2015 Q1 Form 10-Q Financial Statement

#000093303615000012 Filed on May 01, 2015

View on sec.gov

Income Statement

Concept 2015 Q1 2014 Q1
Revenue $877.6M $828.5M
YoY Change 5.93% 1.12%
Cost Of Revenue $313.0M $265.9M
YoY Change 17.72% -1.0%
Gross Profit $564.6M $562.6M
YoY Change 0.36% 2.16%
Gross Profit Margin 64.33% 67.9%
Selling, General & Admin $487.8M $483.2M
YoY Change 0.95% 2.59%
% of Gross Profit 86.4% 85.89%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $18.85M $19.14M
YoY Change -1.52% 3.61%
% of Gross Profit 3.34% 3.4%
Operating Expenses $508.0M $503.1M
YoY Change 0.97% 6.61%
Operating Profit $56.60M $59.46M
YoY Change -4.81% -24.53%
Interest Expense $12.58M $11.40M
YoY Change 10.32% 42.49%
% of Operating Profit 22.22% 19.17%
Other Income/Expense, Net $0.00 -$4.200M
YoY Change -100.0%
Pretax Income $44.21M $44.08M
YoY Change 0.29% -37.98%
Income Tax $16.91M $16.81M
% Of Pretax Income 38.25% 38.14%
Net Earnings $27.30M $27.27M
YoY Change 0.12% -40.9%
Net Earnings / Revenue 3.11% 3.29%
Basic Earnings Per Share $0.51 $0.52
Diluted Earnings Per Share $0.51 $0.51
COMMON SHARES
Basic Shares Outstanding 53.03M shares 52.80M shares
Diluted Shares Outstanding 53.38M shares 53.02M shares

Balance Sheet

Concept 2015 Q1 2014 Q1
SHORT-TERM ASSETS
Cash & Short-Term Investments $93.10M $81.00M
YoY Change 14.94% -1.58%
Cash & Equivalents $93.12M $81.01M
Short-Term Investments
Other Short-Term Assets $78.00M $80.70M
YoY Change -3.35% 25.12%
Inventory $1.218B $1.096B
Prepaid Expenses
Receivables $61.90M $57.90M
Other Receivables $0.00 $0.00
Total Short-Term Assets $1.451B $1.315B
YoY Change 10.31% 5.92%
LONG-TERM ASSETS
Property, Plant & Equipment $327.5M $339.8M
YoY Change -3.63% 9.7%
Goodwill $1.376B $1.364B
YoY Change 0.89% 1.36%
Intangibles
YoY Change
Long-Term Investments
YoY Change
Other Assets
YoY Change
Total Long-Term Assets $1.718B $1.716B
YoY Change 0.11% 2.93%
TOTAL ASSETS
Total Short-Term Assets $1.451B $1.315B
Total Long-Term Assets $1.718B $1.716B
Total Assets $3.169B $3.031B
YoY Change 4.54% 4.21%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $145.9M $122.5M
YoY Change 19.1% -7.62%
Accrued Expenses $409.6M $372.4M
YoY Change 9.99% 10.7%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00
YoY Change
Long-Term Debt Due
YoY Change
Total Short-Term Liabilities $555.5M $494.9M
YoY Change 12.24% 5.52%
LONG-TERM LIABILITIES
Long-Term Debt $898.8M $875.0M
YoY Change 2.72% 36.44%
Other Long-Term Liabilities
YoY Change
Total Long-Term Liabilities $898.8M $875.0M
YoY Change 2.72% 36.44%
TOTAL LIABILITIES
Total Short-Term Liabilities $555.5M $494.9M
Total Long-Term Liabilities $898.8M $875.0M
Total Liabilities $1.763B $1.669B
YoY Change 5.65% 17.98%
SHAREHOLDERS EQUITY
Retained Earnings $1.942B $1.905B
YoY Change 1.96% 3.14%
Common Stock $816.5M $805.3M
YoY Change 1.4% 1.74%
Preferred Stock
YoY Change
Treasury Stock (at cost) $1.348B $1.348B
YoY Change 0.0% 17.43%
Treasury Stock Shares 56.37M shares 56.37M shares
Shareholders Equity $1.405B $1.362B
YoY Change
Total Liabilities & Shareholders Equity $3.169B $3.031B
YoY Change 4.54% 4.21%

Cashflow Statement

Concept 2015 Q1 2014 Q1
OPERATING ACTIVITIES
Net Income $27.30M $27.27M
YoY Change 0.12% -40.9%
Depreciation, Depletion And Amortization $18.85M $19.14M
YoY Change -1.52% 3.61%
Cash From Operating Activities $228.0M $120.1M
YoY Change 89.94% 5.81%
INVESTING ACTIVITIES
Capital Expenditures $14.25M $23.11M
YoY Change -38.35% 17.68%
Acquisitions $10.66M $5.369M
YoY Change 98.53% 158.25%
Other Investing Activities -$10.00M -$5.400M
YoY Change 85.19% 157.14%
Cash From Investing Activities -$24.26M -$28.47M
YoY Change -14.8% 31.15%
FINANCING ACTIVITIES
Cash Dividend Paid $12.74M $12.15M
YoY Change 4.9% -0.33%
Common Stock Issuance & Retirement, Net $0.00
YoY Change -100.0%
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -$156.3M -$52.77M
YoY Change 196.1% -25.66%
NET CHANGE
Cash From Operating Activities $228.0M $120.1M
Cash From Investing Activities -$24.26M -$28.47M
Cash From Financing Activities -$156.3M -$52.77M
Net Change In Cash $47.53M $38.82M
YoY Change 22.44% 86.88%
FREE CASH FLOW
Cash From Operating Activities $228.0M $120.1M
Capital Expenditures $14.25M $23.11M
Free Cash Flow $213.8M $96.95M
YoY Change 120.51% 3.33%

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CY2015Q1 us-gaap Liabilities And Stockholders Equity
LiabilitiesAndStockholdersEquity
3168550000 USD
CY2014Q4 us-gaap Line Of Credit
LineOfCredit
255000000 USD
CY2015Q1 us-gaap Line Of Credit
LineOfCredit
120000000 USD
CY2015Q1 us-gaap Line Of Credit Facility Maximum Borrowing Capacity
LineOfCreditFacilityMaximumBorrowingCapacity
675000000 USD
CY2015Q1 us-gaap Line Of Credit Facility Unused Capacity Commitment Fee Percentage
LineOfCreditFacilityUnusedCapacityCommitmentFeePercentage
0.005
CY2015Q1 us-gaap Long Term Debt Maturities Repayments Of Principal After Year Five
LongTermDebtMaturitiesRepaymentsOfPrincipalAfterYearFive
212063000 USD
CY2015Q1 us-gaap Long Term Debt Maturities Repayments Of Principal In Next Twelve Months
LongTermDebtMaturitiesRepaymentsOfPrincipalInNextTwelveMonths
7687000 USD
CY2015Q1 us-gaap Long Term Debt Maturities Repayments Of Principal In Year Five
LongTermDebtMaturitiesRepaymentsOfPrincipalInYearFive
122250000 USD
CY2015Q1 us-gaap Long Term Debt Maturities Repayments Of Principal In Year Four
LongTermDebtMaturitiesRepaymentsOfPrincipalInYearFour
2250000 USD
CY2015Q1 us-gaap Long Term Debt Maturities Repayments Of Principal In Year Three
LongTermDebtMaturitiesRepaymentsOfPrincipalInYearThree
2250000 USD
CY2015Q1 us-gaap Long Term Debt Maturities Repayments Of Principal In Year Two
LongTermDebtMaturitiesRepaymentsOfPrincipalInYearTwo
2250000 USD
CY2014Q1 us-gaap Net Cash Provided By Used In Financing Activities
NetCashProvidedByUsedInFinancingActivities
-52770000 USD
CY2015Q1 us-gaap Net Cash Provided By Used In Financing Activities
NetCashProvidedByUsedInFinancingActivities
-156251000 USD
CY2014Q1 us-gaap Net Cash Provided By Used In Investing Activities
NetCashProvidedByUsedInInvestingActivities
-28470000 USD
CY2015Q1 us-gaap Net Cash Provided By Used In Investing Activities
NetCashProvidedByUsedInInvestingActivities
-24256000 USD
CY2014Q1 us-gaap Net Cash Provided By Used In Operating Activities
NetCashProvidedByUsedInOperatingActivities
120060000 USD
CY2015Q1 us-gaap Net Cash Provided By Used In Operating Activities
NetCashProvidedByUsedInOperatingActivities
228038000 USD
CY2014Q1 us-gaap Net Income Loss
NetIncomeLoss
27266000 USD
CY2015Q1 us-gaap Net Income Loss
NetIncomeLoss
27298000 USD
CY2014Q1 us-gaap Net Income Loss Attributable To Parent Diluted
NetIncomeLossAttributableToParentDiluted
27266000 USD
CY2015Q1 us-gaap Net Income Loss Attributable To Parent Diluted
NetIncomeLossAttributableToParentDiluted
27298000 USD
CY2015Q1 us-gaap New Accounting Pronouncement Or Change In Accounting Principle Description
NewAccountingPronouncementOrChangeInAccountingPrincipleDescription
Based on balances at March 31, 2015, the impact on our consolidated balance sheet would be a reduction in prepaid expenses and other assets of approximately $15.0 million, a reduction in senior debt of approximately $7.4 million and a reduction in senior notes of approximately $7.6 million.
CY2015Q1 us-gaap New Accounting Pronouncement Or Change In Accounting Principle Name
NewAccountingPronouncementOrChangeInAccountingPrincipleName
ASU 2015-03
CY2014Q1 us-gaap Operating Expenses
OperatingExpenses
503092000 USD
CY2015Q1 us-gaap Operating Expenses
OperatingExpenses
507995000 USD
CY2014Q1 us-gaap Operating Income Loss
OperatingIncomeLoss
59458000 USD
CY2015Q1 us-gaap Operating Income Loss
OperatingIncomeLoss
56598000 USD
CY2014Q1 us-gaap Other Comprehensive Income Loss Net Of Tax Portion Attributable To Parent
OtherComprehensiveIncomeLossNetOfTaxPortionAttributableToParent
-97000 USD
CY2015Q1 us-gaap Other Comprehensive Income Loss Net Of Tax Portion Attributable To Parent
OtherComprehensiveIncomeLossNetOfTaxPortionAttributableToParent
-777000 USD
CY2014Q1 us-gaap Other Sales Revenue Net
OtherSalesRevenueNet
4258000 USD
CY2015Q1 us-gaap Other Sales Revenue Net
OtherSalesRevenueNet
5431000 USD
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Options Grants In Period Weighted Average Grant Date Fair Value
ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsGrantsInPeriodWeightedAverageGrantDateFairValue
7.59
CY2015Q1 us-gaap Share Based Compensation Arrangements By Share Based Payment Award Options Grants In Period Weighted Average Exercise Price
ShareBasedCompensationArrangementsByShareBasedPaymentAwardOptionsGrantsInPeriodWeightedAverageExercisePrice
31.21
CY2015Q1 us-gaap Sharebased Compensation Arrangement By Sharebased Payment Award Fair Value Assumptions Expected Term1
SharebasedCompensationArrangementBySharebasedPaymentAwardFairValueAssumptionsExpectedTerm1
P3Y6M
CY2014Q4 us-gaap Stockholders Equity
StockholdersEquity
1389395000 USD
CY2014Q1 us-gaap Payments Of Dividends
PaymentsOfDividends
12147000 USD
CY2015Q1 us-gaap Payments Of Dividends
PaymentsOfDividends
12742000 USD
CY2014Q1 us-gaap Payments To Acquire Businesses Net Of Cash Acquired
PaymentsToAcquireBusinessesNetOfCashAcquired
5369000 USD
CY2015Q1 us-gaap Payments To Acquire Businesses Net Of Cash Acquired
PaymentsToAcquireBusinessesNetOfCashAcquired
10659000 USD
CY2014Q1 us-gaap Payments To Acquire Productive Assets
PaymentsToAcquireProductiveAssets
23108000 USD
CY2015Q1 us-gaap Payments To Acquire Productive Assets
PaymentsToAcquireProductiveAssets
14245000 USD
CY2014Q1 us-gaap Payments To Acquire Property Plant And Equipment
PaymentsToAcquirePropertyPlantAndEquipment
23108000 USD
CY2015Q1 us-gaap Payments To Acquire Property Plant And Equipment
PaymentsToAcquirePropertyPlantAndEquipment
14245000 USD
CY2014Q4 us-gaap Prepaid Expense And Other Assets
PrepaidExpenseAndOtherAssets
206150000 USD
CY2015Q1 us-gaap Prepaid Expense And Other Assets
PrepaidExpenseAndOtherAssets
78025000 USD
CY2014Q1 us-gaap Proceeds From Issuance Of Secured Debt
ProceedsFromIssuanceOfSecuredDebt
176580000 USD
CY2015Q1 us-gaap Proceeds From Issuance Of Secured Debt
ProceedsFromIssuanceOfSecuredDebt
158250000 USD
CY2014Q1 us-gaap Proceeds From Sale Of Property Plant And Equipment
ProceedsFromSaleOfPropertyPlantAndEquipment
7000 USD
CY2015Q1 us-gaap Proceeds From Sale Of Property Plant And Equipment
ProceedsFromSaleOfPropertyPlantAndEquipment
648000 USD
CY2014Q1 us-gaap Proceeds From Stock Options Exercised
ProceedsFromStockOptionsExercised
632000 USD
CY2015Q1 us-gaap Proceeds From Stock Options Exercised
ProceedsFromStockOptionsExercised
522000 USD
CY2014Q4 us-gaap Property Plant And Equipment Net
PropertyPlantAndEquipmentNet
332726000 USD
CY2015Q1 us-gaap Property Plant And Equipment Net
PropertyPlantAndEquipmentNet
327477000 USD
CY2014Q1 us-gaap Provision For Doubtful Accounts
ProvisionForDoubtfulAccounts
3664000 USD
CY2015Q1 us-gaap Provision For Doubtful Accounts
ProvisionForDoubtfulAccounts
3712000 USD
CY2014Q1 us-gaap Repayments Of Secured Debt
RepaymentsOfSecuredDebt
217855000 USD
CY2015Q1 us-gaap Repayments Of Secured Debt
RepaymentsOfSecuredDebt
302312000 USD
CY2014Q1 us-gaap Restructuring Costs And Asset Impairment Charges
RestructuringCostsAndAssetImpairmentCharges
0 USD
CY2015Q1 us-gaap Restructuring Costs And Asset Impairment Charges
RestructuringCostsAndAssetImpairmentCharges
391000 USD
CY2014Q4 us-gaap Retail Related Inventory Merchandise
RetailRelatedInventoryMerchandise
4855000 USD
CY2015Q1 us-gaap Retail Related Inventory Merchandise
RetailRelatedInventoryMerchandise
4730000 USD
CY2014Q4 us-gaap Retained Earnings Accumulated Deficit
RetainedEarningsAccumulatedDeficit
1927445000 USD
CY2015Q1 us-gaap Retained Earnings Accumulated Deficit
RetainedEarningsAccumulatedDeficit
1941987000 USD
CY2014Q1 us-gaap Revenues
Revenues
828473000 USD
CY2015Q1 us-gaap Revenues
Revenues
877639000 USD
CY2014Q4 us-gaap Secured Debt
SecuredDebt
492813000 USD
CY2015Q1 us-gaap Secured Debt
SecuredDebt
348750000 USD
CY2014Q4 us-gaap Senior Notes
SeniorNotes
550000000 USD
CY2015Q1 us-gaap Senior Notes
SeniorNotes
550000000 USD
CY2014Q1 us-gaap Share Based Compensation
ShareBasedCompensation
1472000 USD
CY2015Q1 us-gaap Share Based Compensation
ShareBasedCompensation
2163000 USD
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Grants In Period
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsGrantsInPeriod
163000 shares
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Grants In Period Weighted Average Grant Date Fair Value
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsGrantsInPeriodWeightedAverageGrantDateFairValue
27.85
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions Expected Dividend Rate
ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsExpectedDividendRate
0.026
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions Expected Volatility Rate Maximum
ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsExpectedVolatilityRateMaximum
0.4068
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions Expected Volatility Rate Minimum
ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsExpectedVolatilityRateMinimum
0.3166
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions Risk Free Interest Rate Maximum
ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsRiskFreeInterestRateMaximum
0.0176
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions Risk Free Interest Rate Minimum
ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsRiskFreeInterestRateMinimum
0.0114
CY2015Q1 us-gaap Share Based Compensation Arrangement By Share Based Payment Award Options Grants In Period Gross
ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsGrantsInPeriodGross
369000 shares
CY2015Q1 us-gaap Stockholders Equity
StockholdersEquity
1405435000 USD
CY2014Q4 us-gaap Treasury Stock Shares
TreasuryStockShares
56369752 shares
CY2015Q1 us-gaap Treasury Stock Shares
TreasuryStockShares
56369752 shares
CY2014Q4 us-gaap Treasury Stock Value
TreasuryStockValue
1347677000 USD
CY2015Q1 us-gaap Treasury Stock Value
TreasuryStockValue
1347677000 USD
CY2014Q1 us-gaap Weighted Average Number Of Diluted Shares Outstanding
WeightedAverageNumberOfDilutedSharesOutstanding
53020000 shares
CY2015Q1 us-gaap Weighted Average Number Of Diluted Shares Outstanding
WeightedAverageNumberOfDilutedSharesOutstanding
53377000 shares
CY2014Q1 us-gaap Weighted Average Number Of Shares Outstanding Basic
WeightedAverageNumberOfSharesOutstandingBasic
52795000 shares
CY2015Q1 us-gaap Weighted Average Number Of Shares Outstanding Basic
WeightedAverageNumberOfSharesOutstandingBasic
53033000 shares
CY2015Q1 us-gaap Debt Instrument Interest Rate Terms
DebtInstrumentInterestRateTerms
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:8px;text-align:justify;padding-left:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Borrowings under the Revolving Facility bear interest at varying rates equal to either the </font><font style="font-family:inherit;font-size:10pt;">Eurodollar rate</font><font style="font-family:inherit;font-size:10pt;"> plus </font><font style="font-family:inherit;font-size:10pt;">1.50%</font><font style="font-family:inherit;font-size:10pt;"> to </font><font style="font-family:inherit;font-size:10pt;">2.75%</font><font style="font-family:inherit;font-size:10pt;">, or the </font><font style="font-family:inherit;font-size:10pt;">prime</font><font style="font-family:inherit;font-size:10pt;"> rate plus </font><font style="font-family:inherit;font-size:10pt;">0.50%</font><font style="font-family:inherit;font-size:10pt;"> to </font><font style="font-family:inherit;font-size:10pt;">1.75%</font><font style="font-family:inherit;font-size:10pt;"> (ABR), at our election.</font></div></div>
CY2015Q1 us-gaap Description Of New Accounting Pronouncements Not Yet Adopted
DescriptionOfNewAccountingPronouncementsNotYetAdopted
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:8px;text-align:justify;padding-left:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;"></font><font style="font-family:inherit;font-size:10pt;">In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Presentation of Financial Statements (Topic 205) and Property Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity</font><font style="font-family:inherit;font-size:10pt;">, which changes the criteria for identifying a discontinued operation. Under ASU 2014-08, the definition of a discontinued operation is limited to the disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity's operations and financial results. Rent-A-Center adopted this ASU on January 1, 2015, and it did not have a significant impact on our financial position, results of operations or cash flows.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;padding-left:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In May 2014, the FASB issued ASU 2014-09,</font><font style="font-family:inherit;font-size:10pt;font-style:italic;"> Revenue from Contracts with Customers (Topic 606)</font><font style="font-family:inherit;font-size:10pt;">, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 will be effective for Rent-A-Center beginning January 1, 2017, and early adoption is not permitted. The ASU allows adoption with either retrospective application to each prior period presented, or retrospective application with the cumulative effect recognized as of the date of initial application. We are currently in the process of determining what impact, if any, the adoption of this ASU will have on our financial position, results of operations and cash flows, and we are evaluating the transition alternatives.</font></div><div style="line-height:120%;padding-top:9px;text-align:justify;padding-left:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On April 7, 2015, the FASB issued </font><font style="font-family:inherit;font-size:10pt;">ASU 2015-03</font><font style="font-family:inherit;font-size:10pt;">, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Simplifying the Presentation of Debt Issuance Costs, </font><font style="font-family:inherit;font-size:10pt;">which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. ASU 2015-03 will be effective for Rent-A-Center for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. </font><font style="font-family:inherit;font-size:10pt;">Based on balances at March 31, 2015, the impact on our consolidated balance sheet would be a reduction in prepaid expenses and other assets of approximately $15.0 million, a reduction in senior debt of approximately $7.4 million and a reduction in senior notes of approximately $7.6 million.</font><font style="font-family:inherit;font-size:10pt;"> </font></div><div style="line-height:120%;padding-top:8px;text-align:justify;padding-left:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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.</font></div></div>
CY2015Q1 us-gaap Loss Contingency Disclosures
LossContingencyDisclosures
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Contingencies.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;padding-left:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;padding-left:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We are subject to unclaimed property audits by states in the ordinary course of business. A comprehensive multi-state unclaimed property audit is currently in progress. The property subject to review in this audit process includes unclaimed wages, vendor payments and customer refunds. State escheat laws generally require entities to report and remit abandoned and unclaimed property to the state. Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself. We routinely remit escheat payments to states in compliance with applicable escheat laws. Management believes it is too early to determine the ultimate outcome of this audit, as our remediation efforts are still in process.</font></div></div>

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