director at the 2021 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Members of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Skills and Qualifications of Board of Directors and Nominees . . . . . . . . . . . . . . . . . . . . . .
Board Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Structure of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Oversight
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Procedures for Reporting Accounting Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL TWO: RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AUDIT AND RISK COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forms of Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Termination of Employment and Change-in-Control Arrangements . . . . . . . . . . . . . . . . . . .
Policies and Risk Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
6
6
6
6
7
7
8
8
9
10
11
11
11
13
15
15
17
17
17
17
21
23
25
26
26
27
27
29
29
31
32
34
34
40
41
47
51
i
CEO Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . .
Section 162(m) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Qualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Potential Payments and Benefits Upon Termination Without a Change in Control
Potential Payments and Benefits Upon Termination With a Change in Control
. . . . . . . . . .
Potential Realizable Value of Outstanding Awards Upon a Change in Control Without
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL THREE: ADVISORY VOTE ON EXECUTIVE COMPENSATION . . . . . . . . . . . .
PROPOSAL FOUR: APPROVAL OF THE RENT-A-CENTER, INC. 2021 LONG-TERM
INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Highlights of the 2021 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Key Terms of the 2021 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL FIVE: APPROVAL OF THE DECLASSIFICATION AMENDMENTS . . . . . . . . . .
Description of the Proposed Declassification Amendments . . . . . . . . . . . . . . . . . . . . . . . .
Reasons for Declassifying the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . .
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delinquent Section 16(a) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Report on Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
‘‘Householding’’ of Proxy Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNEX A: 2021 LONG-TERM INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNEX B: FORM OF AMENDMENT OF CERTIFICATE TO EFFECT THE
Page
53
53
54
54
55
55
57
58
59
59
60
60
62
64
65
66
67
68
69
73
75
76
76
77
77
78
79
79
79
79
80
80
A-1
DECLASSIFICATION AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B-1
ii
Proxy Statement
For the Annual Meeting of Stockholders
To Be Held on June 8, 2021
This proxy statement is furnished in connection with the solicitation of proxies by Rent-A-Center, Inc. on
behalf of its Board of Directors (the ‘‘Board’’), for the 2021 Annual Meeting of Stockholders of the
Company (the ‘‘2021 Annual Meeting’’). In this proxy statement, references to ‘‘Rent-A-Center’’, the
‘‘Company’’, ‘‘we’’, ‘‘us’’, ‘‘our’’ and similar expressions refer to Rent-A-Center, Inc., unless the context of
a particular reference provides otherwise. Although we refer to our website and other websites in this
proxy statement, the information contained on our website or other websites is not a part of this proxy
statement. The Notice of Internet Availability of Proxy Materials (the ‘‘Notice’’) is being mailed on or about
April 26, 2021 to stockholders of record as of April 12, 2021.
SUMMARY
This summary highlights certain information contained elsewhere in this proxy statement. This summary
does not contain all of the information that you should consider, and you should read the entire proxy
statement carefully before voting. For information regarding our 2020 performance, please review our
Annual Report on Form 10-K for the year ended December 31, 2020 (the ‘‘2020 Form 10-K’’).
Meeting Information
Date & Time: 8:00 a.m., Central Time, on Tuesday, June 8, 2021, or at such other time to which the
meeting may be adjourned or postponed. References in this proxy statement to the 2021 Annual Meeting
also refer to any adjournments, postponements or changes in time or location of the meeting, to the extent
applicable.
Location: The meeting will be a virtual meeting conducted exclusively via live webcast at
www.virtualshareholdermeeting.com/RCII2021.
Eligibility to Vote: You can vote if you were a stockholder of record at the close of business on April 12,
2021 by following the instructions set forth in this proxy statement.
The Company’s decision to hold a virtual meeting was made in light of ongoing developments relating to
the novel coronavirus outbreak (COVID-19). We believe the virtual meeting will facilitate stockholder
attendance and participation by enabling stockholders to participate from any location and at no cost,
regardless of size, resources or physical location and will safeguard the health of our stockholders, Board
and management.
You will be able to attend the 2021 Annual Meeting online, vote your shares electronically and submit
questions during the meeting by visiting www.virtualshareholdermeeting.com/RCII2021. To participate in
the virtual meeting, you will need the control number included on the Notice, proxy card or voting
instruction form. The meeting webcast will begin promptly at 8:00 a.m., Central Time. We encourage you
to access the meeting website approximately 10-15 minutes prior to the start time.
1
Overview of Proposals
Proposal
One: Election of Directors
Two: Ratification of Auditors
Three: Advisory Vote on Executive Compensation
Four: Approval of the 2021 Long-Term Incentive Plan
Five: Approval of Amendments to the Company’s Certificate of Incorporation to
Declassify the Board (the ‘‘Declassification Amendments’’)
Board Information
Board Nominees
Board Vote Recommendation
FOR each Director Nominee
FOR
FOR
FOR
FOR
The following table provides summary information about each director nominee who is nominated for
election or re-election at the 2021 Annual Meeting. Unless the Declassification Amendments are
approved by our stockholders at the 2021 Annual Meeting, each director nominee will serve a three-year
term expiring at the 2024 annual meeting of stockholders and until their successors are elected
and qualified.
Name
Director Experience/
Qualification
Age Since
Independent Memberships
Committee
Other Public
Company Boards
Glenn Marino
64
2020
• Retail finance,
Yes
B.C. Silver
40
2021
business
development and
banking
• Financial
technology,
consumer products
and retail industries
Audit & Risk
Nominating and
Corporate Governance
—
—
Yes
Compensation
Nominating and
Corporate Governance
As previously announced, Michael Gade determined not to stand for re-election at the 2021 Annual
Meeting and will retire as a director at the end of his term at the 2021 Annual Meeting.
2
Continuing Directors
The following directors are not standing for election or re-election and their terms will continue past this
year’s stockholder meeting:
Name
Age Since
Expires Experience/Qualification
Independent Memberships
Current
Director Term
Committee
Other Public
Company
Boards
Jeffrey Brown
(Chairman)
Christopher
Hetrick
60
2017
2023
42
2017
2023
• Significant public and private
company board experience
• Broad transactional expertise
• Extensive investment
Yes
Yes
experience
• Corporate strategy, capital
allocation, executive
compensation and investor
communications
• Financial technology
• Consumer finance
• Corporate finance and
treasury
• Governance; leadership
Audit & Risk (chair)
• Medifast, Inc.
Compensation (chair)
—
Nominating and
Corporate Governance
Yes
Yes
Audit & Risk
Compensation
Audit & Risk
—
• Argo Group
International
Holdings, Ltd
Nominating and
Corporate Governance(1)
—
—
Harold Lewis
60
2019
2022
Carol McFate
68
2019
2022
Mitchell Fadel
63
2017
2023
• Chief Executive Officer and
—
former Chief Operating Officer
of the Company
• Significant knowledge of the
business and rent-to-own
industry
(1)
Following the 2021 Annual Meeting, Ms. McFate will replace Mr. Gade as Chair of the Nominating and Corporate Governance
Committee.
Independent Directors
Other than our Chief Executive Officer, all members of the Board are independent as determined in
accordance with applicable rules of Nasdaq and the SEC and as determined by our Board.
Board Leadership Structure; Independent Chairman
Our Board separates the roles of Chairman and Chief Executive Officer. Mr. Brown serves as Chairman
and Mr. Fadel serves as our Chief Executive Officer.
Board Diversity
Our Board includes a range of individuals with diverse backgrounds and experiences, including both
gender and ethnic diversity.
Corporate Governance
General
Our Board has established corporate governance practices designed to serve the best interests of our
Company and our stockholders, including:
• a code of business conduct and ethics applicable to all of our Board members and employees;
3
• a majority voting standard in non-contested elections for directors;
• a policy for the submission of complaints or concerns relating to accounting, internal accounting
controls or auditing matters; and
• procedures regarding stockholder communications with our Board and its committees.
Director Compensation
Our non-employee directors are entitled to receive annual retainers and meeting attendance fees, which
are payable in cash unless the applicable director has elected to receive all or a portion of such amount in
the form of deferred stock units (‘‘DSUs’’), as well as an annual DSU award under the 2016 Long-Term
Incentive Plan (or, if approved by stockholders at the 2021 Annual Meeting, the 2021 Long-Term
Incentive Plan) valued at $120,000.
Mr. Fadel, our Chief Executive Officer and our only employee director, is not entitled to receive
compensation for his service as a director.
Executive Compensation
Program Objectives
The objectives of our executive compensation program are to:
• attract, retain and motivate senior executives with competitive compensation opportunities;
• balance short-term and long-term strategic goals;
• align our executive compensation program with the core values identified in our mission
statement, which focuses on improving the quality of life for our co-workers and our
customers; and
• reward achievement of our financial and non-financial goals.
The Company’s compensation philosophy is generally to refer to the 50th-75th percentile of target total
direct compensation (base salary, annual incentive opportunity and long-term incentive compensation
opportunity) paid at similarly-situated public companies in the retail and consumer finance sectors, which
include companies in the Company’s Peer Group (as described under ‘‘Compensation Discussion and
Analysis’’ below), as a guideline, with cash compensation (base salary and annual incentive opportunity)
generally targeted at around the 50th percentile, and long-term incentive compensation generally
targeted at around the 75th percentile.
The following are the primary forms of compensation currently utilized by the Compensation Committee in
compensating our named executive officers:
• base salary, which is paid in cash;
• annual incentive compensation, which is paid in cash and, for 2021, is based on (1) Acima
(formerly Preferred Lease) segment revenues, (2) Rent-A-Center segment same store sales, and
(3) consolidated adjusted EBITDA, which is calculated as net earnings before interest, taxes,
depreciation and amortization, as adjusted for certain gains and charges we view as extraordinary,
unusual or non-recurring in nature and which we believe do not reflect our core business activities
(‘‘Adjusted EBITDA’’); and
• long-term incentive compensation, which was updated in 2021 to eliminate stock options and
implement ratable vesting of restricted stock units and now consists of (1) restricted stock units
which vest one-third each year over a three-year period, and (2) performance stock units which
4
vest based solely on a relative total shareholder return metric over a three-year measurement
period.
Pay for Performance; Relative Total Shareholder Return
Our executive compensation program directly links a substantial portion of executive compensation to our
financial and stock price performance through both annual and long-term incentives.
For the 2020 annual cash incentive program, based on strong Company performance, each executive
officer received an amount equal to 180% of such person’s target bonus amount.
In 2020, performance stock units granted in 2018 also vested following their three-year vesting period. In
2018, our Compensation Committee granted to our executive officers performance-based restricted
stock units based on our relative Total Shareholder Return (‘‘TSR’’) as compared to the S&P 1500
Specialty Retail Index over a three-year measurement period. Our relative TSR performance as
compared to the S&P 1500 Specialty Retail Index for the three-year period ended December 31, 2020,
ranked us 2 out of 60 companies in the S&P 1500 Specialty Retail Index, or the 98th percentile, which
resulted in the vesting of 200% of the performance-based restricted stock units that were granted.
Stock Ownership Guidelines
We believe that our Board and our management should have a significant financial stake in the Company
to ensure that their interests are aligned with those of our stockholders. To that end, our directors, Chief
Executive Officer, executive vice presidents, senior vice presidents and vice presidents are subject to
equity interest guidelines.
Hedging and Pledging Restrictions
Our insider trading policy prohibits our directors, officers and employees from engaging in hedging,
monetization or options transactions related to our securities or transactions involving any derivative
security of the Company or similar instruments.
Our insider trading policy also prohibits the holding of securities of the Company in a margin account or
pledging securities of the Company as collateral for a loan, in each case unless they are treated as
non-marginable by the brokerage firm.
Clawback Policy
Our Board has adopted a clawback policy that allows the Company to seek recoupment, repayment
and/or forfeiture of any annual or long-term cash, equity or equity-based incentive or bonus compensation
outstanding and unpaid or paid and received during the three-year period preceding the date of a
clawback event (as described under ‘‘Compensation Discussion and Analysis — Policies and Risk
Mitigation — Clawback Policy’’).
5
QUESTIONS AND ANSWERS ABOUT THE
2021 ANNUAL MEETING AND VOTING PROCEDURES
Who may vote?
Stockholders of record as of the close of business on April 12, 2021, the record date for the 2021 Annual
Meeting, may vote at the virtual meeting. Each share of common stock entitles the holder to one vote per
share. As of April 12, 2021, there were 66,308,287 shares of our common stock outstanding, which were
held by 50 holders of record. At least ten days prior to the 2021 Annual Meeting, a complete list of
stockholders entitled to vote at the meeting will be available for examination by any stockholder for any
purpose germane to the meeting, during ordinary business hours at our principal executive offices located
at 5501 Headquarters Drive, Plano, Texas 75024. Any such examination will be subject to adhering to
required safety protocols implemented due to the COVID-19 pandemic. The list will also be available
online at the 2021 Annual Meeting for examination by any stockholder who is present.
What constitutes a quorum?
The holders of at least a majority of our outstanding shares of common stock entitled to vote at the 2021
Annual Meeting must be present online or represented by proxy at the 2021 Annual Meeting to have a
quorum. Any stockholder present online at the 2021 Annual Meeting or represented by proxy, but who
abstains from voting, and ‘‘broker non-votes’’ will be counted for purposes of determining whether a
quorum exists. If a quorum is not present, the meeting may be adjourned or postponed from time to time
until a quorum is obtained.
How do I vote?
You cannot vote your shares of common stock unless you are present online at the virtual meeting or you
have previously given your proxy before the applicable deadline. If you are a registered stockholder, you
may vote your shares or submit a proxy in one of the following convenient ways:
Voting Method
By Internet
By Telephone
By Mail
Online at the 2021 Annual Meeting
Description of Process
You may submit a proxy electronically on the Internet, by
visiting the website shown on the Notice or proxy card
and following the instructions.
If you request paper copies of the proxy materials by mail,
you may submit a proxy by telephone, by calling the
toll-free telephone number shown on the Notice or proxy
card and following the instructions.
If you request paper copies of the proxy materials by mail,
you may submit a proxy by signing, dating and returning a
paper proxy card in accordance with its instructions. The
Notice provides instructions on how to request a paper
proxy card and other proxy materials.
You may vote by attending the 2021 Annual Meeting and
casting your vote during the designated portion of the
meeting by following the instructions provided on the
meeting website. Merely attending the meeting online, but
without properly voting, will not count as a vote.
If you are voting on the Internet prior to the 2021 Annual Meeting or by telephone, your voting instructions
must be received by 11:59 p.m., Eastern Time on June 7, 2021, unless you are a participant in our 401(k)
plan, in which case your voting instructions must be received by 11:59 p.m., Central Time, on
June 2, 2021.
6
If your shares are held in street name, you will receive instructions from your bank, broker or other holder
of record that you must follow in order for your shares to be voted.
How will the proxies be voted?
The Board has appointed Mr. Bryan Pechersky, Executive Vice President, General Counsel and
Corporate Secretary, and Ms. Maureen Short, Executive Vice President and Chief Financial Officer, as
the management proxyholders for the 2021 Annual Meeting. All properly executed proxies, unless
revoked as described below, will be voted by a management proxyholder at the meeting in accordance
with your directions on the proxy. If a properly executed proxy does not provide instructions, the shares of
common stock represented by your proxy will be voted:
Proposal
One: Election of Directors
Two: Ratification of the Audit & Risk Committee’s
Selection of Ernst & Young LLP
Three: Advisory Vote on Executive Compensation
Board Recommendation
‘‘FOR’’ each of the Board’s nominees for Class III director
‘‘FOR’’ the ratification of the Audit & Risk Committee’s
selection of Ernst & Young LLP as our independent
registered public accounting firm for 2021
‘‘FOR’’ the resolution approving, on an advisory basis, the
compensation of the named executive officers for the year
ended December 31, 2020, as set forth in this proxy
statement
Four: Approval of the Rent-A-Center, Inc. 2021 Long-Term
Incentive Plan
‘‘FOR’’ the approval of the Rent-A-Center, Inc. 2021
Long-Term Incentive Plan
Five: Approval of the Declassification Amendments
‘‘FOR’’ the approval of the Declassification Amendments
As of the date of this proxy statement, the Board is not aware of any other business or nominee to be
presented or voted upon at the 2021 Annual meeting. Should any other matter requiring a vote of
stockholders properly arise, the management proxy holders will use their discretion to vote the proxies in
accordance with their best judgment in the interests of the Company. Unless otherwise stated, all shares
represented by your completed, returned, and signed proxy will be voted as described above.
How do I revoke my proxy if desired?
If you are a registered stockholder, you may revoke your proxy by timely following one of the processes
set forth below.
Revocation Method
New Proxy Card
New Internet/Telephone Proxy
New Vote Online At 2021 Annual
Meeting
Written Notice to the Company
Description of Process
Deliver a signed proxy, dated later than the first one, which proxy must be
received by the Company prior to the vote at the 2021 Annual Meeting
Vote at a later time on the Internet or by telephone, if you previously voted on
the Internet or by telephone, which vote must be submitted prior to the deadline
set forth above
Attend the virtual meeting and vote online or by proxy (attending the virtual
meeting alone will not revoke your proxy)
Deliver a signed, written revocation letter, dated later than the previously
submitted proxy, to Bryan Pechersky, Executive Vice President — General
Counsel & Corporate Secretary, at 5501 Headquarters Drive, Plano, TX 75024,
which letter must be received by the Company prior to the vote at the 2021
Annual Meeting
If you are a street name stockholder and you submit a voting instruction form, you may change your vote
by submitting new voting instructions to your bank, broker or other holder of record in accordance with the
procedures of such bank, broker or other holder of record.
7
How many votes must each proposal receive to be adopted?
Proposal
Required Vote for Approval
One: Election of Directors
Two: Ratification of the Audit & Risk
Committee’s Selection of Ernst &
Young LLP
Three: Advisory Vote On Executive
Compensation
Four: Approval of the
Rent-A-Center, Inc. 2021 Long-Term
Incentive Plan
Five: Approval of the
Declassification Amendments
Under our Bylaws, directors are elected
by a majority of the votes cast in
uncontested elections. Accordingly, the
numbers of votes cast ‘‘for’’ a director
nominee must exceed the number of
votes cast ‘‘against’’ that nominee. In
contested elections, the vote standard
would be a plurality of votes cast. Each
share may be voted for each of the
nominees, but no share may be voted
more than once for any particular
nominee.
A majority of the votes cast is required
to ratify Ernst & Young LLP as our
independent registered public
accounting firm.
The affirmative vote of the holders of a
majority in voting power of the shares
of common stock present online or
represented by proxy and entitled to
vote at the meeting is required to
approve the advisory resolution on
executive compensation.
The affirmative vote of the holders of a
majority in voting power of the shares
of common stock present online or
represented by proxy and entitled to
vote at the meeting is required to
approve the Rent-A-Center, Inc. 2021
Long-Term Incentive Plan.
The affirmative vote of the holders of at
least eighty percent (80%) of the
shares of common stock of the
Company issued and outstanding as of
the record date for the 2021 Annual
Meeting is required to approve the
Declassification Amendments.
Impact of Broker Non-Votes and
Abstentions
Broker non-votes and abstentions
will not affect the outcome of the
vote.
Brokers have discretionary authority
in the absence of timely instructions
from their customers to vote on this
proposal. Abstentions will not affect
the outcome of the vote.
Broker non-votes will not affect the
outcome of the vote. Because
abstentions are counted as shares
present and entitled to vote on the
proposal, each abstention will have
the same effect as a vote ‘‘against’’
this proposal.
Broker non-votes will not affect the
outcome of the vote. Because
abstentions are counted as shares
present and entitled to vote on the
proposal, each abstention will have
the same effect as a vote ‘‘against’’
this proposal.
Broker non-votes and abstentions
will have the same effect as a vote
‘‘against’’ this proposal.
A representative of Broadridge Financial Services, Inc. will tabulate the votes and act as inspector
of elections.
What are broker non-votes?
Broker non-votes occur when nominees, such as banks and brokers, holding shares on behalf of
beneficial owners, or customers, do not receive voting instructions from the customers. Brokers holding
shares of record for customers generally are not entitled to vote on certain matters unless they receive
voting instructions from their customers. In the event that a broker does not receive voting instructions for
these matters, a broker may notify us that it lacks voting authority to vote those shares. These broker
non-votes refer to votes that could have been cast on the matter in question by brokers with respect to
uninstructed shares if the brokers had received their customers’ instructions. These broker non-votes will
be included in determining whether a quorum exists.
Your bank or broker is not permitted to vote your uninstructed shares in respect of Proposal One (election
of directors), Proposal Three (advisory vote on executive compensation), Proposal Four (approval of the
Rent-A-Center, Inc. 2021 Long-Term Incentive Plan) or Proposal Five (approval of the Declassification
Amendments). As a result, if you hold your shares in street name and you do not instruct your bank or
broker how to vote, no votes will be cast on your behalf in respect of the foregoing matters. However, if
8
you hold your shares in street name and you do not instruct your bank or broker how to vote in respect of
Proposal Two (ratification of auditors), your bank or broker is entitled to vote your shares.
To be certain your shares are voted in the manner you desire, you should instruct your bank or broker how
to vote your shares.
How will stockholders be able to participate in and ask questions
at the 2021 Annual Meeting?
The 2021 Annual Meeting will be a virtual meeting conducted exclusively via live webcast at
www.virtualshareholdermeeting.com/RCII2021. To participate in the virtual meeting, visit such website
and enter the control number included on the Notice, proxy card or voting instruction form.
The virtual meeting will provide substantially the same opportunities to participate as stockholders would
have at an in-person meeting. Stockholders will be able to attend and participate online and submit
questions prior to or during the meeting. Questions may be submitted in advance of the meeting prior to
11:59 p.m., Eastern Time, on June 7, 2021, by logging into www.proxyvote.com, entering your control
number and, once past the login screen, clicking on ‘‘Submit Questions,’’ choosing a question type, typing
in your question, and clicking ‘‘Submit.’’ Alternatively, questions may be submitted during the meeting by
logging into the virtual meeting platform at www.virtualshareholdermeeting.com/RCII2021, clicking on
‘‘Q&A,’’ typing in your question, and clicking ‘‘Submit.’’
As part of the 2021 Annual Meeting, we will hold a question and answer session, during which we intend
to answer questions submitted prior to and during the meeting in accordance with the 2021 Annual
Meeting procedures and which are pertinent to the Company and the meeting matters, as time permits.
Questions or comments that are irrelevant to the business of the meeting or the Company’s business, in
furtherance of the personal or business interests of a stockholder, relate to material non-public
information of the Company or pending or threatened litigation or investigations, derogatory to individuals
or groups or not in good taste, related to personal grievances or are otherwise not suitable for the conduct
of the meeting as determined in the sole discretion of the Company will not be answered. The Company
may not respond to questions that are substantially repetitious of other statements made or questions
received, or may group questions together by topic with a representative question read aloud and
answered. Any questions pertinent to meeting matters that are not answered during the meeting due to
time constraints will be posted online and answered at investor.rentacenter.com. The questions and
answers will be available as soon as practical after the meeting and will remain available until one week
after posting.
The virtual meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome, and
Safari) and devices (desktops, laptops, tablets, and cell phones) running the most updated version of
applicable software and plugins. Shareholders should ensure that they have a strong internet connection
if they plan to attend and/or participate in the meeting. We encourage you to access the meeting website
approximately 10-15 minutes prior to the start time to allow for any unforeseen technical issues, as the
meeting webcast will begin promptly at 8:00 a.m., Central Time. If you encounter any difficulties
accessing the virtual meeting, please call the technical support number that will be posted on the virtual
meeting login page for assistance. Technical support will be available beginning at 7:45 a.m., Central
Time, on the date of the meeting through the conclusion of the meeting.
9
Who is soliciting my proxy?
The Board is soliciting your proxy and we will bear the cost of soliciting proxies. Proxies may be solicited
by telephone, electronic mail, personal interview or other means of communication. We will reimburse
banks, brokers, custodians, nominees and fiduciaries for reasonable expenses they incur in sending
proxy materials to you if you are a beneficial holder of our shares. We have engaged Saratoga Proxy
Consulting LLC, a proxy solicitation firm, to assist in the solicitation of proxies for which we will pay a fee in
the amount of $10,000 and will also reimburse Saratoga Proxy Consulting LLC for reasonable and
customary out-of-pocket expenses incurred in performing such services.
10
PROPOSAL ONE:
ELECTION OF DIRECTORS
Board Overview
Currently, the number of directors constituting our entire Board is eight, divided into three classes.
Directors in each class serve for a term of three years, or until their earlier death, resignation,
disqualification or removal. One class of directors is elected each year at the annual meeting of
stockholders.
Director
Harold Lewis
Carol McFate
Jeffrey Brown
Mitchell Fadel
Christopher Hetrick
Michael Gade
Glenn Marino
B.C. Silver
Class
Class I
Class I
Class II
Class II
Class II
Class III
Class III
Class III
Expiration of Current Term
(Annual Stockholders Meeting)
2022
2022
2023
2023
2023
2021
2021
2021
Nominees for Director at the 2021 Annual Meeting
Two Class III directors are to be elected by our stockholders at the 2021 Annual Meeting. Our Board,
upon recommendation of the Nominating and Corporate Governance Committee, has nominated
(1) Glenn Marino to be re-elected, and (2) B.C. Silver, who was appointed to the Board in January 2021, to
be elected, as Class III directors by our stockholders. As noted above, Michael Gade determined not to
stand for re-election at the 2021 Annual Meeting and will retire as a director at the end of his term at the
2021 Annual Meeting.
The qualifications necessary for a board nominee and the Nominating and Corporate Governance
Committee’s process for evaluating prospective board members is discussed under ‘‘Director
Nominations — Qualifications’’ below. Specific experience and relevant considerations with respect to
each nominee are set forth in each candidate’s respective biography below.
Mr. Marino and Mr. Silver have agreed to stand for re-election and election, respectively. However,
should either of them become unable or unwilling to accept such nomination, the shares of common stock
voted for that nominee by proxy will be voted for the election of a substitute nominee as the Board may
recommend, or the Board may reduce the number of directors to eliminate the vacancy. If any nominee is
unable to serve his or her full term, the Board may reduce the number of directors or designate a
substitute to serve until the 2024 annual meeting of stockholders. Our Board has no reason to believe that
either of Mr. Marino or Mr. Silver will be unable or unwilling to serve as a director, and, to the knowledge of
the Board, each intends to serve the entire term for which election is sought.
Our Board recommends that you vote ‘‘FOR’’ each of Mr. Marino and Mr. Silver.
11
Glenn Marino
Independent Director
Age: 64
Director Since: 2020
Committees Served: Audit & Risk; Nominating and Corporate Governance
Gender: Male
Ethnicity: Caucasian
17APR202013393961
Mr. Marino was appointed to the Board in February 2020. Mr. Marino brings 40 years of experience in the
consumer retail finance industry, most recently serving as Executive Vice President, CEO — Payment
Solutions and Chief Commercial Officer of Synchrony Financial, Inc., a $21 billion financial services
company, from 2014 until 2018. Prior to the spin-off in 2014 of Synchrony by General Electric
Corporation, Mr. Marino was an executive with the North American retail finance business of General
Electric, serving as CEO — Payment Solutions and Chief Commercial Officer from 2012-2013, and
CEO — Sales Finance from 2001 to 2011. From 1999 to 2001, Mr. Marino served as CEO of Monogram
Credit Services, a joint venture between GE and BankOne (now JPMorgan Chase & Co.). Prior to that,
Mr. Marino held various roles of increasing responsibility in finance, business development, credit risk,
and marketing with General Electric and Citibank.
We believe Mr. Marino’s extensive knowledge in retail finance, business development and banking
provides a valuable perspective to our Board as we continue to grow our retail partnerships, particularly
as it relates to the expansion of our Acima (formerly Preferred Lease) segment.
B.C. Silver
21APR202113563980
Independent Director
Age: 40
Director Since: 2021
Committees Served: Compensation; Nominating and Corporate Governance
Gender: Male
Ethnicity: African American
Mr. Silver was appointed to the Board in January 2021. Mr. Silver is an accomplished marketing executive
and entrepreneur who has established several startup companies in the financial services and
technology industries. Mr. Silver currently serves as the founder of Grind Finance, a mobile banking
company launched in 2019 designed to empower underserved communities. From 2017 to 2019,
Mr. Silver served as President, Chief Marketing Officer for RushCard (which was acquired by Green Dot
Corporation) and as General Manager-Consumer Division and Vice President of Digital Marketing and
Account Acquisition for Green Dot Corporation, a financial technology leader and bank holding company
that designs and deploys mobile banking and financial services products directly to consumers through
one of the largest retail banking distribution platforms in America. From 2015 to 2017, Mr. Silver served as
Senior Director of Marketing and Strategic Planning for Mars, Incorporated, a leading global consumer
products company with a portfolio of confectionery, food and pet care products and services. Prior to
Mars, Mr. Silver served in sales and marketing positions with The Clorox Company and
Procter & Gamble.
Mr. Silver has extensive knowledge of the financial technology, consumer products and retail industries
and strong marketing and leadership skills, which we believe are valuable assets as we continue to invest
in our digital lease-to-own solutions across our business.
12
Continuing Members of the Board
The terms of the following five members of our Board will continue past the 2021 Annual Meeting.
Terms to Expire at the 2022 Annual Meeting:
Harold Lewis
Independent Director
Age: 60
Director Since: 2019
Committees Served: Audit & Risk; Compensation
Gender: Male
Ethnicity: African American
11FEB202013071311
Mr. Lewis brings over 30 years of experience in financial services and mortgage lending. From
August 2018 until June 2019, he served as the CEO of Renovate America, Inc., a national home
improvement fintech company focused on energy efficient home improvement lending. From 2016 to
2018, Mr. Lewis was a senior advisor for McKinsey & Company, a worldwide management consulting
firm. From 2012 to 2015 he served as President and COO of Nationstar Mortgage, one of the largest
mortgage servicers in the country. In that position, he grew Nationstar’s servicing platform from $30 billion
to $400 billion and mortgage origination portfolio from $1.8 billion to $25 billion while also building and
managing Nationstar’s relationship with the newly created industry regulator, the Consumer Financial
Protection Bureau. Prior to Nationstar Mortgage, he held C-Suite and senior executive positions at Citi
Mortgage, Fannie Mae, Resource Bancshares Mortgage Group and Nations Credit, among others.
We believe that Mr. Lewis’ significant financial technology knowledge and broad experience with a similar
customer demographic provides our Board with an important resource with respect to our e-commerce
platform and our Acima (formerly Preferred Lease) segment.
Carol McFate
Independent Director
Age: 68
Director Since: 2019
Committees Served: Audit & Risk; Nominating and Corporate Governance
Gender: Female
Ethnicity: Caucasian
11FEB202013070543
Ms. McFate served from 2006 until October 2017 as the Chief Investment Officer of Xerox Corporation, a
multinational document provider of multifunction document management systems and services,
managing retirement assets for North American and UK plans. Previously, Ms. McFate served in various
finance and treasury roles for a number of prominent insurance and financial services companies,
including XL Global Services, Inc., a US-based subsidiary of XL Capital Ltd., a leading Bermuda-based
global insurance and reinsurance company, American International Group, Inc., an American
multinational property & casualty insurance, life insurance, and financial services provider, Prudential
Insurance Company of America, an American Fortune Global 500 and Fortune 500 company whose
subsidiaries provide life insurance, investment management and other financial products and services to
both retail and institutional customers through the US and in over 30 other countries. Ms. McFate is a
Chartered Financial Analyst. Ms. McFate also serves as a director and member of the investment and
nominating committees of Argo Group International Holdings, Ltd.
Ms. McFate brings over 40 years of global corporate finance experience and a varied viewpoint to the
Board which we believe supports us in our strategic initiatives and enhances our long-term vision,
sustainable growth and shareholder value.
13
Terms to Expire at the 2023 Annual Meeting (unless the Declassification Amendments are
approved):
Jeffrey Brown
Chairman of the Board; Independent Director
Age: 60
Director Since: 2017
Committees Served: Audit & Risk (chair)
Gender: Male
Ethnicity: Caucasian
11FEB202013071650
Mr. Brown is the Chief Executive Officer and founding member of Brown Equity Partners, LLC, which
provides capital to management teams and companies. Mr. Brown’s venture capital and private equity
career spans 34 years, including positions with Hughes Aircraft Company, Morgan Stanley & Company,
Security Pacific Capital Corporation and Bank of America Corporation and as founding partner of Forrest
Binkley & Brown. Since June 2015, Mr. Brown has served as the Lead Director of Medifast, Inc., where he
also serves as chairman of the Audit Committee and is a member of the Executive Committee. Mr. Brown
previously served as a director of a number of public and private companies, including Cadiz, Inc.,
Outerwall Inc., Midatech Pharma PLC, Nordion, Inc. and Stamps.com Inc.
Mr. Brown brings to the Board extensive public and private company board experience and significant
transactional expertise, having served as the chairman of the board of directors of 12 companies and as a
member of the board of directors of over 50 companies in both the public and private sectors and having
invested in a broad array of companies throughout his career.
Mitchell Fadel
Director; Chief Executive Officer
Age: 63
Director Since: 2017
Committees Served: N/A
Gender: Male
Ethnicity: Caucasian; Middle-Eastern
11FEB202013072398
Mr. Fadel has served as one of our directors since June 2017 and was named Chief Executive Officer on
January 2, 2018. Mr. Fadel was self-employed prior to joining the Company after most recently serving as
President — U.S. Pawn for EZCORP, Inc., a leading provider of pawn loans in the United States and
Mexico, from September 2015 to December 2016. Prior to that, Mr. Fadel served as President of the
Company (beginning in July 2000) and Chief Operating Officer (beginning in December 2002) each until
August 2015, and also as a director of the Company from December 2000 to November 2013. From 1992
until 2000, Mr. Fadel served as President and Chief Executive Officer of the Company’s subsidiary
Rent-A-Center Franchising International, Inc. f/k/a ColorTyme, Inc. Mr. Fadel’s professional experience
with the Company also includes previously serving as a Regional Director and a District Manager.
As our Chief Executive Officer, Mr. Fadel’s day-to-day leadership provides him with intimate knowledge of
our operations that are a vital component of our Board discussions. In addition, Mr. Fadel brings 30 years
of experience in and knowledge of the rent-to-own industry, including his previous tenure as our President
and Chief Operating Officer, to the Board. We believe Mr. Fadel’s service as our Chief Executive Officer
creates a critical link between management and our Board, enabling our Board to perform its oversight
function with the benefit of management’s perspectives on our business.
14
Christopher Hetrick
Independent Director
Age: 42
Director Since: 2017
Committees Served: Compensation (chair); Nominating and Corporate Governance
Gender: Male
Ethnicity: Caucasian
11FEB202013070884
Mr. Hetrick has been the Director of Research at Engaged Capital, a California based investment firm and
registered advisor with the U.S. Securities and Exchange Commission (‘‘SEC’’) focused on investing in
small and mid-cap North American equities, since September 2012. Prior to joining Engaged Capital,
Mr. Hetrick worked at Relational Investors LLC (‘‘Relational’’), a $6 billion activist equity fund, from
January 2002 to August 2012. Mr. Hetrick began his career with Relational as an associate analyst. He
eventually became the firm’s senior consumer analyst overseeing over $1 billion in consumer sector
investments. Prior to his work heading up the consumer research team, Mr. Hetrick was a generalist
covering major investments in the technology, financial, automotive and food sectors.
We believe that Mr. Hetrick’s extensive investment experience in a broad range of industries as well as
his expertise in corporate strategy, capital allocation, executive compensation, and investor
communications well qualifies him to serve on our Board.
Skills and Qualifications of Board of Directors and Nominees
The following table provides an overview of certain qualifications that we believe each of our directors
possesses and which benefits our Board and Company. This table is not intended to provide a
comprehensive list of all qualifications. Please refer to each directors’ biographical information above in
this proxy statement for additional information.
Industry experience or related perspective
Franchise
Financial Literacy
International
Finance and Capital Markets Transactions
Technology
M&A
B
r
o
w
n
(cid:2)
(cid:2)
(cid:2)
(cid:2)
F
a
d
e
l
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
G
a
d
e
(
1
)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
H
e
t
r
i
c
k
(cid:2)
(cid:2)
(cid:2)
L
e
w
i
s
(cid:2)
(cid:2)
(cid:2)
M
c
F
a
t
e
(cid:2)
(cid:2)
(cid:2)
M
a
r
i
n
o
(cid:2)
(cid:2)
(cid:2)
S
i
l
v
e
r
(cid:2)
(cid:2)
(cid:2)
Risk Management
(cid:2)
6APR202106180848
(1) Mr. Gade has determined not to stand for re-election at the 2021 Annual Meeting and will retire as a director at that time.
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Board Diversity
Our Nominating and Corporate Governance Committee believes that diversity is one of many attributes to
be considered when selecting candidates for nomination to serve as one of our directors. While the
Nominating and Corporate Governance Committee carefully considers diversity when evaluating
nominees for director, the Nominating and Corporate Governance Committee has not established a
formal policy regarding diversity in identifying director nominees.
15
The matrix below summarizes the gender and ethnic diversity on our Board (including Mr. Gade, who has
determined not to stand for re-election at the 2021 Annual Meeting and will retire as a director at
that time):
Board Diversity Matrix (as of the date of this proxy statement)
Board Size:
Total Number of Directors
Gender:
Number of directors based on gender identity
Number of directors who identify in any of the
categories below:
African American or Black
Alaskan Native or American Indian
Asian
Caucasian
Hispanic or Latino
Native Hawaiian or Pacific Islander
Two or More Races or Ethnicities
LGBTQ+
Undisclosed
8
Male
7
2
—
—
4
—
—
1
—
—
Female
1
Non-Binary
—
Gender Undisclosed
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
16
CORPORATE GOVERNANCE
General
Our Board has established corporate governance practices designed to serve the best interests of our
Company and our stockholders. In this regard, our Board has, among other things, adopted:
• a code of business conduct and ethics applicable to all members of our Board, as well as all of our
employees, including our Chief Executive Officer, Chief Financial Officer, principal accounting
officer and controller;
• separation of the Chairman and Chief Executive Officer roles;
• a majority voting standard in non-contested elections for directors;
• a policy for the submission of complaints or concerns relating to accounting, internal accounting
controls or auditing matters;
• provisions in our Bylaws regarding director candidate nominations and other proposals by
stockholders;
• written charters for its Audit & Risk Committee, Compensation Committee, and Nominating and
Corporate Governance Committee;
• procedures regarding stockholder communications with our Board and its committees; and
• policies regarding the entry by our Company and its subsidiaries into transactions with certain
persons related to our Company.
Our Board intends to monitor developing standards in the corporate governance area and, if appropriate,
modify our policies and procedures with respect to such standards. In addition, our Board will continue to
review and modify our policies and procedures as appropriate to comply with any new requirements of the
SEC or Nasdaq and taking into consideration any feedback received from our stockholders.
Code of Business Conduct and Ethics
Our Board has adopted a Code of Business Conduct and Ethics applicable to all members of our Board,
as well as all of our employees, including our Chief Executive Officer, Chief Financial Officer, principal
accounting officer and controller. The Code of Business Conduct and Ethics forms the foundation of a
compliance program we have established as part of our commitment to responsible business practices
that includes policies, training, monitoring and other components covering a wide variety of specific areas
applicable to our business activities and employee conduct. A copy of the Code of Business Conduct and
Ethics is published on our website at https://investor.rentacenter.com/governance-documents. We intend
to make all required disclosures concerning any amendments to, or waivers from, this Code of Business
Conduct and Ethics on our website.
Structure of the Board
Independent Chairman
Our Board separates the roles of Chairman and Chief Executive Officer. Mr. Brown serves as Chairman
and Mr. Fadel serves as our Chief Executive Officer. The Board believes that the separation of the roles of
Chairman and Chief Executive Officer at this time is appropriate in light of Mr. Fadel’s tenure as Chief
17
Executive Officer and is in the best interests of the Company’s stockholders. Separating these positions
aligns the Chairman role with our independent directors, enhances the independence of our Board from
management and allows our Chief Executive Officer to focus on developing and implementing our
strategic initiatives and supervising our day-to-day business operations. Our Board believes that
Mr. Brown is well situated to serve as Chairman because of his experience serving on the boards of
directors of other public companies, including as lead director of MediFast, Inc. Mr. Brown works closely
with Mr. Fadel to set the agenda for Board meetings and to coordinate information flow between the
Board and management.
Our Board understands that there is no single, generally accepted approach to providing Board
leadership and that given the dynamic and competitive environment in which we operate, the right Board
leadership structure may vary based on the situation. Our Board will review its determination to separate
the roles of Chairman and Chief Executive Officer periodically or as circumstances and events
may require.
Independent Directors
As part of the Company’s corporate governance practices, and in accordance with Nasdaq rules, the
Board has established a policy requiring a majority of the members of the Board to be independent. In
January 2021, each of our non-employee directors completed a questionnaire which inquired as to their
relationship (and the relationships of their immediate family members) with us and other potential conflicts
of interest. Taking into account our review of the responses to this questionnaire process and such other
due consideration and diligence as it deemed appropriate, in March 2021, our Board met to discuss the
independence of those non-employee directors. Following such discussions and based on the
recommendations of the Nominating and Corporate Governance Committee, our Board determined that
the following directors are ‘‘independent’’ as defined under Nasdaq rules: Jeffrey Brown, Michael Gade,
Christopher Hetrick, Harold Lewis, Glenn Marino, Carol McFate and B.C. Silver.
The table below includes a description of categories or types of transactions, relationships or
arrangements, if any, considered by our Board in reaching its determination that the directors are
independent.
Name
Independent
Transactions/Relationships/Arrangements
Jeffrey Brown
Michael Gade(1)
Christopher Hetrick
Harold Lewis
Glenn Marino
Carol McFate
B.C. Silver
Yes
Yes
Yes
Yes
Yes
Yes
Yes
None
None
Employee of Engaged Capital, LLC, a 4.4% stockholder in the Company
(based on a Schedule 13D/A filed by Engaged Capital, LLC with the SEC on
August 25, 2020 and the number of shares of Common Stock outstanding as of
April 5, 2021). The Board did not deem this ownership by Mr. Hetrick’s
employer to impair his independence.
None
None
None
None
(1) Mr. Gade has determined not to stand for re-election at the 2021 Annual Meeting and will retire as a director at that time.
Committees of the Board
The standing committees of the Board during 2020 included the (1) Audit & Risk Committee,
(2) Compensation Committee, and (3) Nominating and Corporate Governance Committee. Each of the
standing committees has the authority to retain independent advisors and consultants, with all fees and
expenses to be paid by the Company. From time to time, the Board may also appoint special committees
for specific matters, as it did in 2020.
18
The following table provides membership and meeting information for the Board and each of the Board’s
standing committees during 2020 and also describes changes to committees as of the date of this proxy
statement:
Name
Jeffrey Brown
Mitchell Fadel
Michael Gade(3)
Christopher Hetrick
Harold Lewis
Glenn Marino
Carol McFate
B.C. Silver
Number of Committee
Meetings in 2020
Independent(1)
Audit & Risk Committee(2)
Compensation
Committee
Nominating and
Corporate Governance
Committee
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
—
Chair
—
—
—
Member
Member
Member
—
9
—
—
Member
Chair
Member
—
—
Member(4)
7
—
—
Chair
Member
—
Member(4)
Member(5)
Member(4)
5
(1)
(2)
The Board has determined whether the director is independent as described above under ‘‘Independent Directors’’.
The Board has determined that Mr. Brown is an ‘‘audit committee financial expert’’ as defined by SEC rules and that each of
Mr. Lewis, Mr. Marino and Ms. McFate meets the financial sophistication requirements for Nasdaq audit committee members.
(3) Mr. Gade has determined not to stand for re-election at the 2021 Annual Meeting and will retire as a director at that time (and,
as a result, will no longer serve on any committee of the Board following the 2021 Annual Meeting).
(4)
(5)
The director was appointed to the indicated committee in March 2021 and did not attend any meeting of such committee
in 2020.
Following the 2021 Annual Meeting, Ms. McFate will replace Mr. Gade as Chair of the Nominating and Corporate Governance
Committee.
Audit & Risk Committee
The Audit & Risk Committee assists the Board in fulfilling its oversight responsibilities by reviewing risks
relating to accounting matters, financial reporting, legal and regulatory compliance, and other
enterprise-wide risks. To satisfy these oversight responsibilities, our Audit & Risk Committee reviews,
among other things:
• the financial reports and other financial information provided by us to the SEC or the public;
• our systems of controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established;
• our independent auditor’s qualifications and independence;
• the performance of our internal audit function and our independent auditors;
• the efficacy and efficiency of our auditing, accounting and financial reporting processes
generally; and
• our risk management practices.
The Audit & Risk Committee has the direct responsibility for the appointment, compensation, retention
and oversight of our independent auditors, and reviews our internal audit department’s reports,
responsibilities, budget and staffing. In addition, the Audit & Risk Committee meets regularly with our
Chief Financial Officer, the head of our internal audit department, our independent auditors, and
management (including regularly scheduled executive sessions with the head of our internal audit
department and our independent auditors). The Audit & Risk Committee also oversees compliance with
our Code of Business Conduct and Ethics.
19
The Audit & Risk Committee pre-approves all audit and non-audit services provided by our independent
auditors, other than de minimis exceptions for non-audit services that may from time to time be approved
by the Audit & Risk Committee. The Audit & Risk Committee may delegate pre-approval authority to one
or more of its members from time to time or may adopt specific pre-approval policies and procedures;
however, any such pre-approvals must in all cases be presented for ratification by the Audit & Risk
Committee at its next scheduled meeting.
The Board has adopted a charter for the Audit & Risk Committee, which can be found on our website at
https://investor.rentacenter.com/governance-documents. The Audit & Risk Committee reviews, updates
and assesses the adequacy of its charter on an annual basis, and may recommend any proposed
modifications to its charter to the Board for its approval, if and when appropriate.
Compensation Committee
The Compensation Committee, among other things:
• discharges the Board’s responsibilities with respect to all forms of compensation of our Chief
Executive Officer, Chief Financial Officer, and each of our Executive Vice Presidents, including
assessing the risks associated with our executive compensation policies and practices and
employee benefits;
• administers our equity incentive plans;
• reviews and discusses with our management the Compensation Discussion and Analysis to be
included in our annual proxy statement, Annual Report on Form 10-K or information statement, as
applicable, and makes a recommendation to the Board as to whether the Compensation
Discussion and Analysis should be included in our annual proxy statement, Annual Report on
Form 10-K or any information statement, as applicable; and
• recommends to the Board the form and amount of director compensation and conducts a review of
such compensation from time to time, as appropriate.
The Board has adopted a charter for the Compensation Committee, which can be found on our website at
https://investor.rentacenter.com/governance-documents. In addition, the Compensation Committee
reviews, updates and assesses the adequacy of its charter on an annual basis, and may recommend any
proposed modifications to its charter to the Board for its approval, if and when appropriate.
The Compensation Committee’s processes for fulfilling its responsibilities and duties with respect to
executive compensation and the role of our executive officers in the compensation process are described
in the section ‘‘Compensation Discussion and Analysis — Compensation Process’’ below in this proxy
statement.
Pursuant to its charter, the Compensation Committee has the authority, to the extent it deems necessary
or appropriate, to retain compensation consultants, independent legal counsel or other advisors and has
the sole authority to approve the fees and other retention terms with respect to such advisors. From time
to time, the Compensation Committee has engaged compensation consultants to advise it on certain
matters. See the section ‘‘Compensation Discussion and Analysis — Compensation Process’’ below in
this proxy statement for more information. In addition, the Compensation Committee also has the
authority, to the extent it deems necessary or appropriate, to delegate matters to a sub-committee
composed of members of the Compensation Committee.
20
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee manages risks associated with corporate
governance and potential conflicts of interest and assists the Board in fulfilling its responsibilities by,
among other things:
• identifying individuals believed to be qualified to become members of the Board, consistent with
criteria approved by the Board;
• recommending to the Board candidates for election or reelection as directors, including director
candidates submitted by the Company’s stockholders;
• recommending to the Board members of the Board to serve on committees;
• overseeing, reviewing and making periodic recommendations to the Board concerning our
corporate governance policies; and
• directing the succession planning efforts for the Chief Executive Officer and reviewing
management’s succession planning process with respect to our other senior executive officers.
The Board has adopted a written charter for the Nominating and Corporate Governance Committee,
which is available on our website at https://investor.rentacenter.com/governance-documents. In addition,
the Nominating and Corporate Governance Committee reviews, updates and assesses the adequacy of
its charter on an annual basis, and may recommend any proposed modifications to its charter to the
Board for its approval, if and when appropriate.
Board and Committee Self-Evaluations
Each year, the Board and its committees perform a rigorous self-evaluation. The Nominating and
Corporate Governance Committee oversees the process. The evaluations solicit input from directors
regarding the performance and effectiveness of the Board, its committees and its members and provide
an opportunity for directors to identify areas of potential enhancements. Individual director responses are
submitted through a third party firm engaged by the Company to administer the evaluation process and
report the results, which are compiled for review and discussion by the Board and its committees. The
Board believes this process is effective to evaluate the Board, its committees and the contributions of its
members, and identify opportunities for continuous improvement.
Board Oversight
General Risk Oversight
Our Board takes an active role, as a whole and also at the committee level, in overseeing management of
the Company’s risks. The Board and the relevant committees receive regular reports from members of
senior management on areas of material risk to the Company, including operational, financial, strategic,
competitive, reputational, cybersecurity, legal and regulatory risks. The Board also meets with senior
management annually for a strategic planning session and discussion of the key risks inherent in our
short- and long-term strategies at the development stage, and also receives periodic updates on our
strategic initiatives throughout the year. In addition, our Board has delegated the responsibility for
oversight of certain risks to its standing committees, as discussed in this proxy statement. While each
committee is responsible for evaluating certain risks and overseeing the management of such risks, our
entire Board is regularly informed through committee reports concerning such risks and, in general, all
independent directors regularly attend committee meetings regardless of membership on that committee
and the full Board is provided with all Board and standing committee meeting materials.
21
Cybersecurity Oversight
The Board maintains oversight of the Company’s cybersecurity risk through regular updates from
management. Specifically, the Board and its Audit Committee receive updates from management
regarding the status of ongoing projects to strengthen our efforts against cybersecurity events and
reviews risks relevant to cybersecurity and existing controls in place to mitigate the risk of cybersecurity
incidents. Among other things, the Company maintains an incident response policy and plan designed to
provide for timely, consistent responses to actual or attempted data and security incidents impacting the
Company, and requires third party and other risk compliance attestations.
Environmental, Social, and Governance Initiatives Oversight
Our Board recognizes that environmental, social, governance and sustainability (‘‘ESG’’) issues are of
increasing importance to our investors, as well as our employees and customers, and that being a
responsible corporate citizen helps drive shareholder value. Our Board is committed to integrating and
maintaining responsible ESG initiatives into our operations and strategic business objectives.
Our ESG actions cover a wide range of areas of importance to our Company and our stakeholders, and
are ultimately driven by our mission to improve the quality of life for our customers and employees. We
provide household and other durable goods to underserved cash and credit constrained customers and
offer an affordable and flexible way to furnish a home and obtain access to other essential items without
incurring a long-term debt obligation or accessing credit. Our employees are offered competitive pay and
benefits and paid time off, and we have a longstanding history of promoting from within to support our
employees in advancing their careers and professional development. Our charitable giving efforts are
aligned with our desire to help the underserved including hunger relief, family and youth empowerment,
and disaster relief. We put our values into action by supporting causes that give families peace of mind
and offer children opportunities that will help them reach their potential. We also strive to operate our retail
stores efficiently to conserve the environment by optimizing our fleet of vehicles, implementing energy
efficient lighting, recycling, and leasing energy efficient products.
In 2020, the COVID-19 pandemic created an unprecedented global health crisis and economic turmoil.
The health and safety of our co-workers, customers and communities remained our top priorities as we
navigated the impacts of the pandemic. Our culture of safety and the resilience of our co-workers served
us well and allowed our stores to continue operating as an essential business so we could meet our
customers’ needs for critical household items. Our products allowed our customers and their families to
focus on staying healthy and connected while they were forced to spend substantially more time at home
and to address the economic dislocation caused by COVID-19. The Board was actively involved in the
oversight of our COVID-19 responses throughout the year.
Also in 2020, the social unrest across the country gave rise to an important public discourse regarding
racial justice and equality. With the support of our Board, we organized a series of town halls across our
Company to openly discuss with our employees new programs and initiatives that would best support a
diverse and inclusive workforce. Based on the feedback received, we have taken a number of initial
steps. For example, we created a new Chief Diversity Officer position that will regularly report to the
Board. While we intend to increase our overall focus on diversity within our development programs, the
Chief Diversity Officer will take the lead in assessing the impact that proposed initiatives in our
organization may have on our culture as well as in creating and implementing initiatives that are intended
to promote an inclusive workforce. We have also implemented a program to deliver unconscious bias
training to all employees. Further, we are launching additional Employee Resource Groups to continue
the dialogue with our employees regarding our diversity initiatives.
22
Our company and our Board firmly believe we are able to effect positive social and environmental
change, enhance business results and improve the wellbeing of our employees through our robust
ESG program.
Director Compensation
Cash Compensation
The following table provides an overview of the directors’ 2020 annual retainers:
Position
2020 Annual Retainer
All Non-Employee Directors (including the Chairman)
Chairman of the Board
Chair of the Audit & Risk Committee
Other members of the Audit & Risk Committee
Chair of the Compensation Committee
Other members of the Compensation Committee
Chair of the Nominating and Corporate Governance Committee
Other members of the Nominating and Corporate Governance Committee
$ 77,500
$150,000
$ 27,500
$ 15,000
$ 25,000
$ 10,500
$ 20,000
$ 10,000
Additionally, each non-employee director receives $2,500 for each Board meeting attended in person (or,
at the discretion of the Compensation Committee, via telephonic or other electronic means) and is
reimbursed for his or her expenses in attending such meetings.
In 2020, Messrs. Brown and Hetrick also served on multiple special committees of the Board in
connection with specific matters and were entitled to a total of $20,000 each for such special committee
service. Mr. Fadel, as an employee of the Company, was not entitled to receive any cash compensation
for his service as a director during 2020.
Retainers and meeting attendance fees may be paid in a combination of cash or DSUs at each
non-employee director’s election. Deferred fees are matched 25% by the Company and the total deferred
fees and matching contributions are converted into an equivalent value of DSUs. Deferred fees plus
matching contributions are converted to DSUs based on the closing price of Rent-A-Center common
stock on the trading day immediately preceding the date on which the DSUs are granted. Currently, the
Board’s practice is to pay cash fees and issue DSUs in respect of any deferred cash fees on a quarterly
basis.
Annual DSU Awards
Our non-employee directors receive an award of DSUs on the first business day of each year pursuant to
the Rent-A-Center, Inc. 2016 Long-Term Incentive Plan (the ‘‘2016 Plan’’) or, if approved by stockholders
as set forth in this proxy statement, the 2021 Long-Term Incentive Plan for future years.
The annual DSU award to our non-employee directors for 2020 was valued at $120,000, which was the
same value as 2019. All of our non-employee directors serving on January 2, 2020, the first business day
of 2020, were granted DSUs valued at $120,000 on that date.
Description of DSUs
Each DSU is fully vested and non-forfeitable at the time of award and represents the right to receive one
share of common stock of the Company. Those shares of common stock are not issued to a director until
that director ceases to be a member of the Board and, therefore, cannot be sold until such time. The
DSUs do not have voting rights. The holder of a DSU is entitled to receive cash dividend equivalent
23
payments with respect to the shares underlying such DSU if, as and when any cash dividend is declared
by the Board with respect to our common stock.
Director Stock Ownership Guideline
Our Board has adopted a guideline providing that each non-employee member of the Board should hold
at least $200,000 in our common stock within 5 years of the later of (1) December 1, 2020 (the date on
which such ownership guideline was most recently adopted), and (2) the date of their original election or
appointment to the Board, and to hold such equity interest for so long as such member continues as a
director. Moreover, because non-employee members of the Board receive equity compensation in the
form of DSUs, they are effectively required to retain 100% of their equity compensation until they cease to
be a member of the Board and are issued shares of common stock in respect of their DSUs.
Non-employee members of the Board may satisfy the ownership requirements in the equity ownership
guidelines with common stock owned directly or indirectly (including as a result of fully vested awards
from previous grants), shares of our common stock held through any Company benefit plan in which
non-employee directors are eligible to participate, DSUs and unvested time-based restricted stock
awards or restricted stock units.
As of December 31, 2020, based on the closing price of our common stock on the Nasdaq Global Select
Market of $38.29 per share as of such date, each of Messrs. Brown, Gade, Hetrick, Marino and Lewis and
Ms. McFate met the foregoing guideline. Mr. Silver was appointed to the Board in January 2021.
Director Compensation for 2020
The following table sets forth certain information regarding the compensation of our non-employee
directors during 2020. Because Mr. Silver did not join the Board until January 2021, he did not earn any
compensation for 2020 and is not included in the table below.
Name
Jeffrey Brown
Michael Gade(4)
Christopher Hetrick(5)
Harold Lewis
Glenn Marino(6)
Carol McFate
Fees Earned or
Paid in Cash(1)
—
$108,000
—
$113,000
$ 19,844
$ 56,250
DSUs(2)
$448,139
$138,891
$155,159
$189,046
$ 50,381
$241,797
Other
Compensation(3)
$48,067
$62,792
$33,279
$ 7,604
892
$
$ 9,234
Total
$496,206
$309,683
$188,438
$309,650
$ 71,117
$307,281
(1)
Includes (a) annual retainers, (b) meeting attendance fees and (c) any special committee fees paid in cash to each
non-employee director with respect to services rendered in 2020. For directors who elected to defer cash fees into DSUs,
those deferred amounts are included in the DSUs column to the extent such DSUs were awarded in 2020.
(2) Reflects the grant date fair value calculated pursuant to FASB ASC Topic 718 of DSUs granted to each director in fiscal 2020,
as follows:
• Each director (other than Mr. Marino) was granted 4,161 DSUs in January 2020, representing the $120,000 annual grant
for service in fiscal 2020. Mr. Marino was appointed to the board of directors in February 2020 and in April 2021 was
granted 1,882 DSUs, representing a portion of the $120,000 annual grant for his partial year of service in fiscal 2020,
which grant is not reflected in the table above.
• During fiscal 2020, Messrs. Brown, Gade, Hetrick, Lewis and Marino and Ms. McFate were granted 14,489, 760, 1,219,
2,394 and 1,862 DSUs and 4,880 DSUs, respectively, in lieu of quarterly cash retainer and meeting attendance fees
payable in respect of the fourth quarter of 2019 through and including the third quarter of 2020. Such amounts (and the
table above) exclude DSUs that were awarded to such persons in January 2021 in lieu of quarterly cash retainer and
meeting attendance fees payable in respect of the fourth quarter of 2020.
(3) Represents dividend equivalents paid in cash in respect of vested DSUs.
(4) Mr. Gade has determined not to stand for re-election at the 2021 Annual Meeting and will retire as a director at that time.
24
(5) Mr. Hetrick, by letter to the Board of Directors, declined to accept director fees otherwise payable to him from April 16, 2020
through December 31, 2020 and requested that the Company instead dedicate the amount to employees of the Company
that need it the most in light of the COVID-19 pandemic and its effects. Such fees amounted to $132,500 in the aggregate and
are not reflected in the table above.
(6) Mr. Marino was appointed to the Board of Directors in February 2020.
Director Compensation Changes for 2021
At its December 2020 meeting, the Compensation Committee reviewed the non-employee director
compensation program as part of its annual review process. The Compensation Committee engaged an
independent consulting firm, Korn Ferry, to assist with its review and recommendation to the Board of any
changes to the program for 2021. Korn Ferry provided the Compensation Committee with market data
regarding director compensation programs from our Peer Group and a comparison of our director
compensation program to the market data, which was taken into account by the Compensation
Committee. As a result of its review, the Compensation Committee recommended, and the Board
approved, retaining the same compensation program elements and amounts for 2021 as in 2020, other
than an increase in the Chairman’s annual retainer from $150,000 to $175,000 based on the market data
provided by Korn Ferry.
Director Nominations
Director Nominees
Under our Bylaws, only persons who are nominated in accordance with the procedures set forth in our
Bylaws are eligible for election as, and to serve as, members of our Board. Under our Bylaws,
nominations of persons for election to our Board may be made at a meeting of our stockholders (1) by or
at the direction of our Board or (2) by any stockholder, provided they comply with the provisions of
Article I, Sections 3 and 4 of our Bylaws. The Board has delegated the screening and recruitment process
for Board members to the Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee selects individuals it believes are qualified to be members of the
Board, and recommends those individuals to the Board for nomination for election or re-election as
directors. From time to time, the Nominating and Corporate Governance Committee may engage a
consultant to conduct a search to identify qualified candidates. The Nominating and Corporate
Governance Committee then undertakes the evaluation process described below for any candidates
so identified.
In 2020, the Nominating and Corporate Governance Committee engaged Daversa Partners to assist the
Board in finding an additional candidate to consider to join the Board. As a result of that process, the
Board appointed Mr. Silver as an additional director in January 2021.
Qualifications
The goal of the Nominating and Corporate Governance Committee is to nominate qualified individuals
with the objective of having membership on the Board that combines diverse business and industry
experience, skill sets and other leadership qualities, represents diverse viewpoints and enables the
Company to pursue its strategic objectives. The Nominating and Corporate Governance Committee also
believes that members of the Board should possess character, judgment, skills (such as an
understanding of the retail and lease-to-own industries, business management, finance, accounting,
marketing, operations and strategic planning), diversity of viewpoints, background, experience and other
demographics and experiences with businesses and other organizations of a comparable size and
industry. The Nominating and Corporate Governance Committee also considers the interplay of the
25
candidate’s experience with the experience of the other Board members, the fit of the individual’s skills
and personality with those of other directors and potential directors in building a Board that is effective,
collegial and responsive to the needs of the Company, and the extent to which the candidate would be a
desirable addition to the Board and any committees of the Board. In addition, the Nominating and
Corporate Governance Committee considers the composition of the current Board and the Board’s needs
when evaluating the experience and qualification of director candidates. The Nominating and Corporate
Governance Committee evaluates whether certain individuals possess the foregoing qualities and
recommends to the Board candidates for nomination to serve as our directors. This process is the same
regardless of whether the nominee is recommended by one of our stockholders.
Advance Resignation Policy
As a condition to nomination by the Nominating and Corporate Governance Committee of an incumbent
director, a nominee shall, upon request by the Board or the Company’s Corporate Secretary, submit an
irrevocable offer of resignation to the Board, which resignation shall become effective in the event that
(a) such nominee is proposed for reelection and is not reelected at a meeting of the stockholders in which
majority voting applies and (b) the resignation is accepted by the Board by the vote of a majority of the
directors, not including any director who has not been reelected.
Stockholder Nominations
In addition to nominees by or at the direction of our Board, the Nominating and Corporate Governance
Committee will consider candidates for nomination proposed by a stockholder in the same manner and
based on the same criteria as other candidates considered by the Nominating and Corporate Governance
Committee as described above under ‘‘Qualifications.’’ The proposing stockholder must provide notice
and information on the proposed nominee to the Nominating and Corporate Governance Committee
through the Corporate Secretary in accordance with the provisions of Article I, Sections 3 and 4 of our
Bylaws relating to direct stockholder nominations.
Director Attendance
Board Meetings and Executive Sessions
During 2020, our Board met 16 times, including regularly scheduled and special meetings. All of our
directors attended more than 75% of the aggregate of the total number of meetings of the Board and the
total number of meetings of the Board committees on which they serve.
In addition to full Board executive sessions, our independent directors meet in executive session at each
regularly scheduled quarterly meeting of the Board. Executive sessions are chaired by our Chairman of
the Board.
Annual Meeting of Stockholders
Each member of the Board is expected to attend our annual meeting of stockholders. All of our directors
then serving as directors attended the Company’s 2020 annual meeting of stockholders.
Procedures for Reporting Accounting Concerns
The Audit & Risk Committee has established procedures for (1) the receipt, retention and treatment of
complaints received by us regarding accounting, internal accounting controls or auditing matters, and
26
(2) the submission by our employees, on a confidential and anonymous basis, of concerns regarding
questionable accounting or auditing matters. These procedures are posted on our website at https://
investor.rentacenter.com/governance-documents.
Communications with the Board
Our Board has established a process by which stockholders and other interested parties may
communicate with our Board, Board committees or individual directors. Stockholders or other interested
parties may contact our Corporate Secretary by any one of the below methods. The Corporate Secretary
will forward such communications to the Board, committees or individual directors, as applicable.
However, the Corporate Secretary is not required to forward communications if it is determined the
communication is (1) unrelated to the duties and responsibilities of the Board, (2) unduly hostile,
threatening or illegal, or (3) obscene or otherwise deemed inappropriate.
6APR202106181267
By telephone:
972-624-6210
6APR202106181136
By mail:
Rent-A-Center, Inc.
Attn: Corporate Secretary
5501 Headquarters Drive
Plano, TX 75024
6APR202106181002
By e-mail:
RAC.Board@rentacenter.com
Related Person Transactions
Policy on Review and Approval of Transactions with Related Persons
The Board has adopted a written statement of policy and procedures for the identification and review of
transactions involving us and ‘‘related persons’’ (our directors and executive officers, stockholders
owning five percent or greater of our outstanding stock, and immediate family members of any of the
foregoing). Our directors and executive officers are required to provide notice to our general counsel of
the facts and circumstances of any proposed transaction involving amounts greater than $120,000
involving them or their immediate family members that may be deemed to be a related person
transaction. Our general counsel, in consultation with management and our outside counsel, as
appropriate, will then assess whether the proposed related person transaction requires approval
pursuant to the policy and procedures. If our general counsel determines that any proposed, ongoing or
completed transaction involves an amount in excess of $120,000 and is a related person transaction, the
Nominating and Corporate Governance Committee must be notified for consideration at the next
regularly scheduled meeting of the Nominating and Corporate Governance Committee. The Nominating
and Corporate Governance Committee has reviewed and determined that each of the following related
person transactions are to be deemed pre-approved by the Nominating and Corporate Governance
Committee: (1) employment agreements related to executive officers if (a) the related compensation is
reported in our proxy statement or (b) the executive officer is not an immediate family member of another
‘‘related person’’ and the Compensation Committee approved, or recommended to the Board for
approval, such compensation, (2) any compensation paid to a director if the compensation is reported in
our proxy statement, (3) transactions where all of our stockholders receive proportional benefits and
(4) any transaction with a ‘‘related person’’ involving the rendering of services as a common or contract
carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority. The
Nominating and Corporate Governance Committee will approve or ratify, as applicable, only those related
27
person transactions that are in, or are not inconsistent with, our best interests and those of our
stockholders.
Reportable Transactions with Related Persons
The Company has not been a participant in any transaction since January 1, 2020 in which the amount
involved exceeded or will exceed $120,000 and in which any of our directors, executive officers,
nominees for director or holders of more than 5% of our capital stock, or any member of the immediate
family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect
material interest that is reportable pursuant to Item 404(a) of Regulation S-K.
28
PROPOSAL TWO:
RATIFICATION OF THE SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit & Risk Committee has selected Ernst & Young LLP (‘‘E&Y’’) as our independent registered
public accounting firm for the fiscal year ended December 31, 2021. E&Y also served as our independent
registered public accounting firm in 2020.
The Audit & Risk Committee reviews and pre-approves both audit and all permissible non-audit services
provided by our independent registered public accounting firm, as described in ‘‘— Board Information —
Board Committees’’ in this proxy statement, and accordingly, all services and fees in 2020 provided by
E&Y were pre-approved by the Audit & Risk Committee. The Audit & Risk Committee has considered
whether the provision of services, other than services rendered in connection with the audit of our annual
financial statements, is compatible with maintaining E&Y’s independence. The Audit & Risk Committee
has determined that the rendering of non-audit services by E&Y during the year ended December 31,
2020, was compatible with maintaining such firm’s independence.
Our Board has directed that we submit the selection of our independent registered public accounting firm
for ratification by our stockholders at the 2021 Annual Meeting. Stockholder ratification of the selection of
E&Y as our independent registered public accounting firm is not required by our Bylaws or otherwise.
However, the Board is submitting the selection of E&Y to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the Audit & Risk Committee will
reconsider whether or not to continue the retention of E&Y. Even if the selection is ratified, the Audit &
Risk Committee in its discretion may direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines that such a change would be in our best
interests and those of our stockholders. The Audit & Risk Committee annually reviews the performance of
our independent registered public accounting firm and the fees charged for their services. Based upon the
Audit & Risk Committee’s analysis of this information, the Audit & Risk Committee will determine which
registered independent public accounting firm to engage to perform our annual audit each year.
Representatives of E&Y will attend the 2021 Annual Meeting, will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate questions from stockholders.
Our Board recommends that you vote ‘‘FOR’’ the proposal to ratify the selection of E&Y as our
independent registered public accounting firm.
Principal Accountant Fees and Services
The aggregate fees billed by E&Y for the years ended December 31, 2020 and December 31, 2019, and
the aggregate fees billed by KPMG LLP for the year ended December 31, 2019, for the professional
services described below are as follows:
Audit Fees1
Audit-Related Fees2
Tax Fees3
All Other Fees
2020
2019
$1,275,396
$588,480
$74,394
—
$1,692,105
—
—
—
(1) Represents the aggregate fees billed by E&Y and KPMG for (a) professional services rendered for the audit of our annual
financial statements for the years ended December 31, 2020 and December 31, 2019, (b) the audit of management’s
assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020 and December 31,
2019, and (c) reviews of the financial statements included in our Quarterly Reports on Form 10-Q filed with the SEC.
29
(2) Represents the aggregate fees billed by E&Y for 2020 for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and are not reported above under the caption ‘‘Audit Fees.’’
These services include engagements related to the due diligence review by E&Y of certain financial and other information of
Acima Holdings, LLC, in connection with the Agreement and Plan of Merger executed by the Company in December 2020.
(3) Represents the aggregate fees billed by E&Y for 2020 for professional services rendered for tax compliance, tax advice and
tax planning. These services comprise engagements related to federal and international tax compliance and planning.
30
AUDIT AND RISK COMMITTEE REPORT
The material in this Report is not ‘‘soliciting material’’, is not deemed ‘‘filed’’ with the SEC and is not to be
incorporated by reference into any filing under the Securities Act of 1933 (the ‘‘Securities Act’’) or the
Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation
by reference language in such filing.
In accordance with its written charter adopted by the Board, the Audit & Risk Committee assists the Board
in fulfilling its oversight responsibilities by, among other things, reviewing the financial reports and other
financial information provided by the Company to any governmental body or the public.
In discharging its oversight responsibilities, the Audit & Risk Committee obtained from the independent
registered public accounting firm a formal written statement describing all relationships between the firm and
the Company that might bear on the auditors’ independence consistent with the applicable requirements of
the Public Company Accounting Oversight Board, discussed with the independent auditors any relationships
that may impact their objectivity and independence, and satisfied itself as to the auditors’ independence. The
Audit & Risk Committee also discussed with management, the internal auditors and the independent auditors
the integrity of the Company’s financial reporting processes, including the Company’s internal accounting
systems and controls, and reviewed with management and the independent auditors the Company’s
significant accounting principles and financial reporting issues, including judgments made in connection with
the preparation of the Company’s financial statements. The Audit & Risk Committee also reviewed with the
independent auditors their audit plans, audit scope and identification of audit risks.
The Audit & Risk Committee discussed with the independent auditors the matters required to be
discussed by the Public Company Accounting Oversight Board and the SEC, and, with and without
management present, discussed and reviewed the results of the independent auditors’ examination of
the consolidated financial statements of the Company.
The Audit & Risk Committee reviewed and discussed the audited consolidated financial statements of the
Company as of and for the year ended December 31, 2020 with management and the independent auditors.
Management is responsible for the Company’s financial reporting process, including its system of internal
control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act), and for
the preparation of the Company’s consolidated financial statements in accordance with generally accepted
accounting principles. The independent auditor is responsible for auditing those financial statements, and
expressing an opinion on the effectiveness of internal control over financial reporting. The Audit & Risk
Committee’s responsibility is to monitor and review these processes. The members of the Audit & Risk
Committee are ‘‘independent’’ as defined by SEC and Nasdaq rules, and our Board has determined that
Mr. Jeffrey Brown is an ‘‘audit committee financial expert’’ as defined by SEC rules.
The Audit & Risk Committee discussed with the Company’s internal and independent auditors the overall
scope and plans for their respective audits, including internal control testing under Section 404 of the
Sarbanes-Oxley Act. The Audit & Risk Committee periodically meets with the Company’s internal and
independent auditors, with and without management present, and in private sessions with members of
senior management to discuss the results of their examinations, their evaluations of the Company’s
internal controls, and the overall quality of the Company’s financial reporting. The Audit & Risk Committee
also periodically meets in executive session.
In reliance on the reviews and discussions referred to above, the Audit & Risk Committee recommended
to the Board (and the Board subsequently approved the recommendation) that the audited financial
statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31,
2020, for filing with the SEC.
AUDIT & RISK COMMITTEE
Jeffrey Brown, Chairman
Harold Lewis
Glenn Marino
Carol McFate
31
EXECUTIVE OFFICERS
The Board appoints our executive officers annually and updates the executive officer positions as needed
throughout the year. Each executive officer serves at the behest of the Board and until their successors
are appointed, or until the earlier of their death, resignation or removal.
The following table sets forth certain information with respect to our executive officers as of the date of this
proxy statement:
Name
Mitchell Fadel
Anthony Blasquez
Ann Davids
Jason Hogg
Bryan Pechersky
Maureen Short
Catherine Skula
Age Position
63
45
52
49
50
46
49
Chief Executive Officer
Executive Vice President — Rent-A-Center
Business
Executive Vice President — Chief Customer
and Marketing Officer
Executive Vice President — Acima (formerly
Preferred Lease)
Executive Vice President — General
Counsel & Corporate Secretary
Executive Vice President — Chief Financial
Officer
Executive Vice President — Chief
Development Officer
Mitchell Fadel. Mr. Fadel has served as one of our directors since June 2017 and was named Chief
Executive Officer on January 2, 2018. Mr. Fadel was self-employed prior to joining the Company after
most recently serving as President — U.S. Pawn for EZCORP, Inc., a leading provider of pawn loans in
the United States and Mexico, from September 2015 to December 2016. Prior to that, Mr. Fadel served as
President of the Company (beginning in July 2000) and Chief Operating Officer (beginning in
December 2002) each until August 2015, and also as a director of the Company from December 2000 to
November 2013. From 1992 until 2000, Mr. Fadel served as President and Chief Executive Officer of the
Company’s subsidiary Rent-A-Center Franchising International, Inc. f/k/a ColorTyme, Inc. Mr. Fadel’s
professional experience with the Company also includes previously serving as a Regional Director and a
District Manager.
Anthony Blasquez. Mr. Blasquez was named Executive Vice President — Rent-A-Center Business
effective as of June 1, 2020. In such role, Mr. Blasquez focuses on improving the Rent-A-Center
omni-channel business, which includes impacting performance from both e-commerce and the traditional
store business. Mr. Blasquez has been with Rent-A-Center for 22 years and has served in every field
operations position in the Company, most recently Divisional Vice President of Operations from 2015 to
2020 prior to being promoted to his current position.
Ann Davids. Ms. Davids was named Executive Vice President — Chief Customer and Marketing
Officer effective as of February 21, 2018. Ms. Davids served as Senior Vice President — Chief Customer
and Marketing Officer for Direct General/National General Insurance from 2013 to 2018 with
responsibility for the web channel development as well as marketing strategy and execution. Prior to
2013, Ms. Davids served as our chief marketing officer for 15 years.
Jason Hogg. Mr. Hogg was named Executive Vice President — Preferred Lease effective as of
June 22, 2020. In connection with our acquisition of Acima Holdings, LLC in February 2021, the Preferred
Lease segment is now referred to as the Acima segment. Prior to joining Rent-A-Center, Mr. Hogg was
the CEO of Aon Cyber Solutions from 2017 to 2020, where he oversaw global operations and held full
32
profit and loss responsibility. Mr. Hogg has a proven track record as a leader and innovator in financial
services and financial technology, with over 500 issued patent claims in complex technology systems.
Prior to Aon, Mr. Hogg served as the CEO of Blackstone’s B2R Holdings, L.P. from 2014 to 2016, where
he led the organization to its first $1 billion in loans and to win the Innovator of the Year award from REFI
Financing Awards in 2016. B2R was acquired by Finance of America. Mr. Hogg also founded, and served
as the President and CEO of, Revolution Money, Inc., an alternative payment company from 2005 to
2010. Revolution Money was acquired by American Express in January of 2010. Following such
acquisition, Mr. Hogg served as the President of American Express’ Serve Enterprise division from 2010
to 2014. During his tenure, he launched the Bluebird alternative banking platform with Walmart and the
Serve stored value platform, and established American Express’ first mainland China office and
operations while overseeing American Express’ joint venture with LianLian.
Bryan Pechersky. Mr. Pechersky was named Executive Vice President — General Counsel &
Corporate Secretary effective as of June 1, 2020. Mr. Pechersky oversees our legal department,
government affairs department and risk management department. Prior to joining Rent-A-Center,
Mr. Pechersky served from 2010 through 2019 as Executive Vice President, General Counsel and
Corporate Secretary for Cloud Peak Energy Inc., a publicly traded mining and logistics supplier to U.S.
and Asian utilities. From 2007 to 2010, Mr. Pechersky was Senior Vice President, General Counsel and
Secretary for Harte-Hanks, Inc., a publicly traded worldwide, direct and targeted marketing company.
From 2005 to 2007, Mr. Pechersky was Senior Vice President, Secretary and Senior Corporate Counsel
for Blockbuster Inc., a publicly traded global movie and game entertainment retailer. From 2004 to 2005,
Mr. Pechersky was Deputy General Counsel and Secretary for Unocal Corporation, a publicly traded
international energy company acquired by Chevron Corporation in 2005. Prior to these positions, from
1996 to 2004, Mr. Pechersky was a capital markets, mergers and acquisitions and litigation attorney for
Vinson & Elkins L.L.P., a leading global law firm. Mr. Pechersky also served as a Law Clerk to the
Hon. Loretta A. Preska of the U.S. District Court for the Southern District of New York in 1995 and 1996.
Maureen Short. Ms. Short was named Executive Vice President — Chief Financial Officer on
December 19, 2018. Ms. Short previously served as Interim Chief Financial Officer effective from
December 2016 until December 2018, Senior Vice President — Finance, Investor Relations and
Treasury from November 2014 until December 2016, as Senior Vice President — Finance, Analytics and
Reporting from March 2013 until November 2014, and as Vice President — Finance, Analytics and
Reporting from August 2010 until March 2013.
Catherine Skula. Ms. Skula was named Executive Vice President — Chief Development Officer
effective November 23, 2020. Prior to that position, Ms. Skula served as our Executive Vice President —
Franchising effective as of January 1, 2018, after previously serving as Senior Vice President —
Franchising since January 2012. Ms. Skula has also served as President and Chief Executive Officer of
Rent A-Center Franchising International, Inc., a subsidiary of the Company, since January 2012. From
August 2009 to January 2012, Ms. Skula served as Division Vice President — RTO Domestic. Ms. Skula
began her employment with us in 1994 as a customer account representative and has held various other
operations positions, including store manager, district manager, and regional director.
33
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
We are committed to maintaining a strong pay-for-performance culture. The compensation program is
reviewed annually in order to assure that its objectives and components are aligned with the Company’s
strategic goals and culture, and also that it incentivizes short- and long-term profitability and ethical
business conduct in accordance with our values.
This Compensation Discussion and Analysis (‘‘CD&A’’) describes key features of our executive
compensation program, summarizes the 2020 cash and equity incentive compensation received by our
named executive officers, highlights the strong pay for performance alignment of our executives’
compensation with our financial, operating and stockholder returns and provides additional context to the
data presented in the compensation tables included below in this proxy statement. This CD&A also
describes any significant changes to our executive compensation program for 2021 that have been
implemented prior to filing this proxy statement. The term ‘‘executive officers’’ means our senior
executives who are listed above under the heading ‘‘Executive Officers’’. The term ‘‘named executive
officers’’ means the five executive officers identified in the table below, each of whom were considered
‘‘executive officers’’ as of December 31, 2020.
Named Executive Officer
Title
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
Chief Executive Officer
Executive Vice President — Chief Financial Officer
Executive Vice President — Chief Customer and Marketing Officer
Executive Vice President — Acima (formerly Preferred Lease)
Executive Vice President — Chief Development Officer
Please read the entirety of this CD&A and remaining compensation sections in this proxy statement for
further details regarding the matters summarized below.
Executive Compensation Program Overview
Decisions with respect to compensation of our executive officers, including our Chief Executive Officer
and other named executive officers, are made by our Compensation Committee, which is comprised
solely of independent directors. Our Compensation Committee has identified four primary objectives for
our executive compensation program, which guide the decisions it makes with respect to the amount and
type of compensation paid to our named executive officers. The objectives of our executive compensation
program are to:
• attract, retain and motivate senior executives with competitive compensation opportunities;
• balance short-term and long-term strategic goals;
• align our executive compensation program with the core values identified in our mission
statement, which focuses on improving the quality of life for our co-workers and our
customers; and
• reward achievement of our financial and non-financial goals.
The executive compensation program consists of a mix of three primary components, described below,
which we believe appropriately rewards our executive officers for their overall contribution to company
performance, contains a substantial portion of at-risk, performance-based compensation and aligns our
34
executives’ interests with those of our stockholders with the ultimate objective of increasing long-term
stockholder value.
long-term
incentive opportunity and
The Company’s compensation philosophy is generally to position total direct compensation (base salary,
the
annual
50th-75th percentile of similarly-situated public companies in the retail and consumer finance sectors. This
includes companies in the Company’s Peer Group described below. Cash compensation (base salary
and annual incentive opportunity) is generally targeted at around the 50th percentile, and long-term
incentive compensation is generally targeted at around the 75th percentile. The pay ultimately realized is
highly variable and dependent primarily on (1) our financial and operational performance, (2) individual
executive performance and (3) our multi-year relative TSR performance.
incentive compensation opportunity) around
The three primary components of our executive compensation program are:
Component
Base Salary
Annual Incentive
Opportunity
Long-Term Incentive
Compensation Opportunity
Overview
Competitive base salaries are determined in large part through in-depth
comparative analyses of comparable positions at companies in our Peer
Group and generally targeted at around the 50th percentile of the Peer
Group and other similarly-situated public companies in the retail and
consumer finance sectors with the opportunity for above or below
median base salaries based on experience,
responsibilities,
competencies and individual performance.
Opportunity for an annual cash incentive award to align our executives
with annual corporate and individual performance achievements. For
2020, the ultimate payout amount was based on (1) Rent-A-Center
Business same store sales (25% weighting), (2) Preferred Lease
(now known as Acima) invoice volumes (25% weighting), (3) Adjusted
EBITDA (40% weighting), and (4) Free Cash Flow (10% weighting). The
targeted achievement levels take into account the rigorous goals
included in our annual operating budget which is approved by the
Board. Each executive officer’s target annual incentive opportunity is
generally targeted at around the 50th percentile of the Peer Group and
other similarly-situated public companies in the retail and consumer
finance sectors. In the 2021 bonus plan, Free Cash Flow was eliminated
as a performance metric and Acima invoice volumes were replaced with
Acima revenues, as discussed in this CD&A.
long-term
time. The
incentive awards granted
Long-term incentive plan and stock ownership guidelines to align our
executives with longer term performance achievement and stockholder
returns over
in
February 2020 consisted of (1) time-vested restricted stock units
(weighted 20%) that cliff-vested after a three-year period, (2) stock
options (weighted 20%) that vested pro rata annually over a four-year
period, and (3) relative TSR-based performance stock units (weighted
60%) that vest solely based on the satisfaction of our performance
based on our three-year TSR compared to the S&P 1500 Specialty
Retail Index. Stock options were eliminated from the long-term incentive
awards starting in 2021, as discussed in this CD&A, with performance
stock units now weighted at 70%.
35
Compensation Program Design and Governance Policies
In addition to our three primary components of executive compensation, our executive compensation
program includes other features that we believe are consistent with strong governance practices,
including:
What We Do
•
•
Transparent Compensation Program: Maintain a
transparent executive compensation program that is
understandable both
to our stockholders and
employees and is not overly complex or subject to
constantly changing features
Compensation Aligned with Performance: A
substantial percentage of both cash and equity
compensation is at-risk and variable based on
company performance
• Multi-Year Equity Vesting: Three-year full vesting
for all executive equity awards (starting in 2021,
restricted stock units vest pro rata annually over
three years; performance stock units cliff vest after
three years based on relative TSR performance)
Annual SOP Vote: Annual Say on Pay stockholder
vote
regarding our executive compensation
program to receive regular feedback from our
investors
Annual Program Risk Assessment: Our
Compensation Committee performs annual risk
assessments of our compensation program
•
•
•
•
•
Consultant:
Independent
Compensation
Engagement by the Compensation Committee of an
independent compensation consultant to conduct a
formal evaluation of, and advise the Compensation
Committee with respect to, the compensation
arrangements for our Chief Executive Officer, as
well as provide guidance with respect to the
compensation of our senior executives
Rigorous Target Setting: Rigorous performance
targets for our annual cash incentive and long-term
incentive compensation programs
Total Reward Statement Review: Regular review
by the Compensation Committee of Chief Executive
Officer and other executive total reward statements
to
equity
compensation awards as part of making
compensation determinations
evaluate multi-year
cash
and
Ownership Guidelines: Stock ownership guidelines
for our directors, Chief Executive Officer, executive
vice presidents, senior vice presidents and vice
presidents
Clawback Policy: Incentive compensation
is
subject to clawback, as described further in this
proxy statement
What We Do Not Do
No Hedging or Pledging Stock:
Insider Trading
Policy that prohibits derivative transactions involving our
common stock and pledging stock
No gross-ups: Employee benefits are provided
without tax gross-ups (other than certain relocation-
related expenses)
•
•
No Repricing Options: We do not reprice stock
options without stockholder approval (and starting in
2021, we no longer grant stock options)
No Dividends Paid on Unvested Equity: No
prospective payment of dividends on unvested equity
awards
No excessive perquisites: We provide only
limited perquisites, as described in this CD&A
2020 Company Performance Highlights
As described further in our year-end 2020 earnings announcement and in ‘‘Management’s Discussion
and Analysis of Financial Condition and Results of Operations’’ in our 2020 Form 10-K, our Company had
strong performance during 2020 despite the many challenges resulting from the COVID-19 pandemic on
36
•
•
•
•
•
overall economic conditions, the business environment, retail operations and supply chains. Highlights of
our 2020 results and significant accomplishments are described below:
• Acima Acquisition: In December 2020, we entered into a definitive agreement to acquire Acima
Holdings LLC, a leading provider of virtual lease-to-own solutions. The transaction was completed
in February 2021 and significantly accelerates our growth plans.
• Safely Continued Serving Customers and Managed Through COVID-19 Challenges with
Strong Results:
(cid:2) Our consolidated 2020 revenues of $2.8 billion were up 5.4% versus 2019.
(cid:2) Preferred Lease (now known as our Acima segment) annual invoice volume rose over 20%,
which drove 8.1% revenue growth in 2020.
(cid:2) We realized twelve consecutive quarters of positive same store sales in the Rent-A-Center
Business (+14.9% on a 2-year basis), with a significant year over year increase in profitability.
(cid:2) Rent-A-Center e-commerce increased 53% in the fourth quarter 2020 to 22% of
Rent-A-Center sales to end the year.
(cid:2) We achieved significant year over year growth in our Adjusted EBITDA.
• Strong Stock Price Performance: On December 31, 2019, our common stock closed at $28.84
per share. On December 31, 2020, our common stock closed at $38.29, an increase of
approximately 33%.
• Launched Preferred Dynamix Platform: Rent-A-Center launched its Preferred Dynamix
platform, which includes a mobile application and is also planned to include a marketplace to
empower unbanked and underbanked consumers with more financial freedom. Preferred
Dynamix’s proprietary digital platform leverages new decisioning technology and a portfolio of new
lease-to-own solutions to expand the ways that consumers and retailers transact. This platform is
being integrated with that of Acima Holdings, LLC as part of our integration efforts.
• Refranchised California Stores: On July 22, 2020, we entered into an asset purchase
agreement to sell all 99 Rent-A-Center Business corporate stores in the state of California to an
experienced franchisee. The sale was consummated on October 5, 2020.
2020 Executive Compensation Highlights
Highlights of our 2020 executive compensation program are discussed below:
• Continued High Percentage of At-Risk, Variable Performance-Based Compensation:
Targeted direct compensation (base salary, target annual incentive compensation and target
long-term incentive compensation) for our Chief Executive Officer was 84.6% at-risk,
performance-based for the year ended December 31, 2020. Such percentage represents the Chief
Executive Officer’s target annual incentive compensation and target long-term incentive
compensation as a percentage of his total targeted direct compensation.
• Maintained Rigorous Annual Incentive Award Targets with Increases Over Prior Year: In
establishing the 2020 annual cash incentive plan targets for each metric, the Compensation
Committee considered sensitivities to the key business drivers of Adjusted EBITDA, same store
sales, invoice volume and free cash flow to establish rigorous threshold, target and maximum
performance levels. In addition, target levels of Adjusted EBITDA and free cash flow were
increased compared to the prior year targets. The metrics of same store sales and invoice volume
were not used for purposes of assessing performance in the prior year.
37
• Retained 60% Weighting of Performance Stock Units in Long-Term Incentive Program: The
Compensation Committee decided to retain the same percentage split between time-vested
restricted stock units (20%), performance-based performance stock units (60%) and stock options
(20%) as in 2019, thereby including substantial weighting to the Company’s relative TSR
performance under the long-term incentive program.
• Strong Top Line and Bottom Line Financial Performance and Cash Flow Generation
Resulted in 180% Bonus Plan Payouts: As a result of our Company’s strong performance in
2020 despite the challenging business environment discussed above, we achieved strong results
on our 2020 bonus plan metrics and the Compensation Committee approved a 180% payout to our
executives. This payout reflected an adjustment by the Compensation Committee to the invoice
volume metric (which was established prior to the pandemic and was not adjusted in 2020) to
reflect the adverse impact of the COVID-19 pandemic on our retail partner invoice volumes, as
discussed in this CD&A.
• Strong Stock Price Performance Resulted in 200% Vesting of 2018 Performance Stock
Units: Our strong relative TSR performance as compared to the S&P 1500 Specialty Retail Index
for the three year period ended December 31, 2020, ranked us 2 out of 60 companies in the
S&P 1500 Specialty Retail Index, or the 98th percentile, which resulted in the vesting of 200% of
the performance-based restricted stock units that were granted in 2018.
• Strong Stockholder Say on Pay Approval: In June 2020, we held a stockholder advisory vote
on the compensation of our named executive officers, referred to as a say on pay vote. Our
stockholders approved the compensation of our named executive officers, with 97.7% of the
shares of common stock present and entitled to vote at the meeting cast in favor of our proposal,
which our Compensation Committee believed conveyed a general endorsement of our executive
compensation program and related compensation actions.
2021 Executive Compensation Program Changes
In February 2021, the Compensation Committee conducted its annual review of the executive
compensation program to ensure the program remains aligned with the Company’s executive
compensation philosophy and strategic objectives. In general, the Compensation Committee determined
it was appropriate to retain the same overall structure in 2021 as in 2020 taking into account feedback
from the Compensation Committee’s independent compensation consultant, comparisons to peer group
compensation programs, the strong say on pay approval from stockholders, and other factors. Although
the same overall structure of 2020 is retained for 2021, the Compensation Committee approved certain
adjustments to the 2020 executive compensation program:
• 2021 Bonus Plan: The Preferred Lease revenue-based metric in the 2020 bonus plan (invoice
volume) was replaced with Acima (formerly Preferred Lease) segment revenue. This change was
implemented due to the variability of invoice volumes and impact of retail partner supply chain
issues on invoice volumes and because revenue is more closely aligned with profitability. The cash
flow metric in the 2021 bonus plan was removed because of the Company’s strategic focus on
becoming a higher growth company primarily in the retail partner business and the need to make
investments for future growth as highlighted by its recent acquisition of Acima Holdings, LLC, and
was replaced with an increased Adjusted EBITDA weighting. Based on these adjustments, the
2021 bonus plan design consists of: (1) Rent-A-Center Business segment same store sales (25%
weighting); (2) Acima (formerly Preferred Lease) segment revenues (25% weighting); and
(3) Adjusted EBITDA (50% weighting).
• 2021 LTIP: The Compensation Committee replaced stock options with additional restricted stock
units and performance stock units, weighted as 30% and 70%, respectively, and modified the
38
restricted stock unit vesting to be a ratable annual vesting rather than three-year cliff vesting to
ensure the long-term incentive program is appropriately balanced between performance-based
awards and time-vested awards and that it remains competitive to attract and retain executive
talent.
• Expanded Ownership Guidelines: The Compensation Committee also expanded the covered
officers under the Company’s equity ownership guidelines to include, in addition to the Chief
Executive Officer (5x base salary requirement), all Executive Vice Presidents (3x base salary
requirement) and Senior Vice Presidents/Vice Presidents (1x base salary requirement).
• Named Executive Officer Compensation Adjustments: As part of its annual review of the
executive compensation program, the Compensation Committee made certain adjustments to the
compensation amounts for individual named executive officers.
Severance Arrangements
We have executive transition agreements with our named executive officers to provide certain payments
and benefits upon an involuntary termination of the named executive officer’s employment or the
occurrence of certain other circumstances that may affect the named executive officer. The
Compensation Committee believes that such severance arrangements assist us in recruiting and
retaining top-level talent. In addition, formalizing our severance practices benefits us (1) by providing us
with certainty in terms of our obligations to an eligible executive in the event that our relationship with him
or her is severed and (2) by virtue of the non-competition, non-solicitation and release provisions in our
loyalty agreements, which inure to our benefit in the event that an eligible executive severs employment
with us.
For a more detailed description of the severance arrangements which apply to our named executive
officers, please see ‘‘Termination of Employment and Change-in-Control Arrangements’’ below.
Employee Benefits and Limited Perquisites
Our named executive officers are eligible to participate in the benefit plans generally available to all of our
employees, which include health, dental, life insurance, vision and disability plans, all of which the
Compensation Committee believes are commensurate with plans of other similarly situated public
companies in the retail industry. In addition, we will pay for the cost of an executive physical examination
for each named executive officer each year and we do not gross our executives up for any taxes related to
the cost of perquisites. Our named executive officers were eligible in 2020 to participate in our 401(k)
Retirement Savings Plan and in the Rent-A-Center, Inc. Deferred Compensation Plan. The Deferred
Compensation Plan allows our executive officers to defer certain compensation to help save for their
longer term financial objectives on a tax-deferred basis.
The Compensation Committee has determined it is beneficial to offer the above-described employee
benefits and perquisites in order to attract and retain our named executive officers by offering
compensation opportunities that are competitive with those offered by similarly-situated public
companies in the retail industry. In determining the total compensation payable to our named executive
officers for a given fiscal year, the Compensation Committee will examine such employee benefits and
perquisites in the context of the total compensation which our named executive officers are eligible to
receive. However, because such employee benefits and perquisites which are available to our named
executive officers represent a relatively small portion of their total compensation, the availability of such
items does not materially influence the decisions made by the Compensation Committee with respect to
other elements of the total compensation to which our named executive officers are entitled or awarded.
39
For a description of the employee benefits and perquisites received by our named executive officers in
2020, please see ‘‘— All Other Compensation’’ below.
Compensation Process
The Compensation Committee typically begins the process of determining the amount and mix of total
compensation to be paid to our senior executives, including our named executive officers, in December of
each year and finalizes the amounts the following February. This enables the Compensation Committee
to examine and consider our performance during the previous year in establishing the current year’s
compensation. During the Compensation Committee’s annual review of the executive compensation
program, the Compensation Committee primarily considers market and Peer Group data (as described
below), input provided by our Human Resources department, and input of the Chief Executive Officer
other than with respect to his own compensation. The Compensation Committee also considers
experience, responsibilities, competencies and individual performance.
Historically, the Compensation Committee has retained annually a compensation consultant to conduct a
formal evaluation of, and advise it with respect to, the compensation arrangements for our Chief
Executive Officer, as well as provide guidance with respect to the compensation of our senior executives,
including our other named executive officers. For the 2020 fiscal year, the Compensation Committee
reviewed the executive compensation analysis conducted by Korn Ferry in December 2019, which
identified the Peer Group (as defined below), pursuant to its engagement by the Compensation
Committee to assist the committee with compensation decisions for the 2020 fiscal year.
The Compensation Committee considered executive compensation practices of the following similarly-
situated public companies (the ‘‘Peer Group’’) for the purpose of evaluating our 2020 compensation
arrangements for our senior executives:
Aaron’s, Inc.
EZCorp, Inc.
Michaels Stores, Inc.
Santander Consumer USA
Holdings Inc.
2020 Peer Group
Big Lots Inc.
FirstCash, Inc.
MoneyGram International, Inc.
Brinker International Inc.
H&R Block, Inc.
OneMain Holdings
Conn’s
La-Z-Boy Incorporated
Sally Beauty, Inc.
This Peer Group was approved by the Compensation Committee in the fall of 2019 based on work
performed by Korn Ferry for use in connection with compensation decisions to be made for the 2020 fiscal
year. The following criteria were considered in the selection of companies for this Peer Group:
• U.S.-based public companies with a similar business focus as ours, including both consumer
finance and retail (particularly home furnishings, appliances and other retail organizations with
which we compete for customers in a similar demographic);
• Companies with annual revenue similar to us (generally 0.5 to 2.0 times our revenue, based on the
most recent available financial information at the time of the analysis) and annuitized revenue
streams; and
• Competitors for executive talent.
In late 2020, the Compensation Committee considered the above criteria in reviewing the Peer Group to
be used for 2021 benchmarking purposes, and determined to make no changes to the Peer Group.
Finally, various members of the Compensation Committee have significant professional experience in the
consumer finance and retail industries, as well as with respect to the executive compensation practices of
large publicly-traded companies. This experience provides a frame of reference within which to evaluate
our executive compensation program relative to general economic conditions and our progress in
achieving our short-term and long-term goals.
40
Forms of Compensation
The following forms of compensation are currently utilized by the Compensation Committee in
compensating our named executive officers:
• base salary, which is paid in cash;
• annual incentive compensation, which is paid in cash;
• long-term incentive compensation, which currently consists of restricted stock units and
performance stock units;
• severance arrangements; and
• employee benefits, including limited perquisites, with no tax gross-ups (other than for certain
relocation-related expenses).
Base Salary
The base salary for each of our named executive officers represents the guaranteed portion of their total
compensation and is determined annually by the Compensation Committee. Base salaries help to
achieve our goal of maintaining a competitive program that will attract and retain talent needed for our
long-term success.
At the beginning of each year, the Compensation Committee considers whether adjustments should be
made to the annual base salaries for our named executive officers. During the Compensation
Committee’s review of the then-current base salaries, the Compensation Committee primarily considers
market data, including from the Peer Group, input provided by our Senior Vice President — Human
Resources, input of the Chief Executive Officer (other than with respect to his own base salary), individual
performance, our financial performance, the experience, responsibilities and competencies of the named
executive officer, and each named executive officer’s compensation in relation to our other executive
officers.
In early 2020, based on the consideration of these factors, the Compensation Committee maintained the
base salary of our Chief Executive Officer and increased the base salary for 2020 for each of our other
then-existing named executive officers at a modest rate consistent with the salary increases for our other
senior executive management. Mr. Hogg joined the Company in June 2020 and his base salary was
established by the Committee in connection with his hiring. The following table sets forth the annual base
salaries of the named executive officers for 2020 and, to the extent applicable, provides a comparison to
each of the previous two years:
Name
2018 Base Salary
2019 Base Salary
2020 Base Salary
Mitchell Fadel(1)
$800,000
Maureen Short(2)
$362,000
Ann Davids(3)
$330,000
Jason Hogg(4)
—
Catherine Skula(5)
$325,338
(1) Mr. Fadel was named Chief Executive Officer effective as of January 2, 2018.
(2) Ms. Short was named Chief Financial Officer effective as of December 19, 2018.
$1,000,000
$416,300
$339,900
—
$335,098
$1,000,000
$441,278
$350,097
$600,000
$350,000
(3) Ms. Davids was named Executive Vice President — Chief Marketing and Customer Officer effective as of February 21, 2018.
(4) Mr. Hogg was named Executive Vice President — Preferred Lease (which role has been retitled to Executive Vice
President — Acima) effective as of June 22, 2020.
(5) Ms. Skula was named Executive Vice President — Franchising effective as of January 2, 2018, and Executive Vice
President — Chief Development Officer effective as of November 23, 2020.
41
Annual Cash Incentive Compensation
The Compensation Committee maintains an annual incentive compensation program for our executive
officers that provides for awards in the form of a cash bonus. These cash bonuses provide our named
executive officers with short-term financial rewards based upon achievement of specified short-term
objectives, which the Compensation Committee believes will ultimately increase the value of our
Company by aligning our executive compensation with the achievement of annual performance
objectives, as well as help us attract and retain our named executive officers by providing attractive
compensation opportunities.
Under our annual cash incentive program, target cash bonus eligibility is established at a pre-determined
percentage of the named executive officer’s base salary, with such percentage amount set in accordance
with the named executive officer’s position and responsibilities with us. The ultimate payouts pursuant to
our annual cash incentive program for prior year performance are typically approved by the
Compensation Committee in February at the same time that all compensation (including base salaries,
target annual cash incentive compensation, and target long-term incentive compensation) for our named
executive officers for the current year is reviewed and approved. This timing enables the Compensation
Committee to evaluate the named executive officer’s performance during the prior performance year, as
well as determine performance targets for the new fiscal year in light of the previous year’s performance.
Payouts under the plan may range from 0% to 200% of target compensation.
The annual cash incentive program for 2020 included four financial performance metrics focused on
annual top line revenue performance, profitability and cash flow generation:
• Rent-A-Center Business Same Store Sales — The Compensation Committee determined to
include a consolidated same store sales target in the 2020 annual cash incentive plan in lieu of the
corporate revenue target used for the 2019 annual cash incentive program. This reflects the
Compensation Committee’s belief that a portion of the cash bonus opportunity should be based on
our revenue growth, but takes into account potential impacts to the Company’s revenues for 2020
in light of the Company’s refranchising strategy, such as our 2020 California refranchising
transaction.
• Preferred Lease (now known as Acima) Invoice Volumes — Because of the different business
model for our Preferred Lease retail partner business, the Compensation Committee determined
that invoice volume growth was an appropriate metric for top line performance of this business
segment. Invoice volumes represent the amount of purchases that Preferred Lease makes from
retail partners of merchandise, which Preferred Lease then leases to its customers. Invoice
volumes are considered to be a leading indicator to future revenues.
• Adjusted EBITDA — The Compensation Committee included an Adjusted EBITDA target in the
annual cash incentive program because it believes Adjusted EBITDA generally represents an
accurate indicator of our core financial performance and profitability over a one-year period of time,
while excluding the impact of items such as interest and depreciation which can vary significantly
and other adjustments that are not considered to reflect the performance of our core business
operations.
• Free Cash Flow — The Compensation Committee determined to include Free Cash Flow as one
of the financial performance metrics comprising the annual cash incentive program to continue
focusing management on this element of our strategy, which allows us to not only invest in our
future growth but also return capital to stockholders as part of our capital allocation strategy. Free
Cash Flow is defined as cash flows from operating activities less capital expenditures.
42
The financial performance targets for the 2020 annual cash incentive program were established in
February 2020 following a review of our financial projections developed pursuant to our strategic plan and
objectives for 2020. In setting the performance targets under the 2020 annual cash incentive program, the
Compensation Committee considered the level of actual achievement of the targets for the 2019 annual
cash incentive program, the level of the Company’s anticipated investment in its strategic initiatives for
2020, sensitivities for the key business drivers that may impact achievement of the targets and the
Compensation Committee’s goal to ensure a rigorous target-setting process. Based upon that review, the
Compensation Committee established the following threshold, target and maximum payout achievement
levels for each metric in the 2020 annual cash incentive program:
Metric
Rent-A-Center Business same store sales
Preferred Lease (now known as Acima) invoice volume
Adjusted EBITDA
Free Cash Flow
Performance Levels
Threshold — Less than 0.0% growth
Target — 1.35% to 1.65% growth
Maximum — Greater than or equal to 3.0% growth
Threshold — Less than $623.07 million
Target — $685.38 to $699.23 million
Maximum — Greater than or equal to $761.53 million
Threshold — Less than $249.50 million
Target — $274.45 to $277.22 million
Maximum — Greater than or equal to $304.94 million
Threshold — Less than $95.99 million
Target — $117.59 million to $122.38 million
Maximum — Greater than or equal to $143.97 million
Despite the impacts and uncertainties associated with the COVID-19 pandemic, the Compensation
Committee did not adjust any of the 2020 bonus targets during 2020 and instead elected to assess bonus
target performance as part of its determination of achievement levels in early 2021.
In February 2021, the Compensation Committee determined the level of achievement against the 2020
bonus plan targets:
Metric
Rent-A-Center Business segment
same store sales
Acima segment invoice volume
(formerly known as the Preferred
Lease segment)
Adjusted EBITDA (2) (3)
Free Cash Flow (2) (3)
Weighting (% of total
bonus opportunity)
2020 Performance
Percent of 2020
Target Achieved
Payout for
2020
(% of Target)
25%
25%
40%
10%
9.0%
598.4%
$707 million (1)
102.1% (1)
$344 million
$202 million
124.1%
168.3%
200%
120%
200%
200%
(1) Represents an adjustment to the invoice volume achievement calculation made by the Compensation Committee based on a
detailed review of the estimated lost volumes due to the COVID-19 pandemic. The COVID-19 pandemic had an adverse
impact on invoice volumes for our retail partner business due to our retail partners’ supply chain disruptions and their
substantial store closures for portions of 2020. This impact was beyond the control of our management team. As a result and
because the bonus targets, including invoice volumes, were all established prior to the pandemic and were not subsequently
adjusted during 2020, the Compensation Committee determined it was appropriate to adjust the achievement of the invoice
volume metric from 91.3% to 102.1% to offset the estimated adverse impacts described above. This resulted in an overall
180% payout on the 2020 bonus plan, compared to 155% in the absence of the invoice volume adjustment.
(2) Adjusted EBITDA is a non-GAAP financial measure calculated as net earnings before interest, taxes, depreciation and
amortization, as adjusted for certain gains and charges we view as extraordinary, unusual or non-recurring in nature and
which we believe do not reflect our core business activities. Free Cash Flow is a non-GAAP financial measure calculated as
cash flows from operating activities less capital expenditures.
In reviewing our actual 2020 performance relative to the performance targets, the Compensation Committee determined that it
would be appropriate, consistent with past practices, to adjust Adjusted EBITDA to exclude the impact of the bonus payout
itself. No other adjustments were made to Adjusted EBITDA, and no adjustments were made to Free Cash Flow.
(3)
43
As a result, each executive officer in the 2020 annual cash incentive program received an amount equal
to 180% of such person’s target bonus amount. The actual amounts awarded to our named executive
officers for their annual cash incentive bonus for 2020 performance are included under the column
‘‘Non-Equity Incentive Plan Compensation’’ in the table appearing in the section ‘‘Compensation
Tables — Summary Compensation Table’’ below in this proxy statement.
Long-Term Incentive Compensation
Our equity incentive plans are administered by the Compensation Committee and are designed to enable
the Compensation Committee to provide incentive compensation to our employees in the form of stock
options, restricted stock and stock unit awards, other equity awards, and performance-based equity
awards. The Compensation Committee believes that awarding our named executive officers non-cash,
long-term equity incentive compensation, primarily in the form of long-term incentive awards which may
increase or decrease in value depending on the satisfaction by us of pre-determined performance
measures and/or an increase or decrease in the value of our common stock, more effectively aligns their
interests with those of our stockholders. The Compensation Committee also believes that such awards
will provide our named executive officers with an incentive to remain in their positions with us, since the
determination as to whether a particular measure for our performance and/or an increase in the value of
our common stock has been satisfied is typically made over an extended period of time.
Recent long-term incentive awards are made to our named executive officers pursuant to the 2016 Plan.
Under the terms of the 2016 Plan, awards may be granted at times and upon vesting and other conditions
as determined by the Compensation Committee, and may be made in the form of stock options, restricted
stock and stock unit awards, other equity awards, and performance-based equity awards.
• Stock Options — Stock option awards under our equity incentive plans are granted at the fair
market value per share of our common stock on the date the option is granted as determined by
reference to the closing price for shares of our common stock on the Nasdaq Global Select Market
on the last market trading day prior to the date the option is granted. The options granted to our
named executive officers typically vest ratably over a four-year period, commencing one year from
the date of grant, and expire after 10 years. Starting in 2021, the Compensation Committee
eliminated stock options from the long-term incentive plan mix as discussed in this CD&A.
• Restricted Stock Units and Performance Stock Units — The restricted stock units granted by
our Compensation Committee vest either after a set period of time or upon the achievement of
specified goals for our performance over a period of time. Awards of restricted stock units with
time-based vesting provide our named executive officers with a minimum level of value while also
providing an additional incentive for such individuals to remain in their positions with us. Awards of
restricted stock units with performance-based vesting provide an additional incentive for our
named executive officers to remain in their positions with us in order to realize the benefit of such
award and also focus them on a performance parameter which the Compensation Committee
considers beneficial to increasing the long-term value of our Company.
The Compensation Committee determines the timing of the annual grants of equity awards to our named
executive officers as well as the terms and restrictions applicable to such grants. The Compensation
Committee approves generally in February of each year the annual grant to our executive officers in
conjunction with its review and determination of each executive officer’s compensation for the current
year. Grants may also be made in connection with commencement of employment, promotions, or
achieving certain tenure at Rent-A-Center.
44
In February 2020, the Compensation Committee approved the target award percentages for 2020 for
each of our named executive officers. The following table highlights the named executive officers’ target
2020 equity award values as a percentage of each executive’s base salary and provides a comparison to
the previous two years:
2020 Named Executive Officer
LTIP Target Award Percentages
(% of base salary, rounded to the nearest 1%)
Name
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
2018
2019
2020
250% 350%
75% 130%
85%
85%
—
—
85%
415%
130%
85%
—(1)
85% 85%(2)
(1) Mr. Hogg joined the Company in June 2020, several months after the Company’s annual equity awards to executives.
Mr. Hogg’s 2020 LTIP award was made in connection with his hiring and took into account, among other considerations, the
fact that Mr. Hogg would be forfeiting equity from a previous employer. Accordingly, his initial award in 2020 was not
established as a specific percentage of his base salary.
(2) Ms. Skula’s LTIP Target Award Percentage was increased from 85% to 90% of base salary in November 2020 in connection
with her promotion to Executive Vice President — Chief Development Officer.
Consistent with prior years, the long-term incentive compensation awards for 2020 were comprised of
three vehicles, with greater emphasis on the portion of the long-term incentive award which is contingent
on relative stock price performance:
2020 LTIP Award Types
Award Type
Performance Stock Units
Restricted Stock Units
Stock Options
Weighting
60%
20%
20%
The Compensation Committee has adopted a relative TSR metric over a three-year measurement period
as the vesting condition for grants of performance stock units under our long-term incentive
compensation program. The Compensation Committee made this decision in order to tie the performance
of our common stock to executive compensation and because the Compensation Committee believes
that a relative measure is a more appropriate basis for measuring long-term performance than an
absolute measure. The Compensation Committee also took into consideration the fact that our annual
cash incentive program includes an annual Adjusted EBITDA metric. The Compensation Committee
selected a three-year period over which to measure relative TSR based upon the time-period utilized with
respect to awards made by similarly-situated public companies in the retail industry, as well as upon its
belief that a three-year measurement period was appropriate to place an emphasis on our relative TSR
over an extended period of time, as opposed to the single year measure which is utilized in our annual
cash incentive program.
45
The Compensation Committee selected the S&P 1500 Specialty Retail Index as the comparison group for
measuring our relative TSR over the applicable measurement period. The Compensation Committee
selected this comparison group because it includes many of the Company’s peers, represents the overall
retail environment, and, in the determination of the Compensation Committee, was comprised of the
companies most similar, in terms of operations and scope of operations, to the Company. The
Compensation Committee adopted the following payout ranges applicable to the 2020 awards of
performance-based restricted stock units:
RCII’s TSR Percentile Rank in the
S&P 1500 Specialty Retail Index
RCII’s TSR Actual Rank in the
S&P 500 Specialty Retail Index
Payout Chart
>
90%
80%
70%
60%
50%
40%
30%
25%
0%
(cid:2)
100%
90%
80%
70%
60%
50%
40%
30%
25%
Low
High
Payout
1
8
14
20
26
32
38
44
47
7
13
19
25
31
37
43
46
61
200%
175%
150%
125%
100%
75%
50%
25%
0%
See the columns ‘‘Stock Awards’’ and ‘‘Option Awards’’ in the table appearing in the section
‘‘Compensation Tables — Summary Compensation Table’’ and the column ‘‘Estimated Future Payouts
Under Equity Incentive Plan Awards’’ in the table appearing in the section ‘‘Compensation Tables —
Grants of Plan-Based Awards’’ below in this proxy statement for threshold, target, and maximum amounts
payable to our named executive officers under the 2020 long-term incentive performance-based awards.
In February 2021, the Compensation Committee determined the level of achievement of the minimum
TSR condition with respect to the performance-based awards made in 2018, with a three-year
measurement period. The Compensation Committee reviewed the Company’s relative TSR performance
as compared to the S&P 1500 Specialty Retail Index for the period January 1, 2018 through
December 31, 2020, and determined that our relative TSR performance as compared to the S&P 1500
Specialty Retail Index for the three-year period ended December 31, 2020, ranked us 2 out of
60 companies in the S&P 1500 Specialty Retail Index, or the 98th percentile, which resulted in the vesting
of 200% of the performance-based restricted stock units that were granted in 2018.
Say on Pay Results
In June 2020, we held a stockholder advisory vote on the compensation of our named executive officers,
referred to as a say-on-pay vote. Our stockholders approved the compensation of our named executive
officers, with 97.7% of the shares of common stock present and entitled to vote at the meeting cast in
favor of our proposal. As noted above, our Compensation Committee believed this strong support
expressed by our stockholders indicated a general endorsement of our compensation philosophy and
pay-for-performance culture. Accordingly, the compensation decisions and changes implemented during
the 2020 fiscal year were made keeping in mind this support. As a result, our Compensation Committee
kept most facets of the executive compensation program consistent, with an emphasis on short- and
long-term incentive compensation that rewards our executives for value creation for our stockholders.
46
Termination of Employment and Change-in-Control Arrangements
Arrangements with Named Executive Officers Other Than Mr. Fadel
We have entered into executive transition agreements with each of our named executive officers other
than Mr. Fadel. Each executive transition agreement has similar terms and is intended to provide certain
payments and benefits upon an involuntary termination of the named executive officer’s employment or
the occurrence of certain other circumstances that may affect the named executive officer.
Termination Not in Conjunction with a Change in Control
If the named executive officer’s employment is terminated without ‘‘cause’’ or, with respect to Mr. Hogg,
for ‘‘good reason,’’ the named executive officer will be entitled to receive:
• unpaid but earned base salary through the date of such termination;
• unless such termination occurs prior to April 1, a pro rata bonus calculated based upon (i) with
respect to Mr. Hogg, the annual bonus earned by such named executive officer for the calendar
year preceding the year of such termination, or (ii) with respect to Ms. Davids, Ms. Short and
Ms. Skula, the annual bonus such named executive officer would have earned for the calendar
year of termination, as determined in the Company’s sole discretion and paid in a lump sum in cash
in the normal course upon the Company’s completion of annual bonus calculations (such amount,
the ‘‘Pro Rata Bonus’’);
• for (i) Ms. Davids and Ms. Short, 1.0x, and (ii) Mr. Hogg and Ms. Skula, 1.5x, of the named
executive officer’s highest annual rate of salary during the 24 months preceding such termination,
payable in equal monthly or more frequent installments by no later than the second December 31
following the calendar year of such termination;
• for Ms. Short and Ms. Skula, 1.0x and 1.5x, respectively, of the named executive officer’s average
annual bonus for the two calendar years preceding such termination; and
• continued health insurance coverage for the named executive officer and the named executive
officer’s spouse and covered dependents for up to (i) 12 months, for Ms. Davids and Ms. Short, or
(ii) 18 months, for Mr. Hogg and Ms. Skula.
If the named executive officer’s employment is terminated due to disability or death, the named executive
officer will be entitled to receive:
• unpaid but earned base salary through the date of termination;
• the Pro Rata Bonus applicable to such named executive officer; and
• continued health insurance coverage for the named executive officer and the named executive
officer’s spouse and covered dependents for up to 12 months.
If the named executive officer’s employment is terminated for ‘‘cause’’ or if the named executive officer
terminates his or her employment for any reason other than disability or death or, with respect to
Mr. Hogg, without ‘‘good reason,’’ the named executive officer will be entitled to receive his or her unpaid
but earned base salary through the date of termination (reduced by amounts owed by the named
executive officer to us or our affiliates).
Termination in Conjunction With a Change In Control
If the named executive officer’s employment is terminated within 24 months following a change in control
of us without ‘‘cause’’ or by the named executive officer for ‘‘good reason,’’ the named executive officer
will be entitled to receive the same severance payments and benefits as described above (not in
47
connection with a change in control) with respect to a termination without ‘‘cause,’’ except that the named
executive officer will be entitled to receive:
• for (i) Ms. Davids and Ms. Short, 1.5x (instead of 1.0x), and (ii) for Mr. Hogg and Ms. Skula, 2.0x
(instead of 1.5x), of the named executive officer’s highest annual rate of salary during the
24 months preceding such termination, payable in a lump sum in cash within 10 business days
following the later of such termination or the change in control;
• for Ms. Short and Ms. Skula, 1.5x (instead of 1.0x) and 2.0x (instead of 1.5x), respectively, of the
named executive officer’s average annual bonus for the two calendar years preceding such
termination, payable in a lump sum in cash within 10 business days following the later of such
termination or the change in control; and
• continued health insurance coverage for the named executive officer and the named executive
officer’s spouse and covered dependents for an extended period of up to (i) 18 months (instead of
12 months) for Ms. Davids and Ms. Short and (ii) 24 months (rather than 18 months) for Mr. Hogg
and Ms. Skula.
If the named executive officer’s employment is terminated in connection with a change in control due to
disability or death, or for ‘‘cause’’ or without ‘‘good reason,’’ the named executive officer will be entitled to
receive the same severance payments and benefits as described above (not in connection with a change
in control) with respect to a termination due to disability or death or for ‘‘cause,’’ respectively. If payments
would subject the named executive officer to excise tax under section 4999 of the Code, or the Company
would be denied a deduction under Section 280G of the Code, then the amounts otherwise payable to the
named executive officer will be reduced by the minimum amount necessary to ensure the named
executive officer will not be subject to such excise tax and the Company will not be denied any
such deduction.
Under each of the executive transition agreements, a ‘‘change in control’’ would generally occur upon any
of the following:
• any person becomes the beneficial owner of 40% or more of the combined voting power of our
then outstanding voting securities;
• a consolidation, merger or reorganization of us, unless (i) our stockholders immediately prior to
such transaction own at least a majority of the voting power of the outstanding voting securities of
the resulting entity, (ii) the members of our Board immediately prior to the execution of the
agreement providing for such a transaction constitute a majority of the board of directors of the
surviving corporation or of its majority stockholder, and (iii) no person beneficially owns more than
40% of the combined voting power of the then outstanding voting securities of the surviving
corporation other than a person who is (a) us or a subsidiary of us, (b) an employee benefit plan
maintained by us, the surviving corporation or any subsidiary, or (c) the beneficial owner of 40% or
more of the combined voting power of our outstanding voting securities immediately prior to such
transaction;
• individuals who constitute our entire Board (the ‘‘Incumbent Board’’) cease to constitute a majority
of our Board, provided that anyone who becomes a director and whose appointment or nomination
for election was approved by at least two-thirds of our directors at the time shall be considered as
though such individual were a member of the Incumbent Board; or
• a complete liquidation or dissolution of us, or a sale or other disposition of all or substantially all of
our assets (other than to an entity described in the second bullet point above).
Loyalty and Confidentiality Agreements executed in connection with our executive transition agreements
provide non-competition, non-solicitation and release provisions for the benefit of the Company that
remain in effect during the period of employment and an additional period of two years thereafter.
48
Arrangements with Mr. Fadel
Pursuant to Mr. Fadel’s employment agreement, if we terminate Mr. Fadel’s employment due to his
disability or death, Mr. Fadel will be entitled to receive:
• unpaid but earned base salary through the date of termination;
• a pro rata bonus calculated based upon Mr. Fadel’s bonus amount from the previous year; and
• continued health insurance coverage for Mr. Fadel and Mr. Fadel’s spouse and covered
dependents for up to 24 months.
If we terminate Mr. Fadel’s employment for ‘‘cause,’’ or if Mr. Fadel terminates his employment with us for
any reason other than death, disability or for ‘‘good reason,’’ Mr. Fadel will be entitled to receive his
unpaid but earned base salary through the date of termination (reduced by amounts owed by Mr. Fadel to
us or our affiliates).
If Mr. Fadel’s employment is terminated by us without ‘‘cause’’ (as defined in the employment agreement)
or by Mr. Fadel for ‘‘good reason,’’ Mr. Fadel will be entitled to receive:
• unpaid but earned base salary through the date of termination;
• a pro rata bonus calculated based upon Mr. Fadel’s bonus amount from the previous year;
• two times the sum of Mr. Fadel’s (x) highest annual rate of salary during the previous 24 months
and (y) his target cash bonus amount for the calendar year in which the termination occurs,
payable in equal monthly installments over a period of 24 months; and
• continued health insurance coverage for Mr. Fadel and Mr. Fadel’s spouse and covered
dependents for up to 24 months.
If we terminate Mr. Fadel’s employment without ‘‘cause’’ or if Mr. Fadel terminates his employment for
‘‘good reason,’’ within the period beginning six months prior to a change in control or, if such change in
control results in a person beneficially owning 40% or more of the voting power of the Company or is
pursuant to a consolidation, merger or reorganization (subject to certain exceptions), beginning on the
date of the definitive agreement pursuant to which the change in control is consummated and ending on
the first anniversary of the date of the change in control, then Mr. Fadel will be entitled to receive in a lump
sum the same aggregate severance payments and benefits as described above for a termination not in
connection with a change in control. The Compensation Committee or the Board may condition the
payment of severance or benefits on the execution and delivery by Mr. Fadel of a general release in favor
of us, our affiliates and our officers, directors, and employees, provided that no such release will be
required for the payment to Mr. Fadel of accrued compensation. If payments would subject Mr. Fadel to
excise tax under section 4999 of the Code, or the Company would be denied a deduction under
Section 280G of the Code, then the amounts otherwise payable to Mr. Fadel will be reduced by the
minimum amount necessary to ensure Mr. Fadel will not be subject to such excise tax and the Company
will not be denied any such deduction.
Mr. Fadel is also subject to a Loyalty and Confidentiality Agreement which provides non-competition,
non-solicitation and release provisions for the benefit of the Company that remain in effect during the
period of employment and an additional period of two years thereafter.
49
Arrangements With Respect to Long-Term Incentive Plans
Pursuant to stock option agreements under the 2016 Plan and certain prior long-term incentive plans, if
the individual’s employment with us is terminated because of death or disability, any options that are
vested and exercisable on the date of termination will remain exercisable for 12 months thereafter, but not
beyond the term of the agreement. If the individual’s employment is terminated by us for ‘‘cause,’’ then the
options (whether or not then vested and exercisable) will immediately terminate and cease to be
exercisable. If the individual’s employment with us is terminated for any other reason, any options that are
vested and exercisable as of the date of termination will remain exercisable for three months thereafter,
but not beyond the term of the agreement.
Pursuant to the 2016 Plan and certain prior long-term incentive plans, each holder of an option to
purchase shares of our common stock may exercise such option immediately prior to an ‘‘exchange
transaction,’’ regardless of whether currently vested, and any outstanding options not exercised before
the exchange transaction shall terminate. However, if, as part of an exchange transaction, our
stockholders receive capital stock of another corporation in exchange for our common stock, and if our
Board so directs, then all outstanding options shall be converted into options to purchase shares of such
stock, with the amount and price to be determined by adjusting the amount and price of the options
granted under the 2016 Plan and certain prior long-term incentive plans, as applicable, on the same basis
as the determination of the number of shares of exchange stock the holders of our outstanding common
stock are entitled to receive in the exchange transaction. In addition, unless our Board determines
otherwise, the vesting conditions with respect to the converted options shall be substantially the same as
those set forth in the original option agreement. The Board may accelerate the vesting of stock awards
and other awards, provide for cash settlement of and/or make such other adjustments to any outstanding
award as it deems appropriate in the context of an exchange transaction.
Under the 2016 Plan and certain prior long-term incentive plans, the term ‘‘exchange transaction’’ means
a merger (other than in which the holders of our common stock immediately prior thereto have the same
proportionate ownership of common stock in the surviving corporation immediately thereafter),
consolidation, acquisition or disposition of property or stock, separation, reorganization (other than a
reincorporation or the creation of a holding company), liquidation of us or any other similar transaction or
event so designated by our Board, as a result of which our stockholders receive cash, stock or other
property in exchange for or in connection with their shares of our common stock.
Pursuant to stock compensation agreements under the 2016 Plan and certain prior long-term incentive
plans, if the individual’s employment with us is terminated because of death or disability, or there is a
change in ownership of us, then any unvested restricted stock units will vest on the date of such
termination of employment or immediately prior to the consummation of the change in ownership of us, as
the case may be. However, any unvested restricted stock units do not vest by reason of a change in
ownership unless the individual remains continuously employed by us until such change in ownership is
complete or the individual’s employment is sooner terminated by us in connection with such change in
ownership. In addition, upon the termination of the individual’s employment or other service with us for
any reason other than disability or death, any unvested restricted stock units will thereupon terminate and
be canceled.
Under each of the stock compensation agreements, the term ‘‘change in ownership’’ is defined as any
transaction or series of transactions as a result of which any one person or group of persons acquires
(i) ownership of our common stock that, together with the common stock previously held by such person,
constitutes more than 50% of the total fair market value or total voting power of such stock, or
(ii) ownership of our assets having a total gross fair market value at least equal to 80% of the total gross
fair market value of all of the assets immediately prior to such transaction or series of transactions.
50
Policies and Risk Mitigation
Compensation-Related Risk
The Compensation Committee believes that the design of our compensation programs, including our
executive compensation program, does not encourage our executives or employees to take unnecessary
and excessive risks and that the risks arising from these programs are not reasonably likely to have a
material adverse effect on us. The Compensation Committee considered the following factors in making
that determination:
• The allocation among the components of direct annual compensation provides an appropriate
balance between annual and long-term incentives and between fixed and performance-based
compensation.
• The performance measures and the multi-year vesting features of the long-term equity incentive
compensation component encourage participants to seek sustainable growth and value creation.
• Inclusion of share-based compensation through the long-term equity incentive compensation
component encourages appropriate decision-making that is aligned with the long-term interests of
our stockholders.
• Our annual cash incentive program and the awards of restricted stock with performance-based
vesting contain provisions with respect to our achievement of the applicable performance target
such that each participant may receive (1) an additional payout pursuant to such award in the
event that we exceed the applicable performance target, and (2) a portion of the target payout
pursuant to such award in the event that we approach, yet fail to achieve, the target level of
financial performance.
• The various governance policies we have adopted to align the interests of our top management
with those of our stockholders and to motivate sustainable growth, including stock ownership
guidelines, hedging and pledging restrictions and our Clawback Policy, as described below.
• We maintain a values-driven, ethics-based culture supported by a strong tone at the top.
Stock Ownership Guidelines
We believe that our Chief Executive Officer, executive vice presidents, senior vice presidents and vice
presidents should have a meaningful financial stake in the Company to ensure that their interests are
aligned with those of our stockholders. To that end, in December 2020, the Board adopted new equity
ownership guidelines to define our expectations for our Chief Executive Officer, executive vice
presidents, senior vice presidents and vice presidents, which replaced our prior equity ownership
guidelines. Under these new guidelines, our Chief Executive Officer, executive vice presidents, senior
vice presidents and vice presidents are expected to own shares of our common stock having a value
equal to a designated multiple of his or her annual base salary within five years of the later of
(1) December 1, 2020 and (2) the date on which he or she was appointed to his or her position.
Position
Ownership Requirement
Chief Executive Officer
Executive Vice President
5 times annual base salary
3 times annual base salary
Senior Vice President or Vice President
1 times annual base salary
51
Shares of our common stock that count toward meeting the foregoing equity ownership requirements
include:
• shares of our common stock directly or indirectly beneficially owned outright, including as a result
of fully vested awards from previous grants to the executive by the Company;
• shares of our common stock held through any Company benefit plan, including the Company’s
401(k) plan, Non-Qualified Deferred Compensation Plan or any employee stock purchase
plan; and
• unvested time-based restricted stock awards or restricted stock units granted to the executive by
the Company.
Neither (i) performance-based stock awards or performance stock units, nor (ii) unexercised stock
options (whether vested or unvested) count toward meeting the equity ownership requirements.
As of December 31, 2020, based on the closing price of our common stock on the Nasdaq Global Select
Market of $38.29 per share as of such date, each of Ms. Short and Ms. Skula satisfied the new equity
ownership guidelines. Each of our named executive officers is required to comply with the ownership
guidelines no later than December 1, 2025.
Hedging and Pledging Restrictions
Our insider trading policy prohibits our directors, officers and employees, and members of their
households, certain of their family members and certain other natural or legal persons or entities whose
(i) management responsibilities are discharged by, (ii) are directly or indirectly controlled by or (iii) whose
economic interests are substantially equivalent to those of any of the foregoing persons, from engaging in
hedging, monetization or options transactions related to our securities or transactions involving any
derivative security of the Company or other financial instruments that provide the economic equivalent of
ownership of our common stock or an opportunity, whether direct or indirect, to profit from any change in
the value of our common stock, such as prepaid variable forward contracts, puts, calls, equity swaps,
credit default swaps and collars.
In addition, our insider trading policy prohibits (i) short sales of any securities of the Company, including
through any ‘‘sale against the box’’ (sales with delayed delivery) and (ii) the holding of securities of the
Company in a margin account or pledging securities of the Company as collateral for a loan, in each case
unless they are treated as non-marginable by the brokerage firm.
Clawback Policy
Our Board has adopted a compensation recovery (‘‘clawback’’) policy which provides that, in the event of
a restatement of our financial statements due to our material noncompliance with any financial reporting
requirement under the U.S. federal securities laws (other than restatements of financial results that are
the direct result of changes in accounting standards) (a ‘‘clawback event’’), we may seek recoupment,
repayment and/or forfeiture of all or any portion of any annual or long-term cash, equity or equity-based
incentive or bonus compensation outstanding and unpaid or paid and received during the three-year
period preceding the date of the clawback event.
52
CEO Pay Ratio
Below sets forth our reasonable estimate, calculated in a manner consistent with the requirements of
Item 402(u) of Regulation S-K, of the ratio of the annual total compensation for fiscal year 2020 of our
current Chief Executive Officer to that of the median of the annual total compensation for all of our other
employees (the ‘‘CEO Pay Ratio’’). Please note that due to the flexibility in estimates, assumptions and
adjustments permitted by the SEC in calculating such ratio, the CEO Pay Ratio may not be comparable to
those presented by other companies, even other companies operating in the same industries as
Rent-A-Center.
We identified our median employee using our employee population (excluding our Chief Executive
Officer) as of December 31, 2020, which consisted of approximately 13,648 full-time, part-time, seasonal
and temporary workers, of which approximately 12,369 (90.6%) were located in the United States and
approximately 1,279 (9.4%) were located in Mexico. As of December 31, 2020, approximately 50 (0.4%)
employees were employed on a part-time basis and approximately 1,750 (12.9%) were paid on an hourly
(rather than salaried) basis. In order to attract and retain employees, we pay what we believe to be
competitive rates in each market where we operate.
We selected the median employee first by using a consistently applied compensation measure of annual
base pay, which reflects (i) for salaried employees, base salary, and (ii) for hourly employees, annualized
base hourly compensation assuming that full-time and part-time workers work 2,080 and 1,040 hours per
year, respectively, which calculation excluded any wages in respect of guaranteed overtime. After
narrowing the population of potential median employees to normalize for potential drivers of pay
differential (e.g., based on factors such as bonus eligibility and active status of employment), our median
employee was randomly selected from a pool of 83 individuals. The annual base pay of our employees
located in Mexico was converted to U.S. dollars using an exchange rate of 19.913 Mexican pesos to
$1.00 U.S. dollar, reflecting the exchange rate reported by the U.S. Department of the Treasury as of
December 31, 2020. We did not make any cost of living adjustments to annual base pay in identifying our
median employee.
Our median employee identified using the assumptions and methodologies described above was located
in Florida and served in an hourly position as a Customer Account Representative. Our median employee
was furloughed for a period of approximately 1.5 months during fiscal year 2020 in connection with our
response measures related to the COVID-19 pandemic and temporary and partial operational closures
throughout the U.S. and Mexico.
The 2020 annual total compensation of our median employee, calculated using the same methodology
used to calculate the same metric for our named executive officers in the Summary Compensation Table
in this proxy statement, was $33,055. Comparing this to our Chief Executive Officer’s 2020 annual total
compensation of $9,217,950, we estimate that the CEO Pay Ratio was approximately 279:1. For
informational purposes only (and not as a substitute for the foregoing ratio), the estimated 2020 annual
total compensation of our median employee would have been approximately $37,444 on an annualized
basis had such employee not been furloughed, which would have yielded an estimated CEO Pay Ratio of
approximately 246:1.
Compensation Committee Interlocks and Insider Participation
Messrs. Gade, Hetrick and Lewis each served as members of the Compensation Committee for all or a
portion of 2020. Each such member is independent and no member of the Compensation Committee
(1) has ever been employed by us, as an officer or otherwise, or (2) has or had any relationships requiring
disclosure in this proxy statement pursuant to Item 404(a) of Regulation S-K.
53
In addition, during 2020, none of our executive officers served as a member of the compensation or
similar committee or as a member of the board of directors of any other entity having an executive officer
that also served on the Compensation Committee or Board of Rent-A-Center.
Section 162(m)
Section 162(m) of the Internal Revenue Code (the ‘‘Code’’) generally prohibits a federal income tax
deduction to public companies for compensation over $1,000,000 paid to a ‘‘covered employee.’’ A
‘‘covered employee’’ includes (a) the Chief Executive Officer, (b) the Chief Financial Officer, (c) the three
other most highly compensated executive officers, and (d) any individual who was a covered employee
for any taxable year beginning after December 31, 2016. The Compensation Committee is not limited to
paying compensation that is fully deductible and may determine it is appropriate to provide compensation
that may exceed deductibility limits in order to recognize performance, meet market demands, retain key
executives, and take into account other appropriate considerations.
Compensation Committee Report
The material in this Report is not ‘‘soliciting material’’, is not deemed ‘‘filed’’ with the SEC and is not to be
incorporated by reference into any filing under the Securities Act of 1933 (the ‘‘Securities Act’’) or the
Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation
by reference language in such filing.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with our management and, based upon such review and
discussions, the Compensation Committee recommended to the Board that the Compensation
Discussion and Analysis be included in the proxy statement on Schedule 14A related to the 2021 Annual
Meeting of Stockholders, for filing with the SEC.
COMPENSATION COMMITTEE
Christopher Hetrick, Chairman
Michael Gade
Harold Lewis
B.C. Silver
54
COMPENSATION TABLES
The following compensation tables in this proxy statement have been prepared pursuant to SEC rules.
Although some amounts (e.g., salary and non-equity incentive plan compensation) represent actual
dollars paid to an executive, other amounts are estimates based on certain assumptions about future
circumstances (e.g., payments upon termination of an executive’s employment) or may represent dollar
amounts recognized for financial statement reporting purposes in accordance with accounting rules, but
do not represent actual dollars received by the executive (e.g., dollar values of stock awards and option
awards). The footnotes and other explanations to the Summary Compensation table and the other tables
herein contain important estimates, assumptions and other information regarding the amounts set forth in
the tables and should be considered together with the quantitative information in the tables.
Summary Compensation Table
The following table summarizes the compensation earned by our named executive officers in fiscal year
2020, as well as the compensation earned by such individuals in each of fiscal year 2019 and fiscal year
2018, if serving as an executive officer during that time. Our named executive officers were not entitled to
receive payments which would be characterized as ‘‘Bonus’’ payments for purposes of the Summary
Compensation Table for 2020, 2019 and 2018.
Name and Principal Position
Year
All Other
Salary Awards(1) Awards(1) Compensation(2) Compensation(3)
Option
Stock
Non-Equity
Incentive Plan
Total
Mitchell Fadel
Chief Executive Officer
Maureen Short
Chief Financial Officer
2020 $998,077 $4,882,607
2019 $953,846 $5,222,035
2018 $800,000 $2,156,237
2020 $434,665 $ 636,749
2019 $406,902 $ 807,439
2018 $362,000 $ 292,711
Ann Davids
Executive Vice President —
Chief Customer and Marketing Officer
2020 $347,070 $ 339,928
2019 $337,615 $ 431,084
2018 $276,692 $ 302,413
$829,998
$700,002
$388,141
$108,237
$201,537
$ 52,690
$ 57,782
$ 57,781
$ 54,436
Jason Hogg(4)
Executive Vice President — Acima
2020 $311,538 $3,499,998
—
Catherine Skula
Executive Vice President —
Chief Development Officer
2020 $335,887 $ 335,119
2019 $332,846 $ 424,979
2018 $325,338 $ 298,139
$ 56,965
$ 56,969
$ 91,669
$2,430,000
$1,690,000
$1,488,000
$ 476,580
$ 386,951
$ 302,994
$ 315,087
$ 287,216
$ 306,900
$1,080,000
$ 306,376
$ 283,158
$ 302,564
$ 77,268 $9,217,950
$ 99,522 $8,665,405
$ 29,632 $4,862,010
$ 42,391 $1,698,623
$ 39,805 $1,842,634
$ 30,444 $1,040,839
$ 36,348 $1,096,215
$ 33,258 $1,146,954
$ 45,551 $ 679,092
$297,931 $5,189,467
$ 36,673 $1,071,019
$ 36,379 $1,134,331
$ 40,547 $1,058,257
(1)
The amounts reflected in this column are the aggregate grant date fair value computed in accordance with FASB ASC
Topic 718 for each award of stock option, restricted stock unit and performance stock unit awards in 2020, 2019 and 2018 to
the applicable named executive officer. Assumptions used in the calculation of these amounts are included in Note O to our
audited financial statements for our fiscal year ended December 31, 2020, included in our 2020 Form 10-K and our Annual
Reports on Form 10-K for prior years.
For performance stock unit awards granted in February 2020, the maximum performance shares payable, and
corresponding maximum aggregate value based on the grant date fair value of such awards, are (i) 268,030 shares and
$8,105,227 for Mr. Fadel, (ii) 34,954 shares and $1,057,009 for Ms. Short, (iii) 18,660 shares and $564,278 for Ms. Davids,
(iv) 262,960 shares and $6,999,995 for Mr. Hogg and (v) 18,396 shares and $556,295 for Ms. Skula.
(2) Represents the cash awards which were payable under our annual cash incentive program with respect to services for the
year indicated.
(3)
For 2020, represents the compensation as described in the ‘‘All Other Compensation’’ table below.
(4) Mr. Hogg joined the Company and was named Executive Vice President — Preferred Lease (which role has been retitled to
Executive Vice President — Acima) effective as of June 22, 2020, several months after the Company’s annual equity awards
to executives. Mr. Hogg’s 2020 LTIP award and short-term incentive award were made in connection with his hiring and took
into account, among other considerations, the fact that Mr. Hogg would be forfeiting equity from a previous employer.
55
All Other Compensation
The following table provides information regarding each component of compensation for 2020 included in
the All Other Compensation column in the Summary Compensation Table above.
Name
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
Company Matching
Contributions(1)
Value of Insurance
Premiums(2)
Relocation(3)
Other(4)
Total
$38,904
$24,423
$17,533
$
346
$13,827
$30,836
$13,845
$15,698
$ 3,489
$17,832
—
—
—
$293,723
—
$7,528
$4,123
$3,117
$ 372
$5,014
$ 77,268
$ 42,391
$ 36,348
$297,931
$ 36,673
(1) Represents contributions or other allocations made by us to our 401(k) Retirement Savings Plan and/or Deferred
Compensation Plan.
(2) Represents premiums paid by the Company for medical, long-term disability and life insurance.
(3) Represents reimbursements of relocation-related expenses, which may include the costs of housing, furniture, travel and
similar expenses, gross of related taxes of $71,892.
(4) Represents fees paid by us for an annual executive physical examination and employee assistance program premiums.
56
Grants of Plan-Based Awards
The table below sets forth information about plan-based awards granted to the named executive officers
during 2020 under the 2020 annual cash incentive program and the 2016 Plan.
Estimated Future Payouts
Under Non-Equity
Incentive
Plan Awards(1)
Estimated Future Payouts
Under Equity
Incentive
Plan Awards(2)
Date Threshold
Target Maximum Threshold Target Maximum
Committee
Grant Approval
Date
All Other
Stock
Awards:
All Other
Option
Awards: Exercise
Number of Number of
Shares of Securities
Stock or Underlying
or Base Closing
Price of Price on
Grant
Option
Units(3) Options(4) Awards(5)
Date
Grant Date
Fair Value
of Stock
and
Option
Awards
Name
Mitchell Fadel
Short-Term Incentive
Restricted Stock Units
Performance Stock Units
Stock Options
Maureen Short
Short-Term Incentive
Restricted Stock Units
Performance Stock Units
Stock Options
Ann Davids
Short-Term Incentive
Restricted Stock Units
Performance Stock Units
Stock Options
—
2/26/20
2/26/20
2/26/20
—
2/26/20
2/26/20
2/26/20
—
2/26/20
2/26/20
2/26/20
Jason Hogg
Short-Term Incentive(6)
—
Restricted Stock Units
—
Performance Stock Units(6) 7/1/2020
—
Stock Options
Catherine Skula
Short-Term Incentive
Restricted Stock Units
Performance Stock Units
Stock Options
—
2/26/20
2/26/20
2/26/20
3/4/20
2/13/20
2/13/20
2/13/20
3/4/20
2/13/20
2/13/20
2/13/20
3/4/20
2/13/20
2/13/20
2/13/20
4/20/20
—
4/20/20
—
3/4/20
2/13/20
2/13/20
2/13/20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$1,350,000 $2,700,000
—
—
—
—
—
—
$ 264,767 $ 529,533
—
—
—
—
—
—
$ 175,049 $ 350,097
—
—
—
—
—
—
$ 600,000 $1,200,000
—
—
—
—
—
—
$ 192,500 $ 385,000
—
—
—
—
—
—
—
—
—
—
— 134,015
—
—
—
—
—
—
—
— 17,477
—
—
—
—
—
—
—
— 9,330
—
—
—
—
—
—
—
131,480 131,480
—
—
—
—
—
—
—
— 9,198
—
—
—
—
268,030
—
—
33,508
—
—
—
—
—
120,991
—
—
34,954
—
—
—
18,660
—
—
—
262,960
—
—
—
18,396
—
—
4,370
—
—
—
2,333
—
—
—
—
—
—
—
2,300
—
—
—
—
—
15,778
—
—
—
8,423
—
—
—
—
—
—
—
8,304
—
—
—
— $23.50 $ 829,993
— $23.50 $4,052,614
$23.50 $ 829,998
$24.77
—
—
—
— $23.50 $ 108,245
— $23.50 $ 528,504
$23.50 $ 108,237
$24.77
—
—
—
— $23.50 $
57,788
— $23.50 $ 282,139
57,782
$23.50 $
$24.77
—
—
—
—
—
—
— $26.61 $3,499,998
—
—
—
—
—
—
56,971
— $23.50 $
— $23.50 $ 278,148
56,965
$23.50 $
$24.77
(1)
(2)
These columns show the potential value of the payout of the annual cash incentive bonuses for 2020 performance for each named
executive officer if the threshold, target and maximum performance levels are achieved. The potential payout is performance-
based and driven by company performance. The actual amount of the annual cash incentive bonuses paid for 2020 performance
is shown in the Summary Compensation Table under the ‘‘Non-Equity Incentive Plan Compensation’’ column.
For all named executive officers other than Mr. Hogg, represents restricted stock units which vest depending on our relative
TSR performance over a three-year measurement period as compared to the S&P 1500 Specialty Retail Index and the
named executive officer remains an employee through the end of such measurement period. For Mr. Hogg, (1) one-half
represents the restricted stock units described by the prior sentence, subject to a minimum payout of 100%, and (2) one-half
represents restricted stock units described by the prior sentence, but subject to a two-year (rather than three-year)
measurement period and a minimum payout of 100%. The issuance of the stock underlying the performance-based
restricted stock units granted to our named executive officers will range from a minimum of zero shares (other than for
Mr. Hogg, as described above) if our relative TSR performance is below the 25th percentile, to the maximum number of
shares if our relative TSR performance ranks at least the 90th percentile.
(3) Represents restricted stock units which vest upon completion of three-years of continuous employment with us from
February 26, 2020.
(4) Represents options to purchase shares of our common stock which vest ratably over a four-year period.
(5) Calculated by reference to the closing price for shares of our common stock on the Nasdaq Global Select Market on the last
trading day before the date of grant, in accordance with the applicable plan.
(6) Mr. Hogg joined the Company effective as of June 22, 2020. Mr. Hogg’s 2020 LTIP award and short-term incentive award
were made in connection with his hiring and took into account, among other considerations, the fact that Mr. Hogg would be
forfeiting equity from a previous employer.
57
Outstanding Equity Awards at Fiscal Year End
The following table provides information regarding stock options and restricted stock units held by the named
executive officers that were outstanding at December 31, 2020.
Name
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
OPTION AWARDS
STOCK AWARDS
Number of
Securities
Underlying
Unexercised
Options -
Exercisable
Number of
Securities
Underlying
Unexercised
Options -
Unexercisable
Option
Exercise
Price
Option
Expiration
Date
Equity Incentive Plan
Awards: Number of
Unearned Shares, Units
or Other Rights That
Have Not Vested
Equity Incentive Plan
Awards: Market or Payout
Value of Unearned Shares,
Units or Other Rights That
Have Not Vested(1)
53,909
18,757
53,908(2)
56,270(3)
$ 8.22
2/23/2028
$20.87
4/1/2029
—
120,991(4)
$24.77
2/26/2030
1,642
2,126
5,066
6,088
10,527
16,355
7,318
2,900
—
7,561
1,548
—
2,849
3,585
—
—
—
—
—
—
—
—
—
—
5,452(5)
7,318(2)
8,701(3)
$37.19
1/31/2022
$34.77
1/31/2023
$25.03
1/31/2024
$29.31
2/6/2025
$10.34
2/5/2026
$ 8.32
2/16/2027
$ 8.22
2/23/2028
$20.87
4/1/2029
15,778(4)
$24.77
2/26/2030
7,560(2)
4,645(3)
8,423(4)
$ 8.22
2/23/2028
$20.87
4/1/2029
$24.77
2/26/2030
—
—
4,454(5)
7,454(2)
5,000(6)
4,579(3)
8,304(4)
$37.19
1/31/2022
$34.77
1/31/2023
$ 8.32
2/16/2027
$ 8.22
2/23/2028
$ 8.63
4/2/2028
$20.87
4/1/2029
$24.77
2/26/2030
48,662(7)
33,541(8)
33,508(9)
194,489(10)
134,185(11)
134,015(12)
6,606(7)
5,186(8)
4,370(9)
26,402(10)
20,748(11)
17,477(12)
6,825(7)
2,769(8)
2,333(9)
27,277(10)
11,077(11)
9,330(12)
65,740(13)
65,740(12)
6,728(7)
2,730(8)
2,300(9)
26,892(10)
10,920(11)
9,198(12)
$1,863,268
$1,284,285
$1,283,021
$7,446,984
$5,137,944
$5,131,434
$ 252,944
$ 198,572
$ 167,327
$1,010,933
$ 794,441
$ 669,194
$ 261,329
$ 106,025
$
89,331
$1,044,436
$ 424,138
$ 357,246
$2,517,185
$2,517,185
$ 257,615
$ 104,532
$
88,067
$1,029,695
$ 418,127
$ 352,191
(1) Calculated by reference to the closing price for shares of our common stock on the Nasdaq Global Select Market on December 31, 2020,
which was $38.29.
(2)
(3)
These options to purchase shares of our common stock vest in equal parts on each of February 23, 2021 and February 23, 2022.
These options to purchase shares of our common stock vest in equal parts on each of April 1, 2021, April 1, 2022 and April 1, 2023.
58
(4)
(5)
(6)
These options to purchase shares of our common stock vest in equal parts on each of February 26, 2022, February 26, 2023, February 26,
2024 and February 26, 2025.
These options to purchase shares of our common stock vested on February 16, 2021.
These options to purchase shares of our common stock vest in equal parts on each of April 2, 2021 and April 2, 2022.
(7) Represents the number of shares of our common stock that vested and became issuable pursuant to the time-based restricted stock unit
awards upon the named executive officer’s completion of three years of continuous employment with us from February 23, 2018.
(8) Represents the number of shares of our common stock that will vest and become issuable pursuant to the time-based restricted stock unit
awards upon the named executive officer’s completion of three years of continuous employment with us from April 1, 2019.
(9) Represents the number of shares of our common stock that will vest and become issuable pursuant to the time-based restricted stock unit
awards upon the named executive officer’s completion of three years of continuous employment with us from February 26, 2020.
(10) Represents the number of shares of our common stock that vested and became issuable pursuant to the performance-based restricted
stock unit awards based on our relative TSR performance as compared to the S&P 1500 Specialty Retail Index for the three-year period
ended December 31, 2020, so long as the named executive officer remained an employee through December 31, 2020. Our relative TSR
performance as compared to the S&P 1500 Specialty Retail Index for the three-year period ended December 31, 2020, ranked at the
98th percentile, which resulted in 200% of the shares vesting.
(11) Represents the number of shares of our common stock that will vest and become issuable pursuant to the performance-based restricted
stock unit awards based on our relative TSR performance as compared to the S&P 1500 Specialty Retail Index for the three-year period
ending December 31, 2021, and the named executive officer remains an employee through December 31, 2021.
(12) Represents the number of shares of our common stock that will vest and become issuable pursuant to the performance-based restricted
stock unit awards based on our relative TSR performance as compared to the S&P 1500 Specialty Retail Index for the three-year period
ending December 31, 2022, and the named executive officer remains an employee through December 31, 2022.
(13) Represents the number of shares of our common stock that will vest and become issuable pursuant to the performance-based restricted
stock unit awards based on our relative TSR performance as compared to the S&P 1500 Specialty Retail Index for the two-year period
ending December 31, 2021, and the named executive officer remains an employee through December 31, 2021.
Option Exercises and Stock Vested
The following table reflects certain information with respect to options exercised by our named executive
officers during the 2020 fiscal year, as well as applicable stock awards that vested, during the 2020
fiscal year:
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
Option Awards
Stock Awards
Number of Shares
Acquired on Exercise
Value Realized
Number of Shares
on Exercise Acquired on Vesting
Value Realized
on Vesting
—
6,525
—
—
—
$111,269
—
—
—
—
58,738
$1,642,902
—
—
—
—
44,910
$753,683
47,990
$1,342,280
Non-Qualified Deferred Compensation
The Rent-A-Center, Inc. Deferred Compensation Plan is an unfunded, non-qualified deferred
compensation plan for a select group of our key management personnel and highly compensated
employees. The Deferred Compensation Plan first became available to eligible employees in July 2007,
with deferral elections taking effect as of August 3, 2007. The Deferred Compensation Plan allows
participants to defer up to 50% of their base compensation and up to 100% of any bonus compensation.
Participants may invest the amounts deferred in measurement funds that are the same funds offered as
the investment options in our 401(k) Retirement Savings Plan. We may make discretionary contributions
to the Deferred Compensation Plan, which are subject to a two-year graded vesting schedule based on
59
the participant’s years of service with us. For 2020, we made matching contributions in the Deferred
Compensation Plan of 50% of the employee’s contribution to the plan up to an amount not to exceed 6%
of such employee’s compensation, which is the same matching policy as under our 401(k) Retirement
Savings Plan. We are obligated to pay the deferred compensation amounts in the future in accordance
with the terms of the Deferred Compensation Plan.
The following table provides information for the named executive officers regarding contributions,
earnings and balances for our Deferred Compensation Plan:
Name
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
Executive
Contributions
in FY 2020(1)
Registrant
Contributions
in FY 2020(1)(2)
Aggregate
Aggregate
Earnings Withdrawals/
in FY 2020 Distributions
Aggregate
Balance
at FYE 2020(3)
$ 56,417
$146,094
$ 22,719
—
$25,904
$21,280
$10,086
—
$11,033
$24,508
$ 2,604
—
$ 21,917
$10,959
$ 7,330
—
—
—
—
—
$370,422
$520,711
$ 63,622
—
$496,275
(1)
The entirety of the executive contributions and registrant contributions are reported in the ‘‘Summary Compensation Table’’
above as compensation of the named executive officer for the year ended December 31, 2020.
(2) Represents matching contributions or other allocations made by us under our Deferred Compensation Plan which amount
was also reported as compensation in the table appearing in the section ‘‘Compensation Tables—Summary Compensation
Table’’ above in this proxy statement.
(3) Of these amounts, the following aggregate amounts are reported in the ‘‘Summary Compensation Table’’ above as
compensation of the named executive officer for the years ended December 31, 2020, 2019 and 2018: Mr. Fadel—$175,016;
Ms. Short—$260,406; Ms. Davids—$58,008; Mr. Hogg—$0; and Ms. Skula—$72,648.
No Pension Benefits
We do not sponsor or maintain any plans that provide for specified retirement payments or benefits, such
as tax-qualified defined benefit plans or supplemental executive retirement plans.
Potential Payments and Benefits Upon Termination Without a
Change in Control
The following table provides quantitative disclosure of the estimated payments that would be made to our
named executive officers currently employed by us under their severance agreements, as well as the
amounts our named executive officers would receive upon the exercise of the equity and cash awards
held by them on December 31, 2020, the last business day of our fiscal 2020, assuming that:
• each named executive officer’s employment with us was terminated on December 31, 2020, and
was not in connection with an event which constituted a ‘‘change in control’’ or an ‘‘exchange
transaction’’ under any agreement or plan described above;
• amounts payable to each named executive officer would not subject such person to excise tax
under Section 4999 of the Code and the Company would not be denied a deduction under
Section 280G of the Code;
• the base salary earned by each named executive officer for his or her services to us through
December 31, 2020 has been fully paid to such named executive officer;
• the Board determined that the annual bonus for 2020 that would have been earned by each of
Ms. Davids, Ms. Short and Ms. Skula was equal to the actual bonus awarded to such named
executive officer for 2020;
60
• to the extent not otherwise terminated in connection with the named executive officer’s
termination, each of our named executive officers exercised any previously unexercised, vested
options and sold the underlying shares at the closing price for shares of our common stock on the
Nasdaq Global Select Market on December 31, 2020, which was $38.29; and
• to the extent not otherwise terminated in connection with the named executive officer’s
termination, each of our named executive officers sold the shares of our common stock underlying
their previously unvested restricted stock units at the closing price for shares of our common stock
on the Nasdaq Global Select Market on December 31, 2020.
Name
Mitchell Fadel
Cash Continuation
of Medical
Benefits
Severance
Payout
Acceleration and
Continuation
of Outstanding
Awards
Total
Termination
Benefits
Termination by Us without ‘‘Cause’’ or for ‘‘Good Reason’’
$6,390,000
$28,080
$ 1,947,791
$ 8,365,871
Termination by Us for ‘‘Cause’’
—
—
—
—
Termination by Us due to Mr. Fadel’s disability or death
$1,690,000
$28,080
$30,279,552
$31,997,632
Termination by Mr. Fadel for Reason other than disability,
death or for ‘‘Good Reason’’
—
—
$ 1,947,791
$ 1,947,791
Maureen Short
Termination by Us without ‘‘Cause’’
$1,262,830
$11,904
$ 1,229,644
$ 2,504,378
Termination by Us for ‘‘Cause’’
—
—
—
—
Termination by Us due to Ms. Short’s disability or death
$ 476,580
$11,904
$ 6,431,688
$ 6,920,172
Termination by Ms. Short for Reason other than disability or
death
Ann Davids
—
—
$ 1,229,644
$ 1,229,644
Termination by Us without ‘‘Cause’’
$ 665,184
$14,040
$
254,325
$
933,549
Termination by Us for ‘‘Cause’’
—
—
—
—
Termination by Us due to Ms. Davids’ disability or death
$ 315,087
$14,040
$ 3,213,280
$ 3,542,407
Termination by Ms. Davids for Reason other than disability
or death
Jason Hogg(1)
—
—
$
254,325
$
254,325
Termination by Us without ‘‘Cause’’ or for ‘‘Good Reason’’
$ 900,000
$29,304
Termination by Us for ‘‘Cause’’
Termination by Us due to Mr. Hogg’s disability or death
Termination by Mr. Hogg for Reason other than disability or
death or for ‘‘Good Reason’’
—
—
—
Catherine Skula
—
— $
929,304
—
—
$19,536
$ 5,034,369
$ 5,053,905
—
—
—
Termination by Us without ‘‘Cause’’
$1,270,668
$29,304
$
15,753
$ 1,315,725
Termination by Us for ‘‘Cause’’
—
—
—
—
Termination by Us due to Ms. Skula’s disability or death
$ 306,376
$19,536
$ 2,979,697
$ 3,305,609
Termination by Ms. Skula for Reason other than disability or
death
—
—
$
15,753
$
15,753
(1) Mr. Hogg joined the Company in June 2020 and his Pro Rata Bonus is based on the bonus earned during the calendar year preceding the
year of termination. As a result, had Mr. Hogg’s employment been terminated effective as of December 31, 2020, Mr. Hogg would not have
been entitled to receive any Pro Rata Bonus.
61
Potential Payments and Benefits Upon Termination With a Change
in Control
The following table provides quantitative disclosure of the estimated payments that would be made to our
named executive officers under their employment agreement or severance agreements, as well as the
amounts our named executive officers would receive upon the exercise of the equity and cash awards
held by them on December 31, 2020, the last business day of our fiscal 2020, assuming that:
• each named executive officer’s employment with us was terminated on December 31, 2020, and
was in connection with an event which constituted a ‘‘change in control’’ or an ‘‘exchange
transaction’’ under any agreement or plan described above;
• amounts payable to each named executive officer would not subject such person to excise tax
under Section 4999 of the Code and the Company would not be denied a deduction under
Section 280G of the Code;
• the base salary earned by each named executive officer for his or her services to us through
December 31, 2020 has been fully paid to such named executive officer;
• the Board determined that the annual bonus for 2020 that would have been earned by each of
Ms. Davids, Ms. Short and Ms. Skula was equal to the actual bonus awarded to such named
executive officer for 2020;
• with respect to options awarded pursuant to the 2016 Plan and certain prior equity plans, the Board
does not direct such outstanding options to be converted into options to purchase shares of the
exchange stock;
• to the extent not otherwise terminated in connection with the named executive officer’s
termination, each of our named executive officers exercised any previously unexercised options
and sold the underlying shares at the closing price for shares of our common stock on the Nasdaq
Global Select Market on December 31, 2020; and
• to the extent not otherwise terminated in connection with the named executive officer’s
termination, each of our named executive officers sold the shares of our common stock underlying
their previously unvested restricted stock units at the closing price for shares of our common stock
on the Nasdaq Global Select Market on December 31, 2020.
62
Name
Mitchell Fadel
Termination by Us without ‘‘Cause’’ or by Mr. Fadel for
‘‘Good Reason’’
Termination by Us due to Mr. Fadel’s disability or death
Termination by Us for ‘‘Cause’’ or by Mr. Fadel without
‘‘Good Reason’’
Benefits upon Change in Control
Maureen Short
Termination by Us without ‘‘Cause’’ or by Ms. Short for
‘‘Good Reason’’
Termination by Us due to Ms. Short’s disability or death
Termination by Us for ‘‘Cause’’ or by Ms. Short without
‘‘Good Reason’’
Benefits upon Change in Control
Ann Davids
Termination by Us without ‘‘Cause’’ or by Ms. Davids for
‘‘Good Reason’’
Termination by Us due to Ms. Davids’ disability or death
Termination by Us for ‘‘Cause’’ or by Ms. Davids without
‘‘Good Reason’’
Benefits upon Change in Control
Jason Hogg(1)
Cash Continuation
of Medical
Benefits
Severance
Payout
Acceleration and
Continuation
of Outstanding
Awards
Total
Termination
Benefits
$6,390,000
$1,690,000
$28,080
$28,080
— $ 6,418,080
$34,516,588
$36,234,668
—
—
—
—
—
—
$34,516,588
$34,516,588
$1,655,955
$ 476,580
$17,856
$11,904
— $ 1,673,811
$ 7,310,677
$ 7,799,161
—
—
—
—
—
—
$ 7,310,677
$ 7,310,677
$ 840,233
$ 315,087
$21,060
$14,040
— $
861,293
$ 3,635,404
$ 3,964,531
—
—
—
—
—
—
$ 3,635,404
$ 3,635,404
Termination by Us without ‘‘Cause’’ or by Mr. Hogg for
‘‘Good Reason’’
$1,200,000
Termination by Us due to Mr. Hogg’s disability or death
Termination by Us for ‘‘Cause’’ or by Mr. Hogg without
‘‘Good Reason’’
Benefits upon Change in Control
Catherine Skula
Termination by Us without ‘‘Cause’’ or by Ms. Skula for
‘‘Good Reason’’
Termination by Us due to Ms. Skula’s disability or death
Termination by Us for ‘‘Cause’’ or by Ms. Skula without
‘‘Good Reason’’
Benefits upon Change in Control
$39,072
$19,536
— $ 1,239,072
$ 5,034,369
$ 5,053,905
—
—
—
—
$ 5,034,369
$ 5,034,369
—
—
—
$1,592,098
$ 306,376
$39,072
$19,536
— $ 1,631,170
$ 3,677,662
$ 4,003,574
—
—
—
—
—
—
$ 3,677,662
$ 3,677,662
(1) Mr. Hogg joined the Company in June 2020 and his Pro Rata Bonus is based on the bonus earned during the calendar year preceding the
year of termination. As a result, had Mr. Hogg’s employment been terminated effective as of December 31, 2020, Mr. Hogg would not have
been entitled to receive any Pro Rata Bonus.
63
Potential Realizable Value of Outstanding Awards Upon a Change
in Control Without Termination
Under our long-term incentive plans, in the event of a ‘‘change in control’’ of us or an ‘‘exchange
transaction’’ involving us, the vesting of outstanding awards may be accelerated regardless of whether
the employment of the holder is terminated in connection therewith. The following table provides
quantitative disclosure of the potential realizable value of outstanding awards granted to the named
executive officers currently employed by us pursuant to our long-term incentive plans assuming that:
• an event which constituted a ‘‘change in control’’ and an ‘‘exchange transaction’’ under each of the
agreements and plans described above was consummated on December 31, 2020;
• amounts payable to each named executive officer would not subject such person to excise tax
under Section 4999 of the Code and the Company would not be denied a deduction under
Section 280G of the Code;
• with respect to options awarded pursuant to the 2016 Plan and certain prior equity plans, the Board
does not direct such outstanding options to be converted into options to purchase shares of the
exchange stock;
• each named executive officer exercised any previously unexercised options and sold the
underlying shares at the closing price for shares of our common stock on the Nasdaq Global Select
Market on December 31, 2020; and
• each named executive officer sold the shares of our common stock underlying their previously
unvested restricted stock units at the closing price for shares of our common stock on the Nasdaq
Global Select Market on December 31, 2020.
Name
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
Potential Realizable Value(1)
$34,516,588
$ 7,310,677
$ 3,635,404
$ 5,034,369
$ 3,677,662
(1) Calculated by reference to the closing price for shares of our common stock on The Nasdaq Global Select Market on
December 31, 2020, the last business day of fiscal 2020, which was $38.29.
64
Equity Compensation Plan Information
The following table sets forth certain information concerning all equity compensation plans previously
approved by our stockholders and all equity compensation plans not previously approved by our stockholders
as of December 31, 2020.
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
Number of Securities
to be issued upon
exercise of outstanding
options, warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights(1)
Number of securities
remaining available
for future issuance
under equity
compensation plan(2)
3,262,814
—
3,262,814
$22.91
—
$22.91
—(3)
—
—
(1) Reflects the weighted-average exercise price of outstanding options as of December 31, 2020. The weighted average grant date
fair value of outstanding restricted stock units and performance stock units as of December 31, 2020 was $20.09.
(2) Pursuant to the terms of the plans, when an optionee leaves our employ, unvested options granted to that employee terminate and
become available for re-issuance. Vested options not exercised within 90 days from the date the optionee leaves our employ
terminate and become available for re-issuance.
(3) As of December 31, 2020, no additional securities remained available for issuance under the 2016 Plan or any other equity
compensation plan of the Company. The Company seeks stockholder approval of additional equity issuances under the 2021 Plan
as described in ‘‘Proposal Four: Approval of the Rent-A-Center, Inc. 2021 Long-Term Incentive Plan’’ below.
65
PROPOSAL THREE:
ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are seeking
stockholder approval of our executive compensation program and practices as disclosed in this proxy
statement. As described above in the ‘‘Compensation Discussion and Analysis’’ section of this proxy
statement, the Compensation Committee has structured our executive compensation program to achieve
the following key objectives:
• attract, retain and motivate senior executives with competitive compensation opportunities;
• balance short-term and long-term strategic goals;
• align our executive compensation program with the core values identified in our mission statement
which focuses on improving the quality of life for our co-workers and our customers; and
• reward achievement of our financial and non-financial goals.
We urge stockholders to read the section ‘‘Compensation Discussion and Analysis’’ above in this proxy
statement, which describes in more detail how our executive compensation policies and procedures
operate and are designed to achieve our compensation objectives, as well as the compensation tables
and related narrative disclosures in the section ‘‘Compensation Tables’’ above in this proxy statement,
which provide detailed information on the compensation of our named executive officers. The
Compensation Committee and the Board believe that the policies and procedures articulated in the
‘‘Compensation Discussion and Analysis’’ are effective in achieving our goals and that the compensation
of our named executive officers reported in this proxy statement has contributed to our recent and
long-term success.
In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we
are asking stockholders to approve the following advisory resolution at the 2021 Annual Meeting:
‘‘RESOLVED, that the stockholders of Rent-A-Center, Inc. (the ‘‘Company’’) approve, on an advisory
basis, the compensation of the Company’s named executive officers for the year ended December 31,
2020, as disclosed in the 2021 Proxy Statement pursuant to the compensation disclosure rules of the
Securities and Exchange Commission (including Item 402 of Regulation S-K), including the
Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables
and narrative disclosure.’’
This advisory resolution, commonly referred to as a ‘‘say-on-pay’’ resolution, is non-binding on the Board.
Although non-binding, the Board and the Compensation Committee will carefully take into account the
outcome of the vote when considering future compensation arrangements for our named executive
officers.
The affirmative vote of a majority of the shares of common stock present online or represented by proxy
and entitled to be voted on the proposal at the meeting is required for approval of this advisory resolution.
Our Board recommends that you vote ‘‘FOR’’ approval of the advisory resolution on executive
compensation.
66
PROPOSAL FOUR:
APPROVAL OF THE RENT-A-CENTER, INC.
2021 LONG-TERM INCENTIVE PLAN
We are asking stockholders to approve the Rent-A-Center, Inc. 2021 Long-Term Incentive Plan
(the ‘‘2021 Plan’’).
On March 23, 2021, upon the recommendation of the Compensation Committee, the Board adopted,
subject to stockholder approval, the 2021 Plan and has directed that it be submitted for the approval of the
stockholders. If approved by stockholders, the 2021 Plan will replace the Rent-A-Center, Inc. 2016
Long-Term Incentive Plan (the ‘‘2016 Plan’’) with respect to awards granted after the date such
stockholder approval is received (the ‘‘Effective Date’’) and any awards that remain outstanding under the
2016 Plan as of the Effective Date will be settled under the 2021 Plan, subject to their original terms
and conditions.
As discussed further in the CD&A, long-term incentive compensation, delivered in the form of restricted
stock units and performance stock units, is a primary component of our executive compensation program.
These equity-based awards motivate and reward achievement of long-term growth and align the interests
of our employees with those of our stockholders.
In February 2021, the Compensation Committee approved the grant of restricted stock units and
performance stock units to certain of our eligible employees (the ‘‘February 2021 Awards’’). However,
because there were not enough shares reserved under the 2016 Plan to be issued upon satisfaction of
the conditions to vesting of these equity awards, the share-settlement of the February 2021 Awards is
contingent on stockholder approval of the 2021 Plan. Accordingly, if stockholder approval of the 2021
Plan is obtained, the February 2021 Awards will be settled in shares of our stock in accordance with their
terms. If stockholder approval of the 2021 Plan is not obtained, then the February 2021 Awards will be
settled for an amount of cash based on the fair market value of one share of our stock.
We recommend that stockholders approve the 2021 Plan to permit the continued use of equity-based
compensation. If the 2021 Plan is not approved, we will be unable to maintain our current equity grant
practices and will be at a significant competitive disadvantage in attracting, retaining and motivating the
talented individuals who contribute to our success. Moreover, we may need to replace equity-based
components of our compensation structure with cash, which would increase cash compensation expense
and reduce alignment with stockholder interests.
The affirmative vote of a majority of the shares of common stock present in person or represented by
proxy and entitled to be voted on the proposal at the meeting is required for approval of the 2021 Plan.
Our Board of Directors recommends that you vote ‘‘FOR’’ approval of the 2021 Plan.
67
Highlights of the 2021 Plan
The terms of the 2021 Plan are generally consistent with the terms of the 2016 Plan, except that the
2021 Plan:
Authorizes Shares
Establishes 1:1 Share Counting
Restricts Dividend Payments on Unvested
Awards
No Liberal Share Recycling
Implements Director Limits
Establishes Double Trigger Change in
Control
Provides for Clawback Policy
Implementation
Removes References to Section 162(m) of
the Internal Revenue Code
Authorizes for issuance 5,000,000 shares.
Provides that each award (regardless of type)
counts 1:1 against the share reserve
(as compared to share-counting provisions
under the 2016 Plan (1:1 for options and
2:1 for full-value awards).
Requires that any dividends or dividend
equivalent rights granted in connection with
any type of award will be subject to the same
vesting terms and conditions as the underlying
award.
Provides that shares delivered to pay the
exercise price or to satisfy tax withholding
obligations may not be reused for future
awards.
Implements annual limits on the amount of
compensation that may be granted to
non-employee directors under the 2021 Plan.
Establishes double-trigger vesting of awards
upon a qualifying termination in connection with
a change in control.
Stipulates that the Compensation Committee
has the authority to implement any clawback or
recoupment policies that the Company has in
place from time to time.
Removes terms related to Section 162(m) of
the Internal Revenue Code that have become
obsolete as a result of the federal tax reform
legislation enacted in December 2017.
In addition to the above, the 2021 Plan maintains, or enhances, features
Governance Best Practices.
and practices of the 2016 Plan that promote good governance and protect stockholders’ interests,
including:
• No ‘‘liberal’’ change in control definition. The change in control definition in the 2021 Plan is not
‘‘liberal’’ and, for example, would not occur merely upon stockholder approval of a merger transaction.
A change in control must actually occur in order for the change in control provisions in the 2021 Plan to
be triggered.
• No tax gross-ups. No participant is entitled under the 2021 Plan to any tax gross-up payments for any
excise tax pursuant to Sections 280G or 4999 of the Code that may be incurred in connection with
awards under the plan.
68
• Stock-ownership guidelines. Our Chief Executive Officer and our other named executive officers
are subject to stock ownership guidelines as described in ‘‘Compensation Discussion and Analysis —
Policies and Risk Mitigation — Stock Ownership Guidelines’’ earlier in this proxy statement.
• No repricings or cash buyout of ‘‘underwater’’ awards. Neither a repricing of options or stock
appreciation right (‘‘SAR’’) awards, nor a cash buyout of underwater options or SARs, is permitted
without stockholder approval, except for adjustments with respect to a change in control or an equitable
adjustment in connection with certain corporate transactions.
• No evergreen provision. The 2021 Plan does not contain an ‘‘evergreen’’ feature pursuant to which
the shares authorized for issuance under the plan can be increased automatically without stockholder
approval.
• No ‘‘reload’’ options or stock appreciation rights. The 2021 Plan does not permit the use of reload
options or stock appreciation rights which provide that the exercise of a stock option or stock
appreciation right can automatically trigger the grant of a new stock option or stock appreciation right.
• No Transferability. Awards generally may not be transferred, except by the laws of decent and
distribution.
Grant Practices and Key Data. When determining the number of shares authorized for issuance under
the 2021 Plan, the Board and the Compensation Committee carefully considered the potential dilution to
our current stockholders and projected future share usage needs for the Company to be able to make
competitive grants to participants. Specifically, the Board and the Compensation Committee considered a
number of factors, including our conservative historical and projected share usage. Burn rate (which is
defined as the gross number of equity-based awards granted during a calendar year divided by the
weighted average number of shares of common stock outstanding during the year) is a measure of share
utilization in equity plans and an important factor for investors concerned about shareholder dilution.
Under the Company’s current equity incentive program implemented in 2020, our annual burn rate for
2020 was 1.96%. Our annual equity grants made in February 2021 were consistent with this program.
Based on our conservative usage of shares authorized for issuance under the 2016 Plan and our
reasonable expectation of future equity usage, we believe that the number of shares being requested for
authorization under the 2021 Plan will last 4 to 5 years, depending on factors such as stock price
movement, participation levels and corporate activities that could impact our grant practices.
Key Terms of the 2021 Plan
The following summary of the material terms of the 2021 Plan is qualified in its entirety by reference to the
complete text of the 2021 Plan, which is attached hereto as Annex A. Capitalized terms used in this
proposal that are not otherwise defined have the meanings given to them in the 2021 Plan.
Purpose
The purpose of the 2021 Plan is to foster the ability of the Company and its subsidiaries to attract,
motivate and retain key personnel and enhance stockholder value through the use of certain equity and
cash incentive compensation opportunities.
Eligibility
Awards under the 2021 Plan may be made to any present or future directors, officers, employees,
consultants and other personnel of the Company or a subsidiary. As of December 31, 2020, it is expected
that approximately 13,648 officers, employees, consultants and other personnel of the Company and all
six of our non-employee directors who are expected to continue to serve as directors following the 2021
Annual Meeting will be eligible to participate in the 2021 Plan.
69
Shares Subject to the 2021 Plan
If approved, the 2021 Plan would authorize us to issue a total of 5,000,000 shares of common stock. Up to
5,000,000 shares of common stock may be issued under the 2021 Plan covering a stock option granted
as an ‘‘incentive stock option’’ (within the meaning of Section 422 of the Internal Revenue Code of 1986).
Shares of common stock subject to an award that is forfeited, expires, terminates or is settled for cash
(in whole or in part), to the extent of such forfeiture, expiration, termination or cash settlement will be
available for future grants of awards under the 2021 Plan and will be added back in the same number of
shares of common stock as were deducted in respect of such award. The payment of dividend equivalent
rights in cash in conjunction with any outstanding awards will not be counted against the shares of
common stock available for issuance under the 2021 Plan. Shares of common stock tendered by an
award holder, repurchased by the Company using proceeds from the exercise of stock options, reserved
for issuance upon grant of stock-settled stock appreciation rights to the extent the number of reserved
shares exceeds the number of shares actually issued upon exercise of the stock appreciation rights or
withheld by the Company in payment of the exercise price of a stock option or to satisfy any tax
withholding obligation for an award will not again be available for awards under the 2021 Plan.
Limitations on Director Awards
The maximum value of awards that can be granted during any calendar year to any non-employee
director, solely with respect to his or her service as a member of the board, is $800,000.
Minimum Vesting Requirements
No awards granted under the 2021 Plan shall vest or be exercisable (in the case of stock options and
stock appreciation rights) earlier than the date that is one year following the date the award is granted;
provided, however, (1) the Compensation Committee may provide that such restrictions may lapse or be
waived upon the recipient’s death or disability or termination of service, or in connection with a change in
control, (2) awards that result in the issuance of an aggregate of up to five percent (5%) of the shares of
common stock that may be authorized for grant (as such authorized number of shares of common stock
may be adjusted as provided under the terms of the 2021 Plan) may be granted without respect to such
minimum vesting provision, and (3) awards may be granted to non-employee directors without respect to
such minimum vesting provision.
Administration
The 2021 Plan will generally be administered by the Compensation Committee. The Compensation
Committee will have the full power and authority to: (1) select the persons to whom awards under the
2021 Plan will be made and when such awards will be made, (2) prescribe the types of awards to be
granted and the terms and conditions of each such award and make amendments thereto, (3) construe,
interpret and apply the provisions of the 2021 Plan and of any award agreement evidencing an award
hereunder (each, an ‘‘Award Agreement’’) or other document governing the terms of an award made
under the 2021 Plan, (4) make any and all determinations and take any and all other actions as it deems
necessary or desirable in order to carry out the terms of the 2021 Plan and any award, (5) prescribe,
amend and rescind rules and regulations relating to the 2021 Plan, including rules governing the
Compensation Committee’s own operations, or rules applicable to award holders, (6) correct any defect,
supply any omission and reconcile any inconsistency in the 2021 Plan, (7) accelerate the time or times at
which (a) the award becomes vested, unrestricted or may be exercised or (b) shares of common stock are
delivered under the award, (8) waive or amend any goals, restrictions, vesting provisions or conditions set
forth in any Award Agreement, or impose new goals, restrictions, vesting provisions and conditions,
(9) determine at any time whether awards may be settled in cash, shares of common stock, other
securities or other property and (10) exercise all powers granted to it under the 2021 Plan.
70
Types of Awards
The types of awards that may be granted under the 2021 Plan are:
• Stock Options. The 2021 Plan permits the granting of stock options at such times and upon such
vesting and other conditions as determined by the Compensation Committee. The purchase price per
share of common stock covered by an option granted under the 2021 Plan may not be less than the Fair
Market Value per share of common stock on the date the option is granted. The exercise price under an
option which is intended to qualify as an ‘‘incentive stock option’’ granted to an employee who is a 10%
stockholder may not be less than 110% of the Fair Market Value per share on the date the option is
granted. Unless sooner terminated in accordance with its terms, an option will automatically expire on
the tenth anniversary of the date it is granted (the fifth anniversary of the date it is granted in the case of
an option which is intended to qualify as an ‘‘incentive stock option’’ granted to an employee who is a
10% stockholder).
• Stock Awards. The 2021 Plan permits the granting of restricted stock, deferred stock, stock units
(whether in the form of restricted stock units or DSUs), stock bonus and other stock awards to such
persons, at such times and upon such vesting and other conditions and restrictions as the
Compensation Committee may determine. Unless otherwise determined by the Compensation
Committee and set forth in the applicable Award Agreement, (1) the holder of a stock award will not be
entitled to receive dividend payments (or, in the case of an award of stock units, dividend equivalent
payments) with respect to the shares covered by the award and (2) the holder of shares of restricted
stock may exercise voting rights pertaining to such shares.
• Other Equity-Based Awards. Under the 2021 Plan, the Compensation Committee may grant stock
appreciation rights, dividend equivalent payment rights, phantom shares, phantom stock units, bonus
shares and other forms of equity-based awards to eligible persons, subject to such terms and
conditions as it may establish; provided, however that no dividend or dividend equivalent payment
rights shall be attributable to awards of stock appreciation rights or stock options. The base price for a
stock appreciation right granted under the 2021 Plan may not be less than the Fair Market Value per
share of stock covered by the award at the time it is granted. Unless sooner terminated in accordance
with its terms, a stock appreciation right will automatically expire on the tenth anniversary of the date it
is granted. Awards made pursuant to this section may entail the transfer of shares of common stock to a
participant or the payment in cash or other property determined with reference to shares of
common stock.
• Cash Awards. Under the 2021 Plan, the Compensation Committee may grant awards in cash with the
amount of the eventual payment subject to future service and such other restrictions and conditions as
may be established by the Compensation Committee and set forth in the underlying agreement,
including, but not limited to, continuous service with the Company and its subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining specified growth rates and other
measurements of performance.
Performance-Based Equity and Cash Awards
Under the 2021 Plan, the Compensation Committee may condition the grant, exercise, vesting or
settlement of equity-based awards or annual or long-term cash incentive awards on the achievement of
specified performance goals over any time period specified by the Compensation Committee. Any
performance goal established in connection with an award granted under the 2021 Plan may be based on
any subjective or objective performance goal determined by the Compensation Committee in its
discretion. The Compensation Committee, in its discretion, may determine to adjust any performance
goals applicable to an award.
71
Dividends and Dividend Equivalents
To the extent dividends or dividend equivalents are included in an Award Agreement for an applicable
award, the right to receive such dividends and dividend equivalent rights shall be subject to the same
performance-based vesting conditions and/or service-vesting conditions, as applicable, as the underlying
award, and no dividends or dividend equivalents shall be released to the award holder until the award to
which they pertain has vested. For the avoidance of doubt, no dividends or dividend equivalent rights may
be granted in connection with stock options or stock appreciation rights granted under the 2021 Plan.
Change in Control
If an award holder’s employment or other service is terminated by the Company or any successor entity
thereto without ‘‘cause’’ or by the award holder for ‘‘good reason’’ (as each such term is defined in the
applicable Award Agreement or an award holder’s executive transition agreement or employment
agreement, if applicable) upon or within two (2) years after a ‘‘change in control’’ (as defined in the 2021
Plan), (1) each award granted to such award holder prior to such change in control will become fully
vested (including the lapsing of all restrictions and conditions) and, as applicable, exercisable as of the
date of such termination of employment or other service, and (2) any shares deliverable pursuant to stock
units will be delivered promptly (but no later than fifteen (15) days) following such termination.
As of the change in control date, any outstanding performance-based awards will be deemed earned at
the greater of the target level and the actual performance level through the change in control date for all
open performance periods and will cease to be subject to any further performance conditions but will
continue to be subject to time-based vesting following the change in control in accordance with the
original vesting and/or performance period and subject to the provisions of clause (1) in the paragraph
above.
Amendment and Termination
The Board may amend or terminate the 2021 Plan; provided, however, that no such action may adversely
affect a holder’s rights under an outstanding award without his or her written consent. Any amendment
that would increase the aggregate number of shares of common stock issuable under the 2021 Plan, the
maximum number of shares with respect to which options, stock appreciation rights or other equity
awards may be granted to any employee in any calendar year, or that would modify the class of persons
eligible to receive awards shall be subject to the approval of the Company’s stockholders. The
Compensation Committee may amend the terms of any agreement or award made under the 2021 at any
time and from time to time, provided, however, that any amendment which would adversely affect a
holder’s rights under an outstanding award may not be made without his or her consent.
Clawback
Awards under the 2021 Plan will be subject to the Company’s clawback policy described under
‘‘Compensation Discussion and Analysis — Policies and Risk Mitigation — Clawback Policy’’, or any
other clawback or recapture policy that the Company may adopt from time to time to the extent provided in
such policy, and, in accordance with such policy, may be subject to the requirement that the awards be
repaid to the Company after they have been distributed to the award holder.
72
U.S. Federal Income Tax Consequences
The following is a brief description of the U.S. federal income tax consequences generally arising with
respect to grants of awards under the 2021 Plan. This description is not intended to, and does not, provide
or supplement tax advice to award participants. Participants are advised to consult with their own
independent tax advisors with respect to the specific tax consequences that, in light of their particular
circumstances, might arise in connection with their receipt of awards under the 2021 Plan, including any
state, local or foreign tax consequences and the effect, if any, of gift, estate and inheritance taxes.
Incentive Stock Options
A participant will not recognize taxable income upon exercising an incentive stock option (an ‘‘ISO’’),
provided that the participant was, without a break in service, an employee of the Company or one of its
subsidiaries during the period beginning on the date of the grant of the option and ending on the date
three months prior to the date of exercise (one year prior to the date of exercise if the participant is
disabled, as that term is defined in the Internal Revenue Code). Notwithstanding the foregoing, the
alternative minimum tax may apply. Upon a disposition of shares acquired upon exercise of an ISO before
the end of the applicable ISO holding periods, the participant generally will recognize ordinary income
equal to the lesser of (a) the excess of the fair market value of the shares at the date of exercise of the ISO
over the exercise price or (b) the amount realized upon the disposition of the ISO shares over the exercise
price. Otherwise, a participant’s disposition of shares acquired upon the exercise of an ISO for which the
statutory holding periods (defined as on or after the later of (i) the second anniversary of the date of grant
of the ISO and (ii) the first anniversary of the date of exercise of the ISO) are met generally will result in
long-term capital gain or loss measured by the difference between the sale price and the participant’s tax
basis in such shares (the tax basis in the acquired shares of shares for which the ISO holding periods are
met generally being the exercise price of the ISO).
Non-Qualified Stock Options and Stock Appreciation Rights
The grant of a non-qualified stock option (i.e., an option other than an ISO) or SAR will create no tax
consequences at the grant date for the participant or the Company. Upon exercising such an option or
SAR, the participant will recognize ordinary income equal to the excess of the fair market value of the
vested shares (and/or cash or other property) acquired on the date of exercise over the exercise price and
will be subject to FICA (Social Security and Medicare) tax in respect of such amounts. A participant’s
disposition of shares acquired upon the exercise of a non-qualified stock option or SAR generally will
result in long- or short-term capital gain or loss measured by the difference between the sale price and the
participant’s tax basis in such shares (the tax basis in the acquired shares generally being the exercise
price plus any amount recognized as ordinary income in connection with the exercise of the option).
Restricted Shares
A participant of restricted shares generally will not be subject to income taxation at grant. Instead, upon
lapse of the restrictions, the participant will recognize ordinary income equal to the fair market value of the
shares on the date of lapse. The participant’s tax basis in the shares received will be equal to the fair
market value of the shares on the date the restrictions lapse, and the participant’s holding period in such
shares begins on the day after the restrictions lapse.
73
Restricted Stock Units
A participant of a restricted stock unit (whether time-vested or subject to achievement of performance
goals) will not be subject to income taxation at grant. Instead, the participant will be subject to income tax
at ordinary rates on the fair market value of the shares (or the amount of cash) received on the date of
delivery. The recipient will be subject to FICA (Social Security and Medicare) tax at the time any portion of
such award is deemed vested for tax purposes. The fair market value of the shares (if any) received on
the delivery date will be the participant’s tax basis for purposes of determining any subsequent gain or
loss from the sale of the shares, and the recipient’s holding period with respect to such shares will begin at
the delivery date. Gain or loss resulting from any sale of shares delivered to a participant will be treated as
long- or short-term capital gain or loss depending on the holding period. If any dividend equivalent
amounts are provided to the participant, they will be includible in the participant’s income as additional
compensation (and not as dividend income) and will be subject to income and employment tax
withholding.
Disposition of Shares
Unless stated otherwise above, upon the subsequent disposition of shares acquired under any of the
preceding awards, a participant will recognize capital gain or loss based upon the difference between the
amount realized on such disposition and the participant’s basis in the shares, and such amount will be
long-term capital gain or loss if such shares were held for more than 12 months. Capital gain is generally
taxed at a maximum rate of 20% if the property is held more than one year.
Cash Awards
A participant who receives a cash award will not recognize any taxable income for federal income tax
purposes at grant, provided that no cash is actually paid at the time of grant. Upon the payment of any
cash in satisfaction of the cash incentive award, the participant will realize ordinary income in an amount
equal to the cash award received and the Company will be entitled to a corresponding deduction.
Deduction
The Company generally will be entitled to a tax deduction equal to the amount recognized as ordinary
income by the recipient in connection with the delivery of shares pursuant to a restricted stock unit or a
performance stock unit, the exercise of an option or SAR or the lapse of restrictions on restricted shares.
The Company will not be entitled to any tax deduction with respect to an ISO if the recipient holds the
shares for the ISO holding periods prior to disposition of shares and is generally not entitled to a tax
deduction for any award with respect to any amount that represents compensation in excess of $1 million
paid to ‘‘covered employees’’ under Section 162(m) of the Internal Revenue Code.
74
New Plan Benefits
Awards granted under the 2021 LTIP will be subject to the Compensation Committee’s discretion and,
other than the February 2021 Awards, the Compensation Committee has not determined awards under
the 2021 LTIP or who might receive them. As a result, the additional benefits that will be awarded or paid
under the 2021 LTIP are not currently determinable. The February 2021 Awards and DSUs awarded in
respect of 2020 service would not have changed in the 2021 LTIP had it been in place instead of the 2016
LTIP and are set forth in the following table.
NEW PLAN BENEFITS
Rent-A-Center, Inc. 2021 Long-Term Incentive Plan
Name and Position
Mitchell Fadel
Chief Executive Officer
Maureen Short
Executive Vice President — Chief
Financial Officer
Ann Davids
Executive Vice President — Chief
Customer and Marketing Officer
Jason Hogg
Executive Vice President — Acima
Catherine Skula
Executive Vice President — Chief
Development Officer
All current executive officers, as a
group (7 persons)
All non-employee directors, as a
group (6 persons)(3)
All non-executive officer
employees, as a group
Dollar Value
($)(1)
Number of
Restricted
Stock Units
Number of
Performance
Stock Units(2)
Number of
Deferred Stock
Units
$5,935,591
24,995
77,768
$845,144
3,559
11,073
$398,544
1,678
5,222
$2,031,592
8,555
26,618
$421,879
1,777
5,527
$10,539,756
44,384
138,091
—
—
—
—
—
—
$1,222,034
—
—
41,293
$9,870,606
70,761
100,129
—
(1)
(2)
(3)
For all employees, the dollar value reflects the number of restricted stock units and performance stock units granted in
February 2021 multiplied by $57.76, which was the closing price of our common stock on the Nasdaq Global Select Market on
the date of grant. For non-employee directors, the dollar value reflects the value of DSUs awarded in respect of 2020 service,
as described in ‘‘Corporate Governance — Director Compensation.’’
For all employees, the number of shares underlying the performance stock units reflects target payout. At maximum payout,
the number of shares would increase by 100%. For additional information about how performance stock units are earned, see
‘‘Compensation Discussion and Analysis — Executive Summary — 2020 Executive Compensation Highlights.’’
Includes DSUs awarded to Mr. Gade, who will retire from the Board following the 2021 Annual Meeting, in respect of his 2020
service. The group excludes Mr. Silver, who was appointed to the Board in January 2021 and did not receive any
compensation in respect of 2020.
75
PROPOSAL FIVE:
APPROVAL OF THE DECLASSIFICATION
AMENDMENTS
Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of
Directors adopted, subject to stockholder approval, the Declassification Amendments, which consist of
amendments to Article FIFTH of the Company’s Certificate of Incorporation to effectuate the
declassification of the Board of Directors following the 2021 Annual Meeting.
To facilitate the declassification of the Board of Directors in a timely matter (following approval of the
Declassification Amendments by stockholders), each current member of the Board (other than Mr. Gade,
who will retire following the 2021 Annual Meeting) — including the Class III director nominees nominated
by the Board in this proxy statement for election at the 2021 Annual Meeting (the ‘‘Class III Director
Nominees’’) should they be elected at the 2021 Annual Meeting — has previously committed to tender his
or her resignation following the 2021 Annual Meeting if he or she is a member of the Board at that time,
and each such director (including the Class III Director Nominees should they be elected at the 2021
Annual Meeting) will subsequently be reappointed to the declassified Board by the remaining members of
the Board such that each member of the Board will serve a one-year term following the 2021 Annual
Meeting and stand for election annually, beginning at the Company’s 2022 annual meeting of
stockholders (the ‘‘Accelerated Declassification Plan’’).
Description of the Proposed Declassification Amendments
Currently, the Company’s Certificate of Incorporation provides that the Board be divided into three
classes with the number of directors in each class being as nearly equal as reasonably possible.
Accordingly, approximately one-third of
the directors are elected annually, each serving a
three-year term.
The proposed Declassification Amendments provide that each director elected at each annual meeting of
stockholders, beginning with the 2022 Annual Meeting, will serve a one-year term expiring at the following
annual meeting of stockholders and until his or her respective successor is duly elected and qualified, or
until his or her earlier death, resignation, disqualification or removal.
Accordingly, if the proposed Declassification Amendments are approved by stockholders, as soon as
practicable following the 2021 annual meeting, each director will, according to the Accelerated
Declassification Plan, tender his or her resignation and will subsequently be reappointed to the
declassified Board by the remaining members of the Board such that each member of the Board will serve
a one-year term following the 2021 Annual Meeting and stand for election annually, beginning at the
Company’s 2022 annual meeting of stockholders and until his or her successor is duly elected and
qualified or until his or her earlier death, resignation, disqualification or removal.
Under the Company’s existing Certificate of Incorporation, and Delaware law (unless the certificate of
incorporation provides otherwise), directors of companies that have a classified board of directors may be
removed only for cause. Delaware law requires that directors of companies that do not have a classified
board must be removable with or without cause. Accordingly, if the proposed Declassification
Amendments are approved, any director elected at or after the 2021 Annual Meeting (after giving effect to
the Accelerated Declassification Plan) may be removed from office at any time, with or without cause, by
the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of
directors, voting together as a single class.
76
Reasons for Declassifying the Board of Directors
The Board considered a number of factors that favor continuing with a classified board structure, as well
as a number of factors that favor adopting a declassified board structure. Ultimately, after weighing the
various factors, the Board determined that it would be in the best interests of the Company and its
stockholders to declassify the Board by amending the Certificate of Incorporation as set forth in Annex B
to give effect to the Declassification Amendments.
A classified board structure has a number of advantages. It allows a majority of the board to remain in
place from year to year, which promotes continuity and stability and encourages the board to plan for
long-term goals. Further, at any one time, approximately two-thirds of the elected board has experience
with the business and operations of the company it manages.
The Board also recognizes that a classified board structure can be viewed as diminishing a board’s
accountability to stockholders, because such structure does not enable stockholders to express a view on
each director’s performance by means of an annual vote. Annual voting allows stockholders to express
their views on the individual performance of each director and on the entire board of directors more
frequently than with a classified board structure, which provides stockholders a more active role in
shaping and implementing corporate governance policies. Moreover, many institutional investors believe
that the election of directors is the primary means for stockholders to influence corporate governance
policies and to hold management accountable for implementing those policies. Public companies with
classified boards also face increased scrutiny from proxy advisory firms.
After weighing the factors above, among others, the Board determined that retaining a classified board
structure is no longer in the best interests of the Company and its stockholders. For this reason, the Board
approved and declared advisable an amendment to the Company’s Certificate of Incorporation giving
effect to the Declassification Amendments, a form of which is attached hereto and incorporated by
reference herein as Annex B, and recommends that our stockholders vote to approve the adoption of
such Declassification Amendments.
If the stockholders approve the adoption of the Declassification Amendments, such amendments to our
Certificate of Incorporation will become effective upon the filing of a Certificate of Amendment (giving
effect to the Declassification Amendments) with the Secretary of State of the State of Delaware. We
intend to file the Certificate of Amendment to effect the Declassification Amendments as soon as
practicable following the 2021 Annual Meeting after the requisite vote for this proposal is obtained. After
the filing of the Certificate of Amendment and implementing the Accelerated Declassification Plan, every
director will stand for election at the 2022 annual meeting of stockholders (and thereafter) for
one-year terms.
Vote Required
Approval of the adoption of the Declassification Amendments to eliminate the classified Board requires
the affirmative vote of the holders of at least eighty percent (80%) of the common stock of the Company
issued and outstanding as of the record date for the 2021 Annual Meeting.
Our Board of Directors recommends that you vote ‘‘FOR’’ the approval of the Declassification
Amendments.
77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the common stock ownership for each of our directors, each of the named
executive officers, all of our directors and executive officers as a group, and each of our known holders of
5% of our common stock. Beneficial ownership is determined in accordance with SEC rules and
regulations. Unless otherwise indicated and subject to community property laws where applicable, we
believe that each of the stockholders named in the table below has sole voting and investment control
with respect to the shares indicated as beneficially owned. Information in the table is as of April 5, 2021,
unless otherwise indicated.
Name of Beneficial Owner
Jeffrey Brown
Ann Davids
Mitchell Fadel
Michael Gade
Christopher Hetrick
Jason Hogg
Harold Lewis
Glenn Marino
Carol McFate
Maureen Short
B.C. Silver
Catherine Skula
All executive officers and directors as a group (14 total)
BlackRock, Inc.
The Vanguard Group
Amount and Nature
of Beneficial Ownership
Percent of
Common Stock
101,819(1)
40,546
415,230(2)
61,737(3)
46,212(4)
—
9,689(5)
7,935(5)
12,912(5)
135,936
2,778(5)
94,161(6)
976,721
7,735,401(7)
7,214,667(8)
*
*
*
*
*
*
*
*
*
*
*
*
1.5%
11.7%
10.9%
*
(1)
(2)
(3)
(4)
Less than 1%.
Includes 54,054 DSUs.
Includes 5,256 DSUs.
Includes 57,737 DSUs. Mr. Gade has determined not to stand for re-election at the 2021 Annual Meeting and will retire as a
director at that time.
Includes 32,487 DSUs and 13,725 shares of our common stock owned by Mr. Hetrick in his personal capacity. In addition, as
an affiliate of Engaged Capital, LLC, Mr. Hetrick may be deemed to be a member of a Section 13(d) group that may be
deemed to collectively beneficially own 2,918,609 shares held by funds affiliated with Engaged Capital, LLC (according to a
Schedule 13D/A filed by Engaged Capital, LLC with the SEC on August 25, 2020).
(5) Comprised solely of DSUs.
(6)
(7)
Includes 103 shares held under the Company’s deferred compensation plan.
The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York, 10055. BlackRock, Inc. exercises sole voting
control over 7,616,178 of these shares and sole investment control over all 7,735,401 shares. This information is based on a
Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 26, 2021.
The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355. The Vanguard Group exercises
sole voting control over none of these shares, shared voting control over 108,316 of these shares, sole investment control
over 7,068,479 of these shares, and shared investment control over 146,188 of these shares. This information is based on a
Schedule 13G/A filed by The Vanguard Group with the SEC on February 10, 2021.
(8)
For each of the named executive officers and his or her ownership as reported in the table above, the
following table sets forth: (1) common stock underlying restricted stock units that may vest within 60 days
of April 5, 2021, (2) common stock underlying performance stock units that may vest within 60 days of
April 5, 2021, assuming 100% of the target performance is achieved and (3) shares issuable upon the
exercise of outstanding stock options that are exercisable within 60 days of April 5, 2021.
Name
Mitchell Fadel
Maureen Short
Ann Davids
Jason Hogg
Catherine Skula
Common Stock Underlying
Restricted Stock Units
Common Stock Underlying
Performance Stock Units
Shares Issuable Upon
Exercise of Options
—
—
—
—
—
78
—
—
—
—
—
148,624
53,606
16,543
—
24,444
OTHER INFORMATION
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 and related rules of the SEC require our directors
and Section 16 officers, and persons who own more than 10% of a registered class of our equity
securities, to file initial reports of ownership and reports of changes in ownership with the SEC. These
persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports that they file.
Based on a review of reports filed by those persons, and upon representations from those persons, we
believe that all SEC stock ownership reports required to be filed by those reporting persons during and
with respect to 2020 were timely made except for three Form 4s in respect of three transactions by
Mr. Brown, two Form 4s in respect of two transactions by Mr. Gade, one Form 4 in respect of one
transaction by Mr. Hetrick, one Form 4 in respect of one transaction by Mr. Marino, two Form 4s in respect
of two transactions by Ms. McFate, one Form 4 in respect of three transactions by Ms. Short and one
Form 4 in respect of one transaction by Ms. Skula. Such late filings were the result of administrative error
that occurred in connection with the transition of the corporate secretary function of the Company
during 2020.
Annual Report on Form 10-K
The Company has filed with the SEC an Annual Report on Form 10-K for the year ended December 31,
2020 (which is not a part of the Company’s proxy soliciting materials), a copy of which is available on our
website at https://investor.rentacenter.com/financial-information/sec-filings. The Company will provide
without charge a copy of the Company’s Annual Report on Form 10-K for the year ended December 31,
2020 upon the written request of a stockholder to Corporate Secretary, Rent-A-Center, Inc.,
5501 Headquarters Drive, Plano, Texas 75024.
‘‘Householding’’ of Proxy Materials
The SEC has adopted rules that permit companies and intermediaries (for example, brokers) to satisfy
the delivery requirements for proxy statements, annual reports and Notices with respect to two or more
stockholders sharing the same address by delivering a single copy of any such proxy statement, annual
report or Notice addressed to those stockholders. This process, which is commonly referred to as
‘‘householding,’’ potentially provides extra convenience for stockholders and cost savings for companies.
If you are an affected shareholder and no longer wish to participate in householding, or if you are
receiving multiple copies of the proxy statement or the Notice and wish to receive only one, please notify
your broker if your shares are held in a brokerage account, or the Company if you are the record holder of
your shares. Such a notification to the Company may be submitted to the Rent-A-Center Legal
Department in writing at Attn: Legal Department, Rent-A-Center, Inc., 5501 Headquarters Drive, Plano,
Texas 75024, or by calling 972-801-1100. Additionally, we will deliver promptly to any affected
stockholder, upon his or her written request made to the address in the preceding sentence, an additional
copy of the proxy statement, annual report and/or Notice.
79
Submission of Stockholder Proposals
From time to time, stockholders may seek to nominate directors or present proposals for inclusion in the
proxy statement and form of proxy for consideration at an annual stockholders meeting. To be included in
the proxy statement or considered at an annual or any special meeting, you must timely submit
nominations of directors or proposals, in addition to meeting other legal requirements.
We must receive proposals for possible inclusion in the Company’s proxy statement related to the 2022
annual stockholders meeting no later than December 27, 2021 and such proposals must otherwise
comply with Rule 14a-8 under the Exchange Act.
Pursuant to our Bylaws, subject to certain limited exceptions, other proposals for possible consideration
at the 2022 annual stockholders meeting, including proposals for the nomination of one or more directors,
must be received in writing by us no earlier than the close of business on February 8, 2022, and no later
than the close of business on March 10, 2022. Any such proposal must be in proper form as specified in
our Bylaws, must be submitted by a stockholder of the Company meeting the requirements set forth in our
Bylaws and must comply with the rules of the SEC concerning stockholder proposals.
Direct any proposals, as well as related questions, to Corporate Secretary, Rent-A-Center, Inc.,
5501 Headquarters Drive, Plano, Texas 75024.
Other Business
The Board does not intend to bring any business before the annual stockholders meeting other than the
matters referred to in this proxy statement and at this date has not been informed of any matters that may
be presented to the annual stockholders meeting by others. If, however, any other matters properly come
before the annual stockholders meeting, or any adjournments or postponement thereof, it is intended that
the persons named in the accompanying proxy will vote pursuant to the proxy in accordance with their
best judgment on such matters.
PLEASE VOTE — YOUR VOTE IS IMPORTANT
80
Annex A:
2021 Long-Term Incentive Plan
(See attached)
A-1
RENT-A-CENTER, INC.
2021 LONG-TERM INCENTIVE PLAN
1.
Purpose. The purpose of the Rent-A-Center, Inc. 2021 Long-Term Incentive Plan
(as amended from time to time, the ‘‘Plan’’) is to foster the ability of Rent-A-Center, Inc. (the ‘‘Company’’)
and its subsidiaries to attract, motivate and retain key personnel and enhance stockholder value through
the use of certain equity and cash incentive compensation opportunities. The Plan replaces the
Rent-A-Center, Inc. 2016 Long-Term Incentive Plan (the ‘‘Prior Plan’’) for Awards granted after the
Effective Date. Awards may not be granted under the Prior Plan beginning on the Effective Date and any
awards that remain outstanding under the Prior Plan as of the Effective Date shall be settled under the
Plan, subject to their original terms and conditions and the Prior Plan shall be terminated as of the
Effective Date.
2.
Administration.
(a) Committee. The Plan will be administered by the compensation committee of the
Company’s board of directors (the ‘‘Committee’’).
(b) Responsibility and Authority of Committee. Subject to the provisions of the Plan, the
Committee, acting in its discretion, will have responsibility and full power and authority to (i) select the
persons to whom Awards under the Plan (‘‘Awards’’) will be made and when such Awards will be made,
(ii) prescribe the types of Awards to be granted and the terms and conditions of each such Award and
make amendments thereto, (iii) construe, interpret and apply the provisions of the Plan and of any Award
Agreement evidencing an Award hereunder (each, an ‘‘Award Agreement’’) or other document governing
the terms of an Award made under the Plan, (iv) make any and all determinations and take any and all
other actions as it deems necessary or desirable in order to carry out the terms of the Plan and any Award,
(v) prescribe, amend and rescind rules and regulations relating to the Plan, including rules governing the
Committee’s own operations, rules applicable to Award holders, (vi) correct any defect, supply any
omission and reconcile any inconsistency in the Plan, (vii) accelerate the time or times at which (A) the
Award becomes vested, unrestricted or may be exercised or (B) shares of Common Stock are delivered
under the Award, (viii) waive or amend any goals, restrictions, vesting provisions or conditions set forth in
any Award Agreement, or impose new goals, restrictions, vesting provisions and conditions,
(ix) determine whether, to what extent and under what circumstances and method or methods Awards
may be settled in cash, Shares of Common Stock, other securities, other Award or other Property and
(x) exercise all powers granted to it under the Plan. Notwithstanding the foregoing, the Company’s board
of directors (the ‘‘Board’’) will have sole responsibility and authority for matters relating to the grant and
administration of Awards to non-employee directors, and reference herein to the Committee with respect
to any such matters will be deemed to refer to the Board. In exercising its responsibilities under the Plan,
the Committee may obtain at the Company’s expense such advice, guidance and other assistance from
outside compensation consultants and other professional advisers as it deems appropriate.
(c) Delegation of Authority. Subject to the requirements of applicable law, the
Committee may delegate to any person or group or subcommittee of persons (who may, but need not be,
members of the Committee) such Plan-related functions within the scope of its responsibility, power and
authority on such terms and conditions as it deems appropriate; provided, however, that the Committee
may not delegate authority to grant or administer Awards granted to the Company’s senior executive
officers. Except as specifically provided to the contrary, references to the Committee include any person
or group or subcommittee of persons to whom the Committee has delegated its duties and powers.
(d) Committee Actions. A majority of the members of the Committee shall constitute a
quorum. The Committee may act by the vote of a majority of its members present at a meeting at which
there is a quorum or by unanimous written consent. The decision of the Committee as to any disputed
question, including questions of construction, interpretation and administration, shall be final, binding and
conclusive on all persons. The Committee shall keep a record of its proceedings and acts and shall keep
A-2
or cause to be kept such books and records as may be necessary in connection with the proper
administration of the Plan.
(e)
Indemnification. The Company shall indemnify and hold harmless each member of
the Committee or subcommittee appointed by the Committee and any employee or director of the
Company or of a subsidiary to whom any duty or power relating to the administration or interpretation of
the Plan is delegated from and against any loss, cost, liability (including any sum paid in settlement of a
claim with the approval of the Board), damage and expense, including legal and other expenses incident
thereto, arising out of or incurred in connection with the such person’s services under the Plan, unless and
except to the extent attributable to such person’s fraud or willful misconduct. The foregoing right of
indemnification will not be exclusive of any other rights of indemnification to which Committee member
may otherwise be entitled under the Company’s organizational documents, pursuant to any individual
indemnification agreements between such Committee member and the Company, as a matter of law, or
otherwise, or any other power that the Company may have to indemnify such persons or hold
them harmless.
3.
Eligibility. Awards under the Plan may be made to any present or future directors,
officers, employees, consultants and other personnel of the Company or a subsidiary.
4.
Limitations on Plan Awards.
(a) Aggregate Share Limitations. The aggregate number of shares of the Company’s
common stock, par value $0.01 per share (the ‘‘Common Stock’’), that may be issued pursuant to Awards
granted under the Plan shall not exceed 5,000,000 shares of Common Stock. Up to 5,000,000 shares of
Common Stock (as adjusted pursuant to Section 13 below) may be issued under the Plan covering a
stock option granted as an ‘‘incentive stock option’’ (within the meaning of Section 422 of the Internal
Revenue Code of 1986). Shares of Common Stock subject to awards that are assumed, converted or
substituted under the Plan as a result of the Company’s acquisition of another company (including by way
of merger, combination or similar transaction) (‘‘Acquisition Awards’’) will not count against the number of
shares of Common Stock that may be granted under the Plan or be subject to the minimum vesting
provisions in Section 11 below. Available shares under a stockholder approved plan of an acquired
company (as appropriately adjusted to reflect the transaction) may be used for Awards under the Plan
(subject to Nasdaq rules) and do not reduce the maximum number of shares of Common Stock available
for grant under the Plan.
(b) Replacement of Shares. Shares of Common Stock subject to an Award that is
forfeited, expires, terminates or is settled for cash (in whole or in part), to the extent of such forfeiture,
expiration, termination or cash settlement will be available for future grants of Awards under the Plan and
will be added back in the same number of shares of Common Stock as were deducted in respect of such
Award. The payment of dividend equivalent rights in cash in conjunction with any outstanding Awards will
not be counted against the shares of Common Stock available for issuance under the Plan. Shares of
Common Stock tendered by an Award holder, repurchased by the Company using proceeds from the
exercise of stock options, reserved for issuance upon grant of stock-settled stock appreciation rights to
the extent the number of reserved shares exceeds the number of shares actually issued upon exercise of
the stock appreciation rights or withheld by the Company in payment of the exercise price of a stock
option or to satisfy any tax withholding obligation for an Award will not again be available for Awards under
the Plan.
(d) Director Award Limitations. Aggregate Awards to any one non-employee director in
respect of any calendar year, solely with respect to his or her service as a director, may not exceed
$800,000 based on the aggregate value of cash fees, cash-based Awards and Fair Market Value of
stock-based Awards, in each case determined as of the grant date.
A-3
5.
Stock Option Awards. Subject to the Plan, the Committee may grant stock options to
such persons, at such times and upon such vesting and other conditions as the Committee, acting in its
discretion, may determine.
(a) Minimum Exercise Price. The purchase price per share of Common Stock covered
by an option granted under the Plan may not be less than the Fair Market Value per share of Common
Stock on the date the option is granted. For purposes of the Plan, ‘‘Fair Market Value’’ means: (i) if the
Common Stock is listed on an established stock exchange or traded on the Nasdaq Stock Market, the
closing sales price (or the closing bid, if no sales were reported) as quoted on such exchange or market
(or the exchange or market with the greatest volume of trading in the Common Stock) on the last market
trading day prior to the day of determination, as reported in The Wall Street Journal or such other source
as the Committee deems reliable, and (ii) if not so reported, as determined in accordance with a valuation
methodology approved by the Committee. The exercise price under an option which is intended to qualify
as an ‘‘incentive stock option’’ (within the meaning of Section 422 of the Internal Revenue Code of 1986)
granted to an employee who is a 10% stockholder within the meaning of Section 422(b)(6) of the Code,
may not be less than 110% of the Fair Market Value per share on the date the option is granted.
(b) Maximum Duration. Unless sooner terminated in accordance with its terms, an
option will automatically expire on the tenth anniversary of the date it is granted (the fifth anniversary of
the date it is granted in the case of an option which is intended to qualify as an ‘‘incentive stock option’’
granted to an employee who is a 10% stockholder).
(c) Nontransferability. No option shall be assignable or transferable except upon the
optionee’s death to a beneficiary designated by the optionee in a manner prescribed or approved for this
purpose by the Committee or, if no designated beneficiary shall survive the optionee, pursuant to the
optionee’s will or by the laws of descent and distribution. During an optionee’s lifetime, options may be
exercised only by the optionee or the optionee’s guardian or legal representative. Notwithstanding the
foregoing, the Committee may permit, in its discretion, the inter vivos transfer of an optionee’s options
(other than options designated as ‘‘incentive stock options’’) by gift to any ‘‘family member’’ (within the
meaning of Item A.1.(a)(5) of the General Instructions to Form S-8 or any successor provision), on such
terms and conditions as the Committee deems appropriate.
(d) Manner of Exercise. An option may be exercised by transmitting to the Secretary of
the Company (or such other person designated by the Committee) a written notice identifying the option
being exercised and specifying the number of shares being purchased, together with payment of the
exercise price and the amount of the applicable tax withholding obligations (unless other arrangements
are made for the payment of such exercise and/or the satisfaction of such withholding obligations). The
Committee, acting in its discretion, may permit the exercise price and withholding obligation to be paid in
whole or in part in cash or by check, by means of a cashless exercise procedure to the extent permitted by
law, by the surrender of previously-owned shares of Common Stock (to the extent of the Fair Market
Value thereof) or, subject to applicable law, by any other form of consideration deemed appropriate.
(e) Rights as a Stockholder. No shares of Common Stock will be issued in respect of the
exercise of an option until payment of the exercise price and the applicable tax withholding obligations
have been made or arranged to the satisfaction of the Company. The holder of an option shall have no
rights as a stockholder with respect to any shares covered by the option until the shares are issued
pursuant to the exercise of the option.
6.
Stock Awards. Subject to the Plan, the Committee may grant restricted stock, deferred
stock, stock units (whether in the form of restricted stock units or deferred stock units), stock bonus and
other stock Awards to such persons, at such times and upon such vesting and other conditions and
restrictions as the Committee, acting in its discretion, may determine.
(a) Stock Certificates for Restricted Stock. As determined by the Committee in its
discretion, shares of restricted stock issued pursuant to a stock Award may be evidenced by book entry
A-4
on the Company’s stock transfer records or by a stock certificate issued in the recipient’s name and
bearing an appropriate legend regarding the conditions and restrictions applicable to the shares. The
Company may require that any stock certificates for restricted shares be held in custody by the Company
or a designee pending the lapse of applicable forfeiture conditions and transfer restrictions. The
Committee may condition the issuance of shares of restricted stock on the recipient’s delivery to the
Company of a stock power, endorsed in blank, for such shares.
(b) Stock Certificates for Vested Stock. As determined by the Committee in its
discretion, the recipient of a stock Award which is vested at the time of grant or which thereafter becomes
vested may be evidenced by book entry on the Company’s stock transfer records or may be entitled to
receive a stock certificate, free and clear of conditions and restrictions (except as may be imposed in
order to comply with applicable law) for the shares covered by such vested Award, subject to the payment
or satisfaction of applicable tax withholding obligations and, in the case of shares covered by a vested
stock unit Award, subject to applicable deferral conditions permitted by Section 409A of the Code.
(c) Rights as a Stockholder. Unless otherwise determined by the Committee and set
forth in the applicable Award Agreement, (i) the holder of a stock Award will not be entitled to receive
dividend payments (or, in the case of an Award of stock units, dividend equivalent payments) with respect
to the shares covered by the Award and (ii) the holder of shares of restricted stock may exercise voting
rights pertaining to such shares.
(d) Nontransferability. Except as may be specifically permitted by the Committee in
connection with transfers at death or pursuant to inter vivos gifts, no outstanding stock Award and no
shares of stock covered by an outstanding stock Award may be sold, assigned, transferred, disposed of,
pledged or otherwise hypothecated other than to the Company in accordance with the terms of the Award
or the Plan. Any attempt to do any of the foregoing shall be null and void and, unless the Committee
determines otherwise, shall result in the immediate forfeiture of the Award and/or the shares.
7.
Other Equity-Based Awards. The Committee may grant stock appreciation rights,
dividend equivalent payment rights, phantom shares, phantom stock units, bonus shares and other forms
of equity-based Awards to eligible persons, subject to such terms and conditions as it may establish;
provided, however that no dividend or dividend equivalent payment rights shall be attributable to Awards
of stock appreciation rights or stock options. The base price for a stock appreciation right granted under
the Plan may not be less than the Fair Market Value per share of stock covered by the Award at the time it
is granted. Unless sooner termination in accordance with its terms, a stock appreciation right will
automatically expire on the tenth anniversary of the date it is granted. Awards made pursuant to this
section may entail the transfer of shares of Common Stock to a participant or the payment in cash or other
property determined with reference to shares of Common Stock.
8.
Cash Awards. The Committee may grant Awards in cash with the amount of the eventual
payment subject to future service and such other restrictions and conditions as may be established by the
Committee and set forth in the underlying agreement, including, but not limited to, continuous service with
the Company and its subsidiaries, achievement of specific business objectives, increases in specified
indices, attaining specified growth rates and other measurements of performance.
9.
Performance-Based Equity and Cash Awards.
(a) General. The Committee may condition the grant, exercise, vesting or settlement of
equity-based Awards or annual or long-term cash incentive Awards on the achievement of specified
performance goals in accordance with this section. The applicable performance period for measuring
achievement of specified performance goals may be any period designated by the Committee.
(b) Performance Goals. Any performance goal established in connection with an Award
granted under the Plan may be based on any subjective or objective performance goal determined by the
Committee in its discretion. The Committee, in its discretion, may determine to adjust any performance
goals applicable to an Award.
A-5
(c) Calculation of Performance-Based Award. At the expiration of the applicable
performance period, the Committee shall determine the extent to which the performance goals
established pursuant to this Section 9 have been achieved and the extent to which each performance-
based Award has been earned. The Committee may exercise its discretion to increase or decrease the
amount or value of an Award that would otherwise be payable in accordance with the terms of a
performance-based Award granted under the Plan.
10. Dividends and Dividend Equivalents. To the extent dividends or dividend equivalents are
included in an Award Agreement for an applicable Award, the right to receive such dividends and dividend
equivalent rights shall be subject to the same performance-vesting conditions and/or service-vesting
conditions, as applicable, as the underlying Award, and no dividends or dividend equivalents shall be
released to the Award holder until the Award to which they pertain has vested. For the avoidance of doubt,
no dividends or dividend equivalent rights may be granted in connection with stock options or stock
appreciation rights granted under the Plan.
11. Minimum Vesting Period. Notwithstanding any other provision of the Plan to the contrary,
no Awards granted under the Plan, shall vest or be exercisable (in the case of stock options and stock
appreciation rights), earlier than the date that is one year following the date the Award is granted;
provided, however, that, notwithstanding the foregoing, (a) the Committee may provide that such
restrictions may lapse or be waived upon the recipient’s death or disability or termination of service, or in
connection with a Change in Control (as defined in Section 13(b) below), (b) Awards that result in the
issuance of an aggregate of up to five percent (5%) of the shares of Common Stock that may be
authorized for grant under Section 4 (as such authorized number of shares of Common Stock may be
adjusted as provided under the terms of the Plan) may be granted without respect to such minimum
vesting provision, and (c) Awards may be granted to non-employee directors without respect to such
minimum vesting provision.
12. Prohibition on Stock Option and Stock Appreciation Right Repricing. Except as provided
in Section 13 (Adjustments; Change in Control), the Committee may not, without prior approval of the
Company’s stockholders, effect any repricing of any previously granted ‘‘underwater’’ stock option or
stock appreciation right by: (a) amending or modifying the terms of the stock option or stock appreciation
right to lower the exercise price; or (b) canceling the underwater stock option or stock appreciation right
and granting either (i) replacement stock options or stock appreciation rights having a lower exercise
price, or (ii) restricted stock, restricted stock units, or other stock-based award in exchange, or
(iii) cancelling or repurchasing the underwater stock options or stock appreciation rights for cash or other
securities. A stock option or stock appreciation right will be deemed to be ‘‘underwater’’ at any time when
the Fair Market Value of the shares of Common Stock covered by such Award is less than the exercise
price or base price of the Award.
13. Adjustments; Change in Control.
(a) Adjustments Upon Changes in Capitalization. The aggregate number and class of
shares issuable under the Plan, the maximum number of shares with respect to which options, stock
appreciation rights and other equity Awards may be granted to or earned by any employee in any
calendar year, the number and class of shares and the exercise price or base price per share covered by
each outstanding option and stock appreciation right, and the number and class of shares covered by
each outstanding stock Award or other-equity-based Award, and any per-share base or purchase price or
target market price included in the terms of any such Award, and related terms shall be adjusted by the
Board or the Committee in such manner as it deems appropriate (including, without limitation, by payment
of cash) to reflect any increase or decrease in the number of issued shares of Common Stock resulting
from a recapitalization, stock split, reverse stock split, stock dividend, spinoff, split up, combination,
reclassification or exchange of shares, merger, consolidation, rights offering, separation, reorganization
or liquidation or any other change in the corporate structure or shares, including any extraordinary
A-6
dividend or extraordinary distribution, and/or to reflect a change in the character or class of shares
covered by the plan arising from a readjustment or recapitalization of the Company’s capital stock.
(b) Change in Control.
(i)
If an Award holder’s employment or other service is terminated by the Company or
any successor entity thereto without ‘‘cause’’ or by the Award holder for ‘‘good reason’’ (as each such
term is defined in the applicable Award Agreement or an Award holder’s executive transition agreement
or employment agreement, if applicable) upon or within two (2) years after a Change in Control, (A) each
Award granted to such Award holder prior to such Change in Control will become fully vested (including
the lapsing of all restrictions and conditions) and, as applicable, exercisable as of the date of such
termination of employment or other service, and (B) any shares deliverable pursuant to stock units will be
delivered promptly (but no later than fifteen (15) days) following such termination.
(ii) As of the Change in Control date, any outstanding performance-based Awards
will be deemed earned at the greater of the target level and the actual performance level through the
Change in Control date for all open performance periods and will cease to be subject to any further
performance conditions but will continue to be subject to time-based vesting following the Change in
Control in accordance with the original vesting and/or performance period and subject to the provisions of
clause (i) above.
(iii) Notwithstanding the foregoing, in the event of a Change in Control, an Award
holder’s Award will be treated, to the extent determined by the Committee to be permitted under
Section 409A, in accordance with one or more of the following methods as determined by the Committee
in its discretion: (A) settle such Awards for fair value (as determined in the discretion of the Committee),
which in the case of options and stock appreciation rights, may equal the excess, if any, of the value of the
consideration to be paid in the Change in Control transaction to holders of the same number of shares of
Common Stock subject to such options or stock appreciation rights over the aggregate exercise price of
such options or stock appreciation rights, as the case may be; (B) provide for the assumption of or the
issuance of substitute awards that will substantially preserve the otherwise applicable terms of any
affected Awards previously granted under the Plan, as determined by the Committee in its discretion; or
(C) provide that for a period of at least twenty (20) days prior to the Change in Control, any options or
stock appreciation rights that would not otherwise become exercisable prior to the Change in Control will
be exercisable as to all shares of Common Stock subject thereto (but any such exercise will be contingent
upon and subject to the occurrence of the Change in Control and if the Change in Control does not take
place within a specified period after giving such notice for any reason whatsoever, the exercise will be null
and void) and that any options or stock appreciation rights not exercised prior to the consummation of the
Change in Control will terminate and be of no further force and effect as of the consummation of the
Change in Control. In the event that the consideration paid in the Change in Control includes contingent
value rights, the Committee will determine if Awards settled under clause (A) above are (1) valued at
closing taking into account such contingent value rights (with the value determined by the Committee in
its sole discretion) or (2) entitled to a share of such contingent value rights. For the avoidance of doubt, in
the event of a Change in Control where all options and stock appreciation rights are settled for an amount
(as determined in the sole discretion of the Committee) of cash or securities, the Committee may, in its
sole discretion, terminate any option or stock appreciation right for which the exercise price is equal to or
exceeds the per share value of the consideration to be paid in the Change in Control transaction without
payment of consideration therefor. Similar actions to those specified in this clause (iii) may be taken in the
event of a merger or other corporate reorganization that does not constitute a Change in Control.
(c)
‘‘Change in Control’’ means the occurrence of any of the following:
(i) any ‘‘person’’ (as that term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the ‘‘Exchange Act’’)), is or becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing 30% or
A-7
more of the combined voting power of the then outstanding securities of the Company eligible to vote for
the election of the members of the Board (the ‘‘Company Voting Securities’’), unless (A) such person is
the Company, (B) such person is an employee benefit plan (or a trust which is a part of such a plan) which
provides benefits exclusively to, or on behalf of, employees or former employees of the Company,
(C) such person is the Award holder, an entity controlled by the Award holder or a group which includes
the Award holder, or (D) such person acquired such securities in a Non-Qualifying Transaction
(as defined in clause (iv) below);
(ii) during any period of not more than twelve (12) months, individuals who constitute
the Board as of the beginning of the period (the ‘‘Incumbent Directors’’) cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a director subsequent to the
beginning of such period, whose election or nomination for election was approved by a vote of at least a
majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the
Company’s proxy statement in which such person is named as a nominee for director, without written
objection to such nomination) will be an Incumbent Director; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an actual or publicly threatened election
contest with respect to directors or as a result of any other actual or publicly threatened solicitation of
proxies by or on behalf of any person other than the Board will be deemed to be an Incumbent Director;
or substantially all of the assets or business of the Company; or
(iii) any dissolution or liquidation of the Company or any sale or the disposition of all
(iv)
the consummation of any reorganization, merger, consolidation or share
exchange or similar form of corporate transaction involving the Company (a ‘‘Business Combination’’),
unless immediately following such Business Combination: (A) more than 50% of the total voting power of
(x) the entity resulting from such Business Combination (the ‘‘Surviving Entity’’), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial ownership of at least 95% of the voting
power, is represented by Company Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares into which such Company Voting
Securities were converted pursuant to such Business Combination), and such voting power among the
holders thereof is in substantially the same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to the Business Combination, (B) no person
(other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Entity or
the parent), is or becomes the beneficial owner, directly or indirectly, of 30% or more of the total voting
power of the outstanding voting securities eligible to elect directors of the parent (or, if there is no parent,
the Surviving Entity) and (C) at least a majority of the members of the board of directors of the parent (or, if
there is no parent, the Surviving Entity) following the consummation of the Business Combination were
Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing
for such Business Combination (any Business Combination which satisfies all of the criteria specified in
(A), (B) and (C) of this clause (iv) will be deemed to be a ‘‘Non-Qualifying Transaction’’).
(d) Fractional Shares.
In the event of any adjustment in the number and type of shares
covered by any Award pursuant to the provisions hereof, any fractional shares resulting from such
adjustment shall be disregarded, and each such Award shall cover only the number of full shares
resulting from the adjustment.
(e) Determination of Board or Committee to be Final. All adjustments under this
Section 13 shall be made by the Board or the Committee, and its determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding and conclusive.
14. Tax Withholding. As a condition to the exercise or settlement of any Award, or in
connection with any other event that gives rise to a tax withholding obligation on the part of the Company
or a subsidiary relating to an Award, the Company and/or the subsidiary may (a) deduct or withhold
(or cause to be deducted or withheld) from any payment or distribution to the recipient of an Award,
A-8
whether or not made pursuant to the Plan or (b) require the recipient to remit cash (through payroll
deduction or otherwise), in each case in an amount sufficient in the opinion of the Company to satisfy
such withholding obligation. If the event giving rise to the withholding obligation involves a transfer of
shares of stock, then, at the discretion of the Committee, the recipient may satisfy the applicable tax
withholding obligation by electing to have the Company withhold shares of stock or by tendering
previously-owned shares, in each case having a Fair Market Value equal to the amount of tax to be
withheld (or by any other mechanism as may be required or appropriate to conform with local tax and
other rules).
15. Amendment and Termination. The Board may amend or terminate the Plan; provided,
however, that no such action may adversely affect a holder’s rights under an outstanding Award without
his or her written consent. Any amendment that would increase the aggregate number of shares of
Common Stock issuable under the Plan, the maximum number of shares with respect to which options,
stock appreciation rights or other equity awards may be granted to any employee in any calendar year, or
that would modify the class of persons eligible to receive Awards shall be subject to the approval of the
Company’s stockholders. The Committee may amend the terms of any agreement or Award made
hereunder at any time and from time to time, provided, however, that any amendment which would
adversely affect a holder’s rights under an outstanding Award may not be made without his or
her consent.
16. General Provisions.
(a) Shares Issued Under Plan. Shares of Common Stock available for issuance under
the Plan may be authorized and unissued, held by the Company in its treasury or otherwise acquired for
purposes of the Plan. No fractional shares will be issued under the Plan.
(b) Compliance with Law and Other Requirements. The Company will not be obligated
to issue or deliver shares of stock pursuant to the Plan unless the issuance and delivery of such shares
complies with applicable law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the requirements of any stock exchange or market upon which the Company’s stock may
then be listed, and the Company’s insider trading policy, as in effect from time to time. The Company may
prevent or delay the exercise of an option or stock appreciation right, or the settlement of an Award and/or
the termination of restrictions applicable to an Award if and to the extent the Company deems necessary
or advisable in order to avoid a violation of applicable laws or its own policies regarding the purchase and
sale of its stock. If, during the period of any such ban or delay, the term of an affected stock option, stock
appreciation right or other Award would expire, then the term of such option, stock appreciation right or
other Award will be extended for thirty days after the Company’s removes the restriction against exercise.
(c) Transfer Orders; Placement of Legends. All certificates for shares of Common Stock
delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the
Company may deem advisable, including pursuant to the rules, regulations, and other requirements of
the Securities and Exchange Commission, any stock exchange or market upon which the Company’s
stock may then be listed, and any applicable federal or state securities law. The Company may cause a
legend or legends to be placed on any such certificates to make appropriate reference to such
restrictions.
(d) No Employment or other Rights. Nothing contained in the Plan or in any Award
Agreement shall confer upon any recipient of an Award any right with respect to the continuation of his or
her employment or other service with the Company or a subsidiary or interfere in any way with the right of
the Company and its subsidiaries at any time to terminate such employment or other service or to
increase or decrease, or otherwise adjust, the other terms and conditions of the recipient’s employment or
other service.
(e) Decisions and Determinations Final. All decisions and determinations made by the
Board pursuant to the provisions hereof and, except to the extent rights or powers under the Plan are
A-9
reserved specifically to the discretion of the Board, all decisions and determinations of the Committee,
shall be final, binding and conclusive on all persons.
(f) Non-Uniform Determinations. The Board’s and the Committee’s determinations
under the Plan and Award Agreements need not be uniform and any such determinations may be made
by it selectively among persons who receive, or are eligible to receive, Awards under the Plan (whether or
not such persons are similarly situated). Without limiting the generality of the foregoing, the Board and the
Committee will be entitled, among other things, to make non-uniform and selective determinations under
Award Agreements, and to enter into non-uniform and selective Award Agreements, as to (i) the persons
to receive Awards, (ii) the terms and provisions of Awards and (iii) whether an Award holder’s
employment or other service has been terminated for purposes of the Plan.
(g) Section 409A. The Plan is intended to comply with Section 409A of the Code to the
extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted
and administered to be in compliance therewith. Any payments described in the Plan that are due within
the ‘‘short-term deferral period’’ as defined in Section 409A of the Code shall not be treated as deferred
compensation unless applicable laws require otherwise. Notwithstanding anything to the contrary in the
Plan, to the extent required to avoid accelerated taxation and tax penalties under Section 409A of the
Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant
to the Plan during the six-month period immediately following the Award recipient’s ‘‘separation from
service’’ as defined in Section 409A of the Code shall instead be paid on the first payroll date after the
six-month anniversary of the recipient’s separation from service (or the recipient’s death, if earlier).
Notwithstanding the foregoing, neither the Company nor the Committee will have any obligation to take
any action to prevent the assessment of any excise tax or penalty on any individual under Section 409A of
the Code and neither the Company nor the Committee will have any liability to any individual for such tax
or penalty. If the Award includes a ‘‘series of installment payments’’ (within the meaning of
Section 1.409A-2(b)(2)(iii) of the Treasury Regulations), the Award holder’s right to the series of
installment payments will be treated as a right to a series of separate payments and not as a right to a
single payment.
(h) Clawback/Recapture Policy. Awards under the Plan will be subject to any clawback
or recapture policy that the Company may adopt from time to time to the extent provided in such policy
and, in accordance with such policy, may be subject to the requirement that the Awards be repaid to the
Company after they have been distributed to the Award holder.
17. Governing Law. All rights and obligations under the Plan and each Award Agreement or
instrument shall be governed by and construed in accordance with the laws of the State of Texas, without
regard to its principles of conflict of laws.
18. Dispute Resolution. Any controversy or claim between the Company and an Award
holder arising out of or relating to or concerning the Plan or any Award granted hereunder will be finally
settled by arbitration in Dallas, Texas administered by the American Arbitration Association (the ‘‘AAA’’)
and each party shall be responsible for its own legal fees; provided, however, that the Company shall
reimburse the Award holder for such holder’s reasonable fees and expenses incurred in connection with
such dispute if the arbitrator determines that the Award holder has substantially prevailed on at least one
claim. The Award holder or the Company may bring an action or special proceeding in a state or federal
court of competent jurisdiction sitting in Dallas, Texas to enforce any arbitration award under this
Section 18.
19. Term of the Plan. The Plan shall become effective on the date of approval by the
Company’s stockholders. Unless terminated sooner by the Board, the Plan shall terminate on the tenth
anniversary of the date of adoption by the Board. The rights of any person with respect to an Award made
under the Plan that is outstanding at the time of the termination of the Plan shall not be affected solely by
reason of the termination of the Plan and shall continue in accordance with the terms of the Award and of
the Plan, as each is then in effect or is thereafter amended.
A-10
Annex B:
Form of Amendment of Certificate to Effect the
Declassification Amendments
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
RENT-A-CENTER, INC.
Pursuant to the provisions of Section 242 of the General Corporation Law of the State of Delaware
(the ‘‘DGCL’’), Rent-A-Center, Inc., a corporation organized and existing under the DGCL, hereby files
this Certificate of Amendment to its Certificate of Incorporation, and certifies as follows:
1. The name of the corporation (hereinafter called the ‘‘Corporation’’) is Rent-A-Center, Inc.
2. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State
of the State of Delaware on November 26, 2002 (such Certificate of Incorporation and any previous
amendments thereto referred to herein as the ‘‘Certificate of Incorporation’’).
3. The Certificate of Incorporation is hereby amended as follows:
Subsections (2) and (3) of Article FIFTH are deleted in their entirety and replaced with the following:
‘‘(2) Number, Election and Terms of Directors. The number, qualifications, terms of office,
manner of appointment or election, time and place of meeting, compensation and powers and duties
of the directors may be prescribed from time to time in the Bylaws, and the Bylaws may also contain
other provisions for the regulation and management of the affairs of the Corporation not inconsistent
with the law or this Certificate of Incorporation.
The number of directors which shall constitute the whole Board of Directors of the Corporation
shall be not less than one (1) as specified from time to time in the Bylaws of the Corporation. Each
director shall hold office for a term expiring at the next annual meeting of the stockholders following
such director’s appointment or election and until such director’s successor is duly elected and
qualified, or until their earlier death, resignation, disqualification or removal. Nothing in this Certificate
of Incorporation shall preclude a director from serving consecutive terms.
Election of directors need not be by written ballot unless the Bylaws of the Corporation shall
so provide.
(3) Removal of Directors. Subject to the rights, if any, of any series of Preferred Stock then
outstanding, any director, or the entire Board of Directors, may be removed from office at any time,
with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of
all of the then-outstanding shares of capital stock of the Corporation then entitled to vote at an
election of directors, voting together as a single class.’’
Subsection (4) of Article FIFTH is deleted in its entirety.
4. Except as expressly set forth in the foregoing amendment to the Certificate of Incorporation, the
provisions of the Certificate of Incorporation shall remain the same and in full force and effect.
5. The Board of Directors duly adopted resolutions in accordance with Sections 141 and 242 of the
DGCL, approving the foregoing amendment to the Certificate of Incorporation, declaring said amendment
to be advisable and in the best interests of the Corporation, and directing that the forgoing amendment to
the Certificate of Incorporation be considered and voted upon at the next annual meeting of the
stockholders of the Corporation.
B-1
6. The foregoing amendment to the Certificate of Incorporation has been adopted by the
stockholders of the Company in accordance with Section 242 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed this
day of June, 2021.
RENT-A-CENTER, INC.
By:
Name:
Title:
B-2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
26MAR201404452738
26MAR201404454908
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
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
(State or other jurisdiction of incorporation or organization)
45-0491516
(I.R.S. Employer Identification No.)
5501 Headquarters Drive
Plano, Texas 75024
(Address, including zip code of registrant’s principal executive offices)
972-801-1100
Registrant’s telephone number, including area code:
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
YES
NO
(cid:129)
If the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
26MAR201404452738
26MAR201404454908
(cid:129) If the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act.
26MAR201404454908
26MAR201404452738
(cid:129) 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.
26MAR201404452738
26MAR201404454908
(cid:129) Wether 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).
26MAR201404452738
26MAR201404454908
(cid:129) 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
26MAR201404452738
Accelerated filer
26MAR201404454908
Non-accelerated filer
26MAR201404454908
(cid:129) 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.
(cid:129) Indicate by check mark whether the registrant has filed a report on and attestation to its
management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
Smaller
reporting
company
26MAR201404454908
Emerging
growth
company
26MAR201404454908
26MAR201404454908
26MAR201404452738
(cid:129) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
26MAR201404454908
26MAR201404452738
Aggregate market value of the 48,283,983 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, 2020
Number of shares of Common Stock outstanding as of the close of business on February 19, 2021:
$1,343,260,407
54,413,717
Documents incorporated by reference:
Portions of the definitive proxy statement relating to the 2021 Annual Meeting of Stockholders of Rent-A-Center, Inc. are incorporated by reference
into Part III of this report.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
3
10
28
28
28
28
29
31
32
44
45
83
83
83
84
84
84
84
84
85
88
89
i
RENT-A-CENTER - Annual Report on Form 10-K 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, Section 27A of the Securities Act of 1933, as amended (the ‘‘Securities Act’’), and
Section 21E of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). 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.’’ These
forward-looking statements, include, without limitation, those relating to the potential effects of the pandemic of the
respiratory disease caused by a novel coronavirus (‘‘COVID-19’’) on our business, operations, financial performance
and prospects, the future business prospects and financial performance of our Company following the closing of our
merger (the ‘‘Merger’’) with Acima Holdings, LLC, a Utah limited liability company (‘‘Acima’’), cost and revenue
synergies and other benefits expected to result from the Merger, our expectations, plans and strategy relating to our
capital structure, anticipated enhancements to our sales force, potential future acquisitions, other statements
regarding our strategy and plans, and other statements that are not historical facts.
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 and adversely 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. Except as required by law, 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:
(cid:129) the possibility that the anticipated benefits from the Merger may not be fully realized or may take longer to realize than expected;
(cid:129) the possibility that costs, difficulties or disruptions related to the integration of Acima operations into our other operations will be greater than
expected;
(cid:129) our ability to (i) effectively adjust to changes in the composition of our offerings and product mix as a result of acquiring Acima and continue to
maintain the quality of existing offerings and (ii) successfully introduce other new product or service offerings on a timely and cost-effective
basis;
(cid:129) changes in our future cash requirements as a result of the Merger, whether caused by unanticipated increases in capital expenditures or working
capital needs, unanticipated liabilities or otherwise;
(cid:129) our ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;
(cid:129) the impact of the COVID-19 pandemic and related government and regulatory restrictions issued to combat the pandemic, including adverse
changes in such restrictions, and impacts on (i) demand for our lease-to-own products offered in our operating segments, (ii) our Preferred
Lease retail partners, (iii) our customers and their willingness and ability to satisfy their lease obligations, (iv) our supplier’s ability to satisfy our
merchandise needs, (v) our employees, including our ability to adequately staff our operating locations, (vi) our financial and operational
performance, and (vii) our liquidity;
(cid:129) the general strength of the economy and other economic conditions affecting consumer preferences and spending, including the availability of
credit to our target consumers;
(cid:129) factors affecting the disposable income available to our current and potential customers;
(cid:129) changes in the unemployment rate;
(cid:129) capital market conditions, including availability of funding sources for us;
(cid:129) changes in our credit ratings;
(cid:129) difficulties encountered in improving the financial and operational performance of our business segments;
1
RENT-A-CENTER - Annual Report on Form 10-K 1
(cid:129) risks associated with pricing changes and strategies being deployed in our businesses;
(cid:129) our ability to continue to realize benefits from our initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working
capital improvements;
(cid:129) our ability to continue to effectively execute our strategic initiatives, including mitigating risks associated with any potential mergers and
acquisitions, or refranchising opportunities;
(cid:129) failure to manage our store labor and other store expenses, including merchandise losses;
(cid:129) disruptions caused by the operation of our store information management systems;
(cid:129) risks related to our virtual lease-to-own business, including our ability to continue to develop and successfully implement the necessary
technologies;
(cid:129) our ability to achieve the benefits expected from our integrated virtual and staffed retail partner offering and to successfully grow this business
segment;
(cid:129) exposure to potential operating margin degradation due to the higher cost of merchandise in our Preferred Lease offering and potential for
higher merchandise losses;
(cid:129) our transition to more-readily scalable ‘‘cloud-based’’ solutions;
(cid:129) our ability to develop and successfully implement digital or E-commerce capabilities, including mobile applications;
(cid:129) our ability to protect our proprietary intellectual property;
(cid:129) disruptions in our supply chain;
(cid:129) limitations of, or disruptions in, our distribution network;
(cid:129) rapid inflation or deflation in the prices of our products;
(cid:129) our ability to execute and the effectiveness of store consolidations, including our ability to retain the revenue from customer accounts merged
into another store location as a result of a store consolidation;
(cid:129) our available cash flow and our ability to generate sufficient cash flow to continue paying dividends;
(cid:129) increased competition from traditional competitors, virtual lease-to-own competitors, online retailers and other competitors, including subprime
lenders;
(cid:129) our ability to identify and successfully market products and services that appeal to our current and future targeted customer segments;
(cid:129) consumer preferences and perceptions of our brands;
(cid:129) our ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores;
(cid:129) our ability to enter into new and collect on our rental or lease purchase agreements;
(cid:129) changes in the enforcement of existing laws and regulations and the enactment of new laws and regulations adversely affecting our business,
including any legislative or regulatory enforcement efforts that seek to re-characterize store-based or virtual lease-to-own transactions as credit
sales and to apply consumer credit laws and regulations to our business;
(cid:129) our compliance with applicable statutes or regulations governing our businesses;
(cid:129) the impact of any additional social unrest such as that experienced in 2020 or otherwise, and resulting damage to our inventory or other assets
and potential lost revenues;
(cid:129) changes in interest rates;
(cid:129) changes in tariff policies;
(cid:129) adverse changes in the economic conditions of the industries, countries or markets that we serve;
(cid:129) information technology and data security costs;
(cid:129) 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, employees and retail partners;
(cid:129) changes in estimates relating to self-insurance liabilities and income tax and litigation reserves;
(cid:129) changes in our effective tax rate;
(cid:129) fluctuations in foreign currency exchange rates;
(cid:129) our ability to maintain an effective system of internal controls;
(cid:129) litigation or administrative proceedings to which we are or may be a party to from time to time; and
(cid:129) the other risks detailed from time to time in our reports furnished or filed with the United States Securities and Exchange Commission (the
‘‘SEC’’).
2 RENT-A-CENTER - Annual Report on Form 10-K
2
PART I
Item 1.
Business.
History of Rent-A-Center
Unless the context indicates otherwise, references to ‘‘we,’’ ‘‘us’’,
‘‘our’’, and the ‘‘Company’’ 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 V, refer to the Notes to Consolidated Financial
Statements in Item 8.
We are a leading lease-to-own provider with operations in the United
States, Puerto Rico and Mexico. We provide a critical service for a
large portion of underserved consumers by providing them with
access to, and the opportunity to obtain ownership of, high-quality,
durable products via small payments over time under a flexible lease-
purchase agreement with no long-term debt obligation. Through our
Rent-A-Center Business, we provide a fully integrated customer
The Lease Purchase Transaction
The lease purchase transaction is a flexible alternative that provides
freedom for consumers who wish to obtain use and enjoyment of
brand name merchandise with no long-term obligation and without
having to pay the full price up front. Generally, our customer has the
right, but is not obligated, to acquire title to the merchandise either
through an early purchase option or through payment of all lease
renewals that would be required to obtain ownership.
The unit economics of the lease purchase transaction vary depending
on the length of time customers take to obtain ownership of the
product. In same-as-cash option transactions, a customer pays the full
price of the merchandise within a designated period of time following
the initial lease and generally pays the retail price of the product plus a
premium to the cost. Full term lease-to-own transactions involve the
customer leasing our merchandise through a lease structured with
multiple lease renewal terms and ultimately obtaining ownership of the
merchandise at the conclusion of the final lease renewal term. Due to
the longer term of these transactions along with the other benefits that
are part of the lease-to-own transaction, full term transactions involve a
higher total cost compared to the cost of the general retail price of the
product if it was purchased upfront. Customers primarily take
ownership of the merchandise through same-as-cash options or early
purchase options, where the customer pays off outstanding amounts
prior to the final lease renewal at a discount. In the Rent-A-Center
Business, the product is often rented more than one time before a
customer ultimately obtains ownership.
There are differences
the unit economics between our
Rent-A-Center Business and Preferred Lease segments, as we
purchase our merchandise at wholesale prices for our Rent-A-Center
in
experience through our e-commerce platform and brick and mortar
presence. Our Preferred Lease business offers lease-to-own solutions
through retail partners in stores and online enabling our partners to
grow sales by expanding
their customer base utilizing our
differentiated offering. We were incorporated in the State of Delaware
in 1986, and our common stock is traded on the Nasdaq Global Select
Market under the ticker 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.
Business segment and at retail prices for our Preferred Lease
segment. Historically, operating margin for our Preferred Lease
segment has benefited from the lower overhead cost associated with
the virtual options employed at many third party locations.
Key features of the lease purchase transaction include:
No long term obligation. A customer may terminate a lease purchase
agreement at any time without penalty. Once the product is returned to
us, the customer has no obligation for remaining payments other than
any outstanding balances to the date of return.
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 and payment via certain electronic platforms (such as
PayPal and Venmo). Rental payments received at our store or retail
partner locations are generally made in advance. Rental payments
together with applicable fees, constitute our primary revenue source.
Approximately 77% 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.
Flexible options to obtain ownership. Ownership of the merchandise
generally transfers to the customer if the customer continuously
renews the lease purchase agreement for a required period of
between seven and 30 months, depending upon the product type, or
exercises a specified early purchase option.
3
RENT-A-CENTER - Annual Report on Form 10-K 3
PART I
Item 1. Business.
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
credit for what they previously paid.
No formal credit needed. Generally, no established credit score or
credit history is required. In the Rent-A-Center Business segment, we
typically verify a customer’s residence and sources of income, and
may utilize other sources to verify certain information contained in the
lease purchase order form. In our Preferred Lease segment, which
provides an on-site lease-to-own option at a third-party retailer’s
location, customers complete the application process through a
variety of resources, including online digital waterfall technology, retail
partner electronic portals and online e-commerce websites, and a
robust proprietary automated decision engine process is used to
confirm certain customer information for approval of the lease
purchase agreement.
Brand name merchandise. In our store locations and through our retail
large number of
partnerships, we offer merchandise
from a
Our Strategy
Our strategy is focused on growing our business model through
emphasis on the following key initiatives:
(cid:129) executing on market opportunities and enhancing our competitive
position across both traditional and virtual lease-to-own solutions;
(cid:129) accelerating
the shift
to e-commerce, expanding product
categories, including into emerging product categories, and
improving the fully integrated customer experience;
(cid:129) using technology to support frictionless partner onboarding with
seamless integration to retail partner platforms;
(cid:129) continuing to generate repeat business while expanding our
potential customer base;
(cid:129) leveraging the integration of the Acima decision engine and
expanding digital payments and communication channels; and
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 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 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 T 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.
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.
Delivery and 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. Our third-party retail partners typically charge us a fee
for delivery, which we pass on to the customer.
Product maintenance and replacement. We provide any required
service or repair without additional charge, except in the event of
damage in excess of normal wear and tear and certain other limited
the merchandise may be
to repair
circumstances. The cost
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.
(cid:129) generating favorable adjusted EBITDA margin and strong free cash
flow to fund strategic priorities and deliver 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 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.
For additional information regarding the acquisition of Acima in the
Merger, see ‘‘Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operation — Recent
Developments’’.
Rent-A-Center Business
Rent-A-Center Business is our largest operating segment and includes
our company-owned stores in the United States and Puerto Rico and
our e-commerce platform rentacenter.com. As of December 31, 2020,
we operated 1,845 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
locations in which we operate to optimize our store network. Our
Rent-A-Center Business segment comprised approximately 66% of
our consolidated net revenues for the year ended December 31, 2020.
Approximately 80% of our business in this segment is from repeat
customers.
4 RENT-A-CENTER - Annual Report on Form 10-K
4
PART I
Item 1. Business.
Preferred Lease
Our Preferred Lease segment operates in the United States and
Puerto Rico and provides an on-site lease-to-own option at a third-
party retailer’s location, including staffed options, unstaffed or virtual
options or a combination of the two (the hybrid model). Our Preferred
Lease operating segment includes Preferred Dynamix, a proprietary
digital platform that leverages new decisioning technology and a
portfolio of new lease-to-own solutions to expand the ways that
consumers and retailers interact. 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 lease purchase transaction, we
use a proprietary automated process to confirm certain customer
information for approval of the lease 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
generally 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.
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, on our retail partners’ e-commerce sites or
through our mobile application. 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.
We intend to combine Acima’s virtual capabilities with our Preferred
Lease platform to provide retailers and consumers an expanded set of
innovative solutions to enter into lease-to-own transactions. Our virtual
offering will allow consumers to enjoy the benefits of the Company’s
flexible lease-to-own solutions across e-commerce, digital, and
mobile channels. Beginning in the first quarter of 2021, the Preferred
Lease Segment will include the results of Acima and will be renamed
the Acima Segment.
Mexico
Our Mexico segment consists of our company-owned lease-to-own
stores in Mexico. As of December 31, 2020, we operated 121 stores in
Mexico.
Franchising
The stores in our Franchising segment use our Rent-A-Center,
ColorTyme or RimTyme trade names, service marks, trademarks and
logos, and operate under distinctive operating procedures and
standards. Franchising’s sources of revenue include the sale of
merchandise to its franchisees who, in turn, offer the merchandise to
the general public for rent or purchase under a lease-to-own
transaction, and royalties collected from franchisees based on a
percentage of revenue.
As of December 31, 2020, we franchised 462 stores in 33 states
operating under the Rent-A-Center (398 stores), ColorTyme (29
stores) and RimTyme (35 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 of each of the years indicated below:
Rent-A-Center Business
Mexico
Franchising
Total locations(1)
2020
1,845
121
462
2019
1,973
123
372
2018
2,158
122
281
2,428
2,468
2,561
(1) Does not include locations in our Preferred Lease segment.
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
for our
operating our stores,
including salaries and benefits
employees, occupancy expense for our leased real estate, advertising
expenses, lost, damaged, or stolen merchandise, fixed asset
depreciation, and other expenses.
5
RENT-A-CENTER - Annual Report on Form 10-K 5
PART I
Item 1. Business.
Product Selection
The stores in our Rent-A-Center Business, Mexico, and Franchising
segments generally offer merchandise from certain basic product
furniture and accessories, appliances, consumer
categories:
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, handbags 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 leased merchandise. Previously leased
merchandise is generally offered at a similar weekly, semi-monthly, or
monthly lease rate as is offered for new merchandise, but with an
opportunity to obtain ownership of the merchandise after fewer lease
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, 2020, furniture and accessories
accounted for approximately 45% of our consolidated rentals and fees
revenue, appliances for 16%, consumer electronic products for 14%,
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 41%
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 2020,
approximately 20% of our merchandise purchases were attributable to
Ashley Furniture Industries. 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 lease purchase agreement with us.
With respect to our Franchising segment, our franchise agreements
with franchisees require 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.
6 RENT-A-CENTER - Annual Report on Form 10-K
6
PART I
Item 1. Business.
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. Our regional and district managers generally have
long tenures with us, and we have a history of promoting management
personnel from within. In addition, during 2020, we hired certain key
management members in the Preferred Lease segment to lead our
strategic efforts in our virtual and e-commerce business solutions,
including our Executive Vice President of Preferred Lease, who brings
extensive experience and a proven track record of innovation in
financial services and financial technology.
We believe our executive management team’s 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(cid:2)’’
to further highlight these aspects of the lease purchase transaction.
We believe that by leveraging our advertising efforts to highlight the
benefits of the lease 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
4.5% 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
lenders.
retail stores, online competitors, and non-traditional
Competition is based primarily on convenience, store location,
product selection and availability, customer service, and lease rates
and terms.
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 lease
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
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, unstaffed
or virtual lease-to-own options, or a combination of the two (the hybrid
model). These new industry participants are disrupting traditional
the
lease-to-own stores by attracting customers and making
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.
At times during 2020, we also experienced increased merchandise
sales due to government stimulus payments and unemployment
benefits received by our targeted consumers as part of the
government’s response to COVID-19.
We own various
including
Rent-A-Center(cid:2) and RAC Worry-Free Guarantee(cid:2) that are used in
trademarks and service marks,
connection with our operations and have been registered with the
United States Patent and Trademark Office. The duration of our
7
RENT-A-CENTER - Annual Report on Form 10-K 7
PART I
Item 1. Business.
trademarks is unlimited, subject to periodic renewal and continued
use. In addition, we obtained the trademarks Acima(cid:2) and Acima
Credit(cid:2) upon the consummation of the Merger, and have obtained
other 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.
The Franchising segment licenses the use of the Rent-A-Center(cid:2) and
ColorTyme(cid:2) trademarks and service marks to its franchisees under its
franchise agreements with such
franchisees. The Franchising
segment owns various trademarks and service marks, including
ColorTyme(cid:2) and RimTyme(cid:2), 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.
Human Capital Resources
As of December 31, 2020, we employed a total of 14,320 coworkers,
the vast majority of which are full time employees. Our employee base
is made up of 12,250 coworkers in our U.S. Operations, including
Puerto Rico, 1,240 coworkers in our Mexico operations and 830
coworkers at our corporate facilities. The consummation of the Merger
on February 17, 2021, increased the number of employees by 530
coworkers.
We also focus on supporting a diverse and inclusive workforce. In
2020, we created a new Chief Diversity Officer position that will
regularly report to our Board of Directors. We have also implemented a
program to deliver unconscious bias training to our employees and
have launched and are expanding our Employee Resource Groups to
promote a dialogue with our employees regarding our diversity
initiatives.
We continually monitor our demand for skilled and unskilled labor and
provide training and competitive compensation packages in an effort
to attract and retain skilled coworkers. We believe our coworkers are
one of the primary keys to successfully operating our business and
achieving our strategic initiatives. Our human capital measures and
objectives focus on the successful training and development of our
coworkers, in addition to their safety. All of our coworkers are
employed at will and are free to end their employment with us at any
time.
During fiscal year 2020, in connection with our response measures
related to the COVID-19 pandemic and the temporary and partial
operational closures throughout the U.S. and Mexico, we temporarily
furloughed certain employees at our operating locations and
corporate headquarters. As of December 31, 2020, no employees are
on furlough as a result of the COVID-19 pandemic. In addition, we
make employee safety a priority and have implemented multiple
measures within our operation locations, as well as our corporate
headquarters, to protect the health and safety of our coworkers during
the ongoing pandemic.
Government Regulation
Rent-A-Center Business and 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 of those eleven states also 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 86 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 40
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.
8 RENT-A-CENTER - Annual Report on Form 10-K
8
PART I
Item 1. Business.
From time to time, we have supported legislation introduced in Mexico
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.
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.
Available Information
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 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. In addition, our
Board of Directors has adopted a Code of Business Conduct and
Ethics applicable to all members of our Board of Directors, as well as
all of our employees, including our Chief Executive Officer, Chief
Financial Officer, principal accounting officer and controller. The Code
of Business Conduct and Ethics forms the foundation of a compliance
program we established as part of our commitment to responsible
business practices that includes policies, training, monitoring and
other components covering a wide variety of specific areas applicable
to our business activities and employee conduct. A copy of the Code
of Business Conduct and Ethics is published on our website at
https://investor.rentacenter.com/governance-documents. We intend
to make all required disclosures concerning any amendments to, or
waivers from, this Code of Business Conduct and Ethics on our
website.
9
RENT-A-CENTER - Annual Report on Form 10-K 9
PART I
Item 1A. Risk Factors.
Item 1A.
Risk Factors.
Investing in Rent-A-Center involves a high degree of risk, and you should carefully consider the risks described in this section and the other
information included in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before making an
investment decision. Please note that the headings reflected below are provided solely for convenience of the reader and do not indicate that a
given risk applies only to the heading under which it is located. The risks described in this section include, but are not limited to, those highlighted in
the following list:
Risks Relating to Economic Conditions
(cid:129) The novel coronavirus (COVID-19) global pandemic has had and is
expected to continue to have a material adverse effect on our
business, financial condition and results of operations.
Risks Relating to Our Vendors, Suppliers
and Products
(cid:129) We rely on the receipt of information from third party data vendors,
and inaccuracies in or delay in receiving such information, or the
termination of our relationships with such vendors, could have a
material adverse effect on our business, operating results and
financial condition.
(cid:129) We must successfully manage our inventory to reflect customer
demand and anticipate changing consumer preferences and
leasing trends or our revenue and profitability will be materially and
adversely affected.
(cid:129) Allegations of or actual product safety and quality control issues,
including product recalls, could harm our reputation, divert
resources, reduce sales and increase costs.
Risks Relating to Our Strategy and
Operations
(cid:129) If we are unable to successfully appeal to and engage with our
target consumers, our business and financial performance may be
materially and adversely affected.
(cid:129) Given the nature of the COVID-19 crisis, our proprietary algorithms
and customer lease decisioning tools used to approve customers
could no longer be indicative of our customers’ ability to perform
under their lease agreements with us.
(cid:129) Failure to effectively manage our costs could have a material
adverse effect on our profitability.
(cid:129) We face risks in our retail partner business and virtual locations that
differ in some potentially significant respects from the risks of the
traditional lease-to-own business conducted in Rent-A-Center
Business store locations. These risks could have a material adverse
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.
(cid:129) 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.
(cid:129) Our operations are dependent on effective
information
management systems. Failure of these systems could negatively
impact our business, financial condition and results of operations.
(cid:129) If we fail to protect the integrity and security of customer, employee
and retail partner information, we could incur significant liability and
damage our reputation and our business could be materially and
adversely affected.
(cid:129) The industries in which we operate are highly competitive, which
could impede our ability to maintain sales volumes and pricing and
have a material adverse effect on our operating results.
(cid:129) If we are unable to attract, train and retain managerial personnel and
hourly associates in our stores and staffed Preferred Lease
locations, our reputation, sales and operating results may be
materially and adversely affected.
Risks Relating to Legal and Compliance
Matters
(cid:129) We may be subject to legal or regulatory proceedings from time to
time that result in damages, penalties or other material monetary
obligations or material restrictions on our business operations, and
our use of arbitration agreements may not allow us to avoid costly
litigation.
(cid:129) Federal and state regulatory authorities are increasingly focused on
the lease-to-own industry and 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 or interpreted could
require us to alter our business practices in a manner that may be
materially adverse to us.
(cid:129) Our lease-to-own transactions are regulated by and subject to the
requirements of federal and state laws and regulations that vary by
jurisdiction, which requires significant compliance costs and
exposes us to regulatory action or other litigation.
(cid:129) Laws and regulations regarding information security and data
collection, use and privacy are increasingly rigorous and subject to
change, which may cause us to incur significant compliance costs.
(cid:129) Our reputation, ability to do business and operating results may be
impaired by improper conduct by any of our employees, agents or
business partners, including retail partners.
local government officials, and
(cid:129) Our products and services may be negatively characterized by
consumer advocacy groups, the media and certain Federal, state
and
those negative
characterizations become increasingly accepted by consumers
and/or our retail partners, demand for our goods and the
transactions we offer could decrease and our business could be
materially and adversely affected.
if
10 RENT-A-CENTER - Annual Report on Form 10-K
10
(cid:129) We may be unable to protect our intellectual property, or may be
alleged to have infringed upon the intellectual property rights of
others, which could result in a loss of our competitive advantage
and a diversion of resources and a material adverse effect on our
business and results of operations.
Risks Relating to Our Indebtedness and
Other Financial Matters
(cid:129) Our indebtedness increased significantly upon consummation of
the Merger and may materially and adversely affect us.
(cid:129) The amount of borrowings permitted under the ABL Credit Facility
(as defined in ‘‘Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operation’’) is limited to the value
of certain of our assets, and Rent-A-Center relies in part on available
borrowings under the ABL Credit Facility for cash to operate its
business, which subjects it to market and counterparty risk, some of
which is beyond Rent-A-Center’s control.
(cid:129) Our organizational documents and our current or future debt
instruments contain or may 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.
Risks Relating to the Merger
(cid:129) The outcome of the Consumer Financial Protection Bureau’s
investigation into certain of Acima’s business practices is uncertain
and may materially and adversely affect our business.
(cid:129) We may be unable to realize the anticipated benefits of the Merger,
including synergies, and expect to incur substantial expenses
related to the Merger, which could have a material adverse effect on
our business, financial condition and results of operations.
The risks described in this section are not the only risks that could
materially and adversely affect our business; other risks currently
believed to be immaterial or additional risks not currently known to us
could also materially and adversely affect our business, financial
condition or results of operations. Furthermore, the COVID-19
pandemic (including federal, state and local governmental responses,
broad economic impacts and market disruptions) has heightened
certain risks discussed below. If any of the events or circumstances
described in this section actually occur, our business, operating
results, financial condition, cash flows, and prospects could be
materially and adversely affected. In that event, the market price of our
securities could decline, and you could lose part or all of your
investment.
Risks Relating to Economic Conditions
The novel coronavirus (COVID-19) global
pandemic has had and is expected to
continue to have a material adverse effect
on our business, financial condition and
results of operations.
In March 2020, the World Health Organization declared COVID-19 a
global pandemic, and governmental authorities around the world have
PART I
Item 1A. Risk Factors.
implemented measures to reduce the spread of COVID-19. These
measures have materially and adversely affected workforces,
customers, consumer sentiment, economies and financial markets
and, along with decreased consumer spending, have led to an
economic downturn in many markets. Numerous state and local
jurisdictions have imposed shelter-in-place orders, quarantines,
executive orders and other similar types of restrictions for their
residents to control the spread of COVID-19 or mitigate its effects.
Such orders or restrictions have resulted in temporary operational
shutdowns for non-essential businesses; imposed limitations on
hours of operations and the number of people allowed in stores or
warehouses; implemented requirements on sanitation and social
distancing practices; enacted certain work stoppages, slowdowns or
delays; and imposed certain travel restrictions and cancellations of
large scale events. These restrictions have resulted in negative
impacts to the markets in which we operate and our operations. While
the federal government has enacted various fiscal and monetary
stimulus measures from time to time to counteract the impacts of
COVID-19,
the effectiveness and adequacy of such stimulus
measures, as well as their future availability, remain uncertain.
As a result of COVID-19 and related jurisdictional ordinances
implemented in the United States beginning in the latter half of March
2020 to contain the spread of COVID-19 or mitigate its effects, a
significant number of Preferred Lease retail partner locations were
temporarily closed, resulting in the initial closure of approximately 65%
of our staffed Preferred Lease locations, which operated within those
stores. In addition, while the majority of our Rent-A-Center Business
stores remained open, due to government orders
in certain
jurisdictions, beginning in mid-March 2020, we temporarily shut down
operations at a small number of stores, and approximately 24% of our
stores were partially closed. Our partially closed locations operated
with closed showrooms, conducting business only
through
e-commerce web orders, and transitioned to a contactless curbside
service model or to a ship-from-store model, to the extent permitted by
local orders. Some franchise locations and stores in our Mexico
operating segment were also temporarily closed or had restricted
operations due to COVID-19. All locations in our Rent-A-Center
Business, Franchising and Mexico operating segments and staffed
Preferred Lease locations temporarily or partially closed at the onset of
the pandemic were reopened in the second quarter of 2020. In the
latter portion of 2020 and into 2021, the number of COVID-19 cases
has increased significantly and certain governmental authorities have
imposed or re-imposed restrictions on certain businesses. As of the
date of this Annual Report on Form 10-K, all locations in our
Rent-A-Center Business, Franchising and Mexico operating segments
and staffed Preferred Lease locations are providing full in-store
services subject
for sanitization, social
distancing and capacity limitations and, in Mexico, certain restrictions
regarding hours of operation.
local requirements
to
In response to the negative impacts to our business resulting from
COVID-19, in 2020, we proactively took certain measures to reduce
operating expenses and cash flow uses, including implementing
temporary executive pay reductions, temporarily furloughing certain
employees at our store locations and corporate headquarters,
reducing store hours in certain locations, renegotiating real estate
leases, reducing inventory purchases and capital expenditures and
suspending share repurchases.
implemented
additional electronic payment methods
for our Rent-A-Center
Business and Preferred Lease customers to facilitate contactless
transactions.
In addition, we
There are no assurances that we, or our retail partners, will be able to
keep our, or their, stores open as governmental responses to the
pandemic progress. As a result, we are unable to accurately predict
11
RENT-A-CENTER - Annual Report on Form 10-K 11
PART I
Item 1A. Risk Factors.
the impact that COVID-19 will have on our operations going forward, Our arrangements with our suppliers and
due to the uncertain duration of the pandemic, future governmental
vendors may be materially and adversely
restrictions that might be imposed in response to the pandemic, and
affected by changes in our financial
related uncertainties dictated by the length of time that these business
disruptions continue. In addition, we expect to be impacted by the
results or financial position or changes in
deterioration in worldwide economic conditions, which could have a
consumer demand, which could materially
sustained impact on discretionary consumer spending. Furthermore,
and adversely affect our business.
deteriorating global economic conditions have created a challenging
environment in capital markets and created uncertainty regarding the
availability of credit. The combination of reduced consumer spending
and volatile credit markets could materially and adversely affect our
liquidity. While the rapid development and fluidity of this situation
precludes any prediction as to the full impact of COVID-19, our
business, financial results and condition have been and may in the
future be materially and adversely affected by the various effects
caused by this pandemic.
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. In addition, if demand for
our products and services declines, the volume of merchandise we
purchase from third party suppliers may decrease, which could result
in smaller discounts from our vendors or the elimination of such
discounts by our vendors. Our arrangements with our suppliers and
vendors may also be impacted by media reports regarding our
financial position or other factors relating to our business, including
the Merger. Our need for additional liquidity could materially increase
and our supply of inventory could be materially disrupted if any of our
key suppliers or vendors, or a significant portion of our other suppliers
or vendors, takes one or more of the actions described above, which
could result in increased costs of operation and decreased net sales,
customer satisfaction and profits.
We rely on the receipt of information from
third party data vendors, and inaccuracies
in or delay in receiving such information,
or the termination of our relationships
with such vendors, could have a material
adverse effect on our business, operating
results and financial condition.
We are heavily dependent on data provided by third-party providers.
Our
lease-to-own business employs a proprietary decisioning
algorithm that determines whether or not an application for a lease
submitted by a customer will be approved. This algorithm depends
extensively upon continued access to and timely receipt of reliable
data from external sources, such as third-party data vendors. Our data
providers could stop providing data, provide untimely, incorrect or
incomplete data, or increase the costs for their data for a variety of
reasons, including a perception that our systems are insecure as a
result of a data security breach, regulatory concerns or for competitive
reasons. We could also become subject to increased legislative,
regulatory or judicial restrictions or mandates on the collection,
disclosure or use of such data, in particular if such data is not collected
by our providers in a way that allows us to legally use the data. If we
were to lose access to this external data or if our access or use were
restricted or were to become less economical or desirable, our
business would be negatively impacted, which would materially and
adversely affect our operating results and financial condition. We
cannot provide assurance that we will be successful in maintaining our
relationships with these external data source providers or that we will
be able to continue to obtain data from them on acceptable terms or at
all. Furthermore, we cannot provide assurance that we will be able to
obtain data from alternative sources if our current sources become
unavailable.
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.
Risks Relating to Our Vendors, Suppliers
and Products
Disruptions in our supply chain and other
factors affecting the distribution of our
merchandise could materially and
adversely affect 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. For
example, as a result of the impacts of COVID-19 on U.S. and global
supply chains and manufacturing operations, we have experienced
some delays or other material adverse effects on our timing or ability to
obtain desired merchandise for our business.
12 RENT-A-CENTER - Annual Report on Form 10-K
12
PART I
Item 1A. Risk Factors.
arrangements, which could have a material adverse effect on our
financial condition if we are unable to recover those losses from the
vendor who supplied us with the relevant merchandise.
Risks Relating to Our Strategy and
Operations
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. In 2020 and 2021, we have further executed on
our virtual growth strategy through, among other things, continued
investments
in Preferred Lease’s proprietary offerings and
technologies, organizational enhancements and our pending
acquisition of Acima in the Merger. 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 and other digital enhancements, improving the customer and
retail partner experience and providing consumers with greater
opportunities to shop how, when and where they want with the
flexibility of our lease-to-own solutions. Our Rent-A-Center Business
similarly faces risks associated with its growth strategies and efforts to
adapt to changing consumer preferences and shopping behaviors
while managing its cost structure.
We must successfully manage our
inventory to reflect customer demand and
anticipate changing consumer preferences
and leasing trends or our revenue and
profitability will be materially and
adversely affected.
The success of our Rent-A-Center Business depends upon our ability
to successfully manage our inventory and to anticipate and respond to
merchandise trends and customer demands in a timely manner. We
cannot always accurately predict consumer preferences and they may
change over time. We must order certain types of merchandise, such
as consumer electronics, well in advance of seasonal increases in
customer demand for those products. The extended lead times for
many of our purchases may make it difficult for us to respond rapidly
to new or changing consumer trends and price shifting, and to
maintain an optimal selection of merchandise available for lease at all
times. If we misjudge either the market for our merchandise, our
customers’ product preferences or our customers’ leasing habits, our
revenue may decline significantly and we may not have sufficient
quantities of merchandise to satisfy customer demand or we may be
required to mark down excess inventory, either of which would result in
lower profit margins. In addition, our level of profitability and success
in our Rent-A-Center Business depends on our ability to successfully
re-lease our inventory of merchandise that are returned by customers
of our Rent-A-Center Business or Preferred Lease, due to their lease
agreements expiring, or otherwise.
Allegations of or actual product safety and
quality control issues, including product
recalls, could harm our reputation, divert
resources, reduce sales and increase
costs.
intended significant expansion
technology capabilities, engage and
Growth of our business, including through the launch of new product
offerings and our
into virtual
lease-to-own offerings, requires us to invest in or expand our
information and
retain
experienced management, invest in our stores and otherwise incur
additional costs, including those associated with the Merger. Our
inability to address these concerns or otherwise to achieve targeted
results associated with our initiatives could materially and adversely
affect our results of operations, or negatively impact our ability to
successfully execute future strategies, which may result in a material
adverse effect on our business and financial results.
The products we sell and lease in our Rent-A-Center Business and
Preferred Lease business are subject to regulation by the U.S.
Consumer Product Safety Commission and similar state regulatory
authorities and expose us to potential product liability claims, recalls
or other regulatory or enforcement actions initiated by regulatory
authorities or through private causes of action. Such claims, recalls or
actions could be based on allegations that, among other things, the
products sold by us are contain contaminants or impermissible
materials, provide inadequate instructions regarding their use or
misuse or include inadequate warnings, such as those concerning the
materials or their flammability. We do not control the production
process of the products we sell and lease, and may be unable to
identify a defect or deficiency in a product purchased from a
manufacturer before offering it for sale or lease to our customers. may be materially and adversely affected.
Product safety or quality concerns may require us to voluntarily
remove selected products from our physical locations or from our
customers’ homes or cease offering those products online. Such
recalls and voluntary removal of products can result in, among other
things, lost sales, diverted resources, potential harm to our reputation
and increased customer service costs, which could have a material
adverse effect on our financial condition. In addition, in the event of
such a product quality or safety issue, our customers who have leased
the defective merchandise from us could terminate their lease
agreements for that merchandise and/or not renew those lease
We operate in the consumer retail industry through brick and mortar
stores and digitally. As such, our success depends, among other
things, on our ability to identify and successfully market products and
services through various channels that appeal to our current and
future target customer segments, to align our offerings with consumer
preferences and to maintain favorable perceptions of our brands by
our target consumers. If we are unable to successfully appeal to and
engage with our target consumers, our business and financial
performance may be materially and adversely affected.
If we are unable to successfully appeal to
and engage with our target consumers,
our business and financial performance
13
RENT-A-CENTER - Annual Report on Form 10-K 13
PART I
Item 1A. Risk Factors.
Given the nature of the COVID-19 crisis,
our proprietary algorithms and customer
lease decisioning tools used to approve
customers could no longer be indicative
of our customers’ ability to perform under
their lease agreements with us.
(cid:129) the incurrence of debt, contingent liabilities and amortization
expenses and write-offs of goodwill in connection with such
activities that could harm our financial condition; and
(cid:129) dilutive issuances of common stock or other equity securities.
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, including the Merger, will be successful and will
not materially and adversely affect our business, operating results or
financial condition. Failure to manage and successfully integrate
acquisitions, including our acquisition of Acima in the Merger, could
materially harm our business and operating results.
We believe our proprietary customer lease decisioning process to be a
key to the success of our business, including Preferred Lease and our
Rent-A-Center Business. As a result of the shift in operations driven by
the COVID-19 pandemic, we have accelerated the rollout of
centralized lease decisioning processes in our Company-operated
Rent-A-Center Business stores. We assume behavior and attributes We are highly dependent on the financial
observed for prior customers, among other factors, are indicative of
performance by future customers. Unexpected changes in behavior
caused by macroeconomic conditions, including, for example, the
U.S. economy experiencing a prolonged recession and job losses
related to the COVID-19 pandemic and changes in consumer behavior
relating thereto, could lead to increased incidence and costs related to
lease merchandise write-offs. Due to the nature and novelty of the
crisis, our decisioning process will likely require frequent adjustments
and the application of greater management judgment in the
interpretation and adjustment of the results produced by our
decisioning tools and we may be unable to accurately predict and
respond to the impact of a prolonged economic downturn or changes
to consumer behaviors, which in turn may limit our ability to manage
risk, avoid lease merchandise write-offs and could result in our
accounts receivable allowance being insufficient.
Our financial performance has historically been highly dependent on
our Rent-A-Center Business
comprised
approximately 66% of our consolidated net revenues for the year
ended December 31, 2020. Although this percentage is expected to
decrease significantly upon the completion of the Merger, the
Rent-A-Center Business segment will remain important to our
consolidated results. Any significant decrease in the financial
performance of the Rent-A-Center Business segment may have a
material adverse effect on our ability to implement our growth
strategies.
performance of our Rent-A-Center
Business segment.
segment, which
We may take advantage of merger and
acquisition opportunities from time to time
with the intent of advancing our key
initiatives, such as the Merger, but 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 intended to advance our key strategic initiatives, such as
the Merger. Such merger and acquisition opportunities may involve
numerous risks, including the following:
(cid:129) difficulties in integrating the operations, systems, technologies,
products and personnel of the acquired businesses;
(cid:129) 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;
(cid:129) application of regulatory regimes that have not previously applied
to, and may significantly impact, our business;
(cid:129) diversion of management’s attention from normal daily operations
of the business and the challenges of managing larger and more
widespread operations;
(cid:129) the potential loss of key employees, vendors and other business
partners of the businesses we acquire;
Failure to effectively manage our costs
could have a material adverse effect on
our profitability.
Consumer spending remains uncertain and our continued profitability
is largely dependent on our ability to effectively manage our cost
structure. We have experienced and may experience in the future
increases in the costs of purchasing certain merchandise from
suppliers or retail partners as a result of various factors, including
supply/demand trends, tariffs, increases in the prices of certain
commodities and increases in shipping costs. We may also face
increases in labor costs as a result of wage inflation for hourly
employees in many regions or increased competition for employees
as unemployment rates decline following their increase as a result of
COVID-19. We have limited or no control over many of these
inflationary forces. In addition, due to the competitive environment in
our industry and increasing price transparency, we may not be able to
recover all or even a portion of such cost increases by increasing our
merchandise prices, fees, or otherwise. Even if we are able to increase
merchandise prices or fees, those cost increases to our customers
could result in reduced demand for our products and services. As a
result, the 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 and adversely affect
our profitability.
14 RENT-A-CENTER - Annual Report on Form 10-K
14
We face risks in our retail partner
business and virtual locations that differ
in some potentially significant respects
from the risks of the traditional
lease-to-own business conducted in
Rent-A-Center Business store locations.
These risks could have a material adverse
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 Merger, 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:
(cid:129) 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;
(cid:129) establishing and maintaining relationships with unaffiliated third-
party retailers and the concentration of revenues in the Preferred
Lease segment, with approximately 72% of the total revenue of the
Preferred Lease segment for the year ended December 31, 2020
having been originated at our Preferred Lease kiosks located in
stores operated by four retail partners;
(cid:129) reliance on these unaffiliated third-party retailers for many important
business functions, from advertising through assistance with lease
transaction applications, including, for example, adhering to
Preferred Lease’s merchant policies and procedures, properly
explaining the nature of the lease-to-own transaction to potential
customers, properly handling customer inquiries made directly to
the retail partner and properly explaining that the transaction is with
Preferred Lease and not with the third-party retailer;
(cid:129) potential that regulators may target the virtual lease-to-own
transaction or certain products or services 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 or certain products or
services 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 or certain products
or services in inconsistent and unpredictable ways that could
increase the compliance-related costs incurred by us, restrict
certain business activities and negatively impact our financial and
operational performance;
(cid:129) 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;
(cid:129) 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
PART I
Item 1A. Risk Factors.
repair and disposition of merchandise that is returned and which
exposes us to risks associated with products with which we have
limited experience;
(cid:129) 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;
(cid:129) 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, to
comply with applicable laws or regulations or to take steps to
protect its retail partner’s and their customers’ data and information
from being accessed or stolen by unauthorized third parties,
including through cyber-attacks;
(cid:129) increased risk of consumer fraud with respect to Preferred Lease’s
lease-to-own business and e-commerce business as
virtual
compared to the traditional store-based Rent-A-Center Business;
(cid:129) increased risk of merchant fraud due to the planned growth in retail
partners and other merchants from which customers can select
products to lease from Preferred Lease;
(cid:129) reduced gross margins compared to the Rent-A-Center Business
because Preferred Lease purchases merchandise it leases to
customers at retail, rather than wholesale, prices;
(cid:129) operational, financial, regulatory or other risks associated with the
development and implementation of new digital technologies that
are intended to enhance the customer and retail partner experience
and to differentiate Preferred Lease from competing consumer
offerings; and
(cid:129) the ability of Preferred Lease to adequately protect its proprietary
technologies.
These risks could have a material adverse 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. In addition, these risks are expected to become more
significant as a result of the Merger.
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.
Although our retail partner business began as a staffed model, our
strategy to grow the retail partner business depends on significantly
expanding our unstaffed or virtual lease-to-own solution, either alone
or in combination with the staffed model (the hybrid model). The 2019
acquisition of Merchants Preferred’s scalable technology offering,
robust decision engine, enhanced infrastructure and experienced
management team accelerated the development of our virtual
lease-to-own offering. In 2020 and 2021, we have further executed on
our virtual growth strategy through, among other things, continued
in Preferred Lease’s proprietary offerings and
investments
15
RENT-A-CENTER - Annual Report on Form 10-K 15
PART I
Item 1A. Risk Factors.
technologies, organizational enhancements and our pending
acquisition of Acima in the Merger. We may not realize the intended
benefits from these investments and initiatives. If we are unable to
maintain and continuously improve our technologies and decisioning
methodologies, our business and financial results may be materially
and adversely affected.
If we are unable to compete effectively
with the growing e-commerce sector, our
business and results of operations may
be materially and adversely affected.
Competition from the e-commerce sector continues to grow and has
been accelerated by trends that developed as a result of social
restrictions implemented due to COVID-19. 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 or prevent us from growing our
market share, gross and operating margins, and may materially and
adversely affect our business and results of operations in other ways.
Our operations are dependent on effective
information management systems. Failure
of these systems could negatively impact
our business, financial condition and
results of operations.
loss of data or
interruption of such
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, computer viruses, security breaches, internet
failures and outages, operator error, or catastrophic events, and any
associated
information
management systems for a significant period of time could disrupt our
business. If the information 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
these
investments, including the testing of new systems and the transfer of
existing data. 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
implementation of
the successful
to ensure
critical strategic initiatives and could materially and adversely affect
our business, financial condition and results of operations.
If we fail to protect the integrity and
security of customer, employee and retail
partner information, we could incur
significant liability and damage our
reputation and our business could be
materially and adversely affected.
In the ordinary course of business, we collect, store and process
certain personal information provided to us by our customers,
including social security numbers, dates of birth, banking information,
credit and debit card information and data we receive from consumer
reporting companies, including credit report information, as well as
certain confidential
information about our retail partners and
employees, among others. Much of this data constitutes confidential
personally identifiable information which, if unlawfully accessed, either
through a ‘‘hacking’’ attack or otherwise, could subject us to
significant liability as further discussed below.
identifiable
Despite instituted safeguards for the protection of such information,
our systems are subject to significant risk of compromise from
increasingly aggressive and sophisticated cyberattacks, including
hacking, computer viruses, malicious or destructive code,
ransomware, social engineering attacks (including phishing and
impersonation), denial-of-service attacks and other attacks and similar
disruptions from the unauthorized use of or access to information
technology systems. Our IT systems are subject to constant attempts
to gain unauthorized access in order to disrupt our business
operations and capture, misappropriate, destroy or manipulate
various types of information that we rely on, including confidential
personally
information (‘‘PII’’) or other confidential
information. In addition, one of our employees, contractors or other
third parties 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 or misuse of
customer, employee or retail partner information could disrupt our
operations, damage our reputation, and expose us to claims from
customers, employees, retail partners, regulators and other persons,
any of which could have a material adverse effect on our business,
financial condition and results of operations. Successful data
breaches or other cybersecurity incidents at other companies,
whether or not we are involved, could lead to a general loss of
customer confidence that could similarly negatively affect us,
including harming the market perception of the effectiveness of our
security measures or financial technology in general. Further, if any
such compromise, breach or misuse is not detected quickly, the effect
could be compounded. In addition, the costs associated with
information security, such as increased investment in technology, the
costs of compliance with privacy laws and industry standards, and
costs incurred to prevent or remediate information security breaches,
could materially and adversely affect our business.
Failure to achieve and maintain effective
internal controls could have a material
adverse effect on our business.
Effective internal controls are necessary for us to provide reliable
financial reports. If we cannot provide reliable financial reports, our
16 RENT-A-CENTER - Annual Report on Form 10-K
16
brand and operating results could be harmed. Additionally, as a public
company, we are required to document and test our internal control
over financial reporting pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002 so that our management can certify, on an annual basis,
that our internal control over financial reporting is effective. We are also
required to, among other things, establish and periodically evaluate
procedures with respect to our disclosure controls and procedures.
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
financial
information, which could have a material adverse effect on our ability
to raise capital, and may also expose us to potential claims and losses.
Additionally, any such failure could subject us to increased regulatory
scrutiny, which could also have a material adverse effect on our
business and our stock price.
in our reported
lose confidence
investors
to
The industries in which we operate are
highly competitive, which could impede
our ability to maintain sales volumes and
pricing and have a material adverse effect
on our operating results.
PART I
Item 1A. Risk Factors.
companies, including installment, payday and title loan companies,
that may enable our customers to shop at traditional or on-line
retailers, as well as rental stores that do not offer their customers a
purchase option. Some of these competitors may be willing to offer
products and services on an unprofitable basis in an effort to gain
market share or be willing to lease certain types of products that we
are not willing to or are unable to lease. Additionally, these competitors
may be willing to enter into customer leases where services, rather
than goods, comprise the significant portion of the lease value, or be
willing to engage in other practices related to pricing, compliance, and
other areas in which we are not willing to or cannot engage.
Our Preferred Lease business relies heavily on relationships with retail
partners. An increase in competition could cause our retail partners to
no longer offer the Preferred Lease product in favor of those of our
competitors, or to offer the Preferred Lease product and the products
of our competitors simultaneously at the same store locations, which
could slow growth in the Preferred Lease business and limit or reduce
profitability. Furthermore, Preferred Lease’s virtual lease to own
competitors may deploy different business models, such as
direct-to-consumer strategies, that forego reliance on retail partner
relationships that may prove to be more successful.
Rent-A-Center may be unable to retain key
employees as a result of the Merger or
otherwise.
The success of Rent-A-Center depends in part upon its ability to retain
its executive leadership, management team and other key employees
(including, following the Merger, former Acima employees). Key
personnel may depart because of a variety of reasons, relating to the
Merger or otherwise. The loss of these individuals without adequate
replacement could materially and adversely affect our ability to sustain
and grow our business. The inability to attract and retain qualified
individuals, or a significant increase in the costs to do so, would
materially and adversely affect our operations. Furthermore, if we are
unable to retain key personnel who are critical to the successful
integration and future operations of the combined company following
the Merger, we could face disruptions in its operations, loss of existing
customers, loss of key information, expertise or know-how, and
unanticipated additional recruitment and training costs, all of which
could diminish the anticipated benefits of the Merger.
If we are unable to attract, train and retain
Certain categories of products we sell and lease from time to time,
including furniture, appliances and electronics such as televisions,
computers and smartphones, are the subject of intense competition
from a number of types of competitors, including national, regional
and local operators of lease-to-own stores, virtual lease-to-own
companies, traditional and online providers of used goods and
merchandise, traditional, ‘‘big-box’’ and e-commerce retailers. These
competitors may offer a larger selection of products at more
competitive prices than our Rent-A-Center Business and Preferred managerial personnel and hourly
Lease segment. Our competitors may employ aggressive marketing
strategies involving frequent sales and discounts, including the use of
certain products as ‘‘loss leaders’’ to increase customer traffic.
Engaging in these pricing strategies could cause a material reduction
in sales revenue and gross margins. Alternatively, we may be unable materially and adversely affected.
to or elect not to engage in these pricing strategies, which could
decrease our sales volumes. The expansion of digital retail has
increased the number and variety of retailers with which we compete,
and certain online retailers may have greater brand recognition, social
media following and engagement and sophisticated websites than
does Rent-A-Center. The increasing competition from all of these
sources may also reduce the market share held by our Rent-A-Center
Business and Preferred Lease segments.
associates in our stores and staffed
Preferred Lease locations, our reputation,
sales and operating results may be
Our workforce is comprised primarily of employees who work on an
hourly basis. We rely on our sales associates in our store locations and
staffed Preferred Lease locations to provide customers with an
enjoyable and informative shopping experience and to help ensure
the efficient processing and delivery of products. To grow our
operations and meet the needs and expectations of our customers, we
must attract, train, and retain a large number of hourly associates,
while at the same time controlling labor costs. We compete with other
retail businesses as well as restaurants for many candidates for
employment at our store locations and staffed Preferred Lease
The lease-to-own industry faces competition from the retailers and
lease-to-own companies mentioned above, including many retailers
who offer layaway programs, various types of consumer finance
17
RENT-A-CENTER - Annual Report on Form 10-K 17
PART I
Item 1A. Risk Factors.
regulatory structures,
locations. These positions have historically had high turnover rates, Our current insurance program may
which can lead to increased training, retention and other costs. Our
expose us to unexpected costs and
ability to control labor costs is also subject to numerous external
negatively affect our financial
factors and compliance with
including
competition for and availability of qualified personnel in a given
performance.
market, unemployment levels within those markets, governmental
regulatory bodies such as the Equal Employment Opportunity
Commission and the National Labor Relations Board, prevailing wage
rates and wage and hour laws, minimum wage laws, the impact of
legislation governing labor and employee relations or benefits, such
as the Affordable Care Act, health insurance costs and our ability to
maintain good relations with our employees. If we are unable to attract
and retain quality employees at reasonable cost, or fail to comply with
the regulations and laws impacting personnel, it could have a material
adverse effect on our business, financial condition and results of
operations.
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 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.
Acts of nature, whether due to climate
change or otherwise, can disrupt our
operations and those of our retail
partners.
Risks Relating to Legal and Compliance
Matters
We may be subject to legal or regulatory
proceedings from time to time that result
in damages, penalties or other material
Our store operations, as well as those of our retail partners at Preferred
Lease, are subject to the effects of adverse acts of nature, such as
winter storms, hurricanes, hail storms, strong winds, earthquakes and
tornadoes, which have in the past caused damage such as flooding monetary obligations or material
and other damage to our stores and those of our retail partners in
specific geographic locations, including in Mexico, Florida, Louisiana
and Texas, and may, depending upon the location and severity of such
events, materially and unfavorably impact our business continuity. We may not allow us to avoid costly litigation.
cannot guarantee that the amount of any hurricane, windstorm,
earthquake, flood, business interruption or other casualty insurance
we may maintain from time to time would cover any or all damages
caused by any such event.
restrictions on our business operations,
and our use of arbitration agreements
In addition to laws and regulations regarding our lease-to-own
transactions, we are subject to consumer protection and data privacy
laws and other laws and regulations. As we execute on our strategic
plans, we may continue to expand into complementary businesses
that engage in financial, banking or lending services, or lease-to-own
or rent-to-rent transactions involving products that we do not currently
offer our customers, all of which may be subject to a variety of
additional statutes and regulatory requirements not presently
applicable to our operations. We have defended against, and may in
the future defend against, legal and regulatory proceedings from time
to time, including class action lawsuits alleging various regulatory
violations. We have incurred and may in the future incur significant
damages, fines, penalties, obligations to post bonds pending appeal
or legal fees or expenses in connection with such legal and regulatory
proceedings or may pay significant amounts to settle legal or
regulatory proceedings, which could materially and adversely affect
our liquidity and capital resources. The failure to pay any material
judgment would constitute a default under the ABL Credit Facility, the
Term Loan Facility (as defined in ‘‘Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operation’’) and the
Notes (as defined in ‘‘Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operation’’). In addition, we may
become subject to significant restrictions on or changes to our
business practices, operations or methods, including pricing or similar
terms, as a result of existing or future governmental or other
proceedings or settlements, any of which could significantly harm our
reputation, both with consumers as well as with retail partners and
materially and adversely affect our business, prospects and financial
condition.
The success of our Franchising segment
is dependent on the ability and success of
our third party franchisees, over which we
have limited control.
The franchisees of our Franchising segment are independent third
party businesses that are contractually obligated to operate in
accordance with the operational and other standards set forth in their
respective franchise agreements. Although we evaluate potential
franchisee candidates before entering into a franchisor-franchisee
relationship with them, we cannot be certain that management of a
given candidate will have the business acumen or financial resources
necessary to operate successful franchises in their approved
territories. Because franchisees are independent businesses and not
employees, we are not able to control them to the same extent as our
Rent-A-Center Business stores, and the ultimate success and quality
of a franchise ultimately rests with the franchisee. Certain state
franchise laws may also limit our ability to terminate, not renew or
modify our franchise agreements. Our franchisees may fail in key
areas, or experience significant business or financial difficulties, which
could slow our growth, reduce our franchise fees, royalties and
revenue, damage our reputation, expose us to regulatory enforcement
actions or private litigation and/or cause us to incur additional costs. If
we fail to adequately mitigate any such future losses, our business and
financial condition could be materially and adversely affected.
18 RENT-A-CENTER - Annual Report on Form 10-K
18
PART I
Item 1A. Risk Factors.
In an attempt to limit costly and lengthy consumer, employee and Our lease-to-own transactions are
other litigation, including class actions, we require our customers and
employees to sign arbitration agreements, including class action
waivers. However, in addition to opt-out provisions contained in such
agreements, judicial, regulatory or legislative actions may restrict or
eliminate the enforceability of such agreements and waivers. If we are
not permitted to use arbitration agreements and/or class action which requires significant compliance
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.
regulated by and subject to the
requirements of federal and state laws
and regulations that vary by jurisdiction,
costs and exposes us to regulatory action
or other litigation.
Federal and state regulatory authorities
are increasingly focused on the
lease-to-own industry and 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 or interpreted could
require us to alter our business practices
in a manner that may be materially
adverse to us.
Although there is currently no comprehensive federal legislation
regulating rental purchase transactions, federal regulatory authorities
such as the United States Federal Trade Commission and the
Consumer Financial Protection Bureau (the ‘‘CFPB’’) are increasingly
focused on the subprime financial marketplace in which the
lease-to-own industry operates and adverse federal legislation may be
enacted in the future. Any federal agency, or any state regulatory
authority, may propose and adopt new regulations or interpret existing
regulations in a manner that could materially increase both our costs
of complying with laws and the risk that we could be sued or be
subject to government sanctions if we are not in compliance or to alter
our business practices in a manner that reduces the economic
potential of our operations. Any such new laws, regulations or
interpretations could include, by way of example only, those that seek
to re-characterize store-based or virtual lease-to-own transactions as
credit sales and to apply consumer credit laws and regulations to our
business. In addition, federal and state regulators are increasingly
holding businesses operating in the lease-to-own industry to higher
standards of monitoring, disclosure and reporting, notwithstanding
the adoption of any new laws or regulations applicable to our industry.
Furthermore, regulators and courts may apply laws or regulations to
our businesses in incorrect, inconsistent or unpredictable ways that
may make our compliance more difficult, expensive and uncertain.
This increased attention at the federal and state levels, as well as the
potential for scrutiny by certain municipal governments, could
increase our compliance costs significantly and materially and
adversely affect the manner in which we operate. In addition,
legislative or regulatory proposals regarding our
industry, or
interpretations of them, may subject Rent-A-Center to ‘‘headline risks’’
whereby media attention to these matters could negatively impact our
business in a particular region or in general or investor sentiment and
may materially and adversely affect our share price. Moreover, an
adverse outcome from a lawsuit, even one against one of our
competitors, could result in changes in the way we and others in the
industry do business, possibly leading to significant costs or
decreased revenues or profitability.
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 11
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. Furthermore, there is
regulating
currently no
lease-to-own transactions. We have incurred and will continue to incur
substantial costs to comply with federal and state laws and
regulations, many of which are evolving, unclear and inconsistent
across various jurisdictions as described above. In addition to
compliance costs, we may incur substantial expenses to respond to
federal and state government investigations and enforcement actions,
proposed fines and penalties, criminal or civil sanctions, and private
litigation, including those arising out of our or our franchisees’ alleged
violations of existing laws and/or regulations.
comprehensive
legislation
federal
to other consumer
Similar
transactions, our rental purchase
transaction is also governed by various federal and state consumer
protection statutes, in addition to the rental purchase statutes under
which we operate, that 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 and the consumer practices of Acima are
currently the subject of an investigation by the CFPB (see ‘‘ — The
outcome of the Consumer Financial Protection Bureau’s investigation
into certain of Acima’s business practices is uncertain and may
materially and adversely affect our business’’ below).
Laws and regulations regarding
information security and data collection,
use and privacy are increasingly rigorous
and subject to change, which may cause
us to incur significant compliance costs.
The regulatory environment related to information security and data
collection, use and privacy is increasingly rigorous, with new and
constantly changing requirements applicable to certain aspects of our
business, including our collection practices (as well as those of third
parties), the manner in which we contact our customers, our
decisioning process regarding whether to lease merchandise to
customers, our credit reporting practices, and the manner in which we
process and store certain customer, employee and other information.
All states have adopted laws requiring the timely notification to
19
RENT-A-CENTER - Annual Report on Form 10-K 19
PART I
Item 1A. Risk Factors.
lawsuits, could cause us to incur significant legal fees and could
damage our reputation. Other misconduct, including discrimination or
harassment in the workplace, illegal or suspicious activity and
breaches in the protection of consumer information, could similarly
subject us to regulatory sanctions and negatively impact our business,
operating results or financial condition. In addition, misconduct by our
employees or agents could prompt regulators to allege or to
determine based upon such misconduct that we have not established
adequate supervisory systems and procedures to inform employees
of applicable rules or to detect violations of such rules. Furthermore,
alleged or perceived misconduct by our employees, agents or
business partners, including retail partners, even if not substantiated,
may attract negative publicity that could damage our reputation and
impair our ability to maintain and develop relationships with our
vendors, customers and other third parties with whom we do business
and to attract and retain employees.
individuals and, at times, regulators, the media or credit reporting
agencies, if a company experiences the unauthorized access or
acquisition of PII. Many states have enacted additional data privacy
and security laws and regulations that govern the collection, use,
disclosure, transfer, storage, disposal, and protection of PII and other
information. For instance, the California Consumer Privacy Act of 2018
(the ‘‘CCPA’’), which became effective on January 1, 2020, contains,
among other things, new disclosure obligations for businesses that
collect PII from California residents and affords those individuals
numerous rights relating to their PII. The CCPA has changed the
manner in which we collect, store and use consumer data and has
resulted in increased regulatory oversight, litigation risks and costs of
compliance. Furthermore, a California ballot initiative from privacy
rights advocates intended to augment and expand the CCPA called
the California Privacy Rights Act (the ‘‘CPRA’’) was passed in
November 2020 and will take effect in January 2023 (with respect to
information collected from and after January 2022). The CPRA will
significantly modify the CCPA, including by creating a new state
agency that will be vested with authority to implement and enforce the Our products and services may be
CCPA and the CPRA. Moreover, other states may adopt privacy-
related laws whose restrictions and requirements differ from those of
California, which could require us to design, implement and maintain
different types of state-based, privacy-related compliance controls
and programs simultaneously in multiple states, thereby further
increasing the complexity and cost of compliance. These costs,
including others relating to increased regulatory oversight and
compliance, could materially and adversely affect our business. In
addition, given that privacy and customer data protection laws may be
interpreted and applied inconsistently and are in a state of flux that
varies by jurisdiction, our data protection policies and practices may
not be consistent with the most recent interpretations and applications
of such laws at all times. Complying with these varying requirements
could cause us to incur substantial costs or require us to change our
business practices in a manner materially adverse to our business.
Any failure, or perceived failure, by us to comply with our own privacy
policies or with any regulatory requirements or orders or other privacy
or consumer protection related laws and regulations could result in
proceedings or actions against us by governmental entities or others,
subject us to significant penalties and negative publicity and materially
and adversely affect our operating results.
negatively characterized by consumer
advocacy groups, the media and certain
Federal, state and local government
officials, and if those negative
characterizations become increasingly
accepted by consumers and/or our retail
partners, demand for our goods and the
transactions we offer could decrease and
our business could be materially and
adversely affected.
Certain consumer advocacy groups, media reports and federal and
state regulators and legislators have asserted that laws and
regulations regarding lease-to-own transactions should be broader
and more restrictive. The consumer advocacy groups and media
reports generally focus on the total cost to a consumer to acquire an
item, which is often alleged to be higher than the interest typically
charged by banks or similar lending institutions to consumers with
better credit histories seeking to borrow money to finance purchases.
This ‘‘cost-of-rental’’ amount, which is generally defined as total lease
fees paid in excess of the ‘‘retail’’ price of the goods, is from time to
time characterized by consumer advocacy groups and media reports
as predatory or abusive without discussing the fundamental difference
between a credit transaction and a lease transaction, the fact that
consumers can return their leased merchandise at any time without
penalty or further payment obligations or the numerous other benefits
to consumers of lease-to-own programs, or the lack of viable
alternatives available to many of these consumers to obtain critical
household items. If the negative characterization of lease-to-own
transactions becomes increasingly accepted by consumers or our
retail and merchant partners, demand for our products and services
could significantly decrease, which could have a material adverse
effect on our business, results of operations and financial condition.
Additionally,
lease-to-own
transactions is accepted by regulators and legislators, our business
may become subject to more restrictive laws and regulations and
more stringent enforcement of existing laws and regulations, any of
which could have a material adverse effect on our business, results of
operations and financial condition. The vast expansion and reach of
technology, including social media platforms, has increased the risk
that our reputation could be significantly impacted by these negative
characterizations in a relatively short amount of time. If we are unable
the negative characterization of
if
Our reputation, ability to do business and
operating results may be impaired by
improper conduct by any of our
employees, agents or business partners,
including retail partners.
While our policies and compliance programs are intended to promote
legal and ethical business practices, there is a risk that our employees,
agents or business partners, including retail partners, could engage in
misconduct that materially and adversely affects our reputation, ability
to do business or our operating results or financial condition. For
instance, 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
20 RENT-A-CENTER - Annual Report on Form 10-K
20
PART I
Item 1A. Risk Factors.
loyalty and
in customer
to quickly and effectively respond to such characterizations, we may We may face liability for the actions,
experience declines
traffic and our
relationships with our retail partners may suffer, which could have a
material adverse effect on our business, results of operations and
financial condition. Additionally, any failure by our competitors,
including smaller, regional competitors, to comply with the laws and
regulations applicable to the traditional and/or virtual lease-to-own
models, or any actions by our competitors that are challenged by
consumers, advocacy groups, the media or governmental agencies or
entities as being abusive or predatory, could result in Rent-A-Center
being perceived as engaging in similar unlawful or inappropriate
activities or business practices, merely because we operate in the
same general industries as such competitors.
omissions and liabilities of our
franchisees, which could materially and
adversely affect our results of operation.
One of the legal foundations fundamental to the franchise business
model has been that, absent special circumstances, a franchisor is
generally not responsible for the acts, omissions or liabilities of its
franchisees. However, under the franchise business model, we may
face claims and liabilities based on vicarious liability, joint-employer
liability, or other theories or liabilities. Expansion of these bases for
liability not only could result in expensive litigation with our franchisees
or government agencies, but also could make it more difficult to
appropriately support our franchisees while managing our risk of
liability, all of which could impact our results of operations. For
instance, in 2015, the National Labor Relations Board adopted a broad
standard for determining when two or more otherwise unrelated
employers may be found to be a joint employer of the same
employees under the National Labor Relations Act. Although the U.S.
Department of Labor announced the rescission of these guidelines in
June 2017, there can be no assurance that no future changes in law,
regulation or policy will cause us or our franchisees to be liable or held
responsible for unfair labor practices, violations of wage and hour
laws, or other violations or require our franchises to conduct collective
bargaining negotiations regarding employees of our franchisees. If
such changes occur, our operating expenses may increase as a result
of required modifications to our business practices, increased
litigation, governmental investigations or proceedings, administrative
enforcement actions, fines and civil liability, which could materially and
adversely affect our results of operations.
Disputes with or involving our franchisees
may lead to litigation with our franchisees,
which may materially and adversely affect
our relationships with franchisees or our
reputation, or cause us to incur significant
expenses that materially and adversely
affect our results of operations.
to
the
franchisee,
including disputes
intellectual property, or may be alleged to
have infringed upon the intellectual
property rights of others, which could
result in a loss of our competitive
advantage and a diversion of resources
and a material adverse effect on our
business and results of operations.
As a franchisor, we are subject to regulation by various federal and
state laws that govern the relationship between us and our franchisees
and the offer and sale of franchises. If we fail to comply with these laws,
we could be liable for damages to franchisees and fines or other
penalties, as well as the loss of franchise fees and ongoing royalty
revenues. Although we believe we generally enjoy a positive working
relationship with our franchisees, the nature of the franchisor-
franchisee relationship may give rise to litigation with our franchisees
in the ordinary course of business for a variety of reasons, including We may be unable to protect our
disputes related to alleged breaches of contract or wrongful
termination under the franchise arrangements. We may also have
disputes with franchisees in connection with transactions whereby we
have re-franchised previously company-owned locations and sold
them
regarding our
indemnification obligations pursuant to those transaction agreements.
Further, we may engage in litigation with franchisees to enforce the
terms of our franchise agreements and compliance with our brand
standards as determined necessary to protect our brand, the
consistency of our products and the customer experience, or to
enforce any applicable contractual indemnification rights if we are
brought into a matter involving a third party due to an alleged act or
omission by the franchisee. In addition, we may be subject to claims
by our franchisees relating to our franchise disclosure documents,
including claims based on financial information contained in those
litigation may be costly,
documents. Engaging
time-consuming and may distract management and materially and
adversely affect our relationships with or ability to attract new
franchisees. Any negative outcome of these or any other claims could
materially and adversely affect our results of operations as well as our
ability to expand our franchise system and may damage our reputation
and brand. Moreover, federal and state laws that regulate substantive
aspects of our relationships with franchisees may limit our ability to
terminate our franchise arrangements or otherwise resolve conflicts
with our franchisees or enforce contractual duties or rights we believe
we have with respect to our franchisees, which could materially and
adversely affect our operations.
The success of our lease-to-own model depends in large part on our
proprietary decisioning algorithm, our e-commerce platform and other
proprietary technologies that we currently have or may develop in the
future. To protect our intellectual property rights, we rely, or may from
time to time rely, on a combination of trademark, trade dress, domain
name, copyright,
laws, as well as
trade secret and patent
confidentiality and
license agreements with our employees,
contractors and other third parties with whom we have relationships.
However, our efforts to protect our intellectual property rights may not
be sufficient or effective to prevent misappropriation or infringement of
our intellectual property or proprietary information, which could result
in a loss of our competitive advantage. In addition, any of our
intellectual property rights may be challenged, which could result in
their being narrowed in scope or declared invalid or unenforceable.
We may litigate to protect our intellectual property and proprietary
information from misappropriation or infringement by others, which
could be expensive and cause a diversion of resources and ultimately
may not be successful.
in such
21
RENT-A-CENTER - Annual Report on Form 10-K 21
PART I
Item 1A. Risk Factors.
Risks Relating to Our Indebtedness and
Other Financial Matters
Moreover, competitors or other third parties may allege that we, or
consultants or other third parties retained or indemnified by us,
infringe on their intellectual property rights. Given the complex, rapidly
changing and competitive technological and business environment in
which we operate, and the potential risks and uncertainties of Our indebtedness increased significantly
intellectual property-related litigation, an assertion of an infringement
claim against us may cause us to spend significant amounts to defend
the claim (even if we ultimately prevail). We may also be required to
pay significant money damages. In the event of a settlement or
adverse judgment, our results of operation may materially decline if we
are prohibited
the relevant systems, processes,
technologies or other intellectual property, especially if we are forced
to cease offering certain products or services, or are required to pay to
the alleged owner of the relevant intellectual property licensing fees,
royalties or technology development expenses. Even in instances
where we believe that claims and allegations of intellectual property
infringement against us are without merit, defending against such
claims may be time consuming and expensive and may result in the
diversion of time and attention of our management and employees.
upon consummation of the Merger and
may materially and adversely affect us.
the Merger (the
from using
financing
total
for
transactions, our
As of December 31, 2020, our total indebtedness was $197.5 million.
In connection with the consummation of the Merger in February 2021,
we incurred significant indebtedness to fund the cash consideration
payable under the Agreement and Plan of Merger, dated as of
December 20, 2020, providing
‘‘Merger
Agreement’’), repay certain indebtedness of each of Rent-A-Center
and Acima and its subsidiaries, and pay related fees and expenses. As
a result, on a pro forma basis after giving effect to the Merger and
related
indebtedness as of
December 31, 2020 would have been approximately $1,490 million,
and we would have had undrawn commitments available for
borrowings of an additional $294 million under the ABL Credit Facility
(after giving effect to approximately $91 million of outstanding letters
of credit). In addition, on a pro forma basis after giving effect to the
Merger and related financing transactions, our total indebtedness as
of December 31, 2020, the available commitments under the ABL
Credit Facility would have been $550 million which, when reduced by
outstanding borrowings and standby letters of credit of $256 million
outstanding as of such date, would amount to $294 million of
availability under such facility.
Notwithstanding the recent increase in our total indebtedness, we
expect to continue to evaluate the possibility of acquiring additional
businesses and making strategic investments, and we may elect to
finance these endeavors by incurring additional indebtedness.
Moreover, to respond to competitive challenges, we may be required
to raise substantial additional capital to finance new product or service
offerings. As a result, our indebtedness could further increase, and the
related risks that we face could intensify.
Our level of indebtedness, together with any additional indebtedness
we may incur in the future, could materially and adversely affect us in a
number of ways. For example, the anticipated level of indebtedness or
any additional financing could:
(cid:129) make it more difficult for us to pay or refinance our debts as they
become due during adverse economic, financial market and
industry conditions;
(cid:129) require us to use a larger portion of our cash flow for debt service,
reducing funds available for other purposes;
(cid:129) impair our ability to take advantage of business opportunities, such
as acquisition opportunities, and to react to changes in market or
industry conditions;
(cid:129) increase our vulnerability to adverse economic, industry or
competitive developments and decrease our ability to respond to
such changes as compared to our competitors with less leverage;
(cid:129) materially and adversely affect our ability to obtain additional
financing, particularly as substantially all of our assets will be subject
to liens securing certain of our indebtedness;
(cid:129) decrease our profitability and/or cash flow or require us to dispose
of significant assets in order to satisfy our debt service and other
obligations if cash from operations or other sources is insufficient to
satisfy such obligations;
The taxes applicable to our operations
can be difficult to determine and are
subject to change, and our failure to
correctly calculate and pay such taxes
could result in substantial tax liabilities
and a material adverse effect on our
results of operations.
The application of indirect taxes, such as sales tax, is a complex and
evolving issue, particularly with respect to the lease-to-own industry
generally and our virtual
lease-to-own Preferred Lease and
e-commerce businesses more specifically. Many of the fundamental
statutes and regulations that impose these taxes were established
before the growth of the lease-to-own industry and e-commerce and,
therefore, in many cases it is not clear how existing statutes apply to
our various business activities. Failure to comply with such statutes, or
a successful assertion by a jurisdiction requiring us to collect taxes in a
location or for transactions where we presently do not, could result in
substantial tax liabilities, including for past sales and leases, as well as
penalties and interest. In addition, if the tax authorities in jurisdictions
where we are already subject to sales tax or other indirect tax
obligations were to successfully challenge our positions, our tax
liability could increase substantially. For instance, following a United
States Supreme Court decision in June 2018, states may require a
remote seller with no physical presence in the state to collect and remit
sales tax on goods and services provided to purchasers in the state.
Our Preferred Lease business may become subject to additional taxes
if state or municipal legislatures adopt tax reform that subjects our
lease-to-own transactions originated at the locations of Preferred
Lease’s retail partners to taxation in that jurisdiction, despite
Rent-A-Center having no physical presence in that jurisdiction. As
governments increasingly search for ways to increase revenues,
states may adopt tax reform or take other legislative action designed to
raise tax revenues, including by expanding the scope of transactions
subject to taxation or by increasing applicable tax rates, or may
adversely interpret existing sales, income and other tax regulations.
Such changes could subject our business to new or increased tax
obligations, which could have a material adverse effect on our results
of operations.
22 RENT-A-CENTER - Annual Report on Form 10-K
22
(cid:129) increase the risk of a downgrade in the credit rating of us or any
indebtedness of us or our subsidiaries which could increase the
cost of further borrowings;
(cid:129) limit our ability to borrow additional funds in the future to fund
working capital, capital expenditures and other general corporate
purposes; and
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.
PART I
Item 1A. Risk Factors.
(cid:129) limit our financial resources available to continue paying dividends
on our common stock, as determined in the discretion of our Board
of Directors and subject to the restrictive covenants in our debt
agreements.
Although the terms of the indenture that governs the Notes and the
terms of the ABL Credit Facility and the Term Loan Facility contain
restrictions on the incurrence of additional debt, including secured
debt, these restrictions are subject to a number of important
exceptions and debt incurred in compliance with these restrictions
could be substantial. If we incur significant additional debt, the related material adverse effect on our business,
risks could intensify.
We may not be able to service all of our
indebtedness and may be forced to take
other actions to satisfy our obligations
under our indebtedness, which may not
be successful. Our failure to meet our
debt service obligations could have a
financial condition and results of
operations.
The amount of borrowings permitted
under the ABL Credit Facility is limited to
the value of certain of our assets, and
Rent-A-Center relies in part on available
borrowings under the ABL Credit Facility
for cash to operate its business, which
subjects it to market and counterparty
risk, some of which is beyond
Rent-A-Center’s control.
In addition to cash we generate from our business, our principal
existing sources of cash are borrowings available under the ABL
Credit Facility. Our borrowing capacity under the 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
materially and adversely affect our business and liquidity. The
documentation governing the ABL Credit Facility 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. Subject to certain exceptions, our obligations under the ABL
Credit Facility are secured by liens on substantially all of our assets. 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
the ABL Credit Facility 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. Our access to such
financing may be unavailable or reduced, or such financing may
become significantly more expensive for any reason, including, but
not limited to, adverse economic conditions. In addition, if certain of
our lenders experience difficulties that render them unable to fund
future draws on the facility, we may not be able to access all or a
portion of these funds. If our access to borrowings under the ABL
Credit Facility is unavailable or reduced, we may not have the
As of February 17, 2021, the annual cash interest payments on our
indebtedness are approximately $75 million, which could fluctuate
depending on changes in interest rates. We depend on cash on hand
and cash flows from operations to make scheduled debt payments.
We expect to be able to meet the estimated cash interest payments on
our indebtedness through our cash flows from operations. However,
our ability to generate sufficient cash flow from operations and to
utilize other methods to make scheduled payments will depend on a
range of economic, competitive and business factors, many of which
are outside of our control, and there can be no assurance that these
sources will be adequate. If we are unable to service our indebtedness
and fund our operations, we will be forced to adopt an alternative
strategy that may include:
(cid:129) reducing or delaying capital expenditures;
(cid:129) limiting our growth;
(cid:129) seeking additional capital;
(cid:129) selling assets;
(cid:129) reducing or eliminating the dividend on our common stock; or
(cid:129) restructuring or refinancing our indebtedness.
Even if we adopt an alternative strategy, the strategy may not be
successful and we may be unable to service our indebtedness and
fund our operations, which could have a material adverse effect on our
business, financial condition or results of operations. In addition, the
ABL Credit Facility and the Term Loan Facility are secured by liens on
substantially all of our and our restricted subsidiaries’ assets, and any
successor credit facilities are likely to be secured on a similar basis. As
such, our ability to refinance our indebtedness or seek additional
financing, or our restricted subsidiaries’ ability to make cash available
to us, by dividend, debt repayment or otherwise, to enable us to repay
the amounts due under our indebtedness, could be impaired as a
result of such security interests and the agreements governing such
security interests.
Our inability to generate sufficient cash flows to satisfy our debt
obligations, or to refinance our indebtedness on commercially
reasonable terms or at all, would materially and adversely affect our
financial position and results of operations. In addition, if we cannot
23
RENT-A-CENTER - Annual Report on Form 10-K 23
PART I
Item 1A. Risk Factors.
make scheduled payments on our debt, we will be in default and
lenders under
their
the ABL Credit Facility could
commitments to loan money, holders of the Notes and lenders under
the ABL Credit Facility and the Term Loan Facility could declare all
outstanding principal and interest to be due and payable, and lenders
under the ABL Credit Facility and the Term Loan Facility could
foreclose against the assets securing such indebtedness and
Rent-A-Center could be forced into bankruptcy or liquidation.
terminate
Restrictive covenants in certain of the
agreements and instruments governing
our indebtedness may materially and
adversely affect our financial and
operational flexibility.
The terms of our indebtedness include restrictive covenants that
impose significant operating and financial restrictions on us and may
limit our ability to engage in acts that may be in our long-term best
interest, including restrictions on our ability to, among other things,
(i) create liens; (ii) transfer or sell assets; (iii) incur indebtedness or
issue certain preferred stock; (iv) pay dividends, redeem stock or
make other distributions; (v) make other restricted payments or
investments; (vi) create restrictions on payment of dividends or other
amounts by us to our restricted subsidiaries; (vii) merge or consolidate
with other entities; (viii) engage in certain transactions with affiliates;
and (ix) designate our subsidiaries as unrestricted subsidiaries. In
addition, our ability to access the full amount available under the ABL
Credit Facility is subject to compliance with a financial maintenance
covenant requiring that we maintain at least a specified fixed charge
coverage ratio (as such ratio is defined in the ABL Credit Facility). Our
failure to comply with any of these covenants could result in reduced
borrowing capacity and/or an event of default that, if not cured or
waived, could result in the acceleration of certain of our debt, which
could have a material adverse effect on our business, financial
condition and results of operations.
Our ability to comply with these covenants may be affected by events
beyond our control, and any material deviations from our forecasts
could require us to seek waivers or amendments of covenants or
alternative sources of financing, or to reduce expenditures. We cannot
assure you that such waivers, amendments or alternative financing
could be obtained or, if obtained, would be on terms acceptable to us.
A breach of any of the covenants or restrictions could result in an event
of default. Such a default, if not cured or waived, could allow our debt
holders to accelerate the related debt, as well as any other debt to
which a cross-acceleration or cross-default provision applies, or to
declare all borrowings outstanding thereunder to be due and payable.
In the event our debt is accelerated, our assets may not be sufficient to
repay such debt in full.
Our variable rate indebtedness subjects
us to interest rate risk, which could cause
our debt service obligations to increase
significantly.
A portion of our indebtedness bears interest at variable rates that are
linked to changing market interest rates. As a result, an increase in
market interest rates will increase our interest expense and our debt
service obligations on the variable rate indebtedness, and our net
income and cash flows, including cash available for servicing our
indebtedness, will correspondingly decrease. As of December 31,
2020, on a pro forma basis after giving effect to the Merger and related
expected financing transactions, approximately $1,018 million of our
indebtedness would have been variable rate indebtedness and,
assuming all loans were fully drawn, each quarter-point (0.25%)
change in interest rates would result in an additional $2.6 million
annualized pretax charge or credit to our consolidated statement of
operations. As of the date of this Annual Report on Form 10-K, we have
not entered into any interest rate swap agreements. In the future, we
may enter into interest rate swaps that involve the exchange of floating
for fixed rate interest payments in order to reduce interest rate volatility.
However, we may not maintain interest rate swaps with respect to all of
our variable rate indebtedness, and any swaps we enter into may not
fully mitigate interest rate risk.
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 the agreements governing our ABL Credit Facility and our Term
Loan Facility, an event of default will result if a third party becomes the
beneficial owner of 40% or more of our voting stock, in which case our
obligations under such facilities may become immediately due and
payable. In addition, under the indenture governing the Notes, we are
obligated to offer to purchase the Notes at a purchase price equal to
101% of the principal amount of the Notes, plus accrued and unpaid
interest to the date of the purchase, upon the occurrence of certain
changes in control, including, subject to certain exceptions, the
consummation of any transaction that results in any person becoming
the beneficial owner of at least 50% of our voting stock or a sale of
substantially all of our assets. Rent-A-Center may enter into additional
financing arrangements in the future that require the repayment of
outstanding amounts in similar circumstances. If a specified change in
control occurs and the lenders or debt holders under our debt
instruments accelerate our obligations, we may not have sufficient
liquid assets to repay amounts outstanding under such agreements or
be able to arrange for additional financing to fund such obligations,
which could result in an event of default under the relevant instrument
and could cause any other debt that we may have at that time to
become automatically due, further exacerbating the adverse impacts
on our financial condition.
Our organizational documents and our
current or future debt instruments contain
or may 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
24 RENT-A-CENTER - Annual Report on Form 10-K
24
PART I
Item 1A. Risk Factors.
from engaging
General Corporation Law, which prohibits persons that acquire, or are
affiliated with any person that acquires, more than 15% of our
outstanding common stock
in any business
combination with Rent-A-Center for a three-year period following the
date of such acquisition, subject to limited exceptions. Furthermore,
the terms of our indebtedness include 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, whether
favored or opposed by our management or our stockholders. For
instance, the consummation of any such transaction in certain
circumstances may require the redemption or repurchase of the
Notes, and there can be no assurance that we or the potential acquiror We may be unable to realize the
will have sufficient financial resources to affect such a redemption or
repurchase.
reserved therefor, or that such escrowed amount will be sufficient to
address all covered losses or that the CFPB’s ongoing investigation or
future exercise of its enforcement, regulatory, discretionary or other
powers will not result in findings or alleged violations of consumer
financial protection laws that could lead to enforcement actions,
proceedings or litigation, whether by the CFPB, other state or federal
agencies, or other parties, and the imposition of damages, fines,
penalties, restitution, other monetary liabilities, sanctions, settlements
or changes to Acima’s business practices or operations that could
materially and adversely affect our business, financial condition,
results of operations or reputation.
Risks Relating to the Merger
The outcome of the Consumer Financial
Protection Bureau’s investigation into
certain of Acima’s business practices is
uncertain and may materially and
adversely affect our business.
Prior to the execution of the Merger Agreement, Acima received a Civil
Investigative Demand dated October 1, 2020 (the ‘‘CID’’) from the
CFPB requesting certain information, documents and data relating to
Acima’s products, services and practices for the period from
January 1, 2015 to the date on which responses to the CID are
provided in full. The purpose of the CID is to determine whether Acima
extends credit, offers leases, or otherwise offers or provides a
consumer financial product or service and whether Acima complies
with certain consumer financial protection laws. We are fully
cooperating with the CFPB investigation and expect to submit
responses to all existing requests of the CFPB no later than the end of
March 2021. The CFPB has not made any allegations in the
investigation, and we are currently unable to predict the eventual
scope, ultimate timing or outcome of the CFPB investigation.
On the terms and subject to the conditions set forth in the Merger
Agreement, the former owners of Acima have agreed to indemnify
Rent-A-Center for certain losses arising after the consummation of the
Merger with respect to the CID and certain pre-closing taxes. The
indemnification obligations of the former owners of Acima are limited
to an indemnity holdback in the aggregate amount of $50 million,
which amount was escrowed at the closing of the Merger, and will be
Rent-A-Center’s sole recourse against the former owners of Acima
with respect to all of the indemnifiable claims under the Merger
Agreement. Other than with respect to any pending or unresolved
claims for indemnification submitted by Rent-A-Center prior to such
time, and subject to other limited exceptions, the escrowed amount in
respect of the CID will be released to the former owners of Acima as
follows: (i) in respect of the CID, on the earlier of the third anniversary
of the closing date of the Merger and the date on which a final
determination is entered providing for a resolution of the matters
regarding the CID and (ii) in respect of certain pre-closing taxes, on
August 18, 2022, the first business day following the date that is
18 months after the closing of the Merger.
There can be no assurance that the CID will be finally resolved prior to
the release to the former owners of Acima of the escrowed funds
anticipated benefits of the Merger,
including synergies, and expect to incur
substantial expenses related to the
Merger, which could have a material
adverse effect on our business, financial
condition and results of operations.
We expect to realize potential revenue and cost synergies as a result of
the Merger. In addition to the purchase price we paid in connection
with the Merger, we also expect to incur certain one-time costs to
achieve these synergies. In addition, while we believe these synergies
are achievable, our ability to achieve such estimated synergies and the
timing of achieving any such synergies is subject to various
assumptions by our management, which may or may not be realized,
as well as the incurrence of other costs in our operations that offset all
or a portion of such synergies. As a consequence, we may not be able
to realize all of these synergies within the timeframe expected or at all.
In addition, we may incur additional and/or unexpected costs in order
to realize these synergies. Failure to achieve the expected synergies
could significantly reduce the expected benefits associated with the
Merger and materially and adversely affect our business, financial
condition and results of operations.
We may be unable to successfully
integrate Acima’s business and realize the
anticipated benefits of the Merger.
Rent-A-Center and Acima operated as independent companies prior
to the consummation of the Merger in February 2021. We have
devoted, and expect to continue to devote, significant management
attention and resources to integrating the business practices and
operations of Acima with the other business of Rent-A-Center.
Potential difficulties we may encounter in the integration process
include the following:
(cid:129) the
inability
to successfully combine
the businesses of
Rent-A-Center and Acima in a manner that permits Rent-A- Center to
achieve the cost savings or revenue enhancements anticipated to
result from the Merger, which would result in the anticipated benefits
of the Merger not being realized in the time frame currently
anticipated or at all;
(cid:129) lost sales and customers as a result of certain customers, retail
partners or other third parties of either of the two companies
deciding not to do business with us after the Merger;
25
RENT-A-CENTER - Annual Report on Form 10-K 25
PART I
Item 1A. Risk Factors.
(cid:129) the complexities associated with managing Rent-A-Center out of
several different locations and integrating personnel from Acima,
resulting in a significantly larger combined company, while at the
same time attempting to provide consistent, high quality products
and services;
(cid:129) the complexities of consolidating retail partner locations;
such business operations successfully, to realize the anticipated
benefits of the integration of the two companies.
Risks Relating to Our Structure or an
Investment in Our Common Stock
(cid:129) the additional complexities of integrating a company with different We are a holding company and are
products, services, markets and customers;
(cid:129) coordinating corporate and administrative infrastructures and
harmonizing insurance coverage;
(cid:129) coordinating accounting, information technology, communications,
administration and other systems;
(cid:129) complexities associated with implementing necessary controls for
to address Rent-A- Center’s
Acima’s business activities
requirements as a public company;
(cid:129) identifying and eliminating
redundant and underperforming
functions and assets;
(cid:129) difficulty addressing possible differences in corporate culture and
management philosophies;
(cid:129) the failure to retain key employees of either Acima or Rent-A-Center;
(cid:129) potential unknown liabilities and unforeseen increased expenses,
delays or regulatory conditions associated with the Merger,
including litigation relating to the Merger or the ultimate outcome of
the CFPB investigation of Acima;
(cid:129) performance shortfalls at one or both of the two companies as a
result of the diversion of management’s attention to efforts to
integrate Acima’s operations; and
(cid:129) a deterioration of credit ratings.
For all these reasons, the integration process could result in the
distraction of Rent-A-Center’s management,
the disruption of
Rent-A-Center’s ongoing business or inconsistencies in its products,
services, standards, controls, procedures and policies, any of which
could materially and adversely affect our ability
to maintain
relationships with our customers, retail partners, vendors and
employees or to achieve the anticipated benefits of the Merger, or
could otherwise materially and adversely affect our business and
financial results.
An inability to realize the full extent of the anticipated benefits and cost
synergies of the Merger, as well as any delays encountered in the
integration process, could have a material adverse effect on the
revenues, level of expenses and operating results of the combined
company, which may materially and adversely affect the value of
Rent-A-Center’s securities.
In addition, the actual integration may result in additional and
unforeseen expenses, and the anticipated benefit of our plan for
integration may not be realized. Actual synergies, if achieved at all,
may be lower than what we expect and may take longer to achieve
than anticipated. For example, the elimination of duplicative costs may
not be possible or may take longer than anticipated, or the benefits
from the Merger may be offset by costs incurred or delays in
integrating the companies. If we are not able to adequately address
these challenges, we may be unable to successfully integrate Acima’s
operations into our other businesses or, even if we are able to combine
dependent on the operations and funds of
our subsidiaries.
We are a holding company, with no revenue generating operations
and no assets other than our ownership interests in our direct and
indirect subsidiaries. Accordingly, we are dependent on the cash flow
generated by our direct and indirect operating subsidiaries and must
rely on dividends or other intercompany transfers from our operating
subsidiaries to generate the funds necessary to meet our obligations,
including the obligations under the ABL Credit Facility, Term Loan
Facility and the Notes. The ability of our subsidiaries to pay dividends
or make other payments to us is subject to applicable state laws.
Should one or more of our subsidiaries be unable to pay dividends or
make distributions, our ability to meet our ongoing obligations could
be materially and adversely affected. If we are unable to satisfy the
financial and other covenants in our debt agreements, our lenders
could elect to terminate the agreements and require us to repay the
outstanding borrowings, or we could face other substantial costs.
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:
(cid:129) our perceived ability to meet market expectations with respect to the
growth and profitability of each of our operating segments and to
timely achieve the expected benefits of the Merger;
(cid:129) 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;
(cid:129) quarterly variations in our competitors’ results of operations;
(cid:129) changes in earnings estimates or buy/sell recommendations by
financial analysts;
(cid:129) how our actual financial performance compares to the financial
performance guidance we provide;
(cid:129) state or federal legislative or regulatory proposals, initiatives,
actions or changes that are, or are perceived to be, adverse to our
business;
(cid:129) the stock price performance of comparable companies;
(cid:129) the unpredictability of global and regional economic and political
conditions; and
(cid:129) the impact of any of the other risk factors discussed or incorporated
by reference herein.
26 RENT-A-CENTER - Annual Report on Form 10-K
26
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 such
companies’ operating performance.
There can be no assurance as to the
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 have paid quarterly cash
dividends on our common stock since 2019, we are not required to
declare or pay any dividends and there may be circumstances under
which we may be unable to declare and pay dividends under
applicable Delaware law or due to the impact of restrictive covenants
in our debt agreements. In addition, we may elect to eliminate or
reduce our common stock dividend in the future for any reason. Any
elimination of or reduction in the amount of our common stock
dividend could materially and adversely affect the market price of our
common stock.
PART I
Item 1A. Risk Factors.
A lowering or withdrawal of the ratings
assigned to Rent-A-Center’s 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 to our debt 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, so warrant. Credit ratings are not recommendations to
purchase, hold or sell any securities of our company. Additionally,
credit ratings may not reflect the potential effect of risks relating to any
securities of our company. Any downgrade by either S&P or Moody’s
may result in higher borrowing costs. Any future lowering of our ratings
likely would make it more difficult or more expensive for us to obtain
additional debt financing.
27
RENT-A-CENTER - Annual Report on Form 10-K 27
PART I
Item 1B. Unresolved Staff Comments.
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 2027.
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 contain renewal options for
additional periods ranging from three to five years at rental rates
adjusted according
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
to agreed
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.
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. Nevertheless, we cannot predict the impact of
future developments affecting our claims and lawsuits, and any
resolution of a claim or lawsuit or reserve within a particular fiscal
period may materially and adversely impact our results of operations
for that period. Please reference Note M in the Notes to our Financial
Statements for additional discussion of our legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
28 RENT-A-CENTER - Annual Report on Form 10-K
28
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(cid:2) and its predecessors under the symbol ‘‘RCII’’ since January 25, 1995,
the date we commenced our initial public offering.
As of February 19, 2021, there were approximately 51 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 K to the consolidated financial statements for further discussion of such restrictions.
Repurchases of Equity Securities
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 $75 million of Rent-A-Center common stock. During the twelve months ended
December 31, 2020, the Company repurchased 1,463,377 shares of our common stock for an aggregate purchase price of $26.6 million, which
includes shares having an aggregate purchase price of $10.0 million that were purchased under a repurchase program that was previously
authorized by our Board of Directors until its replacement by the current program in March 2020. We did not repurchase any shares of common
stock during the three months ended December 31, 2020. Under the March 2020 authorization, $58.4 million remains available for repurchases in
the open market and privately negotiated transactions. Common stock repurchases are subject to certain restrictions in our debt agreements.
Please see Note K to the consolidated financial statements for further discussion of such restrictions.
29
RENT-A-CENTER - Annual Report on Form 10-K 29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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
return
shareholder
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, 2015, and dividends, if any, were reinvested for all years
ending December 31.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Rent-A-Center, Inc., the NASDAQ Composite Index, and S&P 1500 Specialty Retail Index
300
250
200
150
100
50
12/15
12/16
12/17
12/18
12/19
12/20
Rent-A-Center, Inc.
NASDAQ Composite
S&P 1500 Specialty Retail Index
1MAR202121174488
30 RENT-A-CENTER - Annual Report on Form 10-K
30
Item 6.
Reserved.
PART II
Item 6. Reserved.
31
RENT-A-CENTER - Annual Report on Form 10-K 31
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of
Operations.
Objective
We report financial operating performance under four operating
segments, including our Rent-A-Center Business segment (formerly
Core U.S.), which represents our company-owned stores and
e-commerce platform through rentacenter.com; our Preferred Lease
segment (formerly Acceptance Now), which includes our virtual,
staffed, and hybrid business models; and our Mexico and Franchising
segments.
The following discussion focuses on recent developments expected to
have current and future impacts on the results of our business, trends
and uncertainties within our industry and business model that may
impact our financial results, our recent results of operations, and
discussion of our liquidity and capital resources. You should read the
following discussion in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Annual
Report on Form 10-K.
Recent Developments
Acima Acquisition. On December 20, 2020, we entered into the
Merger Agreement with Radalta, LLC, a Utah limited liability company
and wholly owned subsidiary of the Company, Acima, and Aaron
Allred, solely in his capacity as the representative of the former owners
of Acima, providing for the merger of Radalta, LLC with and into Acima,
with Acima surviving the Merger as a wholly owned subsidiary of the
Company. The Merger was completed on February 17, 2021. In
accordance with the Merger Agreement, we issued to the former
owners of Acima an aggregate of 10,779,923 shares of our common
stock (the ‘‘Aggregate Stock Consideration’’), with a value of $51.14
per share based on the closing price of our common stock on the date
of closing, and paid to them aggregate cash consideration of
$1,273.3 million (the ‘‘Aggregate Cash Consideration’’). Under the
terms of the Merger Agreement, $50 million of the Aggregate Cash
Consideration was placed into escrow at the closing of the Merger to
cover certain potential tax and regulatory indemnification obligations
of the former owners of Acima under the Merger Agreement. Although
the Company currently believes the escrow holdback amount, which
serves as the sole recourse of the Company with respect to any
indemnifiable claims, will be sufficient to cover any such potential tax
and regulatory matters, there is no assurance that any actual
payments by the Company with respect to such matters will not
exceed the escrow holdback amount.
In accordance with the terms of the Merger Agreement, the portion of
the Aggregate Stock Consideration issued to former owners of Acima
Trends and Uncertainties
who are also employees of Acima is subject to certain vesting
conditions over a three year period. The portion of the Aggregate
Stock Consideration issued to non-employee former owners of Acima
is subject to the terms of an 18-month lockup agreement, pursuant to
which one-third of the aggregate shares of common stock of the
Company received by a non-employee former owner in the Merger
becomes transferable after each six month period following the
closing of the Merger. The Company entered into a Registration Rights
Agreement, dated as of February 17, 2021, pursuant to which certain
former owners of Acima are entitled to registration rights in respect of
the portion of the Aggregate Stock Consideration received by them in
the Merger.
In connection with the signing of the Merger Agreement, we entered
into employment agreements with certain executives of Acima,
including Aaron Allred, Chairman and Founder of Acima, which
became effective upon the closing of the Merger.
Dividends. On December 3, 2020, we announced that our board of
directors approved an increased quarterly cash dividend of $0.31 per
share for the first quarter of 2021. The dividend was paid on
January 12, 2021 to our common stockholders of record as of the
close of business on December 15, 2020.
COVID-19 Pandemic. Beginning in the latter half of March 2020, the
worldwide spread of COVID-19 caused significant disruptions to the
U.S. and world economies. On March 11, 2020, the World Health
Organization declared the COVID-19 outbreak a worldwide pandemic.
On March 13, 2020, the president of the United States declared a
national state of emergency for the nation. In response to the issuance
of U.S. federal guidelines to contain the spread of COVID-19, U.S. state
and local jurisdictions implemented various containment or mitigation
measures, including temporary shelter-in-place orders and the
temporary closure of non-essential businesses.
As a result of COVID-19 and related jurisdictional ordinances
implemented in the United States beginning in the latter half of March
2020 to contain the spread of COVID-19 or mitigate its effects, a
significant number of Preferred Lease retail partner locations were
temporarily closed, resulting in the initial closure of approximately 65%
of our staffed Preferred Lease locations, which operated within those
32 RENT-A-CENTER - Annual Report on Form 10-K
32
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
stores. In addition, while the majority of our Rent-A-Center Business
stores remained open, due to government orders
in certain
jurisdictions, beginning in mid-March 2020 we temporarily shut down
operations at a small number of stores and approximately 24% of our
stores were partially closed. Our partially closed locations operated
with closed showrooms, conducting business only
through
e-commerce web orders and transitioned to a contactless curbside
service model or to a ship-from-store model, to the extent permitted by
local orders. Some franchise locations and stores in our Mexico
operating segment were also temporarily closed or had restricted
operations due to COVID-19. All locations in our Rent-A-Center
Business, Franchising and Mexico operating segments and staffed
Preferred Lease locations, temporarily or partially closed at the onset
of the pandemic were reopened in the second quarter of 2020. In the
latter portion of 2020 and into the first couple weeks of 2021, the
number of COVID-19 cases increased significantly and certain
governmental authorities imposed or re-imposed restrictions on
certain businesses. As of February 19, 2021, all locations in our
Rent-A-Center Business, Franchising and Mexico operating segments
and staffed Preferred Lease locations are providing full in-store
services subject
for sanitization, social
distancing and capacity limitations and, in Mexico, certain restrictions
regarding hours of operation.
local requirements
to
flow uses,
leases, reducing
temporary executive pay reductions,
In response to the negative impacts to our business resulting from
COVID-19, in 2020, we proactively implemented certain measures to
including
reduce operating expenses and cash
implementing
temporarily
furloughing certain employees at our store locations and corporate
headquarters, reducing store hours in certain locations, renegotiating
real estate
inventory purchases and capital
expenditures, and, for a brief period of time, suspending further share
repurchases. In addition, we implemented additional electronic
payment methods for our Rent-A-Center Business and Preferred
Lease customers to facilitate contactless transactions. There are no
assurances we will not be subject to future government actions
negatively impacting our business as the pandemic progresses.
However, while we may also be impacted by deteriorating worldwide
including elevated unemployment rates
economic conditions,
throughout the United States, which could have a sustained impact on
discretionary consumer spending, the lease-to-own industry has
remained resilient because it provides credit constrained customers
with a viable option to obtain merchandise they may not otherwise be
able to obtain through other retailers offering financing options due to
the tightening of credit by traditional financing. See ‘‘Risk Factors’’ in
Part I, Item 1A in this Annual Report on Form 10-K for additional
discussion of operational impacts to our business and additional risks
associated with COVID-19.
Results of Operations
Overview
The following briefly summarizes certain of our financial information for
the twelve months ended December 31, 2020 as compared to the
twelve months ended December 31, 2019.
During the twelve months ended December 31, 2020, consolidated
revenues increased approximately $144.3 million, primarily due to
increases in same store sales in our Rent-A-Center Business and
invoice volume growth in our Preferred Lease segment, in addition to
increases in merchandise sales and royalties in our Franchising
segment. Operating profit decreased approximately $16.5 million for
the twelve months ended December 31, 2020, primarily due to our
receipt during the second quarter of 2019 of $92.5 million in settlement
of litigation relating to our termination of the merger agreement by and
among Vintage Rodeo Parent, LLC, Vintage Rodeo Acquisition, Inc.
and Rent-A-Center, Inc., of which we retained net pre-tax proceeds of
approximately $80 million following payment of all remaining costs,
fees and expenses relating to the termination (the ‘‘Vintage Settlement
Proceeds’’), partially offset by decreases in labor in 2020 due to
previous store closures and refranchise sales in addition to temporary
furloughs in response to COVID-19.
increased
in our Rent-A-Center Business segment
Revenues
approximately $52.2 million
twelve months ended
for
December 31, 2020, driven primarily by an increase in same store
sales resulting from higher merchandise sales and growth in
e-commerce sales. Gross profit as a percentage of revenue increased
the
0.2%. Operating profit increased $97.4 million for the twelve months
ended December 31, 2020, primarily driven by decreased labor and
operating expenses.
The Preferred Lease segment revenues increased approximately
$60.9 million for the twelve months ended December 31, 2020,
primarily due to the implementation and growth of the Preferred Lease
virtual solution following the acquisition of Merchants Preferred in
August 2019, despite negative impacts related to the temporary
closure of stores due to the COVID-19 pandemic. Gross profit as a
percent of revenue decreased 5.0% and operating profit decreased
twelve months ended
for
approximately $25.2 million
December 31, 2020 primarily due to a higher number of early payouts,
higher merchandise losses primarily due to the COVID-19 pandemic,
and investments to support the growth of the business.
the
The Mexico segment revenues decreased by 6.3% for the twelve
months ended December 31, 2020, driving a decrease in gross profit
of 4.9%, or $1.8 million.
Cash flow from operations was $236.5 million for the twelve months
ended December 31, 2020. We paid down $42.0 million of debt during
the year, ending the period with $159.4 million of cash and cash
equivalents. In connection with the Merger, we refinanced and
incurred substantial additional indebtedness in February 2021 as
discussed in the ‘‘Liquidity and Capital Resources — Senior Debt’’ and
‘‘Liquidity and Capital Resources — Senior Notes’’ sections below.
33
RENT-A-CENTER - Annual Report on Form 10-K 33
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following table is a reference for the discussion that follows.
(Dollar amounts in thousands)
2020
2019
2018
$
%
$
%
Year Ended December 31,
2020-2019 Change
2019-2018 Change
Revenues
Store
Rentals and fees
Merchandise sales
Installment sales
Other
$2,263,091
$2,224,402
$2,244,860
$ 38,689
378,717
68,500
3,845
304,630
304,455
70,434
4,795
69,572
9,000
74,087
(1,934)
(950)
Total store revenues
2,714,153
2,604,261
2,627,887
109,892
Franchise
Merchandise sales
Royalty income and fees
80,023
20,015
49,135
16,456
19,087
13,491
30,888
3,559
Total revenues
2,814,191
2,669,852
2,660,465
144,339
1.7%
24.3%
(2.7)%
(19.8)%
4.2%
62.9%
21.6%
5.4%
3.3%
19.8%
3.1%
8.7%
65.2%
11.3%
1.7%
(8.1)%
(1.3)%
7.3%
(7.3)%
160.2%
3.2%
(6.5)%
(100.0)%
(47.8)%
(0.4)%
(70.8)%
$ (20,458)
175
862
(4,205)
(23,626)
30,048
2,965
9,387
13,018
10,094
57
23,169
30,315
53,484
(44,097)
(53,326)
(39,788)
(20,811)
(7,842)
(120,052)
(241,819)
197,722
1,693
(13,913)
209,942
44,888
(0.9)%
0.1%
1.2%
(46.7)%
(0.9)%
157.4%
22.0%
0.4%
2.1%
3.3%
0.2%
2.4%
166.6%
5.5%
(2.6)%
(7.8)%
(6.1)%
(12.7)%
(11.4)%
(202.4)%
(14.8)%
352.2%
356.4%
(33.3)%
1,516.8%
839.2%
20,734
63,176
728
84,638
31,620
116,258
28,081
(50,971)
(7,736)
10,474
(4,446)
97,283
44,604
(16,523)
(2,168)
(13,351)
(1,004)
(35,573)
$ 34,569
19.9%
$ 165,054
1,943.6%
Cost of revenues
Store
Cost of rentals and fees
Cost of merchandise sold
Cost of installment sales
655,612
382,182
24,111
Total cost of store revenues
1,061,905
Franchise cost of merchandise
sold
Total cost of revenues
Gross profit
Operating expenses
Store expenses
Labor
Other store expenses
General and administrative
Depreciation, amortization and
write-down of intangibles
Other charges and (gains)
80,134
1,142,039
1,672,152
579,125
609,370
153,108
56,658
36,555
634,878
319,006
23,383
977,267
48,514
1,025,781
621,860
308,912
23,326
954,098
18,199
972,297
1,644,071
1,688,168
630,096
617,106
142,634
61,104
(60,728)
683,422
656,894
163,445
68,946
59,324
Total operating expenses
1,434,816
1,390,212
1,632,031
Operating profit
Write-off of debt issuance costs
Interest, net
Earnings before income taxes
Income tax expense
Net earnings
237,336
—
14,557
222,779
14,664
253,859
2,168
27,908
223,783
50,237
$ 208,115
$ 173,546
$
56,137
475
41,821
13,841
5,349
8,492
34 RENT-A-CENTER - Annual Report on Form 10-K
34
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Comparison of the Years Ended December 31, 2020 and 2019
Store Revenue. Total store revenue increased by $109.9 million, or
4.2%, to $2,714.2 million for the year ended December 31, 2020, from
$2,604.3 million for 2019. This increase was primarily due to increases
of approximately $60.9 million and $52.2 million in the Preferred Lease
and Rent-A-Center Business segments, respectively, 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, 2020 increased by $20.7 million, or 3.3%, to
$655.6 million, as compared to $634.9 million in 2019. This increase in
cost of rentals and fees was primarily attributable to an increase of
$20.1 million in the Preferred Lease segment as a result of higher
rentals and fees revenue. Cost of rentals and fees expressed as a
percentage of rentals and fees revenue increased to 29.0% for the year
ended December 31, 2020 as compared to 28.5% in 2019.
increased by $63.2 million, or 19.8%,
Cost of Merchandise Sold. Cost of merchandise sold represents the
net book value of rental merchandise at time of sale. Cost of
merchandise sold
to
$382.2 million for the year ended December 31, 2020, from
$319.0 million in 2019, attributable to increases of $53.5 million and
$9.9 million in the Preferred Lease and Rent-A-Center Business
segments, respectively, as discussed further in the ‘‘Segment
Performance’’ section below. The gross margin percent of
merchandise sales
the year ended
December 31, 2020, from (4.7)% in 2019.
to (0.9)%
increased
for
Gross Profit. Gross profit increased by $28.1 million, or 1.7%, to
$1,672.2 million for the year ended December 31, 2020, from
$1,644.1 million in 2019, due primarily to an increase of $39.5 million in
the Rent-A-Center Business segment, partially offset by a decrease of
$12.7 million in the Preferred Lease segment, as discussed further in
the ‘‘Segment Performance’’ section below. Gross profit as a
percentage of total revenue decreased to 59.4% in 2020, as compared
to 61.6% in 2019.
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 $51.0 million, or 8.1%, to
$579.1 million for the year ended December 31, 2020, as compared to
$630.1 million in 2019, primarily attributable to decreases of
$28.9 million and $21.3 million in the Rent-A-Center Business and
Preferred Lease segments, respectively, as discussed further in the
‘‘Segment Performance’’ section below. Store labor expressed as a
percentage of total store revenue was 21.3% for the year ended
December 31, 2020, as compared to 24.2% in 2019.
Other Store Expenses. Other store expenses include charge-offs due
to customer stolen merchandise and occupancy, delivery, advertising,
selling, insurance, travel and other store-level operating expenses.
Other store expenses decreased by $7.7 million, or 1.3%, to
$609.4 million for the year ended December 31, 2020, as compared to
$617.1 million in 2019, primarily attributable to a decrease of
$33.1 million in the Rent-A-Center Business segment, partially offset
by an increase of $27.4 million in the Preferred Lease segment, as
discussed further in the ‘‘Segment Performance’’ section below. Other
store expenses expressed as a percentage of total store revenue were
22.5% for the year ended December 31, 2020, compared to 23.7% in
2019.
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 increased by $10.5 million, or 7.3%, to
$153.1 million for the year ended December 31, 2020, as compared to
$142.6 million
in 2019. General and administrative expenses
expressed as a percentage of total revenue were 5.4% for the year
ended December 31, 2020, compared to 5.3% in 2019.
Other Charges and (Gains). Other charges and (gains) increased by
$97.3 million to $36.6 million in 2020, as compared to $(60.7) million in
2019. Other charges for the year ended December 31, 2020 primarily
related to a loss on the sale of our stores in California, expenses
related to the Merger and the related financing transactions, legal
settlement and state sales tax assessment reserves, cost savings
initiatives, inventory losses resulting from damage related to looting,
employee payroll and sanitation costs in connection with COVID-19,
store closure impacts, and asset disposals, partially offset by
proceeds from the sale of a legal antitrust claim, rent abatements, and
insurance proceeds related to hurricane Maria in 2017. Other gains for
the year ended December 31, 2019 primarily related to receipt of the
Vintage Settlement 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.
Operating Profit. Operating profit decreased $16.6 million, or 6.5%, to
$237.3 million for the year ended December 31, 2020, as compared to
$253.9 million in 2019, primarily due to an increase in other charges
and (gains) driven by the Vintage termination settlement received in
2019 documented above, partially offset by the increase in gross
profit, as described above. Operating profit expressed as a
percentage of
the year ended
December 31, 2020, compared to 9.5% in 2019. Excluding other
charges and (gains), operating profit was $273.9 million, or 9.7% of
revenue for the year ended December 31, 2020, compared to
$193.1 million or 7.2% of revenue for the comparable period of 2019.
total revenue was 8.4%
for
Income Tax Expense. Income tax expense for the twelve months ended
December 31, 2020 was $14.7 million, as compared to $50.2 million in
2019. The effective tax rate was 6.6% for the twelve months ended
December 31, 2020, compared to 22.4% in 2019. The decrease in
income tax expense for the twelve months ended December 31, 2020
compared to 2019 was primarily related to the tax benefit of net
operating loss carrybacks at a 35% tax rate as a result of changes from
the Coronavirus Aid, Relief, and Economic Security Act, enacted on
March 27, 2020 (the ‘‘CARES Act’’) and the release of domestic and
foreign tax valuation allowances.
35
RENT-A-CENTER - Annual Report on Form 10-K 35
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
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.
increased by $10.1 million, or 3.3%,
Cost of Merchandise Sold. Cost of merchandise sold represents the
net book value of rental merchandise at time of sale. Cost of
merchandise sold
to
$319.0 million for the year ended December 31, 2019, from
$308.9 million
increases of
in 2018, primarily attributable
$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
the year ended
December 31, 2019, from (1.5)% in 2018.
to (4.7)%
for
to
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 N 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.
(Gains) and Charges. Other charges decreased by
Other
$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
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.
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’’ section
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.
36 RENT-A-CENTER - Annual Report on Form 10-K
36
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Segment Performance
Rent-A-Center Business segment.
Year Ended December 31,
2020-2019 Change
2019-2018 Change
(Dollar amounts in thousands)
2020
2019
2018
$
%
$
Revenues
Gross profit
Operating profit
$1,852,641
$1,800,486
$1,855,712
$ 52,155
1,294,695
1,255,153
1,299,809
333,379
235,964
147,787
39,542
97,415
Change in same store revenue
Stores in same store revenue calculation
$(55,226)
(44,656)
88,177
2.9%
3.2%
41.3%
9.0%
1,676
%
(3.0)%
(3.4)%
59.7%
4.1%
1,795
Revenues. The increase in revenue for the year ended December 31,
2020 was driven primarily by an increase in same store sales resulting
from higher merchandise sales and growth in e-commerce sales,
impacted by government stimulus and
which were positively
supplemental unemployment benefits
federal
government in response to the COVID-19 pandemic, as compared to
2019, partially offset by decreases in revenue due to our refranchising
efforts and the rationalization of our Rent-A-Center Business store
base.
issued by
the
Gross Profit. Gross profit increased in 2020 primarily due to the
increases in revenue described above, partially offset by increases in
the cost of rentals and fees and cost of merchandise sold. Gross profit
as a percentage of segment revenues increased to 69.9% in 2020 from
69.7% in 2019.
Preferred Lease segment.
Operating Profit. Operating profit as a percentage of segment
revenues was 18.0% for 2020 compared to 13.1% for 2019. The
increase in operating profit for the year ended December 31, 2020 was
partially due to the increase in gross profit described above, in
addition to decreases in store labor and other store expenses.
Declines in store labor and other store expenses were driven primarily
by lower store count and a decrease in customer stolen merchandise.
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, were approximately
3.0% for the year ended December 31, 2020, compared to 3.8% in
2019. Other merchandise losses include unrepairable and missing
merchandise, and loss/damage waiver claims. Charge-offs in our
to other
Rent-A-Center Business
merchandise losses, expressed as a percentage of revenues, were
approximately 1.5% for the year ended December 31, 2020, compared
to 1.3% in 2019.
lease-to-own stores due
Year Ended December 31,
2020-2019 Change
2019-2018 Change
(Dollar amounts in thousands)
2020
2019
2018
$
%
$
$810,151
$749,260
$722,562
$ 60,891
8.1%
$ 26,698
321,110
333,798
339,616
(12,688)
(3.8)%
(5,818)
57,847
83,066
93,951
(25,219)
(30.4)%
(10,885)
(11.6)%
%
3.7%
(1.7)%
Revenues
Gross profit
Operating profit
Revenues. The increase in revenue for the year ended December 31,
2020 compared to 2019 was primarily due to the implementation and
expansion of the Preferred Lease virtual solution following the
acquisition of Merchants Preferred in August 2019, partially offset by
challenges with availability of products at many retail partners in the
second half of 2020.
Gross Profit. Gross profit decreased for the year ended December 31,
2020 compared to 2019, primarily driven by a higher number of early
payouts resulting from government stimulus and supplemental
unemployment benefits issued by the federal government in response
to the COVID-19 pandemic. Gross profit as a percentage of segment
revenue decreased to 39.6% in 2020 as compared to 44.6% in 2019.
Operating Profit. Operating profit decreased by 30.4% compared to
2019, primarily due to increases in other store expenses. The increase
in other store expenses was primarily due to higher merchandise
losses, primarily related to COVID-19, a higher mix of virtual locations,
and investments to support expected revenue growth. Charge-offs in
our Preferred Lease locations due to customer stolen merchandise,
expressed as a percentage of revenues, were approximately 13.3% in
2020 as compared to 10.7% in 2019. 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
0.4% and 0.3% in 2020 and 2019, respectively.
37
RENT-A-CENTER - Annual Report on Form 10-K 37
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Mexico segment.
Year Ended December 31,
2020-2019 Change
2019-2018 Change
(Dollar amounts in thousands)
2020
2019
2018
$
%
$
Revenues
Gross profit
Operating profit (loss)
Change in same store revenue
Stores in same store revenue calculation
$50,583
$53,960
$49,613
$(3,377)
(6.3)%
$4,347
35,665
37,488
34,364
(1,823)
(4.9)%
5,798
5,357
2,605
441
8.2%
5.2%
121
3,124
2,752
%
8.8%
9.1%
105.6%
9.7%
108
Revenues. Revenues for 2020 were negatively impacted by exchange
rate fluctuations of approximately $5.5 million, as compared to 2019.
On a constant currency basis, revenues for the year ended
December 31, 2020 increased approximately $2.1 million.
Gross Profit. Gross profit for the year ended December 31, 2020 was
negatively impacted by exchange rate fluctuations of approximately
$3.9 million, as compared to 2019. On a constant currency basis,
gross profit for the year ended December 31, 2020 increased
approximately $2.1 million. Gross profit as a percentage of segment
revenues increased to 70.5% in 2020, compared to 69.5% in 2019.
Operating Profit. Operating profit for the year ended December 31,
2020 was negatively impacted by exchange rate fluctuations of
approximately $0.6 million, compared to 2019. On a constant currency
basis, operating profit for the year ended December 31, 2020
increased approximately $1.0 million. Operating profit as a percentage
of segment revenues increased to 11.5% in 2020, compared to 9.9% in
2019.
Franchising segment.
(Dollar amounts in thousands)
2020
2019
2018
$
%
$
%
Year Ended December 31,
2020-2019 Change
2019-2018 Change
Revenues
Gross profit
Operating profit
$100,816
$66,146
$32,578
$34,670
20,682
17,632
14,379
12,570
7,205
4,385
3,050
5,365
52.4%
17.3%
74.5%
$33,568
103.0%
3,253
2,820
22.6%
64.3%
Revenues. Revenues increased for the year ended December 31,
2020, compared to 2019, primarily due to an increase in franchise
locations as a result of refranchising Rent-A-Center Business
corporate stores, and higher inventory purchases by our franchisees.
changes in our revenue mix of franchise royalties and fees and rental
merchandise sales, related to the increase in franchise locations
described above.
Gross Profit. Gross profit as a percentage of segment revenues
decreased to 20.5% in 2020 from 26.7% in 2019, primarily due to
Operating Profit. Operating profit as a percentage of segment
revenues increased to 12.5% in 2020 from 10.9% for 2019, primarily
due to a decrease in operating expenses.
Liquidity and Capital Resources
Overview. For the year ended December 31, 2020, we generated
$236.5 million in operating cash flow. We paid down $42.0 million of
debt using cash generated from operations, and used cash in the
amount of $63.1 million for dividends, $26.6 million for share
repurchases, and $34.5 million for capital expenditures. We ended the
year with $159.4 million of cash and cash equivalents and outstanding
indebtedness of $197.5 million. In connection with the Merger, we
refinanced and incurred substantial additional indebtedness in
February 2021 as discussed in the ‘‘Senior Debt’’ and ‘‘Senior Notes’’
sections below.
Analysis of Cash Flow. Cash provided by operating activities increased
by $21.1 million to $236.5 million in 2020 from $215.4 million in 2019.
This increase was primarily attributable to a decrease in rental
merchandise purchases during the year ended December 31, 2020,
compared to the same period in 2019, receipt of our federal tax refund
of approximately $30 million, and other net changes in operating
assets and liabilities.
(used
in) provided by
investing activities decreased
Cash
approximately $41.4 million
from
$20.8 million in 2019, primarily due to an increase in capital
expenditures and lower proceeds from the sale of property assets,
offset by cash consideration paid for the acquisition of Merchants
Preferred in 2019.
to $(20.6) million
in 2020
Cash used in financing activities decreased by $194.9 million to
$126.7 million in 2020 from $321.6 million in 2019, primarily due to a
net decrease in debt repayments compared to debt proceeds of
$261.2 million, partially offset by increases in dividends paid of
$49.4 million, and share repurchases of $25.3 million during the twelve
months ended December 31, 2020.
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.
38 RENT-A-CENTER - Annual Report on Form 10-K
38
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 19, 2021, we
had approximately $70.7 million in cash on hand, and $294 million
available under our ABL Credit Facility.
Deferred Taxes. Certain federal tax legislation enacted during the
period 2009
first-year depreciation
deductions ranging from 50% to 100% of the adjusted basis of
to 2017 permitted bonus
Merchandise Losses. Merchandise losses consist of the following:
the 50% bonus depreciation
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
to 2015 and through
September 26, 2017, when it was updated by the Tax Cuts and Jobs
Act of 2017 (‘‘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 $211 million for us in 2020. We estimate the remaining tax
deferral associated with bonus depreciation from these Acts is
approximately $260 million at December 31, 2020, of which
approximately 80%, or $207 million, will reverse in 2021, and the
majority of the remainder will reverse between 2022 and 2023.
(In thousands)
Customer stolen merchandise(1)
Other merchandise losses(2)
Total merchandise losses
Year Ended December 31,
2020
2019
2018
$174,527
$158,324
$136,705
30,660
25,830
33,219
$205,187
$184,154
$169,924
(1)
Includes incremental losses related to COVID-19
(2) 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, acquire new capital assets in new
and acquired stores and invest in information technology. We spent
$34.5 million, $21.2 million and $28.0 million on capital expenditures in
the years 2020, 2019 and 2018, respectively.
Acquisitions and New Location Openings. During 2020, we acquired
two new Rent-A-Center Business locations and customer accounts for
an aggregate purchase price of approximately $0.7 million in two
transactions. The store locations were closed upon acquisition and
consolidated into existing store operations in our Rent-A-Center
Business segment.
The tables below summarize the location activity for the years ended
December 31, 2020, 2019 and 2018.
Locations at beginning of period(1)
Conversions
Closed locations
Merged with existing locations
Sold or closed with no surviving location
Locations at end of period(1)
Acquired locations closed and accounts merged with existing locations
Year Ended December 31, 2020
Rent-A-
Center
Business Mexico
Franchising
1,973
(99)
(28)
(1)
1,845
2
123
—
(2)
—
121
—
372
99
—
(9)
462
—
Total
2,468
—
(30)
(10)
2,428
2
Total approximate purchase price (in millions)
$
0.7
$ —
$ — $
0.7
(1) Does not include locations in our Preferred Lease segment.
39
RENT-A-CENTER - Annual Report on Form 10-K 39
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Locations at beginning of period(1)
New location openings
Conversions
Closed locations
Merged with existing locations
Sold or closed with no surviving location
Locations at end of period(1)
Acquired locations closed and accounts merged with existing locations
Year Ended December 31, 2019
Rent-A-
Center
Business Mexico
Franchising
Total
2,158
122
281
2,561
—
(97)
(84)
(4)
1,973
4
1
—
—
—
123
—
2
97
—
(8)
3
—
(84)
(12)
372
2,468
—
4
Total approximate purchase price (in millions)
$
0.5
$ —
$ — $
0.5
(1) Does not include locations in our Preferred Lease segment.
Locations at beginning of period(1)
New location openings
Acquired locations remaining open
Conversions
Closed locations
Merged with existing locations
Sold or closed with no surviving location
Locations at end of period(1)
Acquired locations closed and accounts merged with existing locations
Year Ended December 31, 2018
Rent-A-
Center
Business Mexico
Franchising
Total
2,381
131
225
2,737
—
1
(71)
(137)
(16)
2,158
6
—
—
—
(8)
(1)
122
—
3
—
71
—
(18)
281
—
3
1
—
(145)
(35)
2,561
6
Total approximate purchase price (in millions)
$
2.0
$ —
$ — $
2.0
(1) Does not include locations in our Preferred Lease segment.
Senior Debt. On February 17, 2021, we entered into a credit agreement
with JPMorgan Chase Bank, N.A., as administrative agent, and
lenders party thereto, that provides for a five-year asset-based
revolving credit facility with commitments of $550 million and a letter of
credit sublimit of $150 million, which commitments may be increased,
at the Company’s option and under certain conditions, by up to an
additional $125 million in the aggregate (the ‘‘ABL Credit Facility’’).
Under the ABL Credit Facility, the Company may borrow only up to the
lesser of the level of the then-current borrowing base and the
aggregate amount of commitments under the ABL Credit Facility. The
borrowing base is tied to the amount of eligible installment sales
accounts, inventory and eligible rental contracts, reduced by reserves.
The ABL Credit Facility bears interest at a fluctuating rate determined
by reference to the eurodollar rate plus an applicable margin of 1.50%
to 2.00%, which margin, as of February 19, 2021, was 2.125%. A
commitment fee equal to 0.250% to 0.375% of the unused portion of
the ABL Credit Facility fluctuates dependent upon average utilization
for the prior month as defined by a pricing grid included in the
documentation governing the ABL Credit Facility. Loans under the ABL
Credit Facility may be borrowed, repaid and re-borrowed until
February 17, 2026, at which time all amounts borrowed must be
repaid. The obligations under the ABL Credit Facility are guaranteed
by the Company and certain of its wholly owned domestic restricted
subsidiaries, subject to certain exceptions. The obligations under the
ABL Credit Facility and such guarantees are secured on a first-priority
basis by all of the Company’s and the subsidiary guarantors’
accounts, inventory, deposit accounts, securities accounts, cash and
cash equivalents, rental agreements, general intangibles (other than
equity interests in the Company’s subsidiaries), chattel paper,
instruments, documents, letter of credit rights, commercial tort claims
related to the foregoing and other related assets and all proceeds
thereof related to the foregoing, subject to permitted liens and certain
exceptions (such assets, collectively, the ‘‘ABL Priority Collateral’’) and
a second-priority basis in substantially all other present and future
tangible and intangible personal property of the Company and the
subsidiary guarantors, subject to certain exceptions.
At February 19, 2021, we had outstanding borrowings of $165 million
and available commitments of $294 million under our ABL Credit
Facility, net of letters of credit.
On February 17, 2021, we also entered into a term loan credit
agreement with JPMorgan Chase Bank, N.A., as administrative agent,
and lenders party thereto, that provides for a seven-year $875 million
senior secured term loan facility (the ‘‘Term Loan Facility’’). Subject in
each case to certain restrictions and conditions, the Company may
add up to $500 million of incremental term loan facilities to the Term
Loan Facility or utilize incremental capacity under the Term Loan
Facility at any time by issuing or incurring incremental equivalent term
debt. Interest on borrowings under the Term Loan Facility is payable at
a fluctuating rate of interest determined by reference to the eurodollar
rate plus an applicable margin of 4.00%, subject to a 0.75% LIBOR
40 RENT-A-CENTER - Annual Report on Form 10-K
40
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
floor. Borrowings under the Term Loan Facility amortize in equal
quarterly installments in an amount equal to 1.000% per annum of the
original aggregate principal amount thereof, with the remaining
balance due at final maturity. The Term Loan Facility is secured by a
first-priority security interest in substantially all of present and future
tangible and intangible personal property of the Company and the
subsidiary guarantors, other than the ABL Priority Collateral, and by a
second-priority security interest in the ABL Priority Collateral, subject
to certain exceptions. The obligations under the Term Loan Facility are
guaranteed by the Company and the Company’s material wholly-
owned domestic restricted subsidiaries that also guarantee the ABL
Credit Facility.
The Term Loan Facility was fully drawn at the closing of the Merger to
fund a portion of the Aggregate Cash Consideration payable in the
Merger, repay certain outstanding indebtedness of the Company and
its subsidiaries, repay all outstanding indebtedness of Acima and its
subsidiaries and pay certain fees and expenses incurred in connection
with the Merger. A portion of such proceeds were used to repay
$197.5 million outstanding under the Company’s prior term loan
facility, dated as of August 5, 2019, among the Company, JPMorgan
Chase Bank, N.A., as administrative agent, and the lenders party
thereto (the ‘‘Prior Term Loan Facility’’), which Prior Term Loan Facility
was terminated in connection with such repayment. At February 19,
2021, we had outstanding borrowings of $875 million under the Term
Loan Facility.
Senior Notes. On February 17, 2021, we issued $450.0 million in senior
unsecured notes due February 15, 2029, at par value, bearing interest
at 6.375% (the ‘‘Notes’’), the proceeds of which were used to fund a
portion of the Aggregate Cash Consideration upon closing of the
Merger to acquire Acima. Interest on the Notes is payable in arrears on
February 15 and August 15 of each year, beginning on August 15,
2021. The Company may redeem some or all of the Notes at any time
on or after February 15, 2024 for cash at the redemption prices set
forth in the indenture governing the Notes, plus accrued and unpaid
interest to, but not
including, the redemption date. Prior to
February 15, 2024, the Company may redeem up to 40% of the
aggregate principal amount of the Notes with the proceeds of certain
equity offerings at a redemption price of 106.375% plus accrued and
unpaid interest to, but not including, the redemption date. In addition,
the Company may redeem some or all of the Notes prior to
February 15, 2024, at a redemption price of 100% of the principal
amount of the Notes plus accrued and unpaid interest to, but not
including, the redemption date, plus a ‘‘make-whole’’ premium. If the
Company experiences specific kinds of change of control, it will be
required to offer to purchase the Notes at a price equal to 101% of the
principal amount thereof plus accrued and unpaid interest.
Operating Leases. We lease space for all of our Rent-A-Center
Business and Mexico stores under operating leases expiring at
various times through 2027. 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 contain
renewal options for additional periods ranging from three to five years
at rental rates adjusted according to agreed-upon formulas. As of
December 31, 2020, our total remaining obligation for existing store
lease contracts was approximately $322.3 million.
We lease vehicles for all of our Rent-A-Center Business stores under
operating leases with lease terms expiring twelve months after the start
date of the lease. We classify these leases as short-term and have
elected the short-term lease exemption for our vehicle leases, and
have therefore excluded them from our operating lease right-of-use
assets within our condensed consolidated balance sheet. As of
December 31, 2020, our total remaining minimum obligation for
existing Rent-A-Center Business vehicle
lease contracts was
approximately $0.7 million.
We also lease vehicles for all of our Mexico stores which have terms
expiring at various times through 2024 with rental rates adjusted
periodically for inflation. As of December 31, 2020, our total remaining
obligation
lease contracts was
approximately $1.0 million.
for existing Mexico vehicle
Reference Note G of our consolidated financial statements for
additional discussion of our store operating leases.
Uncertain Tax Position. As of December 31, 2020, we have recorded
$22.2 million in uncertain tax positions. Although these positions
represent a potential future cash liability to the Company, the amounts
and timing of such payments are uncertain.
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.
Furthermore, we tend to experience slower growth in the number of
rental purchase agreements in the third quarter of each fiscal year
compared to other quarters throughout the year.
Critical Accounting Estimates, Uncertainties or Assessments in Our Financial
Statements
The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent
losses and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. In applying accounting principles, we
must often make individual estimates and assumptions regarding
expected outcomes or uncertainties. Our estimates, judgments and
assumptions are continually evaluated based on available information
and experience. Because of the use of estimates inherent in the
financial reporting process, actual results could differ from those
estimates. We believe the following are areas where the degree of
judgment and complexity in determining amounts recorded in our
consolidated financial statements make the accounting policies
critical.
41
RENT-A-CENTER - Annual Report on Form 10-K 41
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
If we make changes to our reserves in accordance with the policies
described below, our earnings would be impacted. Increases to our
reserves would reduce earnings and, similarly, reductions to our
reserves would
increase our earnings. A pre-tax change of
approximately $0.6 million in our estimates would result in a
corresponding $0.01 change in our diluted earnings per common
share as of December 31, 2020.
Self-Insurance Liabilities. We have self-insured retentions with respect
to losses under our workers’ compensation, general liability, vehicle
liability and health insurance programs. We establish reserves for our
liabilities associated with these losses by obtaining forecasts for the
ultimate expected losses and estimating amounts needed to pay
losses within our self-insured retentions.
We continually institute procedures to manage our loss exposure and
increases in health care costs associated with our insurance claims
through our risk management function, including a transitional duty
program for injured workers, ongoing safety and accident prevention
training, and various other programs designed to minimize losses and
improve our loss experience in our store locations. We make
assumptions on our liabilities within our self-insured retentions using
actuarial loss forecasts, company-specific development factors,
general industry loss development factors, and third-party claim
administrator loss estimates which are based on known facts
incorporate
individual claims. These assumptions
surrounding
expected increases in health care costs. Periodically, we reevaluate
our estimate of liability within our self-insured retentions. At that time,
we evaluate the adequacy of our reserves by comparing amounts
reserved on our balance sheet for anticipated losses to our updated
actuarial loss forecasts and third-party claim administrator loss
estimates, and make adjustments to our reserves as needed.
As of December 31, 2020, the amount reserved for losses within our
self-insured retentions with respect to workers’ compensation, general
liability and vehicle liability insurance was $88.3 million, as compared
to $97.3 million at December 31, 2019. However, if any of the factors
that contribute to the overall cost of insurance claims were to change,
the actual amount incurred for our self-insurance liabilities could be
more or less than the amounts currently reserved.
Rental Merchandise. Rental merchandise is carried at cost, net of
accumulated depreciation. Depreciation for merchandise is generally
provided using the income forecasting method, which is intended to
match as closely as practicable the recognition of depreciation
expense with the consumption of the rental merchandise, and
assumes no salvage value. The consumption of rental merchandise
occurs during periods of rental and directly coincides with the receipt
of rental revenue over the rental purchase agreement period. Under
the income forecasting method, merchandise held for rent is not
depreciated and merchandise on rent is depreciated in the proportion
of rents received to total rents provided in the rental contract, which is
an activity-based method similar to the units of production method. We
depreciate merchandise (including computers and tablets) that is held
for rent for at least 180 consecutive days using the straight-line method
over a period generally not to exceed 18 months. Beginning in 2016,
smartphones are depreciated over an 18-month straight-line basis
beginning with the earlier of on rent or 90 consecutive days on held for
rent.
Rental merchandise which is damaged and inoperable is expensed
when such impairment occurs. In addition, any minor repairs made to
rental merchandise are expensed at the time of the repair. If a
customer does not return merchandise on-rent or make a 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. We maintain a reserve for
these expected losses, which estimates the merchandise losses
incurred but not yet identified by management as of the end of the
accounting period based on a combination of historical write-offs and
expected future losses. As of December 31, 2020 and 2019, the
reserve for merchandise losses was $58.1 million and $55.2 million,
respectively.
tax rates and
income, statutory
Income Taxes. Our annual tax rate is affected by many factors,
including the mix of our earnings, legislation and acquisitions, and is
based on our
tax planning
opportunities available to us in the jurisdictions in which we operate.
Tax laws are complex and subject to differing interpretations between
the taxpayer and the taxing authorities. Significant judgment is
required in determining our tax expense, evaluating our tax positions
and evaluating uncertainties. Deferred income tax assets represent
amounts available to reduce income taxes payable in future years.
Such assets arise because of temporary differences between the
financial reporting and tax bases of assets and liabilities, as well as
from net operating loss and tax credit carryforwards. We evaluate the
recoverability of these future tax deductions and credits by assessing
the future expected taxable income from all sources, including
reversal of taxable temporary differences, forecasted operating
earnings and available tax planning strategies. These sources of
income rely heavily on estimates. We use our historical experience
and our short- and long-range business forecasts to provide insight
and assist us in determining recoverability. We recognize the financial
statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than not
threshold, the amount recognized in the financial statements is the
largest benefit that has a greater than 50 percent likelihood of being
realized upon the ultimate settlement with the relevant tax authority. A
number of years may elapse before a particular matter, for which we
have recorded a liability, is audited and effectively settled. We review
our tax positions quarterly and adjust our liability for unrecognized tax
benefits in the period in which we determine the issue is effectively
settled with the tax authorities, the statute of limitations expires for the
relevant taxing authority to examine the tax position, or when more
information becomes available.
Valuation of Goodwill. We perform an assessment of goodwill for
impairment at the reporting unit level annually on October 1, or
between annual tests, if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit
below its carrying amount. Factors which could necessitate an interim
impairment assessment include, but are not limited to, a sustained
decline in our market capitalization, prolonged negative industry or
economic
to
historical or projected future operating results.
trends and significant underperformance relative
Based on our assessment, if the fair value of the reporting unit exceeds
its carrying value, then the goodwill is not deemed impaired. If the
carrying value of the reporting unit exceeds fair value, goodwill is
deemed impaired and the impairment is measured as the difference
between the carrying value and the fair value of the respective
reporting unit. As an alternative to performing a quantitative
assessment to measure the fair value of the relevant unit, the
Company may perform a qualitative assessment for impairment if it
believes it is not more likely than not that the carrying value of the net
assets of the reporting unit exceeds its fair value.
42 RENT-A-CENTER - Annual Report on Form 10-K
42
PART II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our reporting units are our reportable operating segments identified in
Note T to the consolidated financial statements. Determining the fair
value of a reporting unit is judgmental in nature and involves the use of
significant estimates and assumptions that we believe are reasonable
but inherently uncertain, and actual results may differ from those
estimates. These estimates and assumptions include, but are not
limited to, future cash flows based on revenue growth rates and
operating margins, and future economic and market conditions
approximated by a discount rate derived from our weighted average
cost of capital. Factors that could affect our ability to achieve the
expected growth rates or operating margins include, but are not
limited to, the general strength of the economy and other economic
conditions that affect consumer preferences and spending and factors
that affect the disposable income of our current and potential
customers. Factors that could affect our weighted average cost of
capital include changes in interest rates and changes in our effective
tax rate.
During the period from our 2019 goodwill impairment assessment
through the third quarter 2020, we periodically analyzed whether any
indicators of impairment had occurred, including by comparing the
estimated fair value of the Company, as determined based on our
consolidated stock price, to its net book value. As the estimated fair
value of the company was higher than its net book value during each
of these periods, no additional testing was deemed necessary.
We completed a qualitative assessment for impairment of goodwill as
of October 1, 2020, concluding it was not more likely than not that the
carrying value of net assets of our reporting units exceeded their fair
value.
At December 31, 2020 and 2019, the amount of goodwill allocated to
the Rent-A-Center Business and Preferred Lease segments was
$1.5 million and $68.7 million, respectively.
Based on an assessment of our accounting policies and the
underlying judgments and uncertainties affecting the application of
those policies, we believe our consolidated financial statements fairly
present in all material respects the financial condition, results of
operations and cash flows of our company as of, and for, the periods
presented in this Annual Report on Form 10-K. However, we do not
suggest that other general risk factors, such as those discussed
elsewhere in this report as well as changes in our growth objectives or
performance of new or acquired locations, could not adversely impact
our consolidated financial position, results of operations and cash
flows in future periods.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes, which is
intended to simplify various aspects related to accounting for income
taxes. The standard removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends existing
guidance
improve consistent application. The adoption of
ASU 2019-12 will be required for us beginning January 1, 2021. We do
not believe this ASU will have a material impact on our financial
statements upon adoption.
to
From time to time, new accounting pronouncements are issued by the
FASB or other standards setting bodies that we adopt as of the
specified effective date. Unless otherwise discussed, we believe the
impact of any other recently issued standards that are not yet effective
are either not applicable to us at this time or will not have a material
impact on our consolidated financial statements upon adoption.
Please reference Note A for discussion of recently adopted accounting
pronouncements, and the impacts of adoption to our consolidated
financial statements.
43
RENT-A-CENTER - Annual Report on Form 10-K 43
PART II
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
Interest Rate Sensitivity
As of December 31, 2020, we had $197.5 million outstanding under our term loan credit agreement at interest rates indexed to the Eurodollar rate
or the prime rate. As of December 31, 2020, pro forma for the Merger and related financing transactions, we had approximately $875.0 million
outstanding under our term loan credit agreement and $165.0 million outstanding under our ABL credit agreement, each at interest rates indexed
to the Eurodollar rate or the prime rate. Carrying value approximates fair value for such indebtedness.
Market Risk
Market risk is the potential change in an instrument’s value caused by fluctuations in interest rates. Our primary market risk exposure is fluctuations
in interest rates. Monitoring and managing this risk is a continual process carried out by our senior management. We manage our market risk
based on an ongoing assessment of trends in interest rates and economic developments, giving consideration to possible effects on both total
return and reported earnings. As a result of such assessment, we may enter into swap contracts or other interest rate protection agreements from
time to time to mitigate this risk.
Interest Rate Risk
We have outstanding debt with variable interest rates indexed to prime or Eurodollar rates that exposes us to the risk of increased interest costs if
interest rates rise. As of December 31, 2020, we have not entered into any interest rate swap agreements. Based on our overall interest rate
exposure at December 31, 2020, a hypothetical 1.0% increase or decrease in market interest rates would have the effect of causing an additional
$2.0 million additional annualized pre-tax charge or credit to our consolidated statement of operations. As of December 31, 2020, pro forma for the
Merger and related transactions, a hypothetical 1.0% increase would have the effect of causing an additional approximately $10.5 million
additional annualized pre-tax charge or credit to our consolidated statement of operations.
Foreign Currency Translation
We are exposed to market risk from foreign exchange rate fluctuations of the Mexican peso to the U.S. dollar as the financial position and operating
results of our stores in Mexico are translated into U.S. dollars for consolidation. Resulting translation adjustments are recorded as a separate
component of stockholders’ equity.
44 RENT-A-CENTER - Annual Report on Form 10-K
44
PART II
Item 8. Financial Statements and Supplementary Data.
Item 8. Financial Statements and Supplementary
Data.
INDEX TO FINANCIAL STATEMENTS
Rent-A-Center, Inc. and Subsidiaries
Page
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Management’s Annual Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . . .
51
Consolidated Financial Statements
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
45
RENT-A-CENTER - Annual Report on Form 10-K 45
PART II
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public
Accounting Firm
To the Stockholders and the Board of Directors of
Rent-A-Center, Inc.
Opinion on the Financial Statements
Inc. and subsidiaries
We have audited the accompanying consolidated balance sheet of
Rent-A-Center,
(the Company) as of
December 31, 2020 and 2019, the related consolidated statements of
operations, comprehensive income, stockholders’ equity and cash
flows for the years then ended and the related notes (collectively
referred to as the ‘‘consolidated financial statements’’). In our opinion,
the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2020
and 2019, and the results of its operations and its cash flows for the
years then ended in conformity with U.S. generally accepted
accounting principles.
Basis for Opinion
internal control over
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the
Company’s
reporting as of
December 31, 2020, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our
report dated February 26, 2021 expressed an unqualified opinion
thereon.
financial
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits
also
the accounting principles used and
significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
included evaluating
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
46 RENT-A-CENTER - Annual Report on Form 10-K
46
Self-Insurance Liabilities
Description of the Matter
How We Addressed the
Matter in Our Audit
PART II
Report of Independent Registered Public Accounting Firm
As described in Note A to the consolidated financial statements, the Company recorded
liabilities totaling $88.3 million associated with its self-insured retentions for workers’
compensation, general liability and vehicle liability insurance (collectively, the self-insurance
liabilities). The self-insurance liabilities are established by obtaining forecasts for the ultimate
expected losses and estimating amounts needed to pay losses within the self-insured
retentions.
Auditing the Company’s self-insurance liabilities is complex and required us to use our
actuarial specialists due to the significant measurement uncertainty associated with the
estimates, management’s application of judgment, and the use of various actuarial methods.
The Company’s analyses of the self-insurance liabilities consider a variety of factors, including
the actuarial loss forecasts, company-specific development factors, general industry loss
development factors and third-party claim administrator loss estimates of individual claims.
The self-insurance liabilities are sensitive to changes in these factors.
We obtained an understanding, evaluated the design, and tested the operating effectiveness
of the Company’s controls over the self-insurance liabilities processes. For example, we tested
controls over the factors mentioned above that management used in the calculations and the
completeness and accuracy of the data underlying the ultimate expected losses.
To evaluate the reserve for self-insurance liabilities, we performed audit procedures that
included, among others, testing the completeness and accuracy of the underlying claims data
provided to management’s actuarial specialist. Additionally, we involved our actuarial
specialists to assist in our evaluation of the key factors mentioned above and the
methodologies applied by management’s specialist to establish the actuarially determined
ultimate expected losses and develop a range for ultimate expected loss estimates based on
independently developed assumptions, which we compared to the Company’s recorded
reserves for self-insurance liabilities.
47
RENT-A-CENTER - Annual Report on Form 10-K 47
PART II
Report of Independent Registered Public Accounting Firm
Merchandise Loss Reserve
Description of the Matter
How We Addressed the
Matter in Our Audit
As described in Note A to the consolidated financial statements, the Company maintains a
$58.1 million reserve for expected merchandise losses from unreturned merchandise related
to delinquent rental agreements. The Company estimates this reserve based on a combination
of historical write-offs and expected future losses.
Auditing the Company’s merchandise loss reserve was complex due to the level of uncertainty
associated with management’s assumptions used to estimate the reserve. In particular,
management was required to estimate the amount of merchandise not expected to be
returned related to delinquent accounts. The Company estimates expected losses from
delinquent accounts based on historical write-off experience, including the number of days
past due before a write-off occurred and expectations about future losses from delinquent
accounts at the end of the year.
We obtained an understanding, evaluated the design, and tested the operating effectiveness
of controls over the Company’s process to determine the valuation of the merchandise loss
reserve. This included testing controls over the Company’s review of the significant inputs
underlying the reserve estimate, which include those mentioned above.
To test the adequacy of the Company’s merchandise loss reserve, we performed substantive
audit procedures that included, among others, testing the accuracy and completeness of the
underlying data used in the reserve calculations and evaluating the Company’s methodology
for estimating future losses. We evaluated significant assumptions, including those mentioned
above, that were used in management’s calculation of the merchandise loss reserve. We also
tested a sample of actual charge-offs to supporting documents to validate the number of days
an account is delinquent before a write-off occurs for merchandise on rent. Among our other
procedures, we performed sensitivity analyses over significant assumptions to evaluate the
changes in the estimated merchandise loss reserve resulting from changes in the Company’s
significant assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Dallas, Texas
February 26, 2021
48 RENT-A-CENTER - Annual Report on Form 10-K
48
PART II
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public
Accounting Firm
To the Stockholders and Board of Directors
Rent-A-Center, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash
flows of Rent-A-Center, Inc. and subsidiaries (the Company) for the
year ended December 31, 2018 and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the results
of operations of the Company and its cash flows for the year then
ended, in conformity with U.S. generally accepted accounting
principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We are
a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating
the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audit provides a
reasonable basis for our opinion.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or
fraud. Our audit included performing procedures to assess the risks of
/s/ KPMG LLP
We served as the Company’s auditor from 2013 to 2019.
Dallas, Texas
March 1, 2019
49
RENT-A-CENTER - Annual Report on Form 10-K 49
PART II
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public
Accounting Firm
To the Stockholders and the Board of Directors of
Rent-A-Center, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Rent-A-Center, Inc. and subsidiaries’ internal control
over financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the
the Treadway
Committee of Sponsoring Organizations of
Commission (2013 framework) (the COSO criteria). In our opinion,
Rent-A-Center, Inc. and subsidiaries (the Company) maintained, in all
material respects, effective internal control over financial reporting as
of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31,
2020 and 2019, the related consolidated statements of operations,
comprehensive income, stockholders’ equity and cash flows for the
years then ended and the related notes and our report dated
February 26, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in
the accompanying Management’s Annual Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
February 26, 2021
50 RENT-A-CENTER - Annual Report on Form 10-K
50
PART II
Management’s Annual Report on Internal Control Over Financial Reporting
MANAGEMENT’S ANNUAL REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Management of the Company, including the Chief Executive Officer
and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934,
as amended. The Company’s internal control system was designed to
provide reasonable assurance to management and the Company’s
Board of Directors regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have
inherent limitations. A system of internal control may become
in conditions, or
time because of changes
inadequate over
deterioration in the degree of compliance with the policies or
procedures. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2020, using the
criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control — Integrated Framework
(2013). Based on this assessment, management has concluded that,
as of December 31, 2020, the Company’s internal control over
financial reporting was effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles based on such criteria.
Ernst & Young LLP, the Company’s independent registered public
accounting firm, has issued an audit report on the effectiveness of the
Company’s internal control over financial reporting, which is included
elsewhere in this Annual Report on Form 10-K.
51
RENT-A-CENTER - Annual Report on Form 10-K 51
PART II
Consolidated Financial Statements
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenues
Store
Rentals and fees
Merchandise sales
Installment sales
Other
Total store revenues
Franchise
Merchandise sales
Royalty income and fees
Total revenues
Cost of revenues
Store
Cost of rentals and fees
Cost of merchandise sold
Cost of installment sales
Total cost of store revenues
Franchise cost of merchandise sold
Total cost of revenues
Gross profit
Operating expenses
Store expenses
Labor
Other store expenses
General and administrative expenses
Depreciation, amortization and write-down of intangibles
Other charges and (gains)
Total operating expenses
Operating profit
Debt refinancing charges
Interest expense
Interest income
Earnings before income taxes
Income tax expense
Net earnings
Basic earnings per common share
Diluted earnings per common share
Cash dividends declared per common share
See accompanying notes to consolidated financial statements.
52 RENT-A-CENTER - Annual Report on Form 10-K
52
Year Ended December 31,
2020
2019
2018
$
2,263,091
$
2,224,402
$
2,244,860
378,717
68,500
3,845
304,630
70,434
4,795
304,455
69,572
9,000
2,714,153
2,604,261
2,627,887
80,023
20,015
49,135
16,456
19,087
13,491
2,814,191
2,669,852
2,660,465
655,612
382,182
24,111
1,061,905
80,134
1,142,039
1,672,152
579,125
609,370
153,108
56,658
36,555
634,878
319,006
23,383
977,267
48,514
1,025,781
1,644,071
630,096
617,106
142,634
61,104
(60,728)
621,860
308,912
23,326
954,098
18,199
972,297
1,688,168
683,422
656,894
163,445
68,946
59,324
1,434,816
1,390,212
1,632,031
237,336
253,859
—
15,325
(768)
222,779
14,664
208,115
3.84
3.73
1.18
$
$
$
$
2,168
31,031
(3,123)
223,783
50,237
173,546
3.19
3.10
0.54
$
$
$
$
$
$
$
$
56,137
475
42,968
(1,147)
13,841
5,349
8,492
0.16
0.16
—
PART II
Consolidated Financial Statements
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(In thousands)
Net earnings
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax of $(193), $158, and $(73)
for 2020, 2019 and 2018, respectively
Total other comprehensive (loss) income
Comprehensive income
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2020
2019
$
208,115
$
173,546
$
(726)
(726)
595
595
$
207,389
$
174,141
$
2018
8,492
(274)
(274)
8,218
53
RENT-A-CENTER - Annual Report on Form 10-K 53
PART II
Consolidated Financial Statements
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value data)
ASSETS
Cash and cash equivalents
Receivables, net of allowance for doubtful accounts of $8,047 and $5,601 in 2020 and 2019,
respectively
Prepaid expenses and other assets
Rental merchandise, net
On rent
Held for rent
Merchandise held for installment sale
Property assets, net of accumulated depreciation of $505,074 and $522,826 in 2020 and 2019,
respectively
Operating lease right-of-use assets
Deferred tax asset
Goodwill
Other intangible assets, net
Total assets
LIABILITIES
Accounts payable — trade
Accrued liabilities
Operating lease liabilities
Deferred tax liability
Senior debt, net
Total liabilities
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; 250,000,000 shares authorized; 112,180,517 and 111,166,229
shares issued in 2020 and 2019, respectively
Additional paid-in capital
Retained earnings
December 31,
2020
2019
$
159,449
$
70,494
90,003
50,006
762,886
146,266
5,439
141,641
283,422
33,782
70,217
7,869
1,750,980
186,063
320,583
285,354
176,410
190,490
$
$
84,123
46,043
697,270
138,418
4,878
166,138
281,566
14,889
70,217
8,762
1,582,798
168,120
275,777
285,041
163,984
230,913
1,158,900
1,123,835
1,105
886,902
1,091,010
1,110
869,617
947,875
$
$
Treasury stock at cost, 57,891,859 and 56,428,482 shares in 2020 and 2019, respectively
(1,375,541)
(1,348,969)
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
(11,396)
(10,670)
592,080
458,963
$
1,750,980
$
1,582,798
54 RENT-A-CENTER - Annual Report on Form 10-K
54
PART II
Consolidated Financial Statements
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Treasury Comprehensive
(Loss) Income
Stock
Total
Balance at January 1, 2018
109,682 $
1,097 $
831,271 $
798,743 $ (1,347,677) $
(10,991) $
272,443
ASC 606 adoption
Net earnings
Other comprehensive loss
Exercise of stock options
Vesting of restricted share units
Tax effect of stock awards vested
and options exercised
Stock-based compensation
—
—
—
138
90
—
—
—
—
—
1
1
—
—
—
—
—
1,399
(1)
(194)
5,961
(1,311)
8,492
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(274)
—
—
—
—
(1,311)
8,492
(274)
1,400
—
(194)
5,961
Balance at December 31, 2018
109,910 $
1,099 $
838,436 $
805,924 $ (1,347,677) $
(11,265) $
286,517
ASC 842 adoption
Net earnings
Other comprehensive income
Purchase of treasury stock
Exercise of stock options
Vesting of restricted share units
Tax effect of stock awards vested
and options exercised
Stock-based compensation
Dividends declared
Merchants Preferred acquisition
—
—
—
—
550
267
—
—
—
439
—
—
—
—
5
2
—
—
—
4
—
—
—
—
6,794
(2)
(1,734)
6,958
(1,976)
173,546
—
—
—
—
—
—
—
(29,619)
19,165
—
—
—
—
(1,292)
—
—
—
—
—
—
—
—
595
—
—
—
—
—
—
—
(1,976)
173,546
595
(1,292)
6,799
—
(1,734)
6,958
(29,619)
19,169
Balance at December 31, 2019
111,166 $
1,110 $
869,617 $
947,875 $ (1,348,969) $
(10,670) $
458,963
ASC 326 adoption
Net earnings
Other comprehensive loss
Purchase of treasury stock
Exercise of stock options
Vesting of restricted share units
Tax effect of stock awards vested
and options exercised
Stock-based compensation
Dividends Declared
—
—
—
—
494
521
—
—
—
—
—
—
(14)
5
4
—
—
—
—
—
—
—
10,275
(4)
(5,270)
12,284
(769)
208,115
—
—
—
—
—
—
—
(64,211)
—
—
—
(26,572)
—
—
—
—
—
—
—
(769)
208,115
(726)
(726)
—
—
—
—
—
—
(26,586)
10,280
—
(5,270)
12,284
(64,211)
Balance at December 31, 2020
112,181 $
1,105 $
886,902 $ 1,091,010 $ (1,375,541) $
(11,396) $
592,080
See accompanying notes to consolidated financial statements.
55
RENT-A-CENTER - Annual Report on Form 10-K 55
PART II
Consolidated Financial Statements
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
Year Ended December 31,
2020
2019
2018
$
208,115
$
173,546
$
8,492
Depreciation of rental merchandise
Bad debt expense
Stock-based compensation expense
Depreciation of property assets
Loss (gain) on sale or disposal of property assets
Amortization of intangibles
Amortization of financing fees
Write-off of debt financing fees
Deferred income taxes
Changes in operating assets and liabilities, net of effects of acquisitions
Rental merchandise
Receivables
Prepaid expenses and other assets
Operating lease right-of-use assets and lease liabilities
Accounts payable — trade
Accrued liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchase of property assets
Proceeds from sale of assets
Hurricane insurance recovery proceeds
Acquisitions of businesses
Net cash (used in) provided by investing activities
Cash flows from financing activities
Share repurchases
Exercise of stock options
Shares withheld for payment of employee tax withholdings
Debt issuance costs
Proceeds from debt
Repayments of debt
Dividends paid
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid during the year for:
Interest
Income taxes (excludes $32,318, $2,074, and $47,837 of income taxes refunded in
2020, 2019 and 2018, respectively)
See accompanying notes to consolidated financial statements.
56 RENT-A-CENTER - Annual Report on Form 10-K
56
633,695
14,635
12,284
55,597
18,215
1,070
1,577
—
(6,605)
(736,444)
(20,674)
(3,963)
(1,543)
17,943
42,600
236,502
(34,545)
14,477
158
(700)
(20,610)
(26,572)
10,280
(5,270)
—
198,000
(240,000)
(63,119)
(126,681)
(256)
88,955
70,494
619,353
15,077
6,958
60,592
(23,537)
723
2,987
2,168
55,257
(651,487)
(28,855)
3,185
4,366
54,282
(79,199)
215,416
(21,157)
69,717
1,113
(28,915)
20,758
(1,292)
6,799
(1,733)
(8,454)
305,400
(608,640)
(13,707)
(321,627)
556
(84,897)
155,391
616,640
14,610
5,961
68,275
7,388
671
5,486
475
6,816
(569,717)
(14,431)
13,105
—
23,486
40,248
227,505
(27,962)
25,317
—
(2,048)
(4,693)
—
1,401
(317)
(2,098)
27,060
(166,358)
—
(140,312)
(77)
82,423
72,968
$
$
$
159,449
$
70,494
$
155,391
14,222
51,569
$
$
32,114
24,332
$
$
37,530
2,227
PART II
Notes to Consolidated Financial Statements
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note A — Nature of Operations and Summary of Accounting Policies
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements
follows:
Principles of Consolidation and Nature of
Operations
The financial statements included herein include the accounts of
Rent-A-Center, Inc. and its direct and indirect subsidiaries. All
intercompany accounts and transactions have been eliminated.
Unless the context indicates otherwise, references to ‘‘Rent-A- Center’’
refer only to Rent-A-Center, Inc., the parent, and references to the
‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to the consolidated business
operations of Rent-A-Center and any or all of its direct and indirect
subsidiaries. We report four operating segments: Rent-A-Center
Business, Preferred Lease, Mexico and Franchising.
Our Rent-A-Center Business segment consists of company-owned
lease-to-own stores in the United States and Puerto Rico that lease
household durable goods to customers on a lease-to-own basis. We
also offer merchandise on an installment sales basis in certain of our
stores under the names ‘‘Get It Now’’ and ‘‘Home Choice.’’ Our
Rent-A-Center Business segment operates through our company-
owned stores and e-commerce platform through rentacenter.com. At
December 31, 2020, we operated 1,845 company-owned stores
nationwide and in Puerto Rico, including 44 retail installment sales
stores.
Our Preferred Lease segment, which operates in the United States and
Puerto Rico, and includes the operations of Merchants Preferred (as
defined in Note B below) acquired in August 2019, generally offers the
lease-to-own transaction to consumers who do not qualify for
financing from the traditional retailer through kiosks located within
such retailer’s locations, including staffed options, unstaffed or virtual
options, or a combination of the two (the hybrid model). The hybrid
model can be staffed by a Preferred Lease employee (staffed
locations) or employ a virtual solution where customers, either directly
or with the assistance of a representative of the third-party retailer,
initiate the lease-to-own transaction online in the retailers’ locations
using our virtual solutions (virtual locations).
Our Mexico segment consists of our company-owned lease-to-own
stores in Mexico that lease household durable goods to customers on
a lease-to-own basis. At December 31, 2020, we operated 121 stores
in Mexico.
Rent-A-Center Franchising International, Inc., an indirect wholly-
owned subsidiary of Rent-A-Center, is a franchisor of lease-to-own
stores. At December 31, 2020, Franchising had 462 franchised stores
operating in 33 states. Our Franchising segment’s primary source of
revenue is the sale of rental merchandise to its franchisees, who in turn
offer the merchandise to the general public for rent or purchase under
a lease-to-own transaction. The balance of our Franchising segment’s
revenue is generated primarily from royalties based on franchisees’
monthly gross revenues.
Rental Merchandise
Rental merchandise
is carried at cost, net of accumulated
depreciation. Depreciation for merchandise is generally provided
using the income forecasting method, which is intended to match as
closely as practicable the recognition of depreciation expense with the
consumption of the rental merchandise, and assumes no salvage
value. The consumption of rental merchandise occurs during periods
the merchandise is under a rental agreement and directly coincides
with the receipt of rental revenue over the rental purchase agreement
period. Under the income forecasting method, merchandise held for
rent is not depreciated and merchandise on rent is depreciated in the
proportion of rents received to total rents provided in the rental
contract, which is an activity-based method similar to the units of
(including
production method. We depreciate merchandise
computers and tablets) that is held for rent for at least 180 consecutive
days using the straight-line method over a period generally not to
exceed 18 months. Smartphones are depreciated over an 18-month
straight-line basis beginning with the earlier of on rent or 90
consecutive days on held for rent.
Rental merchandise that is damaged and inoperable is expensed
when such impairment occurs. 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. We maintain a reserve for these expected
expenses. In addition, any minor repairs made to rental merchandise
are expensed at the time of the repair. Expenses related to
merchandise losses, damaged merchandise, or merchandise repairs
are recorded to other store expenses in our consolidated statement of
operations.
Cash Equivalents
Cash equivalents include all highly liquid investments with an original
maturity of three months or less. We maintain cash and cash
equivalents at several financial institutions, which at times may not be
federally insured or may exceed federally insured limits. We have not
experienced any losses in such accounts and believe we are not
exposed to any significant credit risks on such accounts.
57
RENT-A-CENTER - Annual Report on Form 10-K 57
PART II
Notes to Consolidated Financial Statements
Revenues
Merchandise is rented to customers pursuant to rental purchase
agreements which provide for weekly, semi-monthly or monthly rental
terms with non-refundable rental payments. Generally, the customer
has the right to acquire title either through a purchase option or
through payment of all required rentals. Rental revenue and fees are
recognized over the rental term and merchandise sales revenue is
recognized when the customer exercises the purchase option and
pays the cash price due. Cash received prior to the period in which it
should be recognized is deferred and recognized according to the
rental term. Revenue is accrued for uncollected amounts due based
on historical collection experience. However, the total amount of the
rental purchase agreement is not accrued because the customer can
terminate the rental agreement at any time and we cannot enforce
collection for non-payment of future rents.
Revenues from the sale of merchandise in our retail installment stores
are recognized when the installment note is signed, the customer has
taken possession of the merchandise and collectability is reasonably
assured.
fee revenue
Revenues from the sale of rental merchandise are recognized upon
shipment of the merchandise to the franchisee. Franchise royalty
income and
is recognized upon completion of
substantially all services and satisfaction of all material conditions
required under the terms of the franchise agreement. Initial franchise
fees charged to franchisees for new or converted franchise stores are
recognized on a straight-line basis over the term of the franchise
agreement.
Receivables and Allowance for Doubtful
Accounts
The
installment notes receivable associated with the sale of
merchandise at our Get It Now and Home Choice stores generally
consists of the sales price of the merchandise purchased and any
additional fees for services the customer has chosen, less the
customer’s down payment. No interest is accrued and interest income
is recognized each time a customer makes a payment, generally on a
monthly basis.
We have established an allowance for doubtful accounts for our
installment notes receivable. Our policy for determining the allowance
is based on historical loss experience, as well as the results of
management’s review and analysis of the payment and collection of
the installment notes receivable within the previous year. We believe
our allowance is adequate to absorb any known or probable losses.
Our policy is to charge off installment notes receivable that are
120 days or more past due. Charge-offs are applied as a reduction to
the allowance for doubtful accounts and any recoveries of previously
charged off balances are applied as an increase to the allowance for
doubtful accounts.
Our trade and notes receivables consist primarily of amounts due from
our rental customers for renewal and uncollected rental payments,
Franchising receivables, and other corporate related receivables. The
majority of our Franchising trade and notes receivables relate to
amounts due from franchisees for inventory purchases, earned
royalties and other obligations. Credit is extended based on an
evaluation of a franchisee’s financial condition and collateral is
generally not required. Trade receivables are generally due within
30 days and are reported as amounts due from franchisees, net of an
allowance for doubtful accounts. Accounts that are outstanding longer
than the contractual payment terms are considered past due.
Franchising determines its allowance by considering a number of
factors, including the length of time receivables are past due, previous
loss history, the franchisee’s current ability to pay its obligation, and
the condition of the general economy and the industry as a whole.
Franchising writes off trade receivables that are 90 or more days past
due and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.
Property Assets and Related Depreciation
Furniture, equipment and vehicles are stated at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives
of the respective assets (generally 5 years) by the straight-line method.
Leasehold improvements are amortized over the useful life of the asset
or the initial term of the applicable leases by the straight-line method,
whichever is shorter.
We have incurred costs to develop computer software for internal use.
We capitalize the costs incurred during the application development
stage, which includes designing the software configuration and
interfaces, coding, installation, and testing. Costs incurred during the
preliminary stages along with post-implementation stages of internally
developed software are expensed as incurred. Internally developed
software costs, once placed in service, are amortized over various
periods up to 10 years.
We incur repair and maintenance expenses on our vehicles and
equipment. These amounts are recognized when incurred, unless
such repairs significantly extend the life of the asset, in which case we
amortize the cost of the repairs for the remaining useful life of the asset
utilizing the straight-line method.
Goodwill and Other Intangible Assets
We record goodwill when the consideration paid for an acquisition
exceeds the fair value of the identifiable net tangible and identifiable
intangible assets acquired. Goodwill is not subject to amortization but
must be periodically evaluated for impairment. Impairment occurs
when the carrying value of goodwill is not recoverable from future cash
flows. We perform an assessment of goodwill for impairment at the
reporting unit level annually as of October 1, or when events or
circumstances indicate that impairment may have occurred.
Our reporting units are our reportable operating segments. Factors
which could necessitate an interim impairment assessment include a
sustained decline in our stock price, prolonged negative industry or
economic
to
expected historical or projected future operating results.
trends and significant underperformance relative
Based on our assessment, if the fair value of the reporting unit exceeds
its carrying value, then the goodwill is not deemed impaired. If the
carrying value of the reporting unit exceeds fair value, goodwill is
deemed impaired and the impairment is measured as the difference
between the carrying value and the fair value of the respective
reporting unit. We determine the fair value of each reporting unit using
methodologies which include the present value of estimated future
cash flows and comparisons of multiples of enterprise values to
earnings before interest, taxes, depreciation and amortization. The
analysis is based upon available information regarding expected
future cash flows and discount rates. Discount rates are generally
based upon our weighted average cost of capital.
As an alternative to performing a quantitative assessment to measure
the fair value of the reporting unit, the Company may perform a
qualitative assessment for impairment if it believes it is not more likely
58 RENT-A-CENTER - Annual Report on Form 10-K
58
than not that the carrying value of the net assets of the reporting unit Other Comprehensive (Loss) Income
exceeds its fair value.
PART II
Notes to Consolidated Financial Statements
At December 31, 2020, the amount of goodwill attributable to the
Rent-A-Center Business and Preferred Lease segments was
approximately $1.5 million and $68.7 million, respectively. We
currently do not have goodwill balances attributable to our Mexico or
Franchising segments.
Acquired customer relationships are amortized over a 21-month
period, non-compete agreements are amortized over the contractual
life of the agreements, vendor relationships are amortized over a 7 or
15 year period, and other intangible assets are amortized over the life
of the asset. Intangible assets are amortized using methods that we
believe reflect the pattern in which the economic benefits of the related
asset are consumed, including using a straight-line method.
Accounting for Impairment of Long-Lived
Assets
We evaluate all long-lived assets, including intangible assets,
excluding goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the related assets
may not be recoverable by the undiscounted net cash flows they will
generate. Impairment is recognized when the carrying amounts of
such assets exceed their fair value. We determine the fair value of our
long-lived assets using methodologies which include the present
value of estimated future cash flows of the asset, or related fair market
values for similar assets.
Self-Insurance Liabilities
for our
We have self-insured retentions with respect to losses under our
workers’ compensation, general liability, vehicle liability and health
insurance programs. We establish reserves
liabilities
associated with these losses by obtaining forecasts for the ultimate
expected losses and estimating amounts needed to pay losses within
our self-insured retentions. We make assumptions on our liabilities
within our self-insured retentions using actuarial loss forecasts,
loss
company-specific development
development
loss
estimates which are based on known facts surrounding individual
claims. These assumptions incorporate expected increases in health
care costs. Periodically, we reevaluate our estimate of liability within
our self-insured retentions. At that time, we evaluate the adequacy of
our reserves by comparing amounts reserved on our balance sheet for
anticipated losses to our updated actuarial loss forecasts and third-
party claim administrator loss estimates, and make adjustments to our
reserves as needed.
industry
third-party claim administrator
factors, general
factors, and
Foreign Currency Translation
The functional currency of our foreign operations is the applicable
local currency. Assets and liabilities denominated in a foreign currency
are translated into U.S. dollars at the current rate of exchange on the
last day of the reporting period. Revenues and expenses are generally
translated at a daily exchange rate and equity transactions are
translated using the actual rate on the day of the transaction.
Other comprehensive (loss) income is comprised exclusively of our
foreign currency translation adjustment.
Income Taxes
We record deferred taxes for temporary differences between the tax
and financial reporting bases of assets and liabilities at the enacted tax
rate expected to be in effect when those temporary differences are
expected to be recovered or settled. Income tax accounting requires
management to make estimates and apply judgments to events that
will be recognized in one period under rules that apply to financial
reporting in a different period in our tax returns. In particular, judgment
is required when estimating the value of future tax deductions, tax
credits and net operating loss carryforwards (NOLs), as represented
by deferred tax assets. We evaluate the recoverability of these future
tax deductions and credits by assessing the future expected taxable
income from all sources, including reversal of taxable temporary
differences, forecasted operating earnings and available tax planning
strategies. These sources of income rely heavily on estimates. We use
our historical experience and our short- and long-range business
forecasts to provide insight and assist us in determining recoverability.
When it is determined the recovery of all or a portion of a deferred tax
asset is not likely, a valuation allowance is established. We include
NOLs in the calculation of deferred tax assets. NOLs are utilized to the
extent allowable due to the provisions of the Internal Revenue Code of
1986, as amended, and relevant state statutes.
We recognize the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the
more likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon the ultimate settlement with the
relevant tax authority. A number of years may elapse before a
particular matter, for which we have recorded a liability, is audited and
effectively settled. We review our tax positions quarterly and adjust our
liability for unrecognized tax benefits in the period in which we
determine the issue is effectively settled with the tax authorities, the
statute of limitations expires for the relevant taxing authority to
examine the tax position, or when more information becomes
available. We classify accrued interest and penalties related to
unrecognized tax benefits as interest expense and general &
administrative expense, respectively.
Sales Taxes
We apply the net basis for sales taxes imposed on our goods and
services in our consolidated statements of operations. We are
required by the applicable governmental authorities to collect and
remit sales taxes. Accordingly, such amounts are charged to the
customer, collected and remitted directly
the appropriate
jurisdictional entity.
to
Earnings Per Common Share
Basic earnings per common share are based upon the weighted
average number of common shares outstanding during each period
presented. Diluted earnings per common share are based upon the
weighted average number of common shares outstanding during the
period, plus, if dilutive, the assumed exercise of stock options and
59
RENT-A-CENTER - Annual Report on Form 10-K 59
PART II
Notes to Consolidated Financial Statements
vesting of stock awards at the beginning of the year, or for the period
outstanding during the year for current year issuances.
liabilities in future periods and cause actual results to differ from those
estimates.
Advertising Costs
Costs incurred for producing and communicating advertising are
expensed when incurred. Advertising expense was $50.9 million,
$58.8 million and $74.6 million, for the years ended December 31,
2020, 2019 and 2018, respectively. Advertising expense is net of
vendor allowances of $24.8 million, $21.2 million, and $17.1 million for
the years ended December 31, 2020, 2019 and 2018, respectively.
Stock-Based Compensation
We maintain long-term incentive plans for the benefit of certain
employees and directors, which are described more fully in Note O.
We recognize share-based payment awards to our employees and
directors at the estimated fair value on the grant date. Determining the
fair value of any share-based award requires information about several
variables that include, but are not limited to, expected stock volatility
over the term of the award, expected dividend yields, and the risk free
interest rate. We base the expected term on historical exercise and
post-vesting employment-termination experience, and expected
volatility on historical realized volatility trends. In addition, all stock-
based compensation expense is recorded net of an estimated
forfeiture rate. The forfeiture rate is based upon historical activity and is
analyzed at least annually as actual forfeitures occur. Compensation
costs are recognized net of estimated forfeitures over the requisite
service period on a straight-line basis. We issue new shares to settle
stock awards. Stock options are valued using a Black-Scholes pricing
model. Time-vesting restricted stock units are valued using the closing
price on the Nasdaq Global Select Market on the day before the grant
date, adjusted for any provisions affecting fair value, such as the lack
of dividends or dividend equivalents during the vesting period.
Performance-based restricted stock units will vest in accordance with
a total shareholder return formula, and are valued by a third-party
valuation firm using Monte Carlo simulations.
Reclassifications
Certain reclassifications may be made to the reported amounts for
prior periods to conform to the current period presentation. These
reclassifications have no impact on net earnings or earnings per share
in any period.
Use of Estimates
In preparing financial statements in conformity with U.S. generally
accepted accounting principles, we are required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent losses and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. In applying accounting
principles, we must often make individual estimates and assumptions
regarding expected outcomes or uncertainties. Our estimates,
judgments and assumptions are continually evaluated based on
available
information and experience. However, uncertainties,
including future unknown impacts of the COVID-19 pandemic, may
affect certain estimates and assumptions inherent in the financial
reporting process, which may impact reported amounts of assets and
Newly Adopted Accounting
Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments —
Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which requires immediate recognition of estimated
current expected credit losses, rather than recognition when incurred.
We adopted ASU 2016-13 and all related amendments, including ASU
2020-02 and ASU 2020-03, beginning January 1, 2020, using a
modified
retrospective approach. Under such approach, we
recognized the cumulative-effect of our adoption of the guidance as an
adjustment to the opening balance of retained earnings for the quarter
ended March 31, 2020. The application of this new methodology is
limited to our installment notes receivables and trade receivables with
our
to merchandise sales. The
comparative information has not been restated and continues to be
reported under the accounting standards in effect for periods ending
prior to January 1, 2020.
franchisees, primarily related
The cumulative effect as of January 1, 2020 resulting from the
adoption of ASU 2016-13 and related amendments was a net
decrease
in our condensed
consolidated balance sheet of $0.8 million. See Note D for additional
information regarding our trade and note receivables and related
allowances for doubtful accounts.
retained earnings
to opening
In January 2017, the FASB issued ASU 2017-04, Intangibles —
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which simplifies the subsequent measurement of goodwill
by eliminating the hypothetical purchase price allocation and instead
using the difference between the carrying amount and the fair value of
the reporting unit. We adopted ASU 2017-04 beginning January 1,
2020, using a prospective approach. There was no impact on our
financial statements for the twelve months ended December 31, 2020
resulting from the adoption of this ASU.
the FASB
In August 2018,
issued ASU 2018-13, Fair Value
Measurement (Topic 820): Disclosure Framework — Changes to the
Disclosure Requirements for Fair Value Measurement, which removes,
modifies, and adds certain disclosure requirements in ASC 820, to
improve the effectiveness of the fair value measurement disclosures.
We adopted ASU 2018-13 beginning January 1, 2020, using a
prospective approach. There was no impact on our financial
statements for the twelve months ended December 31, 2020 resulting
from the adoption of this ASU.
In August 2018, the FASB issued ASU 2018-15, Intangibles —
Goodwill and Other — Internal-Use Software (Subtopic 350-40);
Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement, which requires
implementation costs
incurred by customers in cloud computing arrangements to be
deferred and recognized over the term of the arrangement, if those
costs would be capitalized by the customer in a software licensing
agreement under the internal-use software guidance in ASC 350-40.
We adopted ASU 2018-15 beginning January 1, 2020, using a
prospective approach. Following our adoption of this ASU, deferred
implementation costs related to cloud computing arrangements are
recorded to prepaid expenses and other assets in our condensed
consolidated balance sheet and subsequently amortized to other
store expenses
in our condensed consolidated statement of
operations. Impacts to our financial statements resulting from the
adoption of this ASU were immaterial to our financial statements for
the twelve months ended December 31, 2020.
60 RENT-A-CENTER - Annual Report on Form 10-K
60
PART II
Notes to Consolidated Financial Statements
to
the
literature relating
Acima Acquisition
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), Note B — Acquisitions and
which replaces existing accounting
classification of, and accounting for, leases. Under ASU 2016-02, a Divestitures
company must recognize for all leases (with the exception of leases
with terms of 12 months or less) a liability representing a lessee’s
obligation to make lease payments arising from a lease, and a
right-of-use asset representing the lessee’s right to use, or control the
use of, a specified asset for the lease term. Lessor accounting is
largely unchanged, with certain improvements to align lessor
accounting with the lessee accounting model and Topic 606, Revenue
from Contracts with Customers. Adoption of ASU 2016-02 requires the
use of a modified retrospective transition method to measure leases at
the beginning of the earliest period presented in the consolidated
financial statements. In July 2018, the FASB issued ASU 2018-11,
allowing companies to apply a transition method for adoption of the
new standard as of the adoption date, with recognition of any
cumulative-effects as adjustments to the opening balance of retained
earnings in the period of adoption. We adopted these ASUs beginning
January 1, 2019 and elected the transition method under ASU
2018-11.
On December 20, 2020, we entered into an Agreement and Plan of
Merger (the ‘‘Merger Agreement’’) with Radalta, LLC, a Utah limited
liability company and wholly owned subsidiary of the Company, Acima
Holdings, LLC, a Utah limited liability company (‘‘Acima’’), and Aaron
Allred, solely in his capacity as the representative of the former owners
of Acima, providing for the merger of Radalta, LLC with and into Acima,
with Acima surviving as a wholly owned subsidiary of the Company
(the ‘‘Merger’’). The Merger was completed on February 17, 2021. In
accordance with the Merger Agreement, we issued to the former
owners of Acima an aggregate of 10,779,923 shares of our common
stock (the ‘‘Aggregate Stock Consideration’’), with a value of $51.14
per share based on the closing price of our common stock on the date
of closing, and paid to them aggregate cash consideration of
$1,273.3 million (the ‘‘Aggregate Cash Consideration’’). Under the
terms of the Merger Agreement, $50.0 million of the Aggregate Cash
Consideration was placed into escrow at the closing of the Merger to
cover certain potential tax and regulatory indemnification obligations
of the former owners of Acima under the Merger Agreement.
Our lease-to-own agreements, which comprise the majority of our
annual revenue, fall within the scope of ASU 2016-02 under lessor
accounting; however, the new standard does not significantly affect
the timing of recognition or presentation of revenue for our rental
contracts.
As a lessee, the new standard affected a substantial portion of our
lease contracts. As of December 31, 2019, we had $281.6 million
operating lease right-of-use assets and $285.0 million operating lease
liabilities in our condensed consolidated balance sheet. Upon
adoption, we identified impairment losses related to closure of our
product service centers and Rent-A-Center Business stores resulting
in a cumulative-effect decrease of $2.0 million, net of tax, to our
January 1, 2019 retained earnings balance. There were no significant
effects to our condensed consolidated statements of operations or
condensed consolidated statements of cash flows.
We elected a package of optional practical expedients in our adoption
of the new standard, including the option to retain the current
classification for leases entered into prior to the date of adoption; the
option not to reassess initial direct costs for capitalization for leases
entered into prior to the date of adoption; and the option not to
separate lease and non-lease components for our lease-to-own
agreements as a lessor, and our real estate, and certain categories of
equipment leases, as a lessee.
In conjunction with the adoption of the new lease accounting
standard, we implemented a new back-office lease administration and
accounting system to support the new accounting and disclosure
requirements as a lessee. In addition, we implemented changes to our
previous accounting policies, processes, and internal controls to
ensure compliance with the new standard.
the FASB
issued ASU 2018-02,
Income
In February 2018,
Statement — Reporting Comprehensive
Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income, which allows a company to reclassify to
retained earnings the disproportionate income tax effects of the Tax
Act on items with accumulated other comprehensive income that the
FASB refers to as having been stranded in accumulated other
comprehensive income. The adoption of ASU 2018-02 was required
for us beginning January 1, 2019. We elected not to exercise the
option to reclassify stranded tax effects within accumulated other
comprehensive income in each period in which the effect of the
change in the U.S. federal corporate income tax rate in the Tax Act (or
portion thereof) is recorded.
In accordance with the terms of the Merger Agreement, the portion of
the Aggregate Stock Consideration issued to former owners of Acima
who are also employees of Acima is subject to certain vesting
conditions over a three year period. The portion of the Aggregate
Stock Consideration issued to non-employee former owners of Acima
is subject to the terms of an 18-month lockup agreement, pursuant to
which one-third of the aggregate shares of common stock of the
Company received by a non-employee former owner in the Merger
becomes transferable after each six month period following the
closing of the Merger. The Company entered into a Registration Rights
Agreement, dated as of February 17, 2021, pursuant to which certain
former owners of Acima are entitled to registration rights in respect of
the portion of the Aggregate Stock Consideration received by them in
the Merger.
In connection with the signing of the Merger Agreement, we entered
into employment agreements with certain executives of Acima,
including Aaron Allred, Chairman and Founder of Acima, which
became effective upon the closing of the Merger.
As of the date of this Annual Report on Form 10-K, we are unable to
disclose supplemental pro forma financial information, including
combined revenue and earnings of the recently merged companies,
for the year ended December 31, 2020, or the preliminary fair value of
assets acquired and liabilities assumed in connection with this
acquisition, due to the unavailability of Acima’s financial statements as
of December 31, 2020, and as of the date of the Merger. We intend to
report the above information in our Quarterly Report on Form 10-Q for
the period ended March 31, 2021.
Merchants Preferred Acquisition
On August 13, 2019, we completed the acquisition of substantially all
of the assets of Merchants Preferred, a nationwide provider of virtual
lease-to-own services (‘‘Merchant’s Preferred’’). The aggregate
purchase price was approximately $46.4 million, including net cash
consideration of approximately $28.0 million, and 701,918 shares of
our common stock valued at $27.31 per share, as of the date of
less working capital adjustments of approximately
closing,
$0.9 million.
61
RENT-A-CENTER - Annual Report on Form 10-K 61
PART II
Notes to Consolidated Financial Statements
Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The following table provides the
final estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date:
(in thousands)
Receivables
Prepaid expenses and other assets
Rental merchandise
Software
Right of use operating leases
Other intangible assets
Goodwill
Lease liabilities
Net identifiable assets acquired
August 13, 2019
$
$
1,813
154
17,904
4,300
404
8,900
13,403
(487)
46,391
The fair value measurements were primarily based on significant
unobservable inputs (level 3) developed using company-specific
information. Certain fair value estimates were determined based on an
independent valuation of
including
identifiable intangible assets, relating to dealer relationships, of
$8.9 million, and software of $4.3 million. The fair value for dealer
relationships and software were estimated using common industry
valuation methods for similar asset types, based primarily on cost
inputs and projected cash flows. The dealer relationships and software
assets were both assigned remaining lives of 10 years.
the net assets acquired,
In addition, we recorded goodwill of $13.4 million, which consists of
the excess of the net purchase price over the fair value of the net
assets acquired. The goodwill was not deductible for tax purposes.
Merchants Preferred results of operations are reflected in our
consolidated statements of operations from the date of acquisition.
In connection with this acquisition, we recorded approximately
$1.4 million in acquisition-related expenses during the twelve months
ended December 31, 2019 including expenses related to legal,
professional, and banking transaction fees. These costs were
included in other charges and (gains) in our consolidated statement of
operations.
Other Acquisitions
The following table provides information concerning the other acquisitions, excluding Merchants Preferred, made during the years ended
December 31, 2020, 2019 and 2018.
(Dollar amounts in thousands)
Number of stores acquired remaining open
Number of stores acquired that were merged with existing stores
Number of transactions
Total purchase price
Amounts allocated to:
Goodwill
Customer relationships
Rental merchandise
Year Ended December 31,
2020
2019
2018
—
2
2
—
4
4
$
$
$
$
700
$
504
— $
177
523
66
85
353
1
6
7
2,048
169
289
1,590
Purchase prices are determined by evaluating the average monthly rental income of the acquired stores and applying a multiple to the total for
lease-to-own store acquisitions. Operating results of the acquired stores and accounts have been included in the financial statements since their
date of acquisition.
The weighted average amortization period was approximately 21 months for intangible assets added during the year ended December 31, 2020.
California Refranchise Sale
On October 5, 2020, we sold all 99 Rent-A-Center Business corporate stores in the state of California to an experienced franchisee. We received
cash consideration of approximately $16 million, including approximately $1 million in respect of related franchise fees. The sale included idle and
on-rent inventory of approximately $30.0 million and property assets of approximately $0.8 million, resulting in a total loss on sale of approximately
$16.6 million. The loss on sale was recorded to other charges and (gains) in our consolidated statement of operations.
62 RENT-A-CENTER - Annual Report on Form 10-K
62
Note C — Revenues
The following tables disaggregates our revenue:
(In thousands)
Store
Rentals and fees
Merchandise sales
Installment sales
Other
Franchise
Merchandise sales
Royalty income and fees
Total revenues
(In thousands)
Store
Rentals and fees
Merchandise sales
Installment sales
Other
PART II
Notes to Consolidated Financial Statements
Twelve Months Ended December 31, 2020
Rent-A-Center
Business
Preferred Lease
Mexico
Franchising
Consolidated
Unaudited
$
1,604,615
$
610,908
$
47,568
$
— $
2,263,091
177,223
68,500
2,303
198,517
2,977
—
726
—
38
—
—
778
778
378,717
68,500
3,845
2,714,153
—
—
—
—
—
—
80,023
20,015
80,023
20,015
$
1,852,641
$
810,151
$
50,583
$
100,816
$
2,814,191
Twelve Months Ended December 31, 2019
Rent-A-Center
Business
Preferred Lease
Mexico
Franchising
Consolidated
Unaudited
$
1,585,997
$
587,502
$
50,903
$
— $
2,224,402
140,372
70,434
3,683
161,235
3,023
—
523
—
34
—
—
555
555
304,630
70,434
4,795
2,604,261
Total store revenues
1,852,641
810,151
50,583
Total store revenues
1,800,486
749,260
53,960
Franchise
Merchandise sales
Royalty income and fees
Total revenues
—
—
—
—
—
—
49,135
16,456
49,135
16,456
$
1,800,486
$
749,260
$
53,960
$
66,146
$
2,669,852
Lease Purchase Agreements
Rent-A-Center Business, Preferred Lease, and Mexico
Rentals and Fees. Rental merchandise is leased to customers
pursuant to rental purchase agreements which provide for weekly,
semi-monthly or monthly rental terms with non-refundable rental
payments. At the expiration of each rental term, customers may renew
the rental agreement for the next rental term. Generally, the customer
has the right to acquire title of the merchandise either through a
purchase option or through payment of all required rental terms.
Customers can terminate the rental agreement at the end of any rental
term without penalty. Therefore, rental transactions are accounted for
as operating leases.
Rental payments received at our Rent-A-Center Business, Preferred
Lease (excluding virtual) and Mexico locations must be prepaid in
advance of the next rental term. Under the virtual business model,
revenues are earned prior to the rental payment due date. Therefore,
virtual business revenue is accrued prior to receipt of the rental
payment, net of estimated returns and uncollectible renewal
payments. Under both models, rental revenue is recognized over the
rental term. See Note D for additional information regarding accrued
rental revenue.
Cash received for rental payments, including fees, prior to the period
in which it should be recognized, is deferred and recognized
according to the rental term. At December 31, 2020 and 2019, we had
$45.8 million and $39.9 million, respectively, in deferred revenue
included
liabilities related to our rental purchase
agreements. Revenue related to various payment, reinstatement or
late fees is recognized when paid by the customer at the point service
is provided. Rental merchandise is depreciated using the income
forecasting method and is recognized in cost of sales over the rental
term.
in accrued
We also offer additional product plans along with our rental
agreements which provide customers with liability protection against
significant damage or loss of a product, and club membership
benefits, including various discount programs and product service
and replacement benefits in the event merchandise is damaged or
lost, and payment insurance in the event eligible customers become
unemployed. Customers renew product plans in conjunction with their
rental term renewals, and can cancel the plans at any time. Revenue
for product plans is recognized over the term of the plan. Costs
incurred related to product plans are primarily recognized in cost of
sales.
63
RENT-A-CENTER - Annual Report on Form 10-K 63
PART II
Notes to Consolidated Financial Statements
Revenue from contracts with customers
Rent-A-Center Business, Preferred Lease, and Mexico
2020 and 2019, we had $3.1 million and $2.9 million, respectively, in
deferred revenue included in accrued liabilities related to extended
service plans.
Merchandise Sales. Merchandise sales include payments received for
the exercise of the early purchase option offered through our rental
purchase agreements or merchandise sold through point of sale
transactions. Revenue for merchandise sales is recognized when
payment is received and ownership of the merchandise passes to the
customer. The remaining net value of merchandise sold is recorded to
cost of sales at the time of the transaction.
Installment Sales. Revenue from the sale of merchandise in our retail
installment stores is recognized when the installment note is signed
and control of the merchandise has passed to the customer. The cost
of merchandise sold through installment agreements is recognized in
cost of sales at the time of the transaction. We offer extended service
plans with our installment agreements which are administered by third
parties and provide customers with product service maintenance
beyond the term of the installment agreement. Payments received for
extended service plans are deferred and recognized, net of related
costs, when the installment payment plan is complete and the service
plan goes into effect. Customers can cancel extended service plans at
any time during the installment agreement period and receive a refund
for payments previously made towards the plan. At December 31,
Other. Other revenue consisted of revenue generated by other
miscellaneous product plans offered to our rental and installment
customers. Revenue for other product plans is recognized in
accordance with the terms of the applicable plan agreement.
Franchising
Merchandise Sales. Revenue from the sale of rental merchandise is
recognized upon shipment of the merchandise to the franchisee.
Royalty Income and Fees. Franchise royalties, including franchisee
contributions to corporate advertising funds, represent sales-based
royalties calculated as a percentage of gross rental payments and
sales. Royalty revenue is accrued and recognized as rental payments
and merchandise sales occur. Franchise fees are initial fees charged
to franchisees for new or converted franchise stores. Franchise fee
revenue is recognized on a straight-line basis over the term of the
franchise agreement. At December 31, 2020 and 2019, we had
$4.7 million and $4.5 million, respectively, in deferred revenue
included in accrued liabilities related to franchise fees.
Note D — Receivables and Allowance for Doubtful Accounts
Installment sales receivables consist primarily of receivables due from
customers for the sale of merchandise in our retail installment stores.
Installment sales receivable associated with the sale of merchandise
at our Get It Now and Home Choice stores generally consist of the
sales price of the merchandise purchased and any additional fees for
services the customer has chosen, less the customer’s down
payment. No interest is accrued and interest income is recognized
each time a customer makes a payment, generally on a monthly basis.
Interest paid on installment agreements for the twelve months ended
December 31, 2020, 2019 and 2018 was $11.5 million, $10.8 million,
and $11.0 million, respectively.
Trade and notes receivables consist primarily of amounts owed from
our franchisees for inventory purchases, earned royalties and other
obligations; and other corporate related receivables. Credit is
extended based on an evaluation of a franchisee’s financial condition
and collateral is generally not required. Trade receivables are
generally due within 30 days.
Receivables consist of the following:
(In thousands)
Installment sales receivable
Trade and notes receivables
Total receivables
Less allowance for doubtful accounts
Total receivables, net of allowance for doubtful accounts
December 31,
2020
2019
$
61,794
$
56,370
36,256
98,050
(8,047)
33,354
89,724
(5,601)
$
90,003
$
84,123
We have established an allowance for doubtful accounts for our installment notes receivable. Our policy for determining the allowance is primarily
based on historical loss experience, as well as the results of management’s review and analysis of the payment and collection of the installment
notes receivable within the previous year. We believe our allowance is adequate to absorb all expected losses. Our policy is to charge off
installment notes receivable that are 120 days or more past due. Charge-offs are applied as a reduction to the allowance for doubtful accounts and
any recoveries of previously charged off balances are applied as an increase to the allowance for doubtful accounts.
The allowance for our Franchising trade and note receivables is determined by considering a number of factors, including the length of time
receivables are past due, previous loss history, the franchisee’s current ability to pay its obligation, and the condition of the general economy and
the industry as a whole. Trade receivables that are more than 90 days past due are either written-off or fully reserved in our allowance for doubtful
accounts. Payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
The allowance for doubtful accounts related to trade and notes receivable was $1.0 million and $1.5 million, and the allowance for doubtful
accounts related to installment sales receivable was $7.0 million and $4.1 million at December 31, 2020 and 2019, respectively.
64 RENT-A-CENTER - Annual Report on Form 10-K
64
Changes in our allowance for doubtful accounts are as follows:
(In thousands)
Beginning allowance for doubtful accounts
Estimated uncollectible payments and returns(1)
Accounts written off, net of recoveries
Ending allowance for doubtful accounts
PART II
Notes to Consolidated Financial Statements
Year Ended December 31,
2020
2019
5,601
$
4,883
$
14,636
(12,190)
15,077
(14,359)
2018
4,167
14,610
(13,894)
8,047
$
5,601
$
4,883
$
$
(1) Uncollectible installment payments, franchisee obligations, and other corporate receivables are recognized in other store operating expenses
in our condensed consolidated financial statements.
Note E — Rental Merchandise
(In thousands)
On rent
Cost
Less accumulated depreciation
Net book value, on rent
Held for rent
Cost
Less accumulated depreciation
Net book value, held for rent
Note F — Property Assets
(In thousands)
Software
Building and leasehold improvements
Furniture and equipment
Transportation equipment
Construction in progress
Total property assets
Less accumulated depreciation
Total property assets, net of accumulated depreciation
December 31,
2020
2019
$
1,169,333
$
1,112,130
(406,447)
(414,860)
$
$
$
762,886
165,879
(19,613)
146,266
$
$
$
697,270
163,636
(25,218)
138,418
December 31,
2020
2019
$
279,141
$
300,690
196,179
163,623
503
7,269
207,620
174,741
567
5,346
646,715
688,964
(505,074)
(522,826)
$
141,641
$
166,138
We had $4.8 million and $3.8 million of capitalized software costs
included in construction in progress at December 31, 2020 and 2019,
respectively. For the years ended December 31, 2020, 2019 and 2018,
we placed in service internally developed software of approximately
$9.5 million, $6.0 million and $9.7 million, respectively.
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. Assets written-off in connection with
this transaction included building assets of $14.0 million, including
furniture and equipment, and land of $6.7 million. We recorded a total
gain on sale of approximately $21.8 million in the fourth quarter of
2019. The gain was recorded to other charges and (gains) in our
consolidated statement of operations. The lease includes an initial
term of 12 years, with two five year renewal option periods at our
discretion. In accordance with ASC 842, we recorded operating lease
right-of-use assets and operating lease liabilities of $19.0 million for
this lease in our condensed consolidated balance sheet.
65
RENT-A-CENTER - Annual Report on Form 10-K 65
PART II
Notes to Consolidated Financial Statements
Note G — Leases
We lease space for all of our Rent-A-Center Business and Mexico
stores under operating leases expiring at various times through 2027.
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 contain renewal options for
additional periods ranging from three to five years at rental rates
adjusted according to agreed formulas. We evaluate all leases to
determine if it is likely that we will exercise future renewal options and
in most cases we are not reasonably certain of exercise due to
competing market rental rates and lack of significant penalty or
business disruption incurred by not exercising the renewal options.
We include month-to-month leases in operating lease right-of-use
assets and operating lease liabilities in our condensed consolidated
balance sheet.
the sale of a
Rent-A-Center Business corporate store to a franchisee, we enter into
a lease assignment agreement with the buyer, but we remain the
primary obligor under the original lease for the remaining active term.
These assignments are therefore classified as subleases and the
original lease is included in our operating lease right-of-use assets and
operating lease liabilities in our condensed consolidated balance
sheet.
In certain situations
involving
We lease vehicles for all of our Rent-A-Center Business stores under
operating leases with lease terms expiring twelve months after the start
date of the lease. We classify these leases as short-term and have
Total operating lease costs by expense type:
(in thousands)
Operating lease cost included in other store expenses(1)(2)
Operating lease cost included in other charges(2)
Sublease receipts
Total operating lease charges
elected the short-term lease exemption for our vehicle leases, and
have therefore excluded them from our operating lease right-of-use
assets within our condensed consolidated balance sheet. We also
lease vehicles for all of our Mexico stores which have terms expiring at
various times through 2024 with rental rates adjusted periodically for
inflation. Finally, we have a minimal number of equipment leases,
primarily related to temporary storage containers and certain back
office technology hardware assets.
For all of the leases described above, we have elected not to separate
the lease and non-lease components and instead account for these as
a single component. In addition, we have elected to use available
practical expedients that eliminate the requirement to reassess
whether expired or existing contracts contained leases, and the
requirement to reassess the lease classification for any existing leases
prior to our adoption of ASU 2016-02 on January 1, 2019.
Operating lease right-of-use assets and operating lease liabilities are
discounted using our incremental borrowing rate, since the implicit
rate is not readily determinable. We do not currently have any
financing leases.
Operating lease costs are recorded on a straight-line basis within other
store expenses in our condensed consolidated statements of
operations.
Twelve Months Ended
December 31, 2020
December 31, 2019
$
$
140,186
$
148,314
1,236
(9,727)
9,222
(7,683)
131,695
$
149,853
(1)
(2)
Includes short-term lease costs, which are not significant.
Excludes variable lease costs of $34.6 million and $35.1 million for the twelve months ended December 31, 2020 and 2019, respectively.
Supplemental cash flow information related to leases:
(in thousands)
Twelve Months Ended
December 31, 2020
December 31, 2019
Cash paid for amounts included in measurement of operating lease liabilities
$
113,243
$
Cash paid for short-term operating leases not included in operating lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
22,339
104,771
120,826
27,402
78,250
Weighted-average discount rate and weighted-average remaining lease term:
(in thousands)
Weighted-average discount rate(1)
Weighted-average remaining lease term (in years)
December 31, 2020
December 31, 2019
6.8%
4
7.7%
4
(1)
January 1, 2019 incremental borrowing rate was used for leases in existence at the time of adoption of ASU 2016-02.
66 RENT-A-CENTER - Annual Report on Form 10-K
66
Reconciliation of undiscounted operating lease liabilities to the present value operating lease liabilities at December 31, 2020:
PART II
Notes to Consolidated Financial Statements
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total undiscounted operating lease liabilities
Less: Interest
Total present value of operating lease liabilities
Operating Leases
$
107,898
81,114
55,176
37,554
22,662
18,883
323,287
(37,933)
$
285,354
In response to the COVID-19 pandemic and related government restrictions negatively impacting our operations, we renegotiated certain store
lease agreements in the second quarter to obtain rent relief in the near term, in order to help offset the negative financial impacts of COVID-19. As
of December 31, 2020, we renegotiated approximately 500 lease agreements, receiving near term rent abatements of approximately $2.3 million
and rent deferrals of approximately $2.1 million. On April 10, 2020, the Financial Accounting Standards Board (‘‘FASB’’) staff issued a
question-and-answer document providing guidance for lease concessions provided to lessees in response to the effects of COVID-19. Such
guidance allows lessees to make an election not to evaluate whether a lease concession provided by a lessor should be accounted for as a lease
modification in the event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We
elected this practical expedient in our accounting for any lease concessions provided in connection with our renegotiated lease agreements that
did not result in a substantial increase in the rights of or obligations to the lessor. As a result of this election, we recognized rent abatement credits
of approximately $0.8 million for the year ended December 31, 2020 in our condensed consolidated statement of operations.
Note H — Goodwill and Other Intangible Assets
Goodwill
In the fourth quarter of 2020, we completed a qualitative assessment for impairment of goodwill as of October 1, 2020, concluding it was not more
likely than not that the carrying value of the net assets of our reporting units exceeded their respective fair values and therefore no impairment of
goodwill existed as of December 31, 2020.
At December 31, 2020 and 2019, the amount of goodwill attributable to the Rent-A-Center Business and Preferred Lease segments was
approximately $1.5 million and $68.7 million, respectively.
A summary of the changes in recorded goodwill follows:
(In thousands)
Beginning goodwill balance
Additions from acquisitions
Post purchase price allocation adjustments
Ending goodwill balance
Other Intangible Assets
Amortizable intangible assets consist of the following:
Year Ended December 31,
2020
2019
$
70,217
$
56,845
—
—
13,700
(328)
$
70,217
$
70,217
(Dollar amounts in thousands)
Customer relationships
Vendor relationships
Non-compete agreements
Total other intangible assets
December 31, 2020
December 31, 2019
Avg. Life Gross Carrying
Amount
(years)
Accumulated Gross Carrying
Amount
Amortization
Accumulated
Amortization
2
9
3
$
$
80,008
$
79,853
$
80,036
$
79,941
9,760
6,719
2,046
6,719
9,760
6,747
1,113
6,727
96,487
$
88,618
$
96,543
$
87,781
67
RENT-A-CENTER - Annual Report on Form 10-K 67
PART II
Notes to Consolidated Financial Statements
Aggregate amortization expense (in thousands):
Year Ended December 31, 2020
Year Ended December 31, 2019
Year Ended December 31, 2018
$
$
$
1,070
723
671
Estimated amortization expense, assuming current intangible balances and no new acquisitions, for each of the years ending December 31, is as
follows:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total amortization expense
Note I — Accrued Liabilities
(In thousands)
Accrued insurance costs
Accrued compensation
Deferred revenue
Taxes other than income
Accrued legal settlement
Deferred compensation
Accrued interest payable
Accrued dividends
Accrued other
Total Accrued liabilities
Estimated
Amortization Expense
$
1,008
927
890
890
890
3,264
7,869
$
December 31,
2020
2019
$
94,744
$
104,557
48,027
61,066
48,038
5,440
9,437
1,041
17,003
35,787
38,547
52,589
28,397
440
9,711
1,391
15,912
24,233
$
320,583
$
275,777
Note J — Income Taxes
For financial statement purposes, earnings before income taxes by source was comprised of the following:
(In thousands)
Domestic
Foreign
Earnings before income taxes
Year Ended December 31,
2020
2019
$ 212,859
$ 212,406
9,920
11,377
$ 222,779
$ 223,783
2018
11,290
2,551
13,841
$
$
68 RENT-A-CENTER - Annual Report on Form 10-K
68
A reconciliation of the federal statutory rate of 21% to the effective rate follows:
Tax at statutory rate
State income taxes
Effect of foreign operations
Effect of current and prior year credits
Change in unrecognized tax benefits
Other permanent differences
Prior year return to provision adjustments
Benefit of CARES Act
Valuation allowance
Other, net
Effective income tax rate
The components of income tax expense (benefit) are as follows:
(In thousands)
Current expense (benefit)
Federal
State
Foreign
Total current
Deferred expense (benefit)
Federal
State
Foreign
Total deferred
PART II
Notes to Consolidated Financial Statements
Year Ended December 31,
2020
21.0%
2.8%
(0.3)%
(0.8)%
0.3%
(0.7)%
1.1%
(7.5)%
(9.3)%
—%
6.6%
2019
21.0%
4.3%
0.3%
(2.7)%
—%
0.2%
(2.7)%
—%
1.2%
0.8%
22.4%
2018
21.0%
17.6%
(1.2)%
(31.4)%
10.9%
14.9%
7.3%
—%
(0.5)%
—%
38.6%
Year Ended December 31,
2020
2019
2018
$
14,354
$
(6,996)
$
(2,573)
4,735
1,608
20,697
12,576
(2,956)
(15,653)
(6,033)
528
796
816
724
(5,672)
(1,033)
37,309
16,439
2,161
55,909
4,691
3,325
(1,634)
6,382
5,349
Total income tax expense (benefit)
$
14,664
$
50,237
$
69
RENT-A-CENTER - Annual Report on Form 10-K 69
PART II
Notes to Consolidated Financial Statements
Deferred tax assets (liabilities) consist of the following:
(In thousands)
Deferred tax assets
Net operating loss carryforwards
Accrued liabilities
Intangible assets
Lease obligations
Other assets including credits
Foreign tax credit carryforwards
Total deferred tax assets
Valuation allowance
Deferred tax assets, net
Deferred tax liabilities
Rental merchandise
Property assets
Lease assets
Other liabilities
Total deferred tax liabilities
Net deferred taxes
December 31,
2020
2019
$
32,834
$
45,776
9,676
67,999
10,079
5,643
172,007
(21,645)
150,362
34,928
45,671
13,088
71,104
10,915
7,815
183,521
(43,555)
139,966
(206,833)
(193,878)
(18,935)
(66,661)
(561)
(24,513)
(69,035)
(1,635)
(292,990)
(289,061)
$
(142,628)
$
(149,095)
At December 31, 2020, we had net operating loss carryforwards of
approximately $293 million for state and $58 million for foreign
jurisdictions, partially offset by valuation allowance. We also had
federal, state and foreign tax credit carryforwards of approximately
$12.8 million of which a portion has been offset by a valuation
allowance. The net operating losses and credits will expire in various
years between 2021 and 2040.
We file income tax returns in the U.S. and multiple foreign jurisdictions
with varying statutes of limitations. In the normal course of business,
we are subject to examination by various taxing authorities. We are
currently under examination by certain Federal and state revenue
authorities for the fiscal years 2011 through 2018. The following is a
summary of all tax years that are open to examination.
(cid:129) U.S. Federal — 2013 and forward
(cid:129) U.S. States — 2011 and forward
(cid:129) Foreign — 2013 and forward
We do not anticipate that adjustments as a result of these audits, if any,
will have a material impact to our consolidated statement of
operations, consolidated balance sheets, and statement of cash flows
or earnings per share.
As of each reporting date, the Company’s management considers
new evidence, both positive and negative, that could impact
management’s view with regard to future realization of deferred tax
assets. As a result, in 2020, we decreased the valuation allowance
against net operating losses and credits in multiple state jurisdictions.
After review of the positive evidence generated during the year related
to our foreign operations in Mexico, management now believes that a
portion of the deferred tax assets will more likely than not be utilized.
As a result, $12.2 million has been removed from the valuation
allowance related to foreign deferred tax assets in Mexico.
A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
(In thousands)
Year Ended December 31,
2020
2019
Beginning unrecognized tax benefit balance
$
24,208
$
36,364
$
Additions (Reductions) based on tax positions related to current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
1,204
45
(2,086)
(1,187)
(654)
415
(11,917)
—
2018
37,319
(206)
735
(488)
(996)
Ending unrecognized tax benefit balance
$
22,184
$
24,208
$
36,364
Included in the balance of unrecognized tax benefits at December 31,
2020, is $2.7 million, net of federal benefit, which, if ultimately
recognized, will affect our annual effective tax rate.
As of December 31, 2020, we have accrued approximately $2.7 million
for the payment of interest for uncertain tax positions and recorded
interest expense of approximately $0.4 million for the year then ended,
70 RENT-A-CENTER - Annual Report on Form 10-K
70
PART II
Notes to Consolidated Financial Statements
The effect of the tax rate change for items originally recognized in other
comprehensive income was properly recorded in tax expense from
continuing operations. This results in stranded tax effects in
accumulated other comprehensive income at December 31, 2020.
Companies can make a policy election to reclassify from accumulated
other comprehensive income to retained earnings the stranded tax
effects directly arising from the change in the federal corporate tax
rate. We did not exercise the option to reclassify stranded tax effects
within accumulated other comprehensive income in each period in
which the effect of the change in the U.S. federal corporate income tax
rate resulting from the Tax Cuts and Jobs Act of 2017 was recorded.
which are excluded from the reconciliation of unrecognized tax
benefits presented above. These amounts are net of the reversal of
interest expense due to settlement of certain tax positions and closing
of tax years.
On March 27, 2020, the President signed the Coronavirus Aid, Relief,
and Economic Security Act, (the ‘‘CARES Act’’). The CARES Act
included several tax relief options for companies, including a five-year
net operating loss carryback. Rent-A-Center elected to carryback its
2018 net operating losses of $119.5 million to offset the Company’s
2013 taxable income, thus generating a refund of $41.8 million and an
income tax benefit of $16.7 million. The tax benefit is the result of the
federal income tax rate differential between the current statutory rate of
21% and the 35% rate applicable to 2013.
Note K — Senior Debt
As of December 31, 2020, we were party to a Term Loan Credit
Agreement (the ‘‘Prior Term Loan Credit Agreement’’) providing for a
seven-year $200 million senior secured term loan facility and an Asset
Based Loan Credit Agreement (the ‘‘Prior ABL Credit Agreement’’)
providing a five-year asset-based revolving credit facility (the ‘‘Prior
ABL Credit Facility’’) with commitments of up to $300 million, the
proceeds of which were used for the redemption of all of our
previously outstanding senior notes due 2020.
In addition, in connection with the closing of the Prior Term Loan Credit
Agreement and the Prior ABL Credit Agreement, we incurred
approximately $6.3 million in debt issuance costs. As of December 31,
2020, the total unamortized balance of debt issuance costs and
original issue discount related to our Prior Term Loan Credit
Agreement and Prior ABL Credit Agreement reported
in our
consolidated balance sheet were $5.4 million and $1.6 million,
respectively.
The amount of outstanding borrowings under the Prior Term Loan
Credit Agreement was $197.5 million at December 31, 2020. We had
no amounts outstanding under our Prior ABL Credit Facility at
December 31, 2020, and had $209.3 million available for borrowing.
We also utilized the Prior ABL Credit Facility for the issuance of letters
of credit. As of December 31, 2020, we have issued letters of credit in
the aggregate outstanding amount of $90.7 million primarily relating to
workers compensation insurance claims.
Proceeds from the Prior Term Loan Credit Agreement were net of
original issue discount of $2.0 million upon issuance from the lenders.
The debt facilities as of December 31, 2020 and 2019 are as follows:
December 31, 2020
December 31, 2019
(In thousands)
Senior Debt:
Prior Term Loan
Facility Maximum
Maturity
Facility Outstanding Available
Amount
Amount Maximum
Amount
Facility Outstanding
Amount
Available
August 5, 2026
$200,000
$197,500
$
— $200,000
$199,500
$
—
Prior ABL Credit Facility
August 5, 2024
300,000
— 209,268
300,000
40,000
168,200
Total
Other indebtedness:
Line of credit
Total
Unamortized debt issuance costs
Total senior debt, net
500,000
197,500
209,268
500,000
239,500
168,200
—
—
—
—
—
—
$500,000
197,500
$209,268
$500,000
239,500
$168,200
(7,010)
$190,490
(8,587)
$230,913
71
RENT-A-CENTER - Annual Report on Form 10-K 71
PART II
Notes to Consolidated Financial Statements
The table below shows the scheduled maturity dates of our outstanding debt at December 31, 2020 for each of the years ending December 31:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
Total senior debt
Prior
ABL Credit
Facility
$
Prior
Term Loan
$
2,000
2,000
2,000
2,000
2,000
187,500
$ 197,500
$
$
Total
2,000
2,000
2,000
2,000
2,000
187,500
$ 197,500
—
—
—
—
—
—
—
On February 17, 2021 in connection with the Merger, we entered into
two new credit facilities as described below and issued 6.375%
unsecured senior notes as described in Note L, the proceeds of which
were used, in part, to prepay in full all outstanding borrowings under
the Prior ABL Credit Facility and Prior Term Loan Credit Agreement,
fund the Aggregate Cash Consideration upon closing of the Merger to
acquire Acima, repay all outstanding indebtedness of Acima and its
subsidiaries and pay certain fees and expenses incurred in connection
with the Merger. Please reference Note B for discussion of our recent
acquisition of Acima.
ABL Credit Agreement
On February 17, 2021, we entered into a credit agreement with
JPMorgan Chase Bank, N.A., as administrative agent, and lenders
party thereto, that provides for a five-year asset-based revolving credit
facility with commitments of $550 million and a letter of credit sublimit
of $150 million, which commitments may be increased, at the
Company’s option and under certain conditions, by up to an additional
$125 million in the aggregate (the ‘‘ABL Credit Facility’’).
Under the ABL Credit Facility, the Company may borrow only up to the
lesser of the level of the then-current borrowing base and the
aggregate amount of commitments under the ABL Credit Facility. The
borrowing base is tied to the amount of eligible installment sales
accounts, inventory and eligible rental contracts, reduced by reserves.
The ABL Credit Facility bears interest at a fluctuating rate determined
by reference to the eurodollar rate plus an applicable margin of 1.50%
to 2.00%. A commitment fee equal to 0.250% to 0.375% of the unused
portion of the ABL Credit Facility fluctuates dependent upon average
utilization for the prior month as defined by a pricing grid included in
the documentation governing the ABL Credit Facility.
Loans under the ABL Credit Facility may be borrowed, repaid and
re-borrowed until February 17, 2026, at which time all amounts
borrowed must be repaid. The obligations under the ABL Credit
Facility are guaranteed by the Company and certain of its wholly
owned domestic restricted subsidiaries, subject to certain exceptions.
The obligations under the ABL Credit Facility and such guarantees are
secured on a first-priority basis by all of the Company’s and the
subsidiary guarantors’ accounts,
inventory, deposit accounts,
securities accounts, cash and cash equivalents, rental agreements,
general intangibles (other than equity interests in the Company’s
subsidiaries), chattel paper, instruments, documents, letter of credit
rights, commercial tort claims related to the foregoing and other
related assets and all proceeds thereof related to the foregoing,
subject to permitted liens and certain exceptions (such assets,
collectively, the ‘‘ABL Priority Collateral’’) and a second-priority basis
in substantially all other present and future tangible and intangible
personal property of the Company and the subsidiary guarantors,
subject to certain exceptions.
The ABL Facility contains covenants that are usual and customary for
similar facilities and transactions and that, among other things, restrict
the ability of the Company and its restricted subsidiaries to create
certain liens and enter into certain sale and lease-back transactions;
create, assume, incur or guarantee certain indebtedness; consolidate
or merge with, or convey, transfer or lease all or substantially all of the
Company’s and its restricted subsidiaries’ assets, to another person;
pay dividends or make other distributions on, or repurchase or
redeem, the Company’s capital stock or certain other debt; and make
other restricted payments.
The ABL Facility also requires the maintenance of a consolidated fixed
charge coverage ratio of 1.10 to 1.00 at the end of each fiscal quarter
when either (i) certain specified events of default have occurred and
are continuing or (ii) availability is less than or equal to the greater of
$56.25 million and 15% of the line cap then in effect. These covenants
are subject to a number of limitations and exceptions set forth in the
documentation governing the ABL Facility.
The documentation governing the ABL Facility provides for customary
events of default, including, but not limited to, failure to pay principal
and interest, failure to comply with covenants, agreements or
conditions, and certain events of bankruptcy or insolvency involving
the Company and its significant subsidiaries.
Term Loan Credit Agreement
On February 17, 2021, we entered into a term loan credit agreement
with JPMorgan Chase Bank, N.A., as administrative agent, and
lenders party thereto, that provides for a seven-year $875 million
senior secured term loan facility (the ‘‘Term Loan Facility’’). Subject in
each case to certain restrictions and conditions, the Company may
add up to $500 million of incremental term loan facilities to the Term
Loan Facility or utilize incremental capacity under the Term Loan
Facility at any time by issuing or incurring incremental equivalent term
debt.
Interest on borrowings under the Term Loan Facility is payable at a
fluctuating rate of interest determined by reference to the eurodollar
rate plus an applicable margin of 4.00%, subject to a 0.75% LIBOR
floor. Borrowings under the Term Loan Facility amortize in equal
quarterly installments in an amount equal to 1.000% per annum of the
original aggregate principal amount thereof, with the remaining
balance due at final maturity.
72 RENT-A-CENTER - Annual Report on Form 10-K
72
PART II
Notes to Consolidated Financial Statements
The Term Loan Facility is secured by a first-priority security interest in
substantially all of present and future tangible and intangible personal
property of the Company and the subsidiary guarantors, other than
the ABL Priority Collateral, and by a second-priority security interest in
the ABL Priority Collateral, subject to certain exceptions. The
obligations under the Term Loan Facility are guaranteed by the
Company and the Company’s material wholly-owned domestic
restricted subsidiaries that also guarantee the ABL Credit Facility.
from a substantially concurrent incurrence of indebtedness and in
connection with a repricing transaction in the first six months following
the closing date of the Acquisition will be subject to a 1.00%
prepayment premium, except that no such prepayment premium will
be required in connection with a change of control or a transformative
acquisition. These covenants are subject to a number of limitations
and exceptions set forth in the documentation governing the Term
Loan.
The Term Loan contains covenants that are usual and customary for
similar facilities and transactions and that, among other things, restrict
the ability of the Company and its restricted subsidiaries to create
certain liens and enter into certain sale and lease-back transactions;
create, assume, incur or guarantee certain indebtedness; consolidate
or merge with, or convey, transfer or lease all or substantially all of the
Company’s and its restricted subsidiaries’ assets, to another person;
pay dividends or make other distributions on, or repurchase or
redeem, the Company’s capital stock or certain other debt; and make
other restricted payments. The Term Loan also includes mandatory
prepayment requirements related
to
reinvestment), debt incurrence (other than permitted debt) and excess
cash flow, subject to certain limitations described therein. Any
voluntary prepayment of the Term Loan Facility made using proceeds
to asset sales (subject
The Term Loan provides for customary events of default, including, but
not limited to, failure to pay principal and interest, failure to comply
with covenants, agreements or conditions, and certain events of
bankruptcy or insolvency involving the Company and its significant
subsidiaries.
The Term Loan Facility was fully drawn at the closing of the Merger to
fund a portion of the Aggregate Cash Consideration payable in the
Merger, repay certain outstanding indebtedness of the Company and
its subsidiaries, repay all outstanding indebtedness of Acima and its
subsidiaries and pay certain fees and expenses incurred in connection
with the Merger. A portion of such proceeds were used to repay
$197.5 million outstanding under the Prior Term Loan Credit
Agreement.
Note L — Senior Notes
On November 2, 2010, we issued $300 million in senior unsecured
notes due November 2020, bearing interest at 6.625%, and on May 2,
2013, we issued $250 million in senior unsecured notes due May 2021,
bearing interest at 4.75%. The 6.625% and 4.75% senior notes were
redeemed effective August 5, 2019, at a price equal to 100% of their
principal amount plus accrued and unpaid interest to, but excluding,
the redemption date. In connection with redeeming our senior
unsecured notes, we
recorded a write-down of previously
unamortized debt issuance costs of approximately $2.0 million in the
third quarter of 2019.
On February 17, 2021, we issued $450 million in senior unsecured
notes due February 15, 2029, at par value, bearing interest at 6.375%
(the ‘‘Notes’’), the proceeds of which were used to fund a portion of the
Aggregate Cash Consideration upon closing of the Merger to acquire
Acima. Interest on the Notes is payable in arrears on February 15 and
August 15 of each year, beginning on August 15, 2021.
The Company may redeem some or all of the Notes at any time on or
after February 15, 2024 for cash at the redemption prices set forth in
the indenture governing the Notes, plus accrued and unpaid interest
to, but not including, the redemption date. Prior to February 15, 2024,
the Company may redeem up to 40% of the aggregate principal
amount of the Notes with the proceeds of certain equity offerings at a
redemption price of 106.375% plus accrued and unpaid interest to, but
not including, the redemption date. In addition, the Company may
redeem some or all of the Notes prior to February 15, 2024, at a
redemption price of 100% of the principal amount of the Notes plus
accrued and unpaid interest to, but not including, the redemption
date, plus a ‘‘make-whole’’ premium. If the Company experiences
specific kinds of change of control, it will be required to offer to
purchase the Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest.
The Notes are the Company’s general unsecured senior obligations,
and are effectively subordinated to all of the Company’s existing and
future secured indebtedness to the extent of the value of the collateral
securing such indebtedness, structurally subordinated to all existing
and future indebtedness and other liabilities of the Company’s
non-guarantor subsidiaries, equal in right of payment to all of the
Company’s and Company’s guarantor subsidiaries’ existing and
future senior indebtedness and senior in right of payment to all of the
Company’s future subordinated indebtedness, if any. The Notes are
jointly and severally guaranteed on a senior unsecured basis by
certain of the Company’s domestic subsidiaries that have outstanding
indebtedness or guarantee other specified indebtedness, including
the ABL Credit Facility and the Term Loan Facility.
The indenture governing the Notes contains covenants that limit,
among other things, the Company’s ability and the ability of some of
the Company’s restricted subsidiaries to create liens, transfer or sell
assets, incur indebtedness or issue certain preferred stock, pay
dividends, redeem stock or make other distributions, make other
restricted payments or investments, create restrictions on payment of
dividends or other amounts to the Company by its restricted
subsidiaries, merge or consolidate with other entities, engage in
certain transactions with affiliates and designate the Company’s
subsidiaries as unrestricted subsidiaries. These covenants are subject
to a number of exceptions and qualifications. The covenants limiting
restricted payments, restrictions on payment of dividends or other
amounts to the Company by its restricted subsidiaries, the ability to
incur indebtedness, asset dispositions and transactions with affiliates
will be suspended if and while the Notes have investment grade
ratings from any two of Standard & Poor’s Ratings Services, Moody’s
Investors Service, Inc. and Fitch, Inc.
The indenture governing the Notes also provides for events of default,
which, if any of them occurs, would permit or require the principal,
premium, if any, and interest on all the then outstanding Notes issued
under the Indenture to be due and payable.
73
RENT-A-CENTER - Annual Report on Form 10-K 73
PART II
Notes to Consolidated Financial Statements
Note M — Contingencies
reasonably estimable. We
From time to time, we, along with our subsidiaries, are party to various
legal proceedings and governmental inquiries arising in the ordinary
course of business. We reserve for loss contingencies that are both
probable and
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
impact on our condensed
consolidated financial statements if and when such losses are
incurred. Nevertheless, we cannot predict the impact of future
developments affecting our claims and lawsuits, and any resolution of
a claim or lawsuit or reserve within a particular fiscal period may
materially and adversely impact our results of operations for that
period.
to have a material
losses
We are subject to unclaimed property audits by states in the ordinary
course of business. The property subject to review in the audit process
include 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.
Acima Consumer Financial Protection Bureau investigation. Prior to
the execution of the Merger Agreement, Acima received a Civil
Investigative Demand dated October 1, 2020 (the ‘‘CID’’) from the
Consumer Financial Protection Bureau (the ‘‘CFPB’’) requesting
certain information, documents and data relating to Acima’s products,
services and practices for the period from January 1, 2015 to the date
on which responses to the CID are provided in full. The purpose of the
CID is to determine whether Acima extends credit, offers leases, or
otherwise offers or provides a consumer financial product or service
and whether Acima complies with certain consumer financial
protection laws. The Company is fully cooperating with the CFPB
investigation and expects to submit responses to all existing requests
of the CFPB no later than the end of March 2021. The CFPB has not
made any allegations in the investigation, and we are currently unable
to predict the eventual scope, ultimate timing or outcome of the CFPB
investigation.
On the terms and subject to the conditions set forth in the Merger
Agreement, the former owners of Acima have agreed to indemnify
Rent-A-Center for certain losses arising after the consummation of the
Merger with respect to the CID and certain pre-closing taxes. The
indemnification obligations of the former owners of Acima are limited
to an indemnity holdback in the aggregate amount of $50 million,
Note N — Other Charges and (Gains)
Store Consolidations. During 2020, we closed 28 Rent-A-Center
Business stores, resulting in pre-tax charges of $1.5 million in other
miscellaneous shutdown and holding costs, $0.4 million in lease
impairment charges, $0.1 million in disposal of fixed assets, and
$0.1 million in severance and other payroll-related costs. During 2019,
we closed 88 Rent-A-Center Business stores, resulting in pre-tax
charges of $3.7 million in lease impairment charges, $2.3 million in
other miscellaneous shutdown and holding costs, $0.9 million in
disposal of fixed assets, and $0.4 million in severance and other
payroll-related costs. During 2018, we closed 138 Rent-A-Center
Business stores and 9 locations in Mexico, resulting in pre-tax charges
of $11.2 million, consisting of $8.1 million in lease obligation costs,
which amount was escrowed at the closing of the Merger, and will be
Rent-A-Center’s sole recourse against the former owners of Acima
with respect to all of the indemnifiable claims under the Merger
Agreement. Other than with respect to any pending or unresolved
claims for indemnification submitted by Rent-A-Center prior to such
time, and subject to other limited exceptions, the escrowed amount
will be released to the former owners of Acima as follows: (i) in respect
of the CID, on the earlier of the third anniversary of the closing date of
the Merger and the date on which a final determination is entered
providing for a resolution of the matters regarding the CID and (ii) in
respect of certain pre-closing taxes, on August 18, 2022, the first
business day following the date that is 18 months after the closing date
of the Merger.
There can be no assurance that the CID will be finally resolved prior to
the release to the former owners of Acima of the escrowed funds
reserved therefor, or that such escrowed amount will be sufficient to
address all covered losses or that the CFPB’s ongoing investigation or
future exercise of its enforcement, regulatory, discretionary or other
powers will not result in findings or alleged violations of consumer
financial protection laws that could lead to enforcement actions,
proceedings or litigation, whether by the CFPB, other state or federal
agencies, or other parties, and the imposition of damages, fines,
penalties, restitution, other monetary liabilities, sanctions, settlements
or changes to Acima’s business practices or operations that could
materially and adversely affect the Company’s business, financial
condition, results of operations or reputation.
California Attorney General. The California Attorney General (‘‘CAG’’)
previously issued an investigative subpoena seeking information with
respect to our Acceptance Now business practices (now part of the
Preferred Lease segment). The request
for documents and
information was sought in connection with a broader investigation of
the lease-to-own industry in California. Since receiving such demand,
we have cooperated with the CAG in connection with its investigation
and made several productions of requested documents. In March
2020, the CAG put forth proposed settlement terms to address alleged
violations of California law. After several rounds of negotiations, in
September 2020, the CAG proposed revised terms. In both cases, the
proposed settlement terms include civil penalties, disgorgement of
certain revenues, additional training requirements, and recommended
changes to Acceptance Now business practices. We believe that our
business practices are in compliance with California law and are
continuing to discuss resolution of the inquiry with the CAG. At this
point, while we cannot predict the ultimate outcome, we do not believe
any such outcome will have a material impact on our condensed
consolidated financial statements.
$1.6 million in disposal of fixed assets, $1.3 million in other
miscellaneous shutdown costs, and $0.2 million in severance and
other payroll-related cost.
Cost Savings Initiatives. During 2018, we began the execution of
multiple cost savings initiatives, including reductions in overhead and
supply chain operations. In connection with these initiatives, we
recorded pre-tax charges during 2020 consisting of $0.8 million in
severance and other payroll-related costs, $0.4 million in lease
impairment charges, and $0.4 million
in other miscellaneous
shutdown and holding costs. Costs incurred during 2019 consisted of
74 RENT-A-CENTER - Annual Report on Form 10-K
74
$4.9 million in lease impairment charges, $2.6 million in severance and
other payroll-related costs, $2.3 million in other miscellaneous
shutdown and holding costs, and $0.4 million in disposal of fixed
assets. Costs incurred during 2018 related to these initiatives included
pre-tax charges of $13.1 million in severance and other payroll-related
costs, $6.8 million in contract termination fees, $2.3 million in other
miscellaneous shutdown costs, $3.4 million in lease obligation costs,
$1.9 million in legal and advisory fees, $1.9 million related to the
write-down of capitalized software, and $1.0 million in disposal of fixed
assets.
In March 2020, national efforts to contain the
COVID-19 Pandemic.
COVID-19 virus began to be implemented. In connection with
COVID-19, during 2020, we incurred approximately $1.4 million in
sanitization cleaning and personal protective equipment expenses,
$0.4 million in payroll-related costs, and $0.2 million in lease expense
related to closed stores and idled vehicles, partially offset by real
estate lease abatement credits of $0.8 million for our Rent-A-Center
Business stores.
from certain civil unrest
Social Unrest. During the second quarter of 2020, we incurred
expenses resulting
in
connection with efforts to institute law enforcement and other social
and political reforms. In connection with this unrest, approximately 30
Rent-A-Center Business stores were looted and/or damaged, resulting
in $0.9 million of inventory write-offs and less than $0.1 million in
disposal of fixed assets during 2020.
that occurred
franchisee. We
California Refranchise Sale. On October 5, 2020, we sold all 99
Rent-A-Center Business corporate stores in the state of California to an
experienced
received cash consideration of
approximately $16 million, including approximately $1 million paid for
related franchise fees. The sale included idle and on-rent inventory of
approximately $30.0 million and property assets of approximately
$0.8 million, resulting in a total loss on sale of approximately
$16.6 million.
PART II
Notes to Consolidated Financial Statements
Acima Acquisition. On December 20, 2020, we entered into a
definitive agreement to acquire Acima Holdings LLC, a leading
provider of virtual lease-to-own solutions, which was completed on
February 17, 2021. In connection with this acquisition, we recorded
approximately $6.4 million in acquisition-related expenses during
2020 primarily including legal and other professional fees.
Vintage Settlement. On April 22, 2019, we agreed to settle all
litigation with Vintage Rodeo Parent, LLC, Vintage Rodeo
Acquisition, Inc., Vintage Capital Management, LLC (collectively,
‘‘Vintage Capital’’) and B. Riley Financial, Inc. (‘‘B. Riley’’) relating to
our termination of the Agreement and Plan of Merger, by and among
Vintage Rodeo Parent, LLC, Vintage Rodeo Acquisition, Inc. and
Rent-A-Center, Inc. (the ‘‘Vintage Merger Agreement’’). In such
settlement, we received a payment of $92.5 million in cash in May
2019, of which we retained net pre-tax proceeds of approximately
$80 million following payment of all remaining costs, fees and
expenses relating to the termination (the ‘‘Vintage Settlement
Proceeds’’). The Vintage Settlement Proceeds were recorded as a
pre-tax gain upon receipt.
Merchants Preferred Acquisition. On August 13, 2019, we completed
the acquisition of substantially all of the assets of Merchants Preferred,
a nationwide virtual lease-to-own provider. In connection with this
acquisition, we recorded approximately $1.4 million in acquisition-
related expenses during 2019 including expenses related to legal,
professional, and banking transaction fees.
of
Corporate
Leaseback
Headquarters. On
Sale/Partial
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 total gain of approximately $21.8 million in the fourth
quarter of 2019.
Activity with respect to other charges and (gains) for the years ended December 31, 2019 and 2020 is summarized in the below table:
Accrued
Charges at
December 31,
Accrued
Charges at
Charges & Payments & December 31,
Accrued
(Charges at
Charges & Payments & December 31,
2020
2019 Adjustments Adjustments
(In thousands)
Cash:
2018 Adjustments Adjustments
Labor reduction costs
Lease obligation costs(1)
Contract termination costs
Other miscellaneous
$
$
7,623
4,882
—
—
3,039
—
—
4,615
$
(9,924)
(4,882)
—
(4,615)
$
Total cash charges
$
12,505
7,654
$ (19,421)
$
738
—
—
—
738
$
$
1,334
(645)
—
1,889
(1,728)
645
—
(1,889)
$
2,578
$
(2,972)
$
344
—
—
—
344
Non-cash:
Rental merchandise losses(2)
Asset impairments(3)
Other(4)
—
9,938
(78,320)
Total other (gains) charges
$ (60,728)
860
2,749
30,368
$
36,555
(1)
Includes lease abatement credits in 2020 related to renegotiated lease agreements in response to COVID-19. Upon adoption of ASU 2016-02,
in 2019, previously accrued lease obligation costs related to discontinued operations were eliminated and are now reflected as an adjustment
to our operating lease right-of-use assets in our condensed consolidated balance sheet.
(2) Reflects merchandise losses due to looting.
(3) Asset impairments primarily includes impairments of operating lease right-of-use assets and other property assets related to the closure of
Rent-A-Center Business stores and previously closed product service centers, store damage related to looting, as well as a write-down of
capitalized software for the year ended December 31, 2020. Asset impairments primarily includes impairments of operating lease right-of-use
75
RENT-A-CENTER - Annual Report on Form 10-K 75
PART II
Notes to Consolidated Financial Statements
assets and other property assets related to the closure of Rent-A-Center Business stores and our product service centers for the year ended
December 31, 2019.
(4) Other primarily includes a $16.6 million loss on the sale of our stores in California, $6.4 million in expenses related to the Merger, $7.9 million for
legal settlement reserves, $1.2 million for state tax audit assessment reserves, $1.4 million in expenses related to COVID-19, partially offset by
$2.8 million in proceeds received from the sale of a class action claim and $0.3 million in insurance proceeds related to Hurricane Maria in 2017
for the year ended December 31, 2020. Other primarily includes $92.5 million in Vintage Settlement Proceeds, $21.8 million gain on the sale of
our corporate headquarters, and $1.1 million in insurance proceeds related to the 2017 hurricanes, offset by $21.4 million in incremental legal
and professional fees related to the termination of the Vintage Merger Agreement and the Merchants Preferred acquisition, $13.0 million for the
Blair class action settlement, $2.4 million in state tax audit assessments, and $0.3 million in other litigation settlements for the year ended
December 31, 2019.
Note O — Stock-Based Compensation
We maintain long-term incentive plans for the benefit of certain
employees and directors. Our plans consist of the Rent-A-Center, Inc.
2006 Long-Term
the
Rent-A-Center, Inc. 2006 Equity Incentive Plan (the ‘‘Equity Incentive
Plan’’), and the Rent-A-Center 2016 Long-Term Incentive Plan (the
‘‘2016 Plan’’) which are collectively known as the ‘‘Plans.’’
Incentive Plan
‘‘2006 Plan’’),
(the
On March 9, 2016, upon the recommendation of the Compensation
Committee, the Board adopted, subject to stockholder approval, the
2016 Plan and directed that it be submitted for the approval of the
stockholders. On June 2, 2016, the stockholders approved the 2016
Plan. The 2016 Plan authorizes the issuance of a total of 6,500,000
shares of common stock. Any shares of common stock granted in
connection with an award of stock options or stock appreciation rights
will be counted against this limit as one share and any shares of
common stock granted in connection with awards of restricted stock,
restricted stock units, deferred stock or similar forms of stock awards
other than stock options and stock appreciation rights will be counted
against this limit as two shares of common stock for every one share of
common stock granted in connection with such awards. No shares of
common stock will be deemed to have been issued if (1) such shares
covered by the unexercised portion of an option that terminates,
expires, or is cancelled or settled in cash or (2) such shares are
forfeited or subject to awards that are forfeited, canceled, terminated
or settled in cash. In any calendar year, (1) no employee will be
granted options and/or stock appreciation rights for more than
800,000 shares of common stock; (2) no employee will be granted
performance-based equity awards under the 2016 Plan (other than
options and stock appreciation rights), covering more than 800,000
shares of common stock; and (3) no employee will be granted
performance-based cash awards for more than $5,000,000. At
December 31, 2020 and 2019, there were 2,767,703 and 2,556,180
shares, respectively, allocated to equity awards outstanding in the
2016 Plan.
The 2006 Plan authorizes the issuance of 7,000,000 shares of
Rent-A-Center’s common stock that may be issued pursuant to
awards granted under the 2006 Plan, of which no more than 3,500,000
shares may be issued in the form of restricted stock, deferred stock or
similar forms of stock awards which have value without regard to
future appreciation in value of or dividends declared on the underlying
shares of common stock. In applying these limitations, the following
shares will be deemed not to have been issued: (1) shares covered by
the unexercised portion of an option that terminates, expires, or is
canceled or settled in cash, and (2) shares that are forfeited or subject
to awards that are forfeited, canceled, terminated or settled in cash. At
December 31, 2020 and 2019, there were 263,657 and 450,531
shares, respectively, allocated to equity awards outstanding in the
2006 Plan. The 2006 Plan expired in accordance with its terms on
March 24, 2016, and all shares remaining available for grant under the
2006 Plan were canceled.
We acquired the Equity Incentive Plan (formerly known as the
Rent-Way, Inc. 2006 Equity Incentive Plan) in conjunction with our
acquisition of Rent-Way in 2006. There were 2,468,461 shares of our
common stock reserved for issuance under the Equity Incentive Plan.
There were 231,454 and 398,551 shares allocated to equity awards
outstanding in the Equity Incentive Plan at December 31, 2020 and
2019, respectively. The Equity Incentive Plan expired in accordance
with its terms on January 13, 2016, and all shares remaining available
for grant under the Equity Incentive Plan were canceled.
Options granted to our employees generally become exercisable over
a period of 1 to 4 years from the date of grant and may be exercised up
to a maximum of 10 years from the date of grant. Options granted to
directors were immediately exercisable.
We grant restricted stock units to certain employees that vest after a
three-year service requirement has been met. We recognize expense
for these awards using the straight-line method over the requisite
service period based on the number of awards expected to vest. We
also grant performance-based restricted stock units that vest between
0% and 200% depending on our stock performance against an index
using a total shareholder return formula established at the date of
grant for the subsequent three-year period. We record expense for
these awards over the requisite service period, net of the expected
forfeiture rate, since the employee must maintain employment to vest
in the award.
Stock-based compensation expense for the years ended December 31, 2020, 2019 and 2018 is as follows:
(In thousands)
Stock options
Restricted share units
Total stock-based compensation expense
Tax benefit recognized in the statements of earnings
Stock-based compensation expense, net of tax
Year Ended December 31,
2020
$
1,878
$
10,406
12,284
3,062
9,222
$
2019
1,273
5,685
6,958
1,562
5,396
2018
1,388
4,573
5,961
1,739
4,222
$
$
76 RENT-A-CENTER - Annual Report on Form 10-K
76
PART II
Notes to Consolidated Financial Statements
We issue new shares of stock to satisfy option exercises and the vesting of restricted stock units.
The fair value of unvested options that we expect to result in compensation expense was approximately $4.3 million with a weighted average
number of years to vesting of 2.76 at December 31, 2020.
Information with respect to stock option activity related to the Plans for the year ended December 31, 2020 follows:
Equity Awards Weighted Average
Exercise Price
Outstanding
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
(In thousands)
Balance outstanding at January 1, 2020
1,834,862
$
Granted
Exercised
Forfeited
Expired
Balance outstanding at December 31, 2020
Exercisable at December 31, 2020
463,124
(496,018)
(97,863)
(45,940)
1,658,165
752,200
$
$
21.70
25.32
20.63
20.03
29.63
22.91
25.96
6.39
3.97
$
$
25,957
9,345
The intrinsic value of options exercised during the years ended December 31, 2020, 2019, and 2018 was $5.8 million, $5.1 million, and $0.4 million,
respectively, resulting in tax benefits of $2.0 million, $1.8 million, and $0.1 million, respectively, which are reflected as an outflow from operating
activities and an inflow from financing activities in the consolidated statements of cash flows.
The weighted average fair values of the options granted under the Plans were calculated using the Black-Scholes method. The weighted average
grant date fair value and weighted average assumptions used in the option pricing models are as follows:
Weighted average grant date fair value
Weighted average risk free interest rate
Weighted average expected dividend yield
Weighted average expected volatility
Weighted average expected life (in years)
Information with respect to non-vested restricted stock unit activity follows:
Balance outstanding at January 1, 2020
Granted
Vested
Forfeited
Balance outstanding at December 31, 2020
Year Ended December 31,
2020
2019
2018
$
7.28
$
8.92
$
3.80
0.93%
4.75%
2.07%
1.28%
2.51%
—%
49.44%
50.93%
49.58%
4.62
4.63
4.63
Restricted Awards
Weighted Average
Outstanding Grant Date Fair Value
1,570,400
600,449
(667,233)
(119,665)
1,383,951
$
$
14.38
27.79
10.18
18.98
20.09
Restricted stock units are valued using the closing price reported by the Nasdaq Global Select Market on the trading day immediately preceding
the day of the grant. Unrecognized compensation expense for unvested restricted stock units at December 31, 2020, was approximately
$15.2 million expected to be recognized over a weighted average period of 1.73 years.
Note P — Deferred Compensation Plan
The Rent-A-Center, Inc. Deferred Compensation Plan (the ‘‘Deferred
Compensation Plan’’)
is an unfunded, nonqualified deferred
compensation plan for a select group of our key management
personnel and highly compensated employees. The Deferred
Compensation Plan first became available to eligible employees in
July 2007, with deferral elections taking effect as of August 3, 2007.
The Deferred Compensation Plan allows participants to defer up to
50% of their base compensation and up to 100% of any bonus
compensation. Participants may invest the amounts deferred in
measurement funds that are the same funds offered as the investment
options in the Rent-A-Center, Inc. 401(k) Retirement Savings Plan. We
may make discretionary contributions to the Deferred Compensation
Plan, which are subject to a three-year graded vesting schedule based
on the participant’s years of service with us. We are obligated to pay
the deferred compensation amounts in the future in accordance with
the terms of the Deferred Compensation Plan. Assets and associated
liabilities of the Deferred Compensation Plan are included in prepaid
77
RENT-A-CENTER - Annual Report on Form 10-K 77
PART II
Notes to Consolidated Financial Statements
and other assets and accrued liabilities in our consolidated balance
sheets. For the years ended December 31, 2020, 2019 and 2018, we
made matching cash contributions of approximately $160 thousand,
$150 thousand and $50 thousand, respectively, which represents 50%
of the employees’ contributions to the Deferred Compensation Plan
up to an amount not to exceed 6% of each employee’s respective
compensation. No other discretionary contributions were made for the
years ended December 31, 2020, 2019 and 2018. The deferred
compensation plan assets and
liabilities were approximately
$9.5 million and $9.7 million as of December 31, 2020 and 2019,
respectively.
Note Q — 401(k) Plan
We sponsor a defined contribution plan under Section 401(k) of the
Internal Revenue Code for certain employees who have completed at
least three months of service. Employees may elect to contribute up to
50% of their eligible compensation on a pre-tax basis, subject to
limitations. We may make discretionary contributions to the 401(k)
plan. Employer matching contributions are subject to a three-year
graded vesting schedule based on the participant’s years of service
with us. For the years ended December 31, 2020, 2019 and 2018, we
made matching cash contributions of $5.5 million, $6.6 million and
$6.3 million, respectively, which represents 50% of the employees’
contributions to the 401(k) plan up to an amount not to exceed 6% of
each employee’s respective compensation. Employees are permitted
to elect to purchase our common stock as part of their 401(k) plan, up
to specified limitations. As of both December 31, 2020 and 2019, 8.2%
of the total plan assets consisted of our common stock.
Note R — Fair Value
We follow a three-tier fair value hierarchy, which classifies the inputs
used in measuring fair values, in determining the fair value of our
non-financial assets and non-financial
liabilities, which consist
primarily of goodwill. These tiers include: Level 1, defined as
observable inputs such as quoted prices for identical instruments in
active markets; Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable; and
Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring an entity to develop its own
assumptions. There were no changes
the methods and
assumptions used in measuring fair value during the period.
in
Note S — Stock Repurchase Plan
Our financial instruments include cash and cash equivalents,
receivables, payables, and borrowings against our ABL Credit Facility
and Term Loan Facility. The carrying amount of cash and cash
equivalents, receivables and payables approximates fair value at
December 31, 2020 and December 31, 2019, because of the short
maturities of these instruments. In addition, the interest rates on our
Term Loan Facility and ABL Credit Facility are variable and, therefore,
the carrying value of outstanding borrowings approximates their fair
value.
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
$75 million of Rent-A-Center common stock. During the twelve months
ended December 31, 2020, the Company repurchased 1,463,377
shares of our common stock for an aggregate purchase price of
$26.6 million, which includes shares having an aggregate purchase
price of $10.0 million that were purchased under a repurchase
program that was previously authorized by our Board of Directors until
its replacement by the current program in March 2020. We did not
repurchase any shares of common stock during the three months
ended December 31, 2020. Under the March 2020 authorization,
$58.4 million remains available for repurchases in the open market
and privately negotiated transactions.
Note T — Segment Information
The operating segments reported below are the segments for which
separate financial information is available and for which segment
results are evaluated by the chief operating decision makers. Our
operating segments are organized based on factors including, but not
limited to, type of business transactions, geographic location and
store ownership. All operating segments offer merchandise from
certain basic product categories: furniture, consumer electronics,
appliances, computers, and accessories. Smartphones are also
offered in our Rent-A-Center Business stores and franchise locations.
In addition, in the Rent-A-Center Business segment, we have recently
expanded into other product categories including tires, tools,
handbags and other accessories.
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 Rent-A-Center
Business segment (formerly Core U.S.), which operates our company-
owned stores and e-commerce platform through rentacenter.com. In
addition, we report operating results for our Mexico and Franchising
segments. Reportable segments and their respective operations are
defined as follows.
Our Rent-A-Center Business segment primarily operates lease-to-own
stores in the United States and Puerto Rico whose customers enter
into weekly, semi-monthly or monthly rental purchase agreements,
which renew automatically upon receipt of each payment. We retain
the title to the merchandise during the term of the rental purchase
agreement and ownership passes to the customer if the customer has
continuously renewed the rental purchase agreement through the end
of the term or exercises a specified early purchase option. This
segment also includes the 44 stores operating in two states that utilize
a retail model which generates installment credit sales through a retail
sale transaction. Segment assets include cash, receivables, rental
merchandise, property assets and other intangible assets.
78 RENT-A-CENTER - Annual Report on Form 10-K
78
PART II
Notes to Consolidated Financial Statements
Our Preferred Lease segment, which operates in the United States and
Puerto Rico, and includes the operations of the 2019 acquisition of
Merchants Preferred, generally offers the lease-to-own transactions to
consumers who do not qualify for financing from the traditional retailer.
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. The transaction offered
at our Preferred Lease locations (excluding virtual) is generally similar
to that of the Rent-A-Center Business segment; however, we generally
pay the retail price for merchandise purchased from our retail partners
and subsequently leased to the customer. In addition, the majority of
the customers in this segment enter into monthly rather than weekly
agreements. Under the virtual business model, revenues are earned
prior to the renal payment due date. Therefore, revenue is accrued
prior to receipt of the rental payment, net of estimated returns and
uncollectible renewal payments. Segment assets include cash, rental
merchandise, property assets, goodwill and other intangible assets.
Our Mexico segment currently consists of our company-owned
lease-to-own stores in Mexico. The nature of this segment’s
operations and assets are the same as our Rent-A-Center Business
segment.
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 program. As franchisor, Franchising receives royalties of
2.0% to 6.0% of the franchisees’ monthly gross revenue and initial fees
for new locations. Segment assets include cash, trade receivables,
property assets and intangible assets.
Segment information as of and for the years ended December 31, 2020, 2019 and 2018 is as follows:
(In thousands)
Revenues
Rent-A-Center Business
Preferred Lease
Mexico
Franchising
Total revenues
(In thousands)
Gross profit
Rent-A-Center Business
Preferred Lease
Mexico
Franchising
Total gross profit
(In thousands)
Operating profit (loss)
Rent-A-Center Business
Preferred Lease
Mexico
Franchising
Total segments
Corporate
Year Ended December 31,
2020
2019
2018
$
1,852,641
$
1,800,486
$
1,855,712
810,151
50,583
100,816
749,260
722,562
53,960
66,146
49,613
32,578
$
2,814,191
$
2,669,852
$
2,660,465
Year Ended December 31,
2020
2019
2018
$
1,294,695
$
1,255,153
$
1,299,809
321,110
333,798
339,616
35,665
20,682
37,488
17,632
34,364
14,379
$
1,672,152
$
1,644,071
$
1,688,168
Year Ended December 31,
2020
2019
2018
$
333,379
$
235,964
$
147,787
57,847
5,798
12,570
409,594
(172,258)
83,066
5,357
7,205
331,592
(77,733)
93,951
2,605
4,385
248,728
(192,591)
Total operating profit
$
237,336
$
253,859
$
56,137
79
RENT-A-CENTER - Annual Report on Form 10-K 79
PART II
Notes to Consolidated Financial Statements
(In thousands)
Depreciation and amortization
Rent-A-Center Business
Preferred Lease
Mexico
Franchising
Total segments
Corporate
(In thousands)
Capital expenditures
Rent-A-Center Business
Preferred Lease
Mexico
Total segments
Corporate
Year Ended December 31,
2020
2019
2018
$
19,912
$
20,822
$
25,566
2,066
413
40
22,431
34,227
1,533
401
45
22,801
38,303
Year Ended December 31,
2020
2019
2018
$
14,869
$
10,255
$
17,173
161
392
15,422
19,123
141
172
10,568
10,589
1,677
1,006
172
28,421
40,525
68,946
203
295
17,671
10,291
27,962
Total depreciation and amortization
$
56,658
$
61,104
$
Total capital expenditures
$
34,545
$
21,157
$
(In thousands)
On rent rental merchandise, net
Rent-A-Center Business
Preferred Lease
Mexico
December 31,
2020
2019
2018
$
444,945
$
411,482
$
424,829
299,660
18,281
268,845
16,943
242,978
16,001
Total on rent rental merchandise, net
$
762,886
$
697,270
$
683,808
(In thousands)
Held for rent rental merchandise, net
Rent-A-Center Business
Preferred Lease
Mexico
December 31,
2020
2019
2018
$
136,219
$
131,086
$
117,294
2,228
7,819
1,254
6,078
1,207
5,161
Total held for rent rental merchandise, net
$
146,266
$
138,418
$
123,662
80 RENT-A-CENTER - Annual Report on Form 10-K
80
(In thousands)
Assets by segment
Rent-A-Center Business
Preferred Lease
Mexico
Franchising
Total segments
Corporate
Total assets
(In thousands)
Assets by country
United States
Mexico
Canada
Total assets
(In thousands)
Rentals and fees by inventory category
Furniture and accessories
Appliances
Consumer electronics
Computers
Smartphones
Other products and services
Total rentals and fees
(In thousands)
Revenue by country
United States
Mexico
Canada
Total revenues
PART II
Notes to Consolidated Financial Statements
December 31,
2020
2019
2018
$
999,252
$
953,151
$
714,914
389,650
357,859
312,151
42,278
14,729
33,707
11,095
29,321
4,287
1,445,909
1,355,812
1,060,673
305,071
226,986
336,244
$
1,750,980
$
1,582,798
$
1,396,917
December 31,
2020
2019
2018
$
1,708,702
$
1,547,895
$
1,366,405
42,278
—
33,707
1,196
29,321
1,191
$
1,750,980
$
1,582,798
$
1,396,917
Year Ended December 31,
2020
2019
2018
$
1,028,876
$
982,644
$
962,241
358,931
322,261
119,015
59,205
374,803
346,668
358,619
103,171
62,948
370,352
344,548
410,184
120,756
62,592
344,539
$
2,263,091
$
2,224,402
$
2,244,860
Year Ended December 31,
2020
2019
2018
$
2,763,608
$
2,615,892
$
2,610,432
50,583
—
53,960
—
49,612
421
$
2,814,191
$
2,669,852
$
2,660,465
81
RENT-A-CENTER - Annual Report on Form 10-K 81
PART II
Notes to Consolidated Financial Statements
Note U — Earnings Per Common Share
Summarized basic and diluted earnings per common share were calculated as follows:
(In thousands, except per share data)
Numerator:
Net earnings
Denominator:
Weighted-average shares outstanding
Effect of dilutive stock awards
Weighted-average dilutive shares
Basic earnings per share
Diluted earnings per share
Anti-dilutive securities excluded from diluted earnings per common share:
Anti-dilutive restricted share units
Anti-dilutive performance share units
Anti-dilutive stock options
Year Ended December 31,
2020
2019
2018
$
208,115
$
173,546
$
8,492
54,187
1,567
55,754
54,325
1,630
55,955
$
$
3.84
3.73
$
$
3.19
3.10
$
$
1
3
949
—
290
1,109
53,471
1,071
54,542
0.16
0.16
—
200
1,498
Note V — Unaudited Quarterly Data
Summarized quarterly financial data for the years ended December 31, 2020, and 2019 is as follows:
(In thousands, except per share data)
Year Ended December 31, 2020
Revenues
Gross profit
Operating profit
Net earnings
Basic earnings per common share
Diluted earnings per common share
(In thousands, except per share data)
Year Ended December 31, 2019
Revenues
Gross profit
Operating profit
Net earnings
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
701,939
$
683,746
$
712,015
$
716,491
420,178
399,532
425,028
427,414
48,875
49,292
53,635
38,493
80,187
64,030
$
$
0.90
0.88
$
$
0.72
0.70
$
$
1.19
1.15
$
$
54,639
56,300
1.04
1.00
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
696,694
$
655,925
$
649,371
$
667,862
424,866
17,349
7,323
408,071
129,829
94,455
38,847
31,277
399,996
411,138
67,834
40,491
0.74
0.72
Basic earnings per common share
Diluted earnings per common share
$
$
0.14
0.13
$
$
1.74
1.70
$
$
0.57
0.56
$
$
82 RENT-A-CENTER - Annual Report on Form 10-K
82
PART II
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934, an evaluation was performed under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our management, including our Chief Executive Officer and
our Chief Financial Officer, concluded that, as of December 31, 2020, our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Please refer to Management’s Annual Report on Internal Control over Financial Reporting in Part II, Item 8, of this Annual Report on Form 10-K.
Auditor’s Report Relating to Effectiveness of Internal Control over Financial
Reporting
Please refer to the Report of Independent Registered Public Accounting Firm in Part II, Item 8, of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
For the year ended December 31, 2020, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934) that, in the aggregate, have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information.
None.
83
RENT-A-CENTER - Annual Report on Form 10-K 83
PART III
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.(*)
*
The information required by Items 10, 11, 12, 13 and 14 is or will be set forth in the definitive proxy statement relating to the 2021 Annual Meeting
of Stockholders of Rent-A-Center, Inc., which is to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended. This definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required
to be set forth in this Form 10-K by Items 10, 11, 12, 13 and 14 are incorporated herein by reference pursuant to General Instruction G(3) to
Form 10-K.
84 RENT-A-CENTER - Annual Report on Form 10-K
84
PART IV
Item 15.
Exhibits and Financial Statement
Schedules.
1.
Financial Statements
2.
Financial Statement Schedules
The financial statements included in this report are listed in the Index
to Financial Statements in Part II, Item 8, of this Annual Report on
Form 10-K.
Schedules for which provision is made in the applicable accounting
regulations of the SEC are either not required under the related
instructions or inapplicable.
3. Exhibits
Exhibit No.
Description
2.1
2.2
2.3
3.1
3.2
3.3
3.4
4.1
4.2
4.3*
10.1†
10.2†
10.3†
10.4†*
10.5†
Agreement and Plan of Merger, dated as of June 17, 2018, by and among Rent-A-Center, Inc., Vintage Rodeo Parent, LLC and
Vintage Rodeo Acquisition, Inc. (Incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K
dated as of June 17, 2018.)
Asset Purchase Agreement (the ‘‘Asset Purchase Agreement’’), dated July 12, 2019, among Rent-A-Center, Inc., Braveheart
Acquisition, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, C/C Financial Corp., a
Delaware corporation d/b/a Merchants Preferred , MPLPS II Holdings, LLC, a Delaware limited liability company, MPLPS II, LLC, a
Delaware limited liability company, MP Lease-Purchase Services, Inc., a Delaware corporation, and Synterra Capital
Management LLC (Incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K dated as of
July 15, 2019.)
Agreement and Plan of Merger, dated as of December 20, 2020, by and among Rent-A-Center, Inc., Radalta, LLC, Acima
Holdings, LLC and Aaron Allred, solely in his capacity as Member Representative (Incorporated herein by reference to Exhibit 2.1 to
the registrant’s Current Report on Form 8-K dated as of December 20, 2020.)
Certificate of Incorporation of Rent-A-Center, Inc., as amended (Incorporated herein by reference to Exhibit 3.1 to the registrant’s
Current Report on Form 8-K dated as of December 31, 2002.)
Certificate of Amendment to the Certificate of Incorporation of Rent-A-Center, Inc., dated May 19, 2004 (Incorporated herein by
reference to Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.)
Amended and Restated Bylaws of Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 3.2 to the registrant’s Current
Report on Form 8-K dated as of December 1, 2020.)
Certificate of Designations of Series D Preferred Stock of Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 3.1 to the
registrant’s Current Report on Form 8-K dated as of March 29, 2017.)
Form of Certificate evidencing Common Stock (Incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on
Form 10-Q dated as of March 31, 2017.)
Indenture, dated as of February 17, 2021, by and between Radiant Funding SPV, LLC and Truist Bank (Incorporated herein by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K dated as of February 17, 2021.)
Description of Rent-A-Center, Inc.’s Common Stock
Amended and Restated Rent-A-Center, Inc. Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.1 to the
registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.)
Form of Stock Option Agreement issuable to Directors pursuant to the Amended and Restated Rent-A-Center, Inc. Long-Term
Incentive Plan (Incorporated herein by reference to Exhibit 10.20 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2004.)
Form of Stock Option Agreement issuable to management pursuant to the Amended and Restated Rent-A- Center, Inc. Long-Term
Incentive Plan (Incorporated herein by reference to Exhibit 10.21 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2004.)
Summary of Director Compensation
Form of Stock Compensation Agreement issuable to management pursuant to the Amended and Restated Rent-A-Center, Inc.
Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.15 to the registrant’s Annual Report on Form 10-K for the
year ended December 31, 2005.)
85
RENT-A-CENTER - Annual Report on Form 10-K 85
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Exhibit No.
Description
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22
10.23†
10.24†
10.25†
10.28†
10.29
10.30
10.31
Form of Long-Term Incentive Cash Award issuable to management pursuant to the Amended and Restated Rent-A-Center, Inc.
Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.16 to the registrant’s Annual Report on Form 10-K for the
year ended December 31, 2005.)
Form of Loyalty and Confidentiality Agreement entered into with management (Incorporated herein by reference to Exhibit 10.14 to
the registrant’s Annual Report on Form 10-K for the year ended December 31, 2016.)
Rent-A-Center, Inc. 2006 Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.17 to the registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006.)
Form of Stock Option Agreement issuable to management pursuant to the Rent-A-Center, Inc. 2006 Long-Term Incentive Plan
(Incorporated herein by reference to Exhibit 10.18 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2006.)
Form of Stock Compensation Agreement issuable to management pursuant to the Rent-A-Center, Inc. 2006 Equity Incentive Plan
(Incorporated herein by reference to Exhibit 10.19 to the registrant’s Annual Report on Form 10-K for the year ended December 31,
2006.)
Form of Long-Term Incentive Cash Award issuable to management pursuant to the Rent-A-Center, Inc. 2006 Long-Term Incentive
Plan (Incorporated herein by reference to Exhibit 10.20 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2006.)
Rent-A-Center, Inc. 2006 Equity Incentive Plan and Amendment (Incorporated herein by reference to Exhibit 4.5 to the registrant’s
Registration Statement on Form S-8 filed with the SEC on January 4, 2007.)
Form of Stock Option Agreement issuable to management pursuant to the Rent-A-Center, Inc. 2006 Equity Incentive Plan
(Incorporated herein by reference to Exhibit 10.22 to the registrant’s Annual Report on Form 10-K for the year ended December 31,
2006.)
Form of Stock Compensation Agreement issuable to management pursuant to the Rent-A-Center, Inc. 2006 Long-Term Incentive
Plan (Incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2006.)
Form of Stock Option Agreement issuable to Directors pursuant to the Rent-A-Center, Inc. 2006 Long-Term Incentive Plan
(Incorporated herein by reference to Exhibit 10.24 to the registrant’s Annual Report on Form 10-K for the year ended December 31,
2006.)
Form of Deferred Stock Unit Award Agreement issuable to Directors pursuant to the Rent-A-Center, Inc. 2006 Long-Term Incentive
Plan (Incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2010.)
Form of Executive Transition Agreement entered into with management (Incorporated herein by reference to Exhibit 10.24 to the
registrant’s Annual Report on Form 10-K for the year ended August 31, 2016.)
Rent-A-Center, Inc. 2016 Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.36 to the registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2016.)
Rent-A-Center, Inc. Non-Qualified Deferred Compensation Plan (Incorporated herein by reference to Exhibit 10.28 to the
registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.)
Rent-A-Center, Inc. 401-K Plan (Incorporated herein by reference to Exhibit 10.30 to the registrant’s Annual Report on Form 10-K for
the year ended December 31, 2008.)
Rent-A-Center East, Inc. Retirement Savings Plan for Puerto Rico Employees (Incorporated herein by reference to Exhibit 99.1 to
the registrant’s Registration Statement on Form S-8 filed January 28, 2011.)
Master Confirmation Agreement, dated as of May 2, 2013, between Rent-A-Center, Inc. and Goldman Sachs & Co. (Incorporated
herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated as of May 2, 2013.)
Form of Stock Option Agreement issuable to management pursuant to the Rent-A-Center, Inc. 2016 Long-Term Incentive Plan
(Incorporated herein by reference to Exhibit 10.37 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016.)
Form of Stock Compensation Agreement (RSU) issuable to management pursuant to the Rent-A-Center, Inc. 2016 Long-Term
Incentive Plan (Incorporated herein by reference to Exhibit 10.38 to the registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2016.)
Form of Stock Compensation Agreement (PSU) issuable to management pursuant to the Rent-A-Center, Inc. 2016 Long-Term
Incentive Plan (Incorporated herein by reference to Exhibit 10.39 to the registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2016.)
CEO Employment Agreement, dated December 30, 2017, between Mitchell E. Fadel and Rent-A-Center, Inc. (Incorporated herein
by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated as of April 3, 2018.)
Letter Agreement, dated May 25, 2018, by and among Rent-A-Center, Inc., Engaged Capital Flagship Master Fund, LP, Engaged
Capital Co-Invest V, LP, Engaged Capital Co-Invest V-A, LP, Engaged Capital Flagship Fund, LP, Engaged Capital Flagship
Fund, Ltd., Engaged Capital, LLC, Engaged Capital Holdings, LLC and Glenn W. Welling (Incorporated herein by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated as of May 25, 2018.)
Amended and Restated Employment Agreement, entered into as of April 16, 2019, between Rent-A-Center, Inc. and Mitchell E.
Fadel (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K on April 16, 2019.)
Term Loan Credit Agreement, dated as of August 5, 2019, between Rent-A-Center, Inc., the several lenders from time to time party
thereto and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated herein by reference to Exhibit 10.42 to the
registrant’s Quarterly Report on Form 10-Q on August 9, 2019.)
86 RENT-A-CENTER - Annual Report on Form 10-K
86
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Exhibit No.
Description
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
21.1*
23.1*
23.2*
31.1*
31.2*
32.1*
32.2*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
ABL Credit Agreement, dated as of August 5, 2019, between Rent-A-Center, Inc., the several lenders from time to time party thereto
and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated herein by reference to Exhibit 10.43 to the registrant’s
Quarterly Report on Form 10-Q on August 9, 2019.)
First Amendment to ABL Credit Agreement dated as of January 26, 2021, by and among Rent-A-Center, Inc., each other Loan Party
party thereto, JPMorgan Chase Bank, N.A., as administrative agent and each of the Lenders party thereto (Incorporated herein by
reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated as of January 27, 2021).
Term Loan Guarantee and Collateral Agreement, dated as of August 5, 2019, between Rent-A-Center, Inc., its subsidiaries named
as guarantors therein and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated herein by reference to Exhibit 10.44
to the registrant’s Current Report on Form 10-Q on August 9, 2019.)
ABL Guarantee and Collateral Agreement, dated as of August 5, 2019, between Rent-A-Center, Inc., its subsidiaries named as
guarantors therein and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated herein by reference to Exhibit 10.45 to
the registrant’s Quarterly Report on Form 10-Q on August 9, 2019.)
Agreement Containing Consent Order, dated February 21, 2020, by and between the Bureau of Competition and
Rent-A-Center, Inc. (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated as of
February 21, 2020.)
ABL Credit Agreement dated as of February 17, 2021, among Rent-A-Center, Inc., as Borrower, the several lenders from time to time
party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated herein by reference to Exhibit 10.2 to the
registrant’s Current Report on Form 8-K dated as of February 17, 2021.)
Term Loan Credit Agreement dated as of February 17, 2021, among Rent-A-Center, Inc., as Borrower, the several lenders from time
to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated herein by reference to Exhibit 10.3 to
the registrant’s Current Report on Form 8-K dated as of February 17, 2021.)
Registration Rights Agreement, dated as of February 17, 2021, by and among Rent-A-Center, Inc. and certain former owners of
Acima Holdings, LLC (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated as of
February 17, 2021.)
Subsidiaries of Rent-A-Center, Inc.
Consent of Ernst & Young LLP
Consent of KPMG LLP
Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley
Act of 2002 by Mitchell E. Fadel
Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley
Act of 2002 by Maureen B. Short
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Mitchell
E. Fadel
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Maureen
B. Short
XBRL Instance Document - The instance document does not appear in the interactive data files because its XBRL tags are
embedded within the inline XBRL document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover page Interactive Data File (embedded within the inline XBRL document contained in Exhibit 101)
† Management contract or compensatory plan or arrangement.
*
Filed herewith.
87
RENT-A-CENTER - Annual Report on Form 10-K 87
PART IV
Item 16. Form 10-K Summary.
Item 16.
Form 10-K Summary.
None.
88 RENT-A-CENTER - Annual Report on Form 10-K
88
PART IV
Signatures
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: February 26, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By:
RENT-A-CENTER, INC.
/s/ MITCHELL E. FADEL
Mitchell E. Fadel
Chief Executive Officer
Signature
/s/ MITCHELL E. FADEL
Mitchell E. Fadel
/s/ MAUREEN B. SHORT
Maureen B. Short
/s/ JEFFREY J. BROWN
Jeffrey J. Brown
/s/ MICHAEL J. GADE
Michael J. Gade
/s/ CHRISTOPHER B. HETRICK
Christopher B. Hetrick
/s/ HAROLD LEWIS
Harold Lewis
/s/ GLENN P. MARINO
Glenn P. Marino
/s/ CAROL A. MCFATE
Carol A. McFate
/s/ BRINSON CALEB SILVER
Brinson Caleb Silver
Title
Chief Executive Officer and Director
(Principal Executive Officer)
EVP, Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Date
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
89
RENT-A-CENTER - Annual Report on Form 10-K 89