2019 Q1 Form 10-Q Financial Statement

#000093303619000017 Filed on May 09, 2019

View on sec.gov

Income Statement

Concept 2019 Q1 2018 Q1
Revenue $696.7M $698.0M
YoY Change -0.19% -5.92%
Cost Of Revenue $271.8M $261.1M
YoY Change 4.12% -6.54%
Gross Profit $424.9M $437.0M
YoY Change -2.77% -5.55%
Gross Profit Margin 60.98% 62.6%
Selling, General & Admin $358.4M $411.9M
YoY Change -12.99% -4.05%
% of Gross Profit 84.36% 94.26%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $15.69M $17.74M
YoY Change -11.55% -2.56%
% of Gross Profit 3.69% 4.06%
Operating Expenses $407.5M $447.2M
YoY Change -8.88% -3.09%
Operating Profit $17.35M -$10.27M
YoY Change -268.93% -991.49%
Interest Expense $9.389M $11.36M
YoY Change -17.35% -2.32%
% of Operating Profit 54.12%
Other Income/Expense, Net
YoY Change
Pretax Income $8.834M -$21.42M
YoY Change -141.24% 107.53%
Income Tax $1.511M -$1.578M
% Of Pretax Income 17.1%
Net Earnings $49.29M -$19.84M
YoY Change -348.41% 197.1%
Net Earnings / Revenue 7.08% -2.84%
Basic Earnings Per Share $0.14 -$0.37
Diluted Earnings Per Share $0.13 -$0.37
COMMON SHARES
Basic Shares Outstanding 53.93M shares 53.41M shares
Diluted Shares Outstanding 55.50M shares 53.41M shares

Balance Sheet

Concept 2019 Q1 2018 Q1
SHORT-TERM ASSETS
Cash & Short-Term Investments $237.7M $81.40M
YoY Change 192.01% 40.1%
Cash & Equivalents $237.7M $81.39M
Short-Term Investments
Other Short-Term Assets $39.90M $67.50M
YoY Change -40.89% 29.31%
Inventory $767.9M $812.5M
Prepaid Expenses
Receivables $63.80M $64.80M
Other Receivables $0.00 $0.00
Total Short-Term Assets $1.109B $1.026B
YoY Change 8.1% -8.57%
LONG-TERM ASSETS
Property, Plant & Equipment $211.9M $269.9M
YoY Change -21.5% -13.67%
Goodwill $56.82M $56.78M
YoY Change 0.05% 2.67%
Intangibles
YoY Change
Long-Term Investments
YoY Change
Other Assets $25.60M $29.00M
YoY Change -11.72%
Total Long-Term Assets $572.1M $360.2M
YoY Change 58.82% -3.31%
TOTAL ASSETS
Total Short-Term Assets $1.109B $1.026B
Total Long-Term Assets $572.1M $360.2M
Total Assets $1.681B $1.386B
YoY Change 21.28% -7.26%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $118.9M $90.90M
YoY Change 30.8% 10.05%
Accrued Expenses $611.1M $329.7M
YoY Change 85.35% -3.14%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00
YoY Change
Long-Term Debt Due
YoY Change
Total Short-Term Liabilities $730.0M $420.6M
YoY Change 73.56% -0.57%
LONG-TERM LIABILITIES
Long-Term Debt $540.4M $596.5M
YoY Change -9.4% -8.71%
Other Long-Term Liabilities
YoY Change
Total Long-Term Liabilities $540.4M $596.5M
YoY Change -9.4% -8.71%
TOTAL LIABILITIES
Total Short-Term Liabilities $730.0M $420.6M
Total Long-Term Liabilities $540.4M $596.5M
Total Liabilities $1.387B $1.150B
YoY Change 20.66% -7.03%
SHAREHOLDERS EQUITY
Retained Earnings $811.3M $797.4M
YoY Change 1.74% 0.98%
Common Stock $841.4M $834.4M
YoY Change 0.84% 0.88%
Preferred Stock
YoY Change
Treasury Stock (at cost) $1.348B $1.348B
YoY Change 0.0% 0.0%
Treasury Stock Shares 56.37M shares 56.37M shares
Shareholders Equity $294.3M $255.0M
YoY Change
Total Liabilities & Shareholders Equity $1.681B $1.386B
YoY Change 21.28% -7.26%

Cashflow Statement

Concept 2019 Q1 2018 Q1
OPERATING ACTIVITIES
Net Income $49.29M -$19.84M
YoY Change -348.41% 197.1%
Depreciation, Depletion And Amortization $15.69M $17.74M
YoY Change -11.55% -2.56%
Cash From Operating Activities $75.78M $84.48M
YoY Change -10.3% 42.42%
INVESTING ACTIVITIES
Capital Expenditures $2.508M $8.649M
YoY Change -71.0% -60.77%
Acquisitions $0.00 $440.0K
YoY Change -100.0%
Other Investing Activities $8.500M $9.000M
YoY Change -5.56% 1700.0%
Cash From Investing Activities $5.967M $374.0K
YoY Change 1495.45% -101.73%
FINANCING ACTIVITIES
Cash Dividend Paid $0.00 $0.00
YoY Change -100.0%
Common Stock Issuance & Retirement, Net $0.00
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities $405.0K -$77.43M
YoY Change -100.52% 1.86%
NET CHANGE
Cash From Operating Activities $75.78M $84.48M
Cash From Investing Activities $5.967M $374.0K
Cash From Financing Activities $405.0K -$77.43M
Net Change In Cash $82.35M $7.423M
YoY Change 1009.43% -119.39%
FREE CASH FLOW
Cash From Operating Activities $75.78M $84.48M
Capital Expenditures $2.508M $8.649M
Free Cash Flow $73.27M $75.83M
YoY Change -3.38% 103.46%

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CY2019Q1 us-gaap Loss Contingency Disclosures
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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:12px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;"></font><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Contingencies</font><font style="font-family:inherit;font-size:10pt;font-weight:bold;"> </font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">From time to time, the Company, along with our subsidiaries, is 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 condensed consolidated financial statements if and when such losses are incurred.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;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. 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.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Alan Hall, et. al. v. Rent-A-Center, Inc., et. al.; James DePalma, et. al. v. Rent-A-Center, Inc., et. al.</font><font style="font-family:inherit;font-size:10pt;"> On December 23, 2016, a putative class action was filed against us and certain of our former officers by Alan Hall in the Federal District Court for the Eastern District of Texas in Sherman, Texas. The complaint alleges that the defendants violated Section 10(b) and/or Section 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by issuing false and misleading statements and omitting material facts regarding our business, including implementation of our point-of-sale system, operations and prospects during the period covered by the complaint. A complaint filed by James DePalma also in Sherman, Texas alleging similar claims was consolidated by the court into the Hall matter. On October 8, 2018, the parties agreed to settle this matter for </font><font style="font-family:inherit;font-size:10pt;">$11 million</font><font style="font-family:inherit;font-size:10pt;">. The court granted preliminary approval of the settlement on December 13, 2018. Under the terms of the settlement our insurance carrier paid in January 2019 an aggregate of $11 million in cash which will be distributed to an agreed upon class of claimants who purchased our common stock from July 27, 2015 through October 10, 2016, as well as used to pay costs of notice and settlement administration, and plaintiffs&#8217; attorneys&#8217; fees and expenses. The settlement was approved by the court at a hearing held on May 3, 2019.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Blair v. Rent-A-Center, Inc. </font><font style="font-family:inherit;font-size:10pt;">This matter is a state-wide class action complaint originally filed on March 13, 2017 in the Federal District Court for the Northern District of California. The complaint alleges various claims, including that our cash sales and total rent to own prices exceed the pricing permitted under the Karnette Rental-Purchase Act. Following a court-ordered mediation on March 28, 2019, we reached an agreement in principle to settle this matter for a total of </font><font style="font-family:inherit;font-size:10pt;">$13 million</font><font style="font-family:inherit;font-size:10pt;">, including attorneys&#8217; fees. The settlement is in the documentation process and is subject to approval by the court. We have denied any liability in the settlement and agreed to the settlement in order to avoid additional expensive, time-consuming litigation. We recorded the impact of this settlement in the first quarter of 2019.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Vintage Rodeo Parent, LLC, Vintage Rodeo Acquisition, Inc. and Vintage Capital Management, LLC, and B. Riley Financial, Inc. v. Rent-A-Center, Inc.</font><font style="font-family:inherit;font-size:10pt;"> On December 18, 2018, after the Company did not receive an extension notice from Vintage Rodeo Parent, LLC (&#8220;Vintage&#8221;) that was required by December 17, 2018 to extend the Merger Agreement&#8217;s stated End Date, we terminated the Merger Agreement.&#160; Our Board of Directors determined that terminating the Merger Agreement was in the best interests of our stockholders, and instructed Rent-A-Center&#8217;s management to exercise the Company&#8217;s right to terminate the Merger Agreement and make a demand on Vintage for the </font><font style="font-family:inherit;font-size:10pt;">$126.5 million</font><font style="font-family:inherit;font-size:10pt;"> reverse breakup fee owed to us following the termination of the Merger Agreement. On December 21, 2018, Vintage and its affiliates filed a lawsuit in Delaware Court of Chancery against Rent-A-Center, asserting that the Merger Agreement remained in effect, and that Vintage did not owe Rent-A-Center the $126.5 million reverse breakup fee associated with our termination of the Merger Agreement. B. Riley, a guarantor of the payment of the reverse breakup fee, later joined the lawsuit brought by Vintage in Delaware Court of Chancery. In addition, we brought a counterclaim against Vintage and B. Riley asserting our right to payment of the reverse breakup fee.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On February 11th and 12th of this year, a trial was held in Delaware Court of Chancery in the lawsuit arising from Rent-A-Center's termination of the Merger Agreement. On March 14, 2019, the Delaware Court of Chancery ruled that Rent-A-Center validly terminated the Merger Agreement. As announced on April 22, 2019, we agreed to settle all litigation with Vintage and B. Riley relating to our termination of the Merger Agreement. In the settlement, we will receive a payment of </font><font style="font-family:inherit;font-size:10pt;">$92.5 million</font><font style="font-family:inherit;font-size:10pt;"> in cash in late May 2019. In connection with the settlement, Rent-A-Center will exchange mutual releases with all other parties with respect to all matters relating to the Merger Agreement, including its termination.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">After payment of all remaining costs, fees and expenses relating to the terminated Merger Agreement and arising from the settlement of the litigation, we expect to retain pre-tax proceeds of approximately </font><font style="font-family:inherit;font-size:10pt;">$80.0 million</font><font style="font-family:inherit;font-size:10pt;">. We will record the impact of this settlement when payment is received.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:12pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Velma Russell v. Acceptance Now.</font><font style="font-family:inherit;font-size:12pt;"> </font><font style="font-family:inherit;font-size:10pt;">This purported class action arising out of calls made by Acceptance Now to customers&#8217; reference (s) was filed on January 29, 2019 in Massachusetts state court. Specifically, plaintiffs seek to certify a class representing any references of customers (within the state of Massachusetts) during the 4 years prior to the filing date that were contacted by Acceptance Now more frequently during a 12 month period than is permitted by Massachusetts state law. The plaintiffs are seeking injunctive relief and statutory damages of $25 per reference which may be tripled to $75 per reference. References are not parties to our consumer arbitration agreement. We operate 12 Acceptance Now locations in Massachusetts. We intend to vigorously defend these claims; however, we cannot assure you that we will be found to have no liability in this matter.</font></div><div style="line-height:120%;padding-top:8px;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Federal Trade Commission civil investigative demand. </font><font style="font-family:inherit;font-size:10pt;">In April 2019, along with other rent-to-own companies, we received a civil investigative demand from the Federal Trade Commission ("FTC") seeking information regarding certain transactions involving the purchase and sale of customer lease agreements, and whether such transactions violated the FTC Act. Although we believe such transactions were in compliance with the FTC Act, this inquiry could lead to an enforcement action and/or a consent order, and substantial costs. The Company is in the process of responding to this inquiry from the FTC.</font></div></div>

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