UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38047

Rent-A-Center, Inc.

(Exact name of registrant as specified in its charter)


Delaware						45-0491516
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

5501 Headquarters Drive

Plano, Texas 75024

(Address, including zip code of registrant’s principal executive offices)

Registrant’s telephone number, including area code: 972-801-1100

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, $.01 par value

RCII

The Nasdaq Stock Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~July 29, 2020:~~April 28, 2021:


Class						Outstanding
Common stock, $.01 par value						~~53,825,727~~66,309,348

TABLE OF CONTENTS

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Operations for the ~~three-month~~ ~~and~~ ~~six-month~~three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019~~2020

Condensed Consolidated Statements of Comprehensive Income for the three-month ~~and~~ ~~six-month~~ periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019~~2020

Condensed Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020

Condensed Consolidated Statement of Stockholders ' Equity for the ~~six-month~~three-month periods ending ~~June 30, 2020~~March 31, 2021 and ~~2019~~2020

Condensed Consolidated Statements of Cash Flows for the ~~six-month~~three-month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019~~2020

Notes to Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

2122

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3234

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

3334

Item 3.

Defaults Upon Senior Securities

3335

Item 4.

Mine Safety Disclosures

Item 1. Condensed Consolidated Financial Statements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
(In thousands, except per share data)	(In thousands, except per share data)										(In thousands, except per share data)
Revenues	Revenues									Revenues
Store	Store									Store
Rentals and fees	Rentals and fees	$	534,737	$	551,680	$	1,102,737	$	1,115,034	Rentals and fees		$	745,534	$	568,000
Merchandise sales	Merchandise sales	108,080		70,842		209,460		175,312		Merchandise sales		232,793		101,380
Installment sales	Installment sales	17,643		17,270		32,390		32,706		Installment sales		17,773		14,747
Other	Other	775		1,244		1,497		1,908		Other		918		722
Total store revenues	Total store revenues	661,235		641,036		1,346,084		1,324,960		Total store revenues		997,018		684,849
Franchise	Franchise									Franchise
Merchandise sales	Merchandise sales	18,047		10,673		30,484		19,129		Merchandise sales		33,055		12,437
Royalty income and fees	Royalty income and fees	4,464		4,216		9,117		8,530		Royalty income and fees		6,709		4,653
Total revenues	Total revenues	683,746		655,925		1,385,685		1,352,619		Total revenues		1,036,782		701,939
Cost of revenues	Cost of revenues									Cost of revenues
Store	Store									Store
Cost of rentals and fees	Cost of rentals and fees	157,124		155,658		322,579		311,030		Cost of rentals and fees		247,035		165,455
Cost of merchandise sold	Cost of merchandise sold	102,960		76,034		201,717		179,425		Cost of merchandise sold		240,106		98,757
Cost of installment sales	Cost of installment sales	6,092		5,682		11,117		10,606		Cost of installment sales		6,041		5,025
Total cost of store revenues	Total cost of store revenues	266,176		237,374		535,413		501,061		Total cost of store revenues		493,182		269,237

Franchise cost of merchandise sold	Franchise cost of merchandise sold	18,038		10,480		30,562		18,621		Franchise cost of merchandise sold		33,077		12,524
Total cost of revenues	Total cost of revenues	284,214		247,854		565,975		519,682		Total cost of revenues		526,259		281,761
Gross profit	Gross profit	399,532		408,071		819,710		832,937		Gross profit		510,523		420,178
Operating expenses	Operating expenses									Operating expenses
Store expenses	Store expenses									Store expenses
Labor	Labor	129,929		152,899		283,723		314,555		Labor		156,707		153,794
Other store expenses	Other store expenses	160,756		149,225		322,474		313,019		Other store expenses		170,133		161,718
General and administrative expenses	General and administrative expenses	32,943		38,534		72,118		71,458		General and administrative expenses		49,125		39,175
Depreciation and amortization	Depreciation and amortization	14,348		15,121		29,261		30,894		Depreciation and amortization		13,393		14,913
Other charges and (gains)		7,921		(77,537)		9,624		(44,167)
Other charges										Other charges		51,119		1,703

Total operating expenses	Total operating expenses	345,897		278,242		717,200		685,759		Total operating expenses		440,477		371,303
Operating profit	Operating profit	53,635		129,829		102,510		147,178		Operating profit		70,046		48,875

Debt refinancing charges										Debt refinancing charges		8,743		0
Interest expense	Interest expense	4,161		10,092		8,608		19,481		Interest expense		11,990		4,447
Interest income	Interest income	(265)		(1,997)		(409)		(2,871)		Interest income		(74)		(144)
Earnings before income taxes	Earnings before income taxes	49,739		121,734		94,311		130,568		Earnings before income taxes		49,387		44,572
Income tax expense		11,246		27,279		6,526		28,790
Income tax expense (benefit)										Income tax expense (benefit)		6,835		(4,720)
Net earnings	Net earnings	$	38,493	$	94,455	$	87,785	$	101,778	Net earnings		$	42,552	$	49,292
Basic earnings per common share	Basic earnings per common share	$	0.72	$	1.74	$	1.62	$	1.88	Basic earnings per common share		$	0.76	$	0.90
Diluted earnings per common share	Diluted earnings per common share	$	0.70	$	1.70	$	1.58	$	1.83	Diluted earnings per common share		$	0.64	$	0.88

Cash dividends declared per common share										Cash dividends declared per common share		$	0.31	$	0

See accompanying notes to condensed consolidated financial statements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020
(In thousands)	(In thousands)										(In thousands)
Net earnings	Net earnings	$	38,493	$	94,455	$	87,785	$	101,778	Net earnings		$	42,552	$	49,292
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $5 and $(57), $(1,034) and $81 for the three and six months ended June 30, 2020 and 2019, respectively		17		(217)		(3,889)		304
Total other comprehensive income (loss)		17		(217)		(3,889)		304
Other comprehensive loss:										Other comprehensive loss:
Foreign currency translation adjustments, net of tax of $(227) and $(1,038) for the three months ended March 31, 2021 and 2020, respectively										Foreign currency translation adjustments, net of tax of $(227) and $(1,038) for the three months ended March 31, 2021 and 2020, respectively		(853)		(3,906)
Total other comprehensive loss										Total other comprehensive loss		(853)		(3,906)
Comprehensive income	Comprehensive income	$	38,510	$	94,238	$	83,896	$	102,082	Comprehensive income		$	41,699	$	45,386

See accompanying notes to condensed consolidated financial statements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
(In thousands, except share and par value data)	(In thousands, except share and par value data)	Unaudited				(In thousands, except share and par value data)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	206,426	$	70,494	Cash and cash equivalents	$	123,019	$	159,449
Receivables, net of allowance for doubtful accounts of $8,238 and $5,601 in 2020 and 2019, respectively		76,983		84,123
Receivables, net of allowance for doubtful accounts of $7,981 and $8,047 in 2021 and 2020, respectively						Receivables, net of allowance for doubtful accounts of $7,981 and $8,047 in 2021 and 2020, respectively	115,345		90,003
Prepaid expenses and other assets	Prepaid expenses and other assets	33,853		46,043		Prepaid expenses and other assets	40,839		50,006
Rental merchandise, net	Rental merchandise, net					Rental merchandise, net
On rent	On rent	645,522		697,270		On rent	1,115,913		762,886
Held for rent	Held for rent	91,647		138,418		Held for rent	135,244		146,266
Merchandise held for installment sale	Merchandise held for installment sale	4,317		4,878		Merchandise held for installment sale	5,726		5,439
Property assets, net of accumulated depreciation of $538,774 and $522,826 in 2020 and 2019, respectively		151,431		166,138
Property assets, net of accumulated depreciation of $517,765 and $505,074 in 2021 and 2020, respectively						Property assets, net of accumulated depreciation of $517,765 and $505,074 in 2021 and 2020, respectively	309,860		141,641
Operating lease right-of-use assets	Operating lease right-of-use assets	273,143		281,566		Operating lease right-of-use assets	297,577		283,422
Deferred tax asset	Deferred tax asset	14,889		14,889		Deferred tax asset	37,736		33,782
Goodwill	Goodwill	70,217		70,217		Goodwill	311,991		70,217
Other intangible assets, net	Other intangible assets, net	8,200		8,762		Other intangible assets, net	513,708		7,869
Total assets	Total assets	$	1,576,628	$	1,582,798	Total assets	$	3,006,958	$	1,750,980
LIABILITIES	LIABILITIES					LIABILITIES
Accounts payable – trade	Accounts payable – trade	$	145,870	$	168,120	Accounts payable – trade	$	179,933	$	186,063
Accrued liabilities	Accrued liabilities	305,965		275,777		Accrued liabilities	381,265		320,583
Operating lease liabilities	Operating lease liabilities	281,344		285,041		Operating lease liabilities	299,892		285,354
Deferred tax liability	Deferred tax liability	166,165		163,984		Deferred tax liability	71,257		176,410
Senior debt, net	Senior debt, net	190,708		230,913		Senior debt, net	897,912		190,490

Senior notes, net						Senior notes, net	434,512		0
Total liabilities	Total liabilities	1,090,052		1,123,835		Total liabilities	2,264,771		1,158,900
STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; 250,000,000 shares authorized; 111,711,051 and 111,166,229 shares issued in 2020 and 2019, respectively		1,101		1,110
Common stock, $0.01 par value; 250,000,000 shares authorized; 124,193,049 and 112,180,517 shares issued in March 31, 2021 and December 31, 2020, respectively						Common stock, $0.01 par value; 250,000,000 shares authorized; 124,193,049 and 112,180,517 shares issued in March 31, 2021 and December 31, 2020, respectively	1,142		1,105
Additional paid-in capital	Additional paid-in capital	871,915		869,617		Additional paid-in capital	1,015,995		886,902
Retained earnings	Retained earnings	1,003,599		947,875		Retained earnings	1,112,840		1,091,010
Treasury stock at cost, 57,889,659 and 56,428,482 shares in 2020 and 2019, respectively		(1,375,480)		(1,348,969)
Treasury stock at cost, 57,891,859 shares in March 31, 2021 and December 31, 2020						Treasury stock at cost, 57,891,859 shares in March 31, 2021 and December 31, 2020	(1,375,541)		(1,375,541)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(14,559)		(10,670)		Accumulated other comprehensive loss	(12,249)		(11,396)
Total stockholders' equity	Total stockholders' equity	486,576		458,963		Total stockholders' equity	742,187		592,080
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,576,628	$	1,582,798	Total liabilities and stockholders' equity	$	3,006,958	$	1,750,980

See accompanying notes to condensed consolidated financial statements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


		Common Stock					Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)				Total		Common Stock						Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
		Shares	Amount															Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss										Total
(In thousands)	(In thousands)																											(In thousands)
Balance at December 31, 2019		111,166	$	1,110	$	869,617	$	947,875	$	(1,348,969)	$	(10,670)	$	458,963
Adoption of ASU 2016-13		—	—		—		(769)		—		—		(769)
Balance at December 31, 2020															Balance at December 31, 2020	112,181			$	1,105		$	886,902		$	1,091,010	$	(1,375,541)	$	(11,396)	$	592,080
Net earnings	Net earnings	—	—		—		49,292		—		—		49,292		Net earnings	—			—			—			42,552		—		—		42,552
Other comprehensive loss	Other comprehensive loss	—	—		—		—		—		(3,906)		(3,906)		Other comprehensive loss	—			—			—			—		—		(853)		(853)
Purchase of treasury stock		—	(14)		—		—		(26,511)		—		(26,525)
Exercise of stock options		69	1		1,194		—		—		—		1,195
Vesting of restricted share units		434	4		(4)		—		—		—		—
Tax effect of stock awards vested and options exercised		—	—		(5,270)		—		—		—		(5,270)
Stock-based compensation		—	—		3,043		—		—		—		3,043
Balance at March 31, 2020		111,669	$	1,101	$	868,580	$	996,398	$	(1,375,480)	$	(14,576)	$	476,023

Net earnings		—	—		—		38,493		—		—		38,493
Other comprehensive income		—	—		—		—		—		17		17

Exercise of stock options	Exercise of stock options	42	—		486		—		—		—		486		Exercise of stock options	330			3			8,941			—		—		—		8,944

Vesting of restricted share units, net of shares withheld for employee taxes(1)															Vesting of restricted share units, net of shares withheld for employee taxes(1)	902			7			(20,910)			—		—		—		(20,903)

Stock-based compensation	Stock-based compensation	—	—		2,849		—		—		—		2,849		Stock-based compensation	—			—			20,148			—		—		—		20,148
Dividends declared	Dividends declared	—	—		—		(31,292)		—		—		(31,292)		Dividends declared	—			—			—			(20,722)		—		—		(20,722)
Balance at June 30, 2020		111,711	$	1,101	$	871,915	$	1,003,599	$	(1,375,480)	$	(14,559)	$	486,576
Acima acquisition															Acima acquisition	10,780			27			120,914			—		—		—		120,941
Balance at March 31, 2021															Balance at March 31, 2021	124,193			$	1,142		$	1,015,995		$	1,112,840	$	(1,375,541)	$	(12,249)	$	742,187

(1)Includes shares released from escrow related to the 2019 Merchant's Preferred acquisition


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
(In thousands)
Balance at December 31, 2019	111,166	$	1,110	$	869,617	$	947,875	$	(1,348,969)	$	(10,670)	$	458,963
ASC 326 adoption	—	—		—		(769)		—		—		(769)
Net earnings	—	—		—		49,292		—		—		49,292
Other comprehensive loss	—	—		—		—		—		(3,906)		(3,906)
Purchase of treasury stock	—	(14)		—		—		(26,511)		—		(26,525)
Exercise of stock options	69	1		1,194		—		—		—		1,195
Vesting of restricted share units, net of shares withheld for employee taxes	434	4		(5,274)		—		—		—		(5,270)

Stock-based compensation	—	—		3,043		—		—		—		3,043
Balance at March 31, 2020	111,669	$	1,101	$	868,580	$	996,398	$	(1,375,480)	$	(14,576)	$	476,023

See accompanying notes to consolidated financial statements.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)~~

~~(Unaudited)~~

Common Stock Additional
Paid-In
Capital Retained
Earnings Treasury
Stock Accumulated Other Comprehensive Income (Loss) Total
Shares Amount
(In thousands)
Balance at December 31, 2018 109,910 $ 1,099 $ 838,436 $ 805,924 $ (1,347,677) $ (11,265) $ 286,517
ASC 842 adoption — — — (1,976) — — (1,976)
Net earnings — — — 7,323 — — 7,323
Other comprehensive income — — — — — 521 521
Exercise of stock options 284 3 2,889 — — — 2,892
Vesting of restricted share units 218 2 (2) — — — —
Tax effect of stock awards vested and options exercised — — (1,734) — — — (1,734)
Stock-based compensation — — 709 — — — 709
Balance at March 31, 2019 110,412 $ 1,104 $ 840,298 $ 811,271 $ (1,347,677) $ (10,744) $ 294,252
Net earnings — — — 94,455 — — 94,455
Other comprehensive loss — — — — — (217) (217)
Exercise of stock options 101 1 1,417 — — — 1,418
Vesting of restricted share units 49 — — — — — —
Stock-based compensation — — 1,982 — — — 1,982
Balance at June 30, 2019 110,562 $ 1,105 $ 843,697 $ 905,726 $ (1,347,677) $ (10,961) $ 391,890

~~See accompanying notes to consolidated financial statements.~~

RENT-A-CENTER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended June 30,								Three Months Ended March 31,
		2020		2019			2021			2020
(In thousands)	(In thousands)								(In thousands)
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net earnings	Net earnings	$	87,785	$	101,778	Net earnings	$	42,552		$	49,292
Adjustments to reconcile net earnings to net cash provided by operating activities	Adjustments to reconcile net earnings to net cash provided by operating activities					Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation of rental merchandise	Depreciation of rental merchandise	310,810		309,211		Depreciation of rental merchandise	237,636			160,445
Bad debt expense	Bad debt expense	7,900		5,978		Bad debt expense	3,449			3,749
Stock-based compensation expense	Stock-based compensation expense	5,892		2,691		Stock-based compensation expense	20,148			3,043
Depreciation of property assets	Depreciation of property assets	28,706		30,809		Depreciation of property assets	14,459			14,597
Loss on sale or disposal of property assets	Loss on sale or disposal of property assets	698		1,472		Loss on sale or disposal of property assets	165			558
Amortization of intangibles	Amortization of intangibles	561		85		Amortization of intangibles	14,192			319
Amortization of financing fees	Amortization of financing fees	795		1,958		Amortization of financing fees	1,117			408

Write-off of debt financing fees						Write-off of debt financing fees	4,546			0
Deferred income taxes	Deferred income taxes	2,146		10,814		Deferred income taxes	3,852			(121)

Changes in operating assets and liabilities
Changes in operating assets and liabilities, net of acquired assets						Changes in operating assets and liabilities, net of acquired assets
Rental merchandise	Rental merchandise	(211,865)		(253,259)		Rental merchandise	(222,054)			(106,739)
Receivables	Receivables	(918)		(2,995)		Receivables	1,674			7,270
Prepaid expenses and other assets	Prepaid expenses and other assets	12,190		15,384		Prepaid expenses and other assets	9,932			5,935
Operating lease right-of-use assets and lease liabilities	Operating lease right-of-use assets and lease liabilities	4,726		5,868		Operating lease right-of-use assets and lease liabilities	(171)			3,704
Accounts payable – trade	Accounts payable – trade	(22,250)		(18,182)		Accounts payable – trade	(22,152)			(61,265)
Accrued liabilities	Accrued liabilities	27,543		(26,194)		Accrued liabilities	26,448			(33,795)
Net cash provided by operating activities	Net cash provided by operating activities	254,719		185,418		Net cash provided by operating activities	135,793			47,400
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchase of property assets	Purchase of property assets	(14,750)		(5,088)		Purchase of property assets	(11,388)			(9,151)
Proceeds from sale of property assets	Proceeds from sale of property assets	187		13,792		Proceeds from sale of property assets	0			187
Hurricane insurance recovery proceeds		158		995

Acquisitions of businesses	Acquisitions of businesses	—		(155)		Acquisitions of businesses	(1,267,903)			0
Net cash (used in) provided by investing activities		(14,405)		9,544
Net cash used in investing activities						Net cash used in investing activities	(1,279,291)			(8,964)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Share repurchases	Share repurchases	(26,511)		—		Share repurchases	0			(26,511)
Exercise of stock options	Exercise of stock options	1,682		4,310		Exercise of stock options	8,944			1,194
Shares withheld for payment of employee tax withholdings	Shares withheld for payment of employee tax withholdings	(5,270)		(1,733)		Shares withheld for payment of employee tax withholdings	(20,903)			(5,268)
Debt issuance costs	Debt issuance costs	—		(157)		Debt issuance costs	(46,085)			0
Proceeds from debt	Proceeds from debt	198,000		5,400		Proceeds from debt	1,490,000			198,000
Repayments of debt	Repayments of debt	(239,000)		(5,400)		Repayments of debt	(307,500)			(75,500)
Dividends paid	Dividends paid	(31,554)		—		Dividends paid	(17,116)			(15,912)
Net cash (used in) provided by financing activities		(102,653)		2,420
Net cash provided by financing activities						Net cash provided by financing activities	1,107,340			76,003
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(1,729)		366		Effect of exchange rate changes on cash	(272)			(2,014)
Net increase in cash and cash equivalents		135,932		197,748
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(36,430)			112,425
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	70,494		155,391		Cash and cash equivalents at beginning of period	159,449			70,494
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	206,426	$	353,139	Cash and cash equivalents at end of period	$	123,019		$	182,919

See accompanying notes to condensed consolidated financial statements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

The interim condensed consolidated financial statements of Rent-A-Center, Inc. included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to the SEC’s rules and regulations, although we believe the disclosures are adequate to make the information presented not misleading. We suggest these financial statements be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. In our opinion, the accompanying unaudited interim financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly our results of operations and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

~~COVID-19~~

During the first quarter of 2020, the respiratory disease caused by a novel coronavirus (“COVID-19”) began to spread worldwide causing the World Health Organization to declare the outbreak a pandemic, and resulting in significant disruptions to the U.S. and world economies. In response to the issuance of U.S. federal guidelines to contain the spread of the COVID-19 virus, state and local jurisdictions implemented various containment measures, including temporary shelter-in-place orders and closure of non-essential businesses. The effects of these containment measures negatively impacted our operations resulting in the temporary or partial closure of certain locations in all of our U.S. operating segments during the first half of 2020. In addition, certain of our Mexico locations were also temporarily closed in accordance with jurisdictional ordinances issued in Mexico. In response to these restrictions and negative impacts to our operations, we implemented certain measures to reduce operating expenses and cash flow uses in order to mitigate these effects. In addition, we implemented additional electronic payment methods for our Rent-A-Center Business customers.

While the pandemic is ongoing and uncertainties remain that may not allow us to accurately predict the full impact that COVID-19 will ultimately have on our business, as of June 30, 2020, 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 have reopened and are fully operational.

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 condensed 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. 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 liabilities in future periods and cause actual results to differ from those estimates.

Principles of Consolidation and Nature of Operations

These 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, Acima (formerly Preferred ~~Lease,~~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.

Our Acima segment (formerly Preferred ~~Lease segment,~~Lease), which operates in the United States and Puerto Rico and which, includes the operations of ~~Merchants Preferred~~Acima Holdings (as defined in Note 2 below) acquired in ~~August 2019,~~February 2021 and our Preferred Lease virtual and staffed locations, generally offers the lease-to-own transaction to consumers who do not qualify for financing from the traditional ~~retailer~~retailer. The Acima segment offers the lease-to-own transaction through our virtual offering solutions across e-commerce, digital, and mobile channels, and through staffed and unstaffed 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

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~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).~~retailer’s 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.

Rent-A-Center Franchising International, Inc., an indirect ~~wholly owned~~wholly-owned subsidiary of Rent-A-Center, is a franchisor of lease-to-own stores. 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.

Newly Adopted Accounting Pronouncements

In ~~June 2016,~~December 2019, the FASB issued ASU ~~2016-13,~~2019-12, ~~Financial Instruments—Credit Losses~~Income Taxes (Topic ~~326)~~740): ~~Measurement of Credit Losses on Financial Instruments,~~Simplifying the Accounting for Income Taxes, which ~~requires immediate recognition of estimated current expected credit losses, rather than recognition when incurred.~~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 to improve consistent application. We adopted ASU ~~2016-13 and all related amendments, including ASU 2020-02 and ASU 2020-03,~~2019-12 beginning January 1, 2020, using a modified retrospective approach. Under such approach, we recognized a cumulative-effect 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 franchisees, primarily related 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.

The cumulative effect as of January 1, 2020 resulting from the adoption of ASU 2016-13 and related amendments was a net decrease to opening retained earnings in our condensed consolidated balance sheet of $0.8 million. See Note 4 for additional information regarding our trade and note receivables and related allowances for doubtful accounts.

~~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 six months ended June 30, 2020 resulting from the adoption of this ASU.

~~In August 2018, the FASB 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 six months ended June 30, 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, 2020,2021 using a prospective approach. Impacts to our financial statements for the three months ended March 31, 2021 resulting from the adoption of this ASU were ~~immaterial to our financial statements for the six months ended June 30, 2020.~~immaterial.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Note 2 - Acquisitions and Divestitures

On ~~August 13, 2019,~~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 ("Acima Holdings"), and Aaron Allred, solely in his capacity as the representative of the former owners of Acima Holdings, providing for the merger of Radalta, LLC with and into Acima Holdings, with Acima Holdings surviving the Merger as a wholly owned subsidiary of the Company for total estimated consideration of $1.65 billion, including cash consideration of $1.3 billion and approximately 10.8 million shares with an estimated value of approximately $377 million. On February 17, 2021, we completed the acquisition of ~~substantially all~~the membership interest of Acima Holdings, LLC. Acima Holdings is a leading platform offering customers virtual lease-to-own solutions at the point-of-sale via web and mobile technology.

In accordance with the Merger Agreement, we issued to the former owners of Acima Holdings an aggregate of 10,779,923 shares of our common stock (the “Aggregate Stock Consideration”) and paid to them aggregate cash consideration of $1.3 billion (the “Aggregate Cash Consideration”). In accordance with the terms of the ~~assets~~Merger Agreement, the portion of ~~C/C Financial Corp. dba Merchants Preferred ("Merchants Preferred"),~~the Aggregate Stock Consideration issued to former owners of Acima Holdings who are also employees of Acima Holdings is subject to restricted stock agreements providing vesting conditions over a ~~nationwide provider~~36-month period beginning upon closing of ~~virtual lease-to-own services.~~ the Merger. The portion of the Aggregate Stock Consideration issued to nonemployee former owners of Acima Holdings is subject to the terms of an 18-month lockup agreement, pursuant to which one-third of the aggregate shares of our common stock received by a non-employee former owner in the Merger becomes transferable after each six month period following the closing of the Merger. We 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.

The aggregate purchase price was approximately ~~$46.4 million,~~$1.4 billion, including net cash consideration of approximately ~~$28.0 million,~~$1.3 billion, and ~~701,918~~2,683,328 shares of ~~our common stock~~the Aggregate Stock Consideration subject to 18-month lockup agreements valued at ~~$27.31~~$51.14 per share, as of the date of closing, ~~less working capital adjustments~~and adjusted by a discount for lack of marketability to account for the transfer restrictions in three tranches, each in 6-month intervals after the closing date. The Aggregate Cash Consideration for the acquisition was financed with a combination of cash on hand, borrowings under our ABL Credit Facility and proceeds from issuances under our Term Loan Facility, as defined in Note 7, in addition to proceeds from the issuance of new unsecured senior notes. See Note 7 and Note 8 for additional information.

The remaining 8,096,595 common shares included in the Aggregate Stock Consideration subject to restricted stock agreements and 36-month vesting conditions were valued at $414.1 million, as of the date of closing. These shares have been excluded from the aggregate purchase price and instead will be recognized as stock-based compensation expense subject to ASC Topic 718, “Stock-based Compensation” over the required vesting period, and recorded to Other charges in our unaudited Condensed Consolidated Statements of Operations. However, for tax purposes the value of Aggregate Stock Consideration subject to restricted stock agreements is treated as goodwill. In addition, the total value of the common shares subject to restricted stock agreements noted above, resulted in a decrease in the deferred tax liability included in the net assets acquired of approximately ~~$0.9 million.~~$103.5 million based on the fair value of the shares, as of the date of closing, multiplied by the blended federal and state statutory rate of approximately 24%, as included in the below net assets acquired table.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The following table provides the ~~final~~preliminary estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date:

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~


(in thousands)	~~August 13, 2019~~February 17, 2021
~~Receivables~~Aggregate cash consideration	$	~~1,813~~1,273,263
Aggregate stock consideration, subject to lockup agreements	120,929
Total Purchase price	$	1,394,192
ASSETS ACQUIRED
Receivables, net(1)	$	30,465
Prepaid expenses and other assets	~~154~~699
Rental merchandise	~~17,904~~
~~Software~~On rent	~~4,300~~357,692
~~Right of use operating leases~~Property assets	~~404~~171,455
Operating lease right-of-use assets	9,136
Goodwill	241,774
Other intangible assets	~~8,900~~520,000
~~Goodwill~~	~~13,403~~
~~Lease liabilities~~	~~(487)~~
~~Net identifiable~~Total assets acquired	$	~~46,391~~1,331,221
LIABILITIES ASSUMED
Accounts payable - trade	16,023
Accrued liabilities	24,277
Operating lease liabilities	9,689
Deferred income taxes	(112,960)
Total liabilities assumed	(62,971)
Total equity value	$	1,394,192

(1) Includes gross contractual receivables of $65.2 million related to merchandise lease contracts, of which we have estimated $35.5 million are uncollectible.

Carrying value for assets and liabilities assumed as part of the acquisition, including receivables, prepaid expenses and other assets, rental merchandise, accounts payable and accrued liabilities were recorded as fair value, as of the date of acquisition, due to the short term nature of these balances. Operating lease right-of-use assets and liabilities were recorded as the discounted value of future obligations in accordance with ASC 842. The fair value measurements for acquired intangible assets and developed technology 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 the net assets acquired, including $520 million of identifiable intangible assets ~~relating to dealer relationships~~with an estimated weighted average useful life of ~~$8.9~~8 years, as follows:


Asset Class	Estimated Fair Value (in thousands)		Estimated Remaining Useful Life (in years)
Merchant relationships	$	380,000	10
Relationship with existing lessees	60,000		1
Trade name	40,000		7
Non-compete agreements	40,000		3

Developed technology, included in Property assets, net, in line with our accounting policies, was also acquired with a value of $170.0 million and ~~software~~an estimated remaining useful life of ~~$4.3 million.~~10 years. The fair value for ~~dealer relationships~~these intangible and ~~software~~property assets 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.~~

In addition, we recorded goodwill of ~~$13.4~~$241.8 million in our Acima operating segment, which consists of the excess of the net purchase price over the fair value of the net assets ~~acquired.~~acquired and assembled workforce of $10 million. Goodwill represents expected cost and revenue synergies and other benefits expected to result within our retail partner business from the acquisition of Acima Holdings. The total value of goodwill ~~is not deductible~~ for tax purposes, including our recorded goodwill, plus the value of Aggregate Stock Consideration subject to restricted stock agreements described above, and acquisition-related expenses described below, is fully deductible and will be amortized over 15 years.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The values above reflect our preliminary purchase price allocation and may change as we finalize our assessments of the acquired assets and liabilities during the measurement period. Acima Holdings results of operations are reflected in our unaudited Condensed Consolidated Statements of Operations from the date of acquisition.

In connection with this acquisition, we incurred approximately $22.5 million in acquisition-related expenses including expenses related to legal, professional, and banking transaction fees, which are treated as an addition to goodwill for tax purposes. In addition, we recognized a decrease in deferred tax liability included in the net assets acquired of $7.6 million related to these expenditures. These costs were included in Other charges in our unaudited Condensed Consolidated Statements of Operations .

The following unaudited pro forma combined results of operations present our financial results as if the acquisition of Acima had been completed on January 1, 2020. These unaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma information reflects the step-up depreciation and amortization adjustments for the fair value of the assets acquired, adjustments to stock compensation expense as a result of Aggregate Stock Consideration subject to restricted stock awards, the adjustments in interest expense due to the elimination of historical debt and placement of the new debt, and the related adjustments to the income tax provision. In addition, the pro forma net income has been adjusted to include transaction expenses and other non-recurring costs as of January 1, 2020. The unaudited pro forma financial information is as follows:


(in thousands)	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
	(unaudited)		(unaudited)
Pro Forma total revenues	$	1,231,386	$	986,747
Pro Forma net earnings(1)	56,413		(16,966)

(1)Total pro forma adjustments to net earnings for the three months ended March 31, 2021 and March 31, 2020 were decreases of $13.2 million and $106.2 million, respectively.

The amounts of revenue and earnings of Acima Holdings included in our Condensed Consolidated Statements of Operations from the acquisition date of February 17, 2021 are as follows:


(in thousands)	February 17, 2021 - March 31, 2021		February 17, 2020 - March 31, 2020
	(unaudited)		(unaudited)
Total revenues	$	210,569	$	143,439
Net earnings(1)	19,006		21,025

(1)Net Earnings for the period February 17, 2021 - March 31, 2021 includes amortization of intangible assets acquired upon closing of the Acima Holdings acquisition

Note 3 - Revenues

The following table disaggregates our revenue for the periods ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three Months Ended June 30, 2020																				Three Months Ended March 31, 2021
		Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated			Rent-A-Center Business		Acima		Mexico		Franchising			Consolidated
(In thousands)	(In thousands)																				(In thousands)
Store	Store											Store
Rentals and fees	Rentals and fees	$	385,338	$	139,440	$	9,959	$	—	$	534,737	Rentals and fees	$	429,301	$	302,526	$	13,707	$	0		$	745,534
Merchandise sales	Merchandise sales	55,741		51,690		649		—		108,080		Merchandise sales	77,378		154,630		785		0			232,793
Installment sales	Installment sales	17,643		—		—		—		17,643		Installment sales	17,773		0		0		0			17,773
Other	Other	470		113		3		189		775		Other	414		293		6		205			918
Total store revenues	Total store revenues	459,192		191,243		10,611		189		661,235		Total store revenues	524,866		457,449		14,498		205			997,018
Franchise	Franchise											Franchise
Merchandise sales	Merchandise sales	—		—		—		18,047		18,047		Merchandise sales	0		0		0		33,055			33,055
Royalty income and fees	Royalty income and fees	—		—		—		4,464		4,464		Royalty income and fees	0		0		0		6,709			6,709
Total revenues	Total revenues	$	459,192	$	191,243	$	10,611	$	22,700	$	683,746	Total revenues	$	524,866	$	457,449	$	14,498	$	39,969		$	1,036,782

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


		Six Months Ended June 30, 2020																				Three Months Ended March 31, 2020
		Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated			Rent-A-Center Business		Acima		Mexico		Franchising			Consolidated
(In thousands)	(In thousands)																				(In thousands)
Store	Store											Store
Rentals and fees	Rentals and fees	$	778,503	$	301,438	$	22,796	$	—	$	1,102,737	Rentals and fees	$	393,165	$	161,998	$	12,837	$	0		$	568,000
Merchandise sales	Merchandise sales	102,428		105,678		1,354		—		209,460		Merchandise sales	46,687		53,988		705		0			101,380
Installment sales	Installment sales	32,390		—		—		—		32,390		Installment sales	14,747		0		0		0			14,747
Other	Other	836		254		7		400		1,497		Other	366		141		4		211			722
Total store revenues	Total store revenues	914,157		407,370		24,157		400		1,346,084		Total store revenues	454,965		216,127		13,546		211			684,849
Franchise	Franchise											Franchise
Merchandise sales	Merchandise sales	—		—		—		30,484		30,484		Merchandise sales	0		0		0		12,437			12,437
Royalty income and fees	Royalty income and fees	—		—		—		9,117		9,117		Royalty income and fees	0		0		0		4,653			4,653
Total revenues	Total revenues	$	914,157	$	407,370	$	24,157	$	40,001	$	1,385,685	Total revenues	$	454,965	$	216,127	$	13,546	$	17,301		$	701,939

Three Months Ended June 30, 2019
Rent-A-Center Business Preferred Lease Mexico Franchising Consolidated
(In thousands)
Store
Rentals and fees $ 399,799 $ 139,104 $ 12,777 $ — $ 551,680
Merchandise sales 32,935 37,140 767 — 70,842
Installment sales 17,270 — — — 17,270
Other 1,092 145 7 — 1,244
Total store revenues 451,096 176,389 13,551 — 641,036
Franchise
Merchandise sales — — — 10,673 10,673
Royalty income and fees — — — 4,216 4,216
Total revenues $ 451,096 $ 176,389 $ 13,551 $ 14,889 $ 655,925

Six Months Ended June 30, 2019
Rent-A-Center Business Preferred Lease Mexico Franchising Consolidated
(In thousands)
Store
Rentals and fees $ 807,379 $ 282,297 $ 25,358 $ — $ 1,115,034
Merchandise sales 83,493 90,296 1,523 — 175,312
Installment sales 32,706 — — — 32,706
Other 1,575 318 15 — 1,908
Total store revenues 925,153 372,911 26,896 — 1,324,960
Franchise
Merchandise sales — — — 19,129 19,129
Royalty income and fees — — — 8,530 8,530
Total revenues $ 925,153 $ 372,911 $ 26,896 $ 27,659 $ 1,352,619

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~Rental-Purchase~~Lease Purchase Agreements

Rent-A-Center Business, ~~Preferred Lease,~~Acima, 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~~Acima (excluding virtual) and Mexico locations must be prepaid in advance of the next rental term. Under the virtual business model, revenues ~~are~~may be earned prior to the rental payment due ~~date. Therefore, virtual business~~date, in which case 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 4 for additional information regarding accrued rental ~~revenue and the related allowances for returns and uncollectible payments.~~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 ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had ~~$42.5~~$58.3 million and ~~$39.9~~$45.8 million, respectively, in deferred revenue included in accrued 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 in our Rent-A-Center Business, formerly Preferred Lease, and Mexico locations is depreciated using the income forecasting method and is recognized in cost of sales over the rental term. Rental merchandise in the recently acquired Acima Holdings is depreciated over the rental term using a straight-line depreciation method.

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.

Revenue from contracts with customers

Rent-A-Center Business, ~~Preferred Lease,~~Acima, and Mexico

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

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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 ~~both June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had $2.9 million and $3.1 million in deferred revenue included in accrued liabilities related to extended service plans.

Other. Other revenue ~~primarily consists~~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 ~~June~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~30, 2020~~both March 31, 2021 and December 31, ~~2019,~~2020, we had ~~$4.2~~$4.7 million ~~and $4.5 million, respectively,~~ in deferred revenue included in accrued liabilities related to franchise fees.

Note 4 - 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 ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 was ~~$5.6 million.~~$3.1 million and $2.8 million, respectively.

Trade and notes receivables consist ~~primarily~~ of amounts due from our rental customers for renewal and uncollected rental payments; 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)	(In thousands)	June 30, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020
Installment sales receivables	Installment sales receivables	$	56,687	$	56,370	Installment sales receivables	$	60,798	$	61,794
Trade and notes receivables	Trade and notes receivables	28,534		33,354		Trade and notes receivables	62,528		36,256

Total receivables	Total receivables	85,221		89,724		Total receivables	123,326		98,050
Less allowance for doubtful accounts	Less allowance for doubtful accounts	(8,238)		(5,601)		Less allowance for doubtful accounts	(7,981)		(8,047)
Total receivables, net of allowance for doubtful accounts	Total receivables, net of allowance for doubtful accounts	$	76,983	$	84,123	Total receivables, net of allowance for doubtful accounts	$	115,345	$	90,003

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 ~~$1.4~~$1.0 million, and ~~$1.5 million at June 30, 2020 and December 31, 2019, respectively. The~~the allowance for doubtful accounts related to installment sales receivable was ~~$6.8 million and $4.1~~$7.0 million at ~~June 30, 2020~~both March 31, 2021 and December 31, ~~2019,~~2020, respectively.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Changes in our allowance for doubtful accounts are as follows:

(In thousands)

~~June 30, 2020~~March 31, 2021

Beginning allowance for doubtful accounts

~~5,601~~8,047

Bad debt expense ⁽¹⁾

~~7,900~~3,449

Accounts written off, net of recoveries

~~(5,620)~~(3,515)

~~Recoveries~~

~~357~~

Ending allowance for doubtful accounts

~~8,238~~7,981

⁽¹⁾Uncollectible installment payments, franchisee obligations, and other corporate receivables are recognized in other store operating expenses in our condensed consolidated financial statements.

Note 5 - 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~~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

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

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.~~Condensed Consolidated Balance Sheet. In certain situations involving the sale of a Rent-A-Center Business corporate store to a franchisee, we enter into a lease a 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.~~Condensed Consolidated Balance Sheet.

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.~~Condensed Consolidated Balance Sheet. We also lease vehicles for all of our Mexico stores which have terms expiring at various times through ~~2022~~2025 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. WeIn addition, we have ~~also~~ elected to use ~~the~~available practical expedients that ~~remove~~eliminate the requirement to reassess whether expired or existing contracts ~~contain~~contained leases and the requirement to reassess the lease classification for any existing leases prior to our adoption of ASU ~~2016-02.~~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~~Condensed Consolidated Statements of ~~operations.~~Operations.

Total operating lease costs by expense type:


		Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended			Three Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands)		March 31, 2021		March 31, 2020
Operating lease cost included in other store expenses⁽¹⁾		$	34,438	$	38,232	$	71,877	$	74,785
Operating lease cost included in other charges		191		5,111		960		7,252
Operating lease cost included in Other store expenses(1)(2)										Operating lease cost included in Other store expenses(1)(2)		$	34,136	$	37,439
Operating lease cost included in Other charges(2)										Operating lease cost included in Other charges(2)		166		769
Sublease receipts	Sublease receipts	(2,144)		(1,818)		(4,461)		(3,494)		Sublease receipts		(3,349)		(2,317)
Total operating lease charges	Total operating lease charges	$	32,485	$	41,525	$	68,376	$	78,543	Total operating lease charges		$	30,953	$	35,891

⁽¹⁾Includes short-term lease costs, which are not significant.

(2) Excludes variable lease costs of $8.5 million and $8.9 million for the three months ended March 31, 2021 and 2020, respectively.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Supplemental cash flow information related to leases:


		Six Months Ended		Six Months Ended			Three Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		(in thousands)	March 31, 2021		March 31, 2020
Cash paid for amounts included in measurement of operating lease liabilities	Cash paid for amounts included in measurement of operating lease liabilities	$	57,639	$	61,333	Cash paid for amounts included in measurement of operating lease liabilities	$	26,572	$	29,881
Cash paid for short-term operating leases not included in operating lease liabilities	Cash paid for short-term operating leases not included in operating lease liabilities	12,071		14,451		Cash paid for short-term operating leases not included in operating lease liabilities	4,580		6,736
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	47,285		10,540		Right-of-use assets obtained in exchange for new operating lease liabilities	37,923		20,619

Weighted-average discount rate and weighted-average remaining lease term:


(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	March 31, 2021		December 31, 2020
Weighted-average discount rate⁽¹⁾	Weighted-average discount rate⁽¹⁾	7.3	%	7.7	%	Weighted-average discount rate(1)	6.5	%	6.8	%
Weighted-average remaining lease term (in years)	Weighted-average remaining lease term (in years)	4		4		Weighted-average remaining lease term (in years)	4		4

⁽¹⁾The January 1, 2019 incremental borrowing rate was used for leases in existence at the time of adoption of ASU 2016-02.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Reconciliation of undiscounted operating lease liabilities to the present value operating lease liabilities at ~~June 30, 2020:~~March 31, 2021:


(In thousands)	(In thousands)	Operating Leases		(In thousands)	Operating Leases
2020		$	67,972
2021	2021	95,500		2021	$	84,302
2022	2022	67,476		2022	90,915
2023	2023	42,722		2023	64,787
2024	2024	26,790		2024	46,838
2025				2025	31,296
Thereafter	Thereafter	29,323		Thereafter	22,304
Total undiscounted operating lease liabilities	Total undiscounted operating lease liabilities	329,783		Total undiscounted operating lease liabilities	340,442
Less: Interest	Less: Interest	(48,439)		Less: Interest	(40,550)
Total present value of operating lease liabilities	Total present value of operating lease liabilities	$	281,344	Total present value of operating lease liabilities	$	299,892

In response to the COVID-19 pandemic and related government restrictions negatively impacting our operations, we renegotiated ~~certain~~approximately 500 store lease agreements in the second quarter of 2020 to obtain rent relief, ~~in the near term,~~ in order to help offset the negative financial impacts of COVID-19. AsLease amendments executed as a result of ~~June 30, 2020, we have renegotiated approximately 500 lease agreements, receiving~~our renegotiations included near term rent abatements of approximately $2.3 million and rent deferrals of approximately ~~$2.2~~$2.1 million. ~~On April 10, 2020,~~As of March 31, 2021, remaining unpaid deferred rent associated with these lease amendments was approximately $0.4 million, the ~~Financial Accounting Standards Board ("FASB") staff issued a question-and-answer document providing guidance for lease concessions provided to lessees~~majority of which will be repaid 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 $0.6 million for the three-months ended June 30, 2020 in our condensed consolidated statement of operations.2021.

Note 6 - Income Taxes

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act”), which includes modifications to the limitation on business interest expense deductions and net operating loss provisions. The effective tax rate was ~~6.9%~~13.8% for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~22.0%~~(10.6)% in ~~2019,~~2020. The effective tax rate for the three months ended March 31, 2021 was impacted by the tax effect of the equity consideration included in the Aggregate Stock Consideration subject to vesting conditions, and discrete income tax items related to excess tax benefits from the vesting of our annual restricted stock award grants and stock option exercises, and the release of domestic and foreign tax valuation allowances. The effective tax rate for the three months ended March 31, 2020 was primarily impacted as a result of the tax benefit of net operating loss carrybacks at a 35% tax rate that became available as a result of the ~~CARES Act.~~Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020 (the “CARES Act”).

Note 7 - Senior Debt, net

On ~~August 5, 2019,~~February 17, 2021, we entered into a ~~new Term Loan Credit Agreement (the “Term Loan Credit Agreement”) providing~~credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and lenders party thereto, that provides for a seven-year ~~$200~~$875 million senior secured term loan facility (the “Term Loan Facility”) and an Asset Based Loan Credit ~~Agreement~~Facility (the “ABL Credit ~~Agreement”~~Facility”) ~~providing~~that provides for a five-year asset-based revolving credit facility ~~(the “ABL Credit Facility”)~~ with commitments of $550 million and a letter of credit sublimit of $150 million. Commitments under the ABL Credit Facility may be increased, at our option and under certain conditions, by up to ~~$300~~an additional $125 million in the ~~proceeds of which were used for the redemption of all of our outstanding senior notes.~~aggregate.

The amount outstanding under the Term Loan ~~Credit Agreement~~Facility was ~~$198.5~~$875.0 million at ~~June 30, 2020. We~~March 31, 2021. In addition, we had ~~0 amounts~~$55.0 million outstanding under our ABL Credit ~~Agreement~~Facility at ~~June 30, 2020~~March 31, 2021 and ~~had $211.2 million available.~~borrowing capacity availability of $405.2 million.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Proceeds from the Term Loan Credit ~~Agreement~~Facility were net of original issue discount of ~~$2.0~~$4.4 million upon issuance from the lenders. In addition, in connection with the closing of the Term Loan Credit ~~Agreement~~Facility and the ABL Credit ~~Agreement,~~Facility, we incurred approximately ~~$6.3~~$30.2 million in debt issuance ~~costs.~~costs, including bank financing fees and third party legal and other professional fees, of which $25.3 million was capitalized in accordance with ASC Topic 470, “Debt” and recorded as a reduction of our outstanding Senior debt, net in our Condensed Consolidated Balance Sheet. Remaining debt issuance costs incurred of $4.9 million were expensed and recorded to Other charges in our Condensed Consolidated Statement of Operations. The original issue discount and capitalized debt issuance costs will be amortized as interest expense over the ~~remaining~~ terms of the respective credit agreements. As of ~~June 30, 2020,~~March 31, 2021, the total balance of unamortized ~~balance~~ of debt issuance costs relating to our senior debt, including rollover debt issuance costs from our previous senior debt credit facilities of approximately $3.0 million, and original issue discount reported in the ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet were ~~$6.1~~$27.8 million and ~~$1.7~~$4.3 million, respectively.

We also utilize the ABL Credit Facility for the issuance of letters of credit. As of ~~June 30, 2020,~~March 31, 2021, we have issued letters of credit in the aggregate outstanding amount of ~~$88.8~~$89.8 million primarily relating to workers compensation insurance claims.

Term Loan Credit Agreement

The Term Loan ~~Credit Agreement,~~Facility, which matures on ~~August 5, 2026,~~February 17, 2028, amortizes in equal quarterly installments at a rate of 1.00% per annum of the original principal amount thereof, with the remaining balance due at final maturity. ~~Interest on~~Subject in each case to certain restrictions and conditions, we may add up to $500 million of incremental term loan facilities to the Term Loan ~~Credit Agreement will accrue~~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 ~~Eurodollar~~Term Loan Facility is payable at a fluctuating rate of interest determined by reference to the eurodollar rate plus an applicable margin ~~equal~~of 4.00%, subject to ~~4.50%. The margin on~~a 0.75% LIBOR floor. Borrowings under the Term Loan ~~Credit Agreement was 4.69%~~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 ~~June 30, 2020.~~

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

final maturity.

The Term Loan ~~Credit Agreement permits us to prepay~~Facility is secured by a first-priority security interest in substantially all of our present and future tangible and intangible personal property, including our subsidiary guarantors, other than the ~~term loans,~~ABL Priority Collateral (as defined below), and by a second-priority security interest in ~~whole or in part, without penalty on or after~~ the six-month anniversary of the closing date of the Term Loan Credit Agreement. It also permits us to incur incremental term loans in an aggregate amount equal to $150 million plus the amount of voluntary prepayments of the term loans and an unlimited amount subject to a pro forma consolidated senior secured leverage ratio of not greater than 2.00 to 1.00,ABL Priority Collateral, subject to certain ~~other conditions.~~

exceptions. The obligations under the Term Loan ~~Credit Agreement~~Facility are guaranteed by ~~certain of~~us and our subsidiaries. The Term Loan Credit Agreement and the guarantees are secured on a first-priority basis by substantially all of our tangible and intangible assets, other than collateral subject to a first-priority lien undermaterial wholly-owned domestic restricted subsidiaries that also guarantee the ABL Credit Agreement, consisting of, among other things, accounts receivable, inventory and bank accounts (and funds on deposit therein), in which the Term Loan Credit Agreement and the guarantees have a second-priority security interest, in each case, subject to certain exceptions.Facility.

The Term Loan ~~Credit Agreement~~Facility contains covenants that are usual and customary for similar facilities and transactions ~~of this type~~ and that, among other things, restrict our ability ~~to:~~

•and our 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 our and our restricted subsidiaries’ assets, to another ~~person~~

•person; pay dividends or make other distributions on, or repurchase or redeem, our capital stock or certain other debt; and

•make other restricted payments.

The Term Loan Facility also includes mandatory prepayment requirements related to asset sales (subject 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 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 Credit Agreement. We are currently permitted to pay dividends and repurchase our common stock without limitation.~~Loan.

The Term Loan ~~Credit Agreement~~ 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.~~insolvency involving us and our significant subsidiaries.

The Term Loan Facility was fully drawn at the closing of the Acima Holdings acquisition to fund a portion of the Aggregate Cash Consideration payable in the transaction, repay certain of our outstanding indebtedness and our subsidiaries, repay all outstanding indebtedness of Acima Holdings and its subsidiaries and pay certain fees and expenses incurred in connection with the transaction. A portion of such proceeds were used to repay $197.5 million outstanding under the prior term loan facility, dated as of August 5, 2019, among us, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (the “Prior Term Loan Facility”).

ABL Credit Agreement

The ABL Credit Facility will mature on ~~August 5, 2024. The Borrowers (as defined in the ABL Credit Agreement)~~February 17, 2026. We may borrow only up to the lesser of the level of the then-current ~~Borrowing Base~~borrowing base and the ~~committed maximum~~aggregate amount of commitments under the ABL Credit Facility. The borrowing ~~capacity of $300 million. The Borrowing Base~~base is tied to the ~~Eligible Installment Sales Accounts, Inventory~~amount of eligible installment sales accounts, inventory and ~~Eligible Rental Contracts,~~eligible rental contracts, reduced by Reserves, as defined in the ABL Credit Agreement. We provide to the Agent information necessary to calculate the Borrowing Base within 30 days of the end of each calendar month, unless liquidity is less than 15% of the maximum borrowing capacity of the ABL Credit Agreement or $45 million, in which case we must provide weekly information.reserves.

~~Interest is payable on the~~

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The ABL Credit Facility bears interest at a fluctuating rate ~~of interest~~ determined by reference to the ~~Eurodollar~~eurodollar rate plus an applicable margin of 1.50% to 2.00%. The ~~margin~~total interest rate on the ABL Credit Facility at March 31, 2021 was ~~1.69% at June 30, 2020.~~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 ~~Agreement.~~Facility. The commitment fee at ~~June 30, 2020~~March 31, 2021 was ~~0.250%~~0.375%. We paid ~~$0.4~~$0.7 million of commitment fees during the ~~second~~first quarter of ~~2020.~~2021.

~~Letters of credit are limited to the lesser of (x) $150 million, subject to certain limitations, and (y) the aggregate unused availability then in effect.~~

~~Subject to certain conditions,~~Loans under the ABL Credit Facility may be ~~expanded by up to $100 million in additional commitments, subject to a pro forma fixed charge coverage ratio being greater than 1.10 to 1.00.~~

borrowed, repaid and re-borrowed until February 17, 2026, at which time all amounts borrowed must be repaid. The obligations under the ABL Credit ~~Agreement~~Facility are guaranteed by us and certain of our ~~subsidiaries.~~wholly owned domestic restricted subsidiaries, subject to certain exceptions. The obligations under the ABL Credit ~~Agreement~~Facility and ~~the~~such guarantees are secured on a first-priority basis onby all of our and ~~the~~our subsidiary guarantors’ accounts, ~~receivable,~~ inventory, deposit accounts, securities accounts, cash and ~~bank accounts (and funds on deposit therein)~~cash equivalents, rental agreements, general intangibles (other than equity interests in our 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 onin substantially all ~~of the~~other present and future tangible and intangible ~~assets (second in priority to~~personal property of ours and the ~~liens securing the Term Loan Credit Agreement) of such persons, in each case,~~subsidiary guarantors, subject to certain exceptions.

The ABL ~~Credit Agreement~~Facility contains covenants that are usual and customary for similar facilities and transactions and that, among other things, restrict our ability and our 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 ~~this type~~our and ~~are substantially the same as covenants in the Term Loan Credit Agreement.~~ our restricted subsidiaries’ assets, to another person; pay dividends or make other distributions on, or repurchase or redeem, our capital stock or certain other debt; and make other restricted payments.

The ABL ~~Credit~~ Facility also requires the maintenance of a ~~Consolidated Fixed Charge Coverage Ratio (as defined in the ABL Credit Agreement)~~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 ~~$33.75~~$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 ~~Fixed Charge Coverage Ratio~~fixed charge coverage ratio as of ~~June 30, 2020~~March 31, 2021 was ~~1.52~~1.99 to 1.00.

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 us and our significant subsidiaries.

The table below shows the scheduled maturity dates of our outstanding debt at March 31, 2021 for each of the years ending December 31:


(in thousands)	Term Loan Facility		ABL Credit Facility		Total
2021	$	6,563	$	0	$	6,563
2022	8,750		0		8,750
2023	8,750		0		8,750
2024	8,750		0		8,750
2025	8,750		0		8,750
Thereafter	833,437		55,000		888,437
Total senior debt	$	875,000	$	55,000	$	930,000

Note 8 -Senior Notes

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 Acima Holdings acquisition. Interest on the Notes is payable in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. In connection with the issuance of the Notes, we incurred approximately $15.7 million in debt issuance costs, including bank financing fees and third party legal and other professional fees, which were capitalized in accordance with ASC Topic 470, “Debt” and recorded as a reduction of our outstanding Notes in our Condensed Consolidated Balance Sheet. Debt issuance costs will be amortized as interest expense over the term of the Notes.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

We 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, we 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, we 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 we experience specific kinds of change of control, we 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 our general unsecured senior obligations, and are effectively subordinated to all of our 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 our non-guarantor subsidiaries, equal in right of payment to all of our and our guarantor subsidiaries’ existing and future senior indebtedness and senior in right of payment to all of our future subordinated indebtedness, if any. The Notes are jointly and severally guaranteed on a senior unsecured basis by certain of our domestic subsidiaries that have outstanding indebtedness or guarantee other specified indebtedness, including the ABL Credit ~~Agreement~~Facility and the Term Loan Facility.

The indenture governing the Notes contains covenants that limit, among other things, our ability and the ability of some of our 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 us by our restricted subsidiaries, merge or consolidate with other entities, engage in certain transactions with affiliates and designate our 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 us by our 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 ~~customary~~ events of default, ~~that are substantially~~which, if any of them occurs, would permit or require the ~~same as events of default in~~principal, premium, if any, and interest on all the ~~Term Loan Credit Agreement.~~

~~The table below shows the scheduled maturity dates of our~~then outstanding ~~debt at June 30, 2020 for each of the years ending December 31:~~

(in thousands) Term Loan ABL Credit Facility Total
2020 $ 1,000 $ — $ 1,000
2021 2,000 — 2,000
2022 2,000 — 2,000
2023 2,000 — 2,000
2024 2,000 — 2,000
Thereafter 189,500 — 189,500
Total senior debt $ 198,500 $ — $ 198,500

Notes to be due and payable.

Note 89 - 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 in the methods and assumptions used in measuring fair value during the period.~~

Our financial instruments include cash and cash equivalents, receivables, payables, ~~and~~ borrowings against our ABL Credit Facility and Term Loan ~~Facility.~~Facility, and outstanding Notes. The carrying amount of cash and cash equivalents, receivables and payables approximates fair value at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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, we believe the carrying value of outstanding borrowings approximates their fair value.

The fair value of our Notes is based on Level 1 inputs and was as follows at March 31, 2021:


	March 31, 2021
(in thousands)	Carrying Value		Fair Value		Difference
Senior notes	$	450,000	$	477,000	$	27,000

Note 910 - Other Charges

~~Store Consolidations.~~ Acima Holdings Acquisition. As described in Note 2, on February 17, 2021, we completed the acquisition of Acima Holdings, a leading provider of virtual lease-to-own solutions. Included in the aggregate consideration issued to the former owners of Acima Holdings was 8,096,595 of common shares, valued at $414.1 million, subject to 36-month vesting conditions under restricted stock agreements, which will be recognized over the vesting term as stock compensation expense. During the ~~first six~~three months ~~of 2020,~~ended March 31, 2021, we ~~closed 18 Rent-A-Center Business stores, resulting in pre-tax charges of $0.3~~recognized approximately $15.9 million in lease impairment charges, $0.9 million in other miscellaneous shutdown and holding costs, and $0.1 million in disposal of fixed assets. During the first six months of 2019, we closed 66 Rent-A-Center Business stores, resulting in pre-tax charges of $2.3 million in lease impairment, $0.9 million in other miscellaneous shutdown and holding costs, $0.7 million in disposal of fixed assets, and $0.3 million in severance and other payroll-related costs.

~~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 the six months ended June 30, 2020 consisting of $1.0 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 the first six months of 2019stock compensation expense related to these initiatives included pre-tax charges of $5.0 million in lease impairment charges, $2.8 million in severance and other payroll-related costs, $1.6 million in other miscellaneous shutdown costs, and $0.4 million in disposal of fixed assets.

~~COVID-19 Pandemic.~~ In March 2020, national efforts to contain the COVID-19 virus began to be implemented. In connection with COVID-19, during the first six months of 2020, we incurred approximately $0.8 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 $0.6 million for our Rent-A-Center Business stores.

~~Social Unrest.~~ During the second quarter of 2020, we incurred expenses resulting from certain civil unrest that occurred 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 $0.6 million of inventory write-offs and $0.1 million in disposal of fixed assets.restricted stock agreements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The fair value of assets acquired as part of the transaction included $520 million in intangible assets and $170 million in developed technology. During the three months ended March 31, 2021, we recognized approximately $1.3 million in depreciation expense and approximately $14.0 million in amortization expense related to these assets.

Furthermore, during the three months ended March 31, 2021 we recognized approximately $16.4 million in transaction costs associated with the closing of the transaction, and approximately $3.2 million in post-acquisition integration costs, including $2.8 million in employee severance and $0.4 million in reorganization advisory fees.

Activity with respect to ~~other~~Other charges for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is summarized in the below table:

(in thousands) Accrued Charges at December 31, 2019 Charges & Adjustments Payments & Adjustments Accrued Charges at June 30, 2020
Cash charges:
Labor costs $ 738 $ 1,484 $ (957) $ 1,265
Lease obligations⁽¹⁾
— (414) 414 —
Shutdown and holding costs — 1,307 (1,307) —
Total cash charges $ 738 2,377 $ (1,850) $ 1,265
Non-cash charges:
Rental merchandise losses⁽²⁾
620
Asset impairments⁽³⁾
955
Other⁽⁴⁾
5,672
Total other charges $ 9,624


(in thousands)	Accrued Charges at December 31, 2020		Charges & Adjustments		Payments & Adjustments		Accrued Charges at March 31, 2021
Cash charges:
Acima Holdings transaction costs	$	5,005	$	16,406	$	(20,893)	$	518
Acima Holdings integration costs	0		3,244		(447)		2,797


Other cash charges(1)	344		197		(541)		0
Total cash charges	$	5,349	19,847		$	(21,881)	$	3,315
Non-cash charges:
Depreciation and amortization of acquired assets(2)			15,258

Acima Holdings employees stock agreements(3)			15,882
Asset impairments(4)			132

Total other charges			$	51,119

⁽¹⁾ ~~Includes lease abatement credits~~Represents employee severance, shutdown and holding expenses related to ~~renegotiated lease agreements~~store closures.

(2) Represents depreciation recorded on the incremental fair value of acquired software and amortization of the fair value of intangible assets acquired in ~~response to COVID-19~~connection with the acquisition of Acima Holdings as described Note 2.

⁽²⁾(3) ~~Looting~~Represents stock compensation expense recognized in the first quarter of 2021, related to ~~social unrest~~common shares issued to Acima Holdings employees subject to vesting restrictions, as described in Note 2.

⁽³⁾(4) 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, damage related to social unrest, as well as a write-down of capitalized software~~ in the first ~~six~~three months of ~~2020.~~

⁽⁴⁾ ~~Other primarily includes legal settlement reserves, state tax audit assessment reserves, expenses related to COVID-19, partially offset by the receipt of insurance proceeds related to Hurricane Maria.~~2021.

Note 1011 - 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~~Within our operating segments, we offer merchandise for lease from certain basic product categories: furniture, including mattresses, tires, consumer electronics, appliances, tools, handbags, 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, jewelry and other accessories.~~

Segment information for the three and nine months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ is as follows:

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Revenues
Rent-A-Center Business $ 459,192 $ 451,096 $ 914,157 $ 925,153
Preferred Lease 191,243 176,389 407,370 372,911
Mexico 10,611 13,551 24,157 26,896
Franchising 22,700 14,889 40,001 27,659
Total revenues $ 683,746 $ 655,925 $ 1,385,685 $ 1,352,619


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020
Gross profit
Revenues										Revenues
Rent-A-Center Business	Rent-A-Center Business	$	316,047	$	313,871	$	633,605	$	638,511	Rent-A-Center Business	$	524,866	$	454,965
Preferred Lease		71,391		80,380		159,706		166,708
Acima										Acima	457,449		216,127
Mexico	Mexico	7,432		9,411		16,960		18,680		Mexico	14,498		13,546
Franchising	Franchising	4,662		4,409		9,439		9,038		Franchising	39,969		17,301
Total gross profit		$	399,532	$	408,071	$	819,710	$	832,937
Total revenues										Total revenues	$	1,036,782	$	701,939

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2020 2019 2020 2019
Operating profit
Rent-A-Center Business $ 85,132 $ 64,925 $ 153,075 $ 118,236
Preferred Lease 6,233 22,734 24,455 44,247
Mexico 1,052 1,474 2,019 2,693
Franchising 3,029 1,803 5,548 3,581
Total segments 95,446 90,936 185,097 168,757
Corporate (41,811) 38,893 (82,587) (21,579)
Total operating profit $ 53,635 $ 129,829 $ 102,510 $ 147,178


	Three Months Ended March 31,
(in thousands)		2021		2020
Gross profit
Rent-A-Center Business		$	359,169	$	317,558
Acima		134,250		88,315
Mexico		10,212		9,528
Franchising		6,892		4,777
Total gross profit		$	510,523	$	420,178


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020
Depreciation and amortization
Operating profit										Operating profit
Rent-A-Center Business	Rent-A-Center Business	$	4,876	$	5,110	$	9,833	$	10,582	Rent-A-Center Business	$	121,277	$	67,943
Preferred Lease		474		313		1,001		661
Acima										Acima	24,814		18,222
Mexico	Mexico	95		95		188		235		Mexico	1,954		967
Franchising	Franchising	10		9		13		39		Franchising	4,985		2,519
Total segments	Total segments	5,455		5,527		11,035		11,517		Total segments	153,030		89,651
Corporate	Corporate	8,893		9,594		18,226		19,377		Corporate	(82,984)		(40,776)
Total depreciation and amortization		$	14,348	$	15,121	$	29,261	$	30,894
Total operating profit										Total operating profit	$	70,046	$	48,875


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020
Capital expenditures
Depreciation and amortization										Depreciation and amortization
Rent-A-Center Business	Rent-A-Center Business	$	3,504	$	907	$	4,484	$	1,465	Rent-A-Center Business	$	4,577	$	4,957
Preferred Lease		2		54		86		101
Acima(1)										Acima(1)	474		527
Mexico	Mexico	52		27		89		30		Mexico	120		93

Franchising										Franchising	16		3
Total segments	Total segments	3,558		988		4,659		1,596		Total segments	5,187		5,580
Corporate(2)	Corporate(2)	2,041		1,592		10,091		3,492		Corporate(2)	8,206		9,333
Total capital expenditures		$	5,599	$	2,580	$	14,750	$	5,088
Total depreciation and amortization										Total depreciation and amortization	$	13,393	$	14,913

(1)Excludes amortization of approximately $14.0 million recorded to Other charges in the Condensed Consolidated Statement of Operations, related to intangible assets acquired upon closing of the Acima Holdings acquisition

(2)Excludes depreciation of approximately $1.3 million recorded to Other charges in the Condensed Consolidated Statement of Operations, related to software acquired upon closing of the Acima Holdings acquisition

(in thousands) June 30, 2020 December 31, 2019
On rent rental merchandise, net
Rent-A-Center Business $ 399,647 $ 411,482
Preferred Lease 232,373 268,845
Mexico 13,502 16,943
Total on rent rental merchandise, net $ 645,522 $ 697,270

(in thousands) June 30, 2020 December 31, 2019
Held for rent rental merchandise, net
Rent-A-Center Business $ 85,680 $ 131,086
Preferred Lease 1,508 1,254
Mexico 4,459 6,078
Total held for rent rental merchandise, net $ 91,647 $ 138,418


	Three Months Ended March 31,
(in thousands)		2021		2020
Capital expenditures
Rent-A-Center Business		$	6,257	$	980
Acima		154		84
Mexico		76		37

Total segments		6,487		1,101
Corporate		4,901		8,050
Total capital expenditures		$	11,388	$	9,151

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(in thousands) June 30, 2020 December 31, 2019
Assets by segment
Rent-A-Center Business $ 866,198 $ 953,151
Preferred Lease 321,883 357,859
Mexico 29,056 33,707
Franchising 14,344 11,095
Total segments 1,231,481 1,355,812
Corporate 345,147 226,986
Total assets $ 1,576,628 $ 1,582,798


(in thousands)	March 31, 2021		December 31, 2020
On rent rental merchandise, net
Rent-A-Center Business	$	446,180	$	444,945
Acima	651,764		299,660
Mexico	17,969		18,281
Total on rent rental merchandise, net	$	1,115,913	$	762,886


(in thousands)	March 31, 2021		December 31, 2020
Held for rent rental merchandise, net
Rent-A-Center Business	$	127,120	$	136,219
Acima	1,622		2,228
Mexico	6,502		7,819
Total held for rent rental merchandise, net	$	135,244	$	146,266


(in thousands)	March 31, 2021		December 31, 2020
Assets by segment
Rent-A-Center Business	$	978,190	$	999,252
Acima	1,566,395		389,650
Mexico	36,076		42,278
Franchising	16,114		14,729
Total segments	2,596,775		1,445,909
Corporate	410,183		305,071
Total assets	$	3,006,958	$	1,750,980

Note 1112 - Common Stock and Stock-Based Compensation

~~In March 2020,~~Under our current common stock repurchase program, our Board of Directors has authorized ~~a stock repurchase program with respect to~~ the purchase, of up to an aggregate of $75 million of Rent-A-Center common stock, superseding our prior authorization. While the program was temporarily suspended due to the COVID-19 pandemic, $58.5 million remains available for repurchases from time to time, in the open market and privately negotiated ~~transactions.~~transactions, up to an aggregate of $75 million of Rent-A-Center common stock. NaN shares were repurchased during the three months ended March 31, 2021. During the ~~six~~three months ended ~~June 30,~~March 31, 2020, we repurchased 1,461,177 shares of ~~its~~our common stock for an aggregate purchase price of $26.5 million, which ~~includes~~included shares ~~with~~having an aggregate purchase price of ~~$16.5~~$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. Under the March 2020 ~~authorization. NaN shares were repurchased during~~authorization, $58.4 million remains available for repurchases in the ~~six months ended June 30, 2019.~~open market and privately negotiated transactions.

We recognized ~~$2.9~~$4.3 million and ~~$2.0~~$3.0 million in compensation expense related to stock ~~options and restricted stock units~~awards issued under the Rent-A-Center 2016 Long-Term Incentive Plan (the “2016 Plan”) during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $5.9 million and $2.7 million during the six months ended June 30, 2020 and 2019,~~ respectively. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we granted approximately ~~349,000~~65,000 stock options, ~~269,000~~238,000 market-based performance ~~restricted stock~~ units and ~~187,000~~141,000 time-vesting ~~restricted stock units.~~units under the 2016 Plan. The stock options granted were valued using a Black-Scholes pricing model with the following assumptions: an expected volatility of ~~45.62%~~47.54% to ~~52.25%~~52.80%, a risk-free interest rate of ~~0.30%~~0.21% to ~~1.72%~~0.47%, an expected dividend yield of ~~4.02% to 8.20%~~3.24%, and an expected term of 3.50 to 5.75 years. The weighted-average exercise price of the options granted during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$24.21~~$38.29 and the weighted-average grant-date fair value was ~~$6.75.~~$12.20. Performance-based ~~restricted stock~~ units are valued using a Monte Carlo simulation. Time-vesting restricted stock units are valued using the closing price on the trading day immediately preceding the day of the grant. The weighted-average grant date fair value of the market-based performance and time-vesting restricted units were valued using our closing stock ~~units granted~~price on March 31, 2021.

As described in Note 2, Aggregate Stock Consideration issued to the former owners of Acima Holdings included 10,779,923 of common shares valued at $51.14 per share, as of the date of closing. Of this total, 2,683,328 common shares were included in the aggregate purchase price of the transaction for financial reporting purposes, while 8,096,595 common shares, valued at $414.1 million, issued under restricted stock agreements and subject to vesting conditions, will be recognized as stock compensation expense over the vesting term in accordance with ASC Topic 718, “Stock-based Compensation”. We recognized $15.9 million in stock compensation expense related to these restricted stock agreements during the ~~six~~three months ended ~~June 30, 2020~~March

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

31, 2021, which was ~~$30.24 and $25.02, respectively.~~recorded to Other charges in our Condensed Consolidated Statements of Operations, as described in Note 10.

Note 1213 - Contingencies

From time to time, we, along with our subsidiaries, are a 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 reasonably estimable. We regularly monitor developments related to these legal proceedings, and ~~inquiries, 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. 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.

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 definitive agreement to acquire Acima Holdings, Acima Holdings 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 Holding’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 Holdings extends credit, offers leases, or otherwise offers or provides a consumer financial product or service and whether Acima Holdings complies with certain consumer financial protection laws. We are fully cooperating with the CFPB investigation. We completed our production of records in response to the existing requests of the CFPB at 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 definitive agreement to acquire Acima Holdings, the former owners of Acima Holdings have agreed to indemnify Rent-A-Center for certain losses arising after the consummation of the transaction with respect to the CID and certain pre-closing taxes. The indemnification obligations of the former owners of Acima Holdings are limited to an indemnity holdback in the aggregate amount of $50 million, which was escrowed at the closing of the transaction, and will be Rent-A-Center’s sole recourse against the former owners of Acima Holdings with respect to all of the indemnifiable claims under the definitive transaction 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 Holdings as follows: (i) in respect of the CID, on the earlier of the third anniversary of the closing date of the transaction 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 transaction.

There can be no assurance that the CID will be finally resolved prior to the release to the former owners of Acima Holdings 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 Holdings’s business practices or operations that could materially and adversely affect our 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~~Acima 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. ~~The~~After several rounds of negotiations, in September 2020, the CAG proposed revised terms. In both cases, the proposed settlement terms ~~include~~included 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

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

cannot predict the ultimate outcome, we do not believe any such outcome will have a material impact on our condensed consolidated financial statements.

RENT-A-CENTER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Note 1314 - Earnings Per Common Share

Summarized basic and diluted earnings per common share were calculated as follows:


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
(in thousands, except per share data)	(in thousands, except per share data)	2020		2019		2020		2019		(in thousands, except per share data)	2021		2020
Numerator:	Numerator:									Numerator:
Net earnings	Net earnings	$	38,493	$	94,455	$	87,785	$	101,778	Net earnings	$	42,552	$	49,292
Denominator:	Denominator:									Denominator:
Weighted-average shares outstanding(1)	Weighted-average shares outstanding(1)	53,800		54,153		54,287		54,042		Weighted-average shares outstanding(1)	56,247		54,774
Effect of dilutive stock awards(2)	Effect of dilutive stock awards(2)	1,424		1,553		1,401		1,559		Effect of dilutive stock awards(2)	10,048		1,378
Weighted-average dilutive shares	Weighted-average dilutive shares	55,224		55,706		55,688		55,601		Weighted-average dilutive shares	66,295		56,152

Basic earnings per common share	Basic earnings per common share	$	0.72	$	1.74	$	1.62	$	1.88	Basic earnings per common share	$	0.76	$	0.90
Diluted earnings per common share	Diluted earnings per common share	$	0.70	$	1.70	$	1.58	$	1.83	Diluted earnings per common share	$	0.64	$	0.88
Anti-dilutive securities excluded from diluted loss per common share:
Anti-dilutive securities excluded from diluted earnings per common share:										Anti-dilutive securities excluded from diluted earnings per common share:
Anti-dilutive restricted share units(3)	Anti-dilutive restricted share units(3)	145		—		145		—		Anti-dilutive restricted share units(3)	0		148
Anti-dilutive performance share units(3)	Anti-dilutive performance share units(3)	519		263		519		263		Anti-dilutive performance share units(3)	0		519
Anti-dilutive stock options(3)	Anti-dilutive stock options(3)	1,349		1,107		1,340		1,123		Anti-dilutive stock options(3)	0		1,357

(1) Weighted-average shares outstanding for the three months ended March 31, 2021 includes approximately 1.3 million weighted-average common shares issued in connection with the acquisition of Acima Holdings in February 2021. See Note 2 for additional information.

(2) Dilutive stock awards for the three months ended March 31, 2021 includes approximately 8.1 million common shares issued in connection with the acquisition of Acima Holdings in February 2021, and subject to vesting conditions under restricted stock agreements.

(3) There were no anti-dilutive stock awards for the three months ended March 31, 2021.

2021

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of ~~1995.~~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” and includes~~“projects.” These forward-looking statements, ~~regarding~~include, without limitation, those relating to the potential effects of the ~~COVID-19~~ pandemic of the respiratory disease caused by a novel coronavirus (“COVID-19”) on our business, operations, financial performance and ~~prospects.~~ prospects, the future business prospects and financial performance of our Company following the closing of our acquisition of Acima Holdings, LLC (“Acima Holdings”), cost and revenue synergies and other benefits expected to result from the Acima Holdings acquisition, 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 Quarterly Report on Form 10-Q. 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” in our Annual Report on Form 10-K for the year ended December 31, 2020 and “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations” below. 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 Quarterly Report on Form 10-Q 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:

•the possibility that the anticipated benefits from the Acima Holdings acquisition may not be fully realized or may take longer to realize than expected;

• the possibility that costs, difficulties or disruptions related to the integration of Acima Holdings operations into our other operations will be greater than expected;

• our ability to (i) effectively adjust to changes in the composition of our offerings and product mix as a result of acquiring Acima Holdings 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;

• changes in our future cash requirements as a result of the Acima Holdings acquisition, whether caused by unanticipated increases in capital expenditures or working capital needs, unanticipated liabilities or otherwise;

• our ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;

•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~~Acima 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 ~~coworkers,~~employees, including our ability to adequately staff our operating locations, (vi) our financial and operational performance, and (vii) our liquidity;

•the general strength of the economy and other economic conditions affecting consumer preferences and ~~spending;~~spending, including the availability of credit to our target consumers;

•factors affecting the disposable income available to our current and potential customers;

•changes in the unemployment rate;

•capital market conditions, including availability of funding sources for us;

•changes in our credit ratings;

•difficulties encountered in improving the financial and operational performance of our business segments;

•risks associated with pricing changes and strategies being deployed in our businesses;

•our ability to continue to realize benefits from our initiatives regarding cost-savings and other EBITDA enhancements, efficiencies and working capital improvements;

•our ability to continue to effectively execute our strategic ~~initiatives;~~initiatives, including mitigating risks associated with any potential mergers and acquisitions, or refranchising opportunities;

•failure to manage our store labor and other store expenses, including merchandise losses;

•disruptions caused by the operation of our store information management systems;

•risks related to our virtual lease-to-own business, including our ability to continue to develop and successfully implement the necessary technologies;

•our ability to achieve the benefits expected from our integrated ~~retail preferred offering, Preferred Lease, including our ability to integrate our historic,~~virtual and staffed retail partner ~~business (Acceptance Now) and the Merchants Preferred business under the Preferred Lease~~ offering and to successfully grow this business segment;

•exposure to potential operating margin degradation due to the higher cost of merchandise in our ~~Preferred Lease~~Acima offering and potential for higher merchandise losses;

•our transition to more-readily scalable "cloud-based" solutions;

•our ability to develop and successfully implement digital or E-commerce capabilities, including mobile applications;

•our ability to protect our proprietary intellectual property;

•disruptions in our supply chain;

•limitations of, or disruptions in, our distribution network;

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

•rapid inflation or deflation in the prices of our products;

•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;

•our available cash flow and our ability to generate sufficient cash flow to continue paying dividends;

•increased competition from traditional competitors, virtual lease-to-own competitors, online retailers and other competitors, including subprime lenders;

•our ability to identify and successfully market products and services that appeal to our current and future targeted customer segments;

•consumer preferences and perceptions of our brands;

•our ability to retain the revenue associated with acquired customer accounts and enhance the performance of acquired stores;

•our ability to enter into new and collect on our rental or lease purchase agreements;

•changes in the enforcement of existing laws and regulations and the enactment of new laws and regulations adversely affecting our business, 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;

•our compliance with applicable statutes or regulations governing our businesses;

•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;

•changes in interest rates;

•changes in tariff policies;

•adverse changes in the economic conditions of the industries, countries or markets that we serve;

•information technology and data security costs;

•the impact of any breaches in data security or other disturbances to our information technology and other networks and our ability to protect the integrity and security of individually identifiable data of our customers, employees and ~~employees;~~retail partners;

•changes in estimates relating to self-insurance liabilities and income tax and litigation reserves;

•changes in our effective tax rate;

•fluctuations in foreign currency exchange rates;

•our ability to maintain an effective system of internal controls;

•litigation or administrative proceedings to which we are or may be a party to from time to time; and

•the other risks detailed from time to time in our reports furnished or filed with the United States Securities and Exchange ~~Commission.~~Commission (the “SEC”).

Additional important factors that could cause our actual results to differ materially from our expectations are discussed under the section “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020 and elsewhere in this Quarterly Report on Form 10-Q.

Our Business

We are ~~an industry~~a leading ~~omni-channel~~ lease-to-own provider with operations in the United States, Puerto Rico and Mexico. We provide a critical service for ~~the credit-constrained customer. We focus on improving the quality~~a large portion of ~~life of our customers~~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 ~~and~~with no long-term debt obligation. ~~Preferred Lease provides virtual~~Through our Rent-A-Center Business, we provide a fully integrated customer experience through our e-commerce platform and ~~staffed~~brick and mortar presence. Our Acima business offers lease-to-own solutions tothrough 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."~~“RCII.”

Executive Summary

Our Strategy

Our strategy is focused on growing our business model through emphasis on the following key initiatives:

•~~continuing positive trends in~~executing on market opportunities and enhancing our ~~Rent-A-Center Business segment driven by~~ competitive position across both traditional and virtual lease-to-own solutions;

•accelerating the shift to e-commerce, ~~momentum,~~ expanding product categories, including into emerging product categories, and improving the fully integrated customer experience;

•using technology to support frictionless partner onboarding with seamless integration to retail partner platforms;

•continuing to generate repeat business while expanding our potential customer base;

•leveraging the integration of the Acima Holdings decision engine and expanding digital payments and communication channels; and

•generating favorable adjusted EBITDA margin and strong free cash flow to fund strategic priorities and deliver and return capital to ~~shareholders; and~~

•~~executing on large market opportunities using a virtual platform via our Preferred Lease offering and e-commerce.~~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

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

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 Holdings, see “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation—Recent Developments”.

Recent Developments

Acima Acquisition. On February 17, 2021. we completed the acquisition of Acima Holdings and 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 definitive agreement, $50 million of the Aggregate Cash Consideration was placed into escrow at closing to cover certain potential tax and regulatory indemnification obligations of the former owners of Acima Holdings under the agreement. Although we currently believe the escrow holdback amount, which serves as our sole recourse of 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 us with respect to such matters will not exceed the escrow holdback amount.

The portion of the Aggregate Stock Consideration issued to former owners of Acima Holdings who are also employees of Acima is subject to restricted stock agreements providing vesting conditions over a 36-month period beginning upon closing of the acquisition. The portion of the Aggregate Stock Consideration issued to non-employee former owners of Acima Holdings is subject to the terms of an 18-month lockup agreement, pursuant to which one-third of the aggregate shares of our common

stock received by a non-employee former owner of Acima Holdings becomes transferable after each six month period following the closing of the acquisition.

In connection with the acquisition, we entered into employment agreements with certain executives of Acima Holdings, including Aaron Allred, Chairman and Founder of Acima Holdings, which became effective upon closing.

Dividends. On March 25, 2021, we announced that our board of directors approved a quarterly cash dividend of $0.31 per share for the second quarter of 2021. The dividend was paid on April 22, 2021 to our common stockholders of record as of the close of business on April 6, 2021.

Business and Operational Trends

COVID-19 Pandemic. Beginning in the latter half of March 2020, the worldwide spread of ~~the respiratory disease caused by a novel coronavirus (“COVID-19”)~~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, ~~President Trump~~the president of the United States declared a national state of emergency for the ~~United States.~~nation. In response to the issuance of U.S. federal guidelines to contain the spread of ~~the~~ COVID-19, ~~virus,~~ 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 Acima retail partner locations were temporarily closed, resulting in the initial closure of approximately 65% of our staffed Acima 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 Acima 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 early 2021, the number of COVID-19 cases increased significantly and certain governmental authorities imposed or re-imposed restrictions on certain businesses. As of April 28, 2021, all locations in our Rent-A-Center Business, Franchising and Mexico operating segments and staffed Acima locations are providing full in-store services subject to local requirements for sanitization, social distancing and capacity limitations and, in Mexico, certain restrictions regarding hours of operation.

In response to the negative impacts to our business resulting from COVID-19, in 2020, we proactively implemented 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, 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 Acima 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 economic conditions, including elevated unemployment rates 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 ~~"Trends and Uncertainties - COVID-19 Pandemic" below, and "Risk Factors"~~“Risk Factors” in Part ~~II,~~I, Item 1A ofin our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~March~~December 31, 2020, for an additional discussion of operational impacts to our business and additional risks associated with COVID-19.

Results of Operations

The following discussion focuses on our results of operations and our liquidity and capital resources. You should read this discussion in conjunction with the condensed consolidated financial statements and notes thereto for the three months ended ~~June 30, 2020~~March 31, 2021 included in Part I, Item I of this Quarterly Report on Form 10-Q.

~~Trends and Uncertainties~~

~~COVID-19 Pandemic~~

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, with respect to our Rent-A-Center Business, we temporarily shut down operations at a small number of stores and partially closed approximately 24% of stores. Our partially closed locations operated with closed showrooms, conducting business only through e-commerce web orders. Franchise locations and stores in our Mexico operating segment were also temporarily closed due to COVID-19. In response to the negative impacts to our business resulting from COVID-19, we proactively implemented 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, for a period of time, suspending further share repurchases.

Since the onset of the pandemic, the jurisdictional ordinances directly impacting our operations have been withdrawn and, as of the date hereof, all of our staffed Preferred Lease locations and store operations in our Rent-A-Center Business, Mexico and Franchising operating segments are fully operational. Nonetheless, there are no assurances we will not be subject to future government actions negatively impacting our business as the pandemic progresses. In addition, while we may also be impacted by deteriorating worldwide economic conditions, including elevated unemployment rates throughout the United States, which could have a sustained impact on discretionary consumer spending, the lease-to-own transaction is a resilient model that 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.

~~Virtual Business Model~~

On August 13, 2019, we completed the acquisition of substantially all of the assets of C/C Financial Corp. dba Merchants Preferred ("Merchants Preferred"), a nationwide provider of virtual lease-to-own services, accelerating our growth in the virtual lease-to-own industry. In January 2020, we announced plans for our new integrated retail partner offering under Preferred Lease, which combines our staffed and virtual lease-to-own business models to meet the needs and expectations of both our customers and retail partners. While we believe the acquisition of the Merchants Preferred virtual business model and rollout of our Preferred Lease integrated offering positions us for significant revenue and earnings growth, we are exposed to potential operating margin degradation due to the higher cost of merchandise in our retail partner business and potential for higher merchandise losses.

~~Cost Savings Initiatives~~

In 2018, we initiated and executed multiple cost savings initiatives, resulting in reductions in overhead and supply chain costs. While these initiatives have led to significant decreases in operating expenses and corresponding improvement in operating

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profit on a year-over-year basis in our 2018 and 2019 results of operations, we do not expect to continue to realize cost reduction benefits in future periods at the same annualized rate as past periods.

Overview

The following briefly summarizes certain of our financial information for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 as compared to the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

During the first ~~six~~three months of ~~2020,~~2021, consolidated revenues increased approximately ~~$33.1~~$334.8 million, primarily ~~driven by our Preferred Lease virtual solution~~due to the acquisition of Acima Holdings and ~~increases~~an increase in same store sales in our Rent-A-Center Business. Operating profit increased approximately $21.2 million for the three months ended March 31, 2021, primarily due to the increased operating profit of the Rent-A-Center Business and Acima segments, partially offset by ~~refranchising~~one-time transaction and integration costs, stock compensation expense related to equity consideration subject to vesting conditions, and depreciation and amortization of approximately 100 Rent-A-Center Business corporate stores during the preceding 18 months. Operating profit decreased approximately $44.7 million for the six months ended June 30, 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 byacquired software 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 relatingintangible assets related to the ~~termination (the "Vintage Settlement Proceeds").~~acquisition of Acima Holdings.

Revenues in our Rent-A-Center Business segment ~~decreased~~increased approximately ~~$11.0~~$69.9 million for the ~~six~~three months ended ~~June 30, 2020, driven~~March 31, 2021, primarily ~~by the refranchising of approximately 100 Rent-A-Center Business corporate stores as described above and rationalization of our store base, partially offset by~~due to an increase in same store sales revenue driven by ~~higher merchandise sales.~~growth in e-commerce sales, and despite the impact of refranchising approximately 100 stores in California in the fourth quarter of 2020 which are no longer reflected in the Rent-A-Center Business segment revenues. Gross profit as a percentage of revenue ~~increased 0.3%~~decreased 1.4%. Operating profit increased ~~$34.8~~$53.3 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, driven primarily ~~driven~~ by ~~decreased~~increased operating leverage as a result of higher revenues and lower operating expenses.

The ~~Preferred Lease~~Acima segment revenues increased approximately ~~$34.5~~$241.3 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, driven primarily ~~due to the implementation of the Preferred Lease virtual solution following~~by the acquisition of ~~Merchants Preferred in August 2019, in addition to growth in our staffed model, despite negative impacts related to the temporary closure of stores due to the COVID-19 pandemic.~~Acima Holdings. Gross profit as a percent of revenue decreased ~~5.5% and~~11.6%, while operating profit ~~decreased~~increased approximately ~~$19.8~~$6.6 million for the ~~six~~three months ended ~~June 30, 2020 primarily due to a~~March 31, 2021, driven by higher ~~number of early payouts, higher merchandise losses primarily~~revenue due to the ~~COVID-19 pandemic,~~acquisition of Acima Holdings and ~~higher mix of virtual locations.~~stronger lease performance.

The Mexico segment revenues ~~decreased~~increased by ~~10.2%~~7.0% for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, driving ~~a decrease~~an increase in gross profit of ~~9.2%~~7.2%, or ~~$1.7~~$0.7 million.

Revenues for the Franchising segment increased ~~$12.3~~$22.7 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, primarily due to a higher store count, resulting from the refranchising of approximately ~~60 Rent-A-Center Business corporate~~100 California stores ~~as described above~~during 2020 and higher inventory purchases by ~~our~~ franchisees.

Cash flow from operations was ~~$254.7~~$135.8 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. As of ~~June 30, 2020,~~March 31, 2021, we held ~~$206.4~~$123.0 million of cash and cash equivalents and outstanding indebtedness of ~~$198.5 million.~~$1.38 billion.

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The following table is a reference for the discussion that follows.


		Three Months Ended										Six Months Ended										Three Months Ended
		June 30,						Change						June 30,					Change					March 31,				Change
(dollar amounts in thousands)	(dollar amounts in thousands)	2020		2019		$		%		2020		2019		$		%		(dollar amounts in thousands)		2021		2020		$		%
Revenues	Revenues																	Revenues
Store	Store																	Store
Rentals and fees	Rentals and fees	$	534,737	$	551,680	$	(16,943)	(3.1)	%	$	1,102,737	$	1,115,034	$	(12,297)	(1.1)	%	Rentals and fees		$	745,534	$	568,000	$	177,534	31.3	%
Merchandise sales	Merchandise sales	108,080		70,842		37,238		52.6	%	209,460		175,312		34,148		19.5	%	Merchandise sales		232,793		101,380		131,413		129.6	%
Installment sales	Installment sales	17,643		17,270		373		2.2	%	32,390		32,706		(316)		(1.0)	%	Installment sales		17,773		14,747		3,026		20.5	%
Other	Other	775		1,244		(469)		(37.7)	%	1,497		1,908		(411)		(21.5)	%	Other		918		722		196		27.1	%
Total store revenue	Total store revenue	661,235		641,036		20,199		3.2	%	1,346,084		1,324,960		21,124		1.6	%	Total store revenue		997,018		684,849		312,169		45.6	%
Franchise	Franchise																	Franchise
Merchandise sales	Merchandise sales	18,047		10,673		7,374		69.1	%	30,484		19,129		11,355		59.4	%	Merchandise sales		33,055		12,437		20,618		165.8	%
Royalty income and fees	Royalty income and fees	4,464		4,216		248		5.9	%	9,117		8,530		587		6.9	%	Royalty income and fees		6,709		4,653		2,056		44.2	%
Total revenues	Total revenues	683,746		655,925		27,821		4.2	%	1,385,685		1,352,619		33,066		2.4	%	Total revenues		1,036,782		701,939		334,843		47.7	%
Cost of revenues	Cost of revenues																	Cost of revenues
Store	Store																	Store
Cost of rentals and fees	Cost of rentals and fees	157,124		155,658		1,466		0.9	%	322,579		311,030		11,549		3.7	%	Cost of rentals and fees		247,035		165,455		81,580		49.3	%
Cost of merchandise sold	Cost of merchandise sold	102,960		76,034		26,926		35.4	%	201,717		179,425		22,292		12.4	%	Cost of merchandise sold		240,106		98,757		141,349		143.1	%
Cost of installment sales	Cost of installment sales	6,092		5,682		410		7.2	%	11,117		10,606		511		4.8	%	Cost of installment sales		6,041		5,025		1,016		20.2	%
Total cost of store revenues	Total cost of store revenues	266,176		237,374		28,802		12.1	%	535,413		501,061		34,352		6.9	%	Total cost of store revenues		493,182		269,237		223,945		83.2	%

Franchise cost of merchandise sold	Franchise cost of merchandise sold	18,038		10,480		7,558		72.1	%	30,562		18,621		11,941		64.1	%	Franchise cost of merchandise sold		33,077		12,524		20,553		164.1	%
Total cost of revenues	Total cost of revenues	284,214		247,854		36,360		14.7	%	565,975		519,682		46,293		8.9	%	Total cost of revenues		526,259		281,761		244,498		86.8	%
Gross profit	Gross profit	399,532		408,071		(8,539)		(2.1)	%	819,710		832,937		(13,227)		(1.6)	%	Gross profit		510,523		420,178		90,345		21.5	%
Operating expenses	Operating expenses																	Operating expenses
Store expenses	Store expenses																	Store expenses
Labor	Labor	129,929		152,899		(22,970)		(15.0)	%	283,723		314,555		(30,832)		(9.8)	%	Labor		156,707		153,794		2,913		1.9	%
Other store expenses	Other store expenses	160,756		149,225		11,531		7.7	%	322,474		313,019		9,455		3.0	%	Other store expenses		170,133		161,718		8,415		5.2	%
General and administrative expenses	General and administrative expenses	32,943		38,534		(5,591)		(14.5)	%	72,118		71,458		660		0.9	%	General and administrative expenses		49,125		39,175		9,950		25.4	%
Depreciation and amortization	Depreciation and amortization	14,348		15,121		(773)		(5.1)	%	29,261		30,894		(1,633)		(5.3)	%	Depreciation and amortization		13,393		14,913		(1,520)		(10.2)	%
Other charges and (gains)		7,921		(77,537)		85,458		110.2	%	9,624		(44,167)		53,791		121.8	%
Other charges																		Other charges		51,119		1,703		49,416		2,901.7	%
Total operating expenses	Total operating expenses	345,897		278,242		67,655		24.3	%	717,200		685,759		31,441		4.6	%	Total operating expenses		440,477		371,303		69,174		18.6	%
Operating profit	Operating profit	53,635		129,829		(76,194)		(58.7)	%	102,510		147,178		(44,668)		(30.3)	%	Operating profit		70,046		48,875		21,171		43.3	%

Debt refinancing charges																		Debt refinancing charges		8,743		—		8,743		100.0	%
Interest, net	Interest, net	3,896		8,095		(4,199)		(51.9)	%	8,199		16,610		(8,411)		(50.6)	%	Interest, net		11,916		4,303		7,613		176.9	%
Earnings before income taxes	Earnings before income taxes	49,739		121,734		(71,995)		(59.1)	%	94,311		130,568		(36,257)		(27.8)	%	Earnings before income taxes		49,387		44,572		4,815		10.8	%
Income tax expense		11,246		27,279		(16,033)		(58.8)	%	6,526		28,790		(22,264)		(77.3)	%
Income tax expense (benefit)																		Income tax expense (benefit)		6,835		(4,720)		11,555		244.8	%
Net earnings	Net earnings	$	38,493	$	94,455	$	(55,962)	(59.2)	%	$	87,785	$	101,778	$	(13,993)	(13.7)	%	Net earnings		$	42,552	$	49,292	$	(6,740)	(13.7)	%

Three Months Ended ~~June 30, 2020,~~March 31, 2021, compared to Three Months Ended ~~June 30, 2019~~March 31, 2020 .

Store Revenue. Total store revenue increased by ~~$20.2~~$312.2 million, or ~~3.2%~~45.6%, to ~~$661.2~~$997.0 million for the three months ended ~~June 30, 2020,~~March 31, 2021, from ~~$641.0~~$684.8 million for the three months ended ~~June 30, 2019.~~March 31, 2020. This increase was primarily due to increases of approximately ~~$14.9~~$241.3 million and ~~$8.1~~$69.9 million in revenues in the ~~Preferred Lease~~Acima and Rent-A-Center Business segments, respectively, as discussed further in the section ~~"Segment Performance"~~“Segment Performance” below.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Cost of Rentals and Fees. Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the three months ended ~~June 30, 2020,~~March 31, 2021, increased by ~~$1.4~~$81.5 million, or ~~0.9%~~49.3%, to ~~$157.1~~$247.0 million as compared to ~~$155.7~~$165.5 million in ~~2019.~~2020. This increase in cost of rentals and fees was primarily attributable to ~~an increase~~increases of ~~$6.4~~ $71.5 million and $9.9

million in the ~~Preferred Lease segment, partially offset by a decrease of $4.1 million~~Acima and Rent-A-Center Business segments, respectively, as discussed further in the ~~Rent-A-Center Business segment.~~section “Segment Performance” below. Cost of rentals and fees expressed as a percentage of rentals and fees revenue was ~~29.4%~~33.1% for the three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~28.2%~~29.1% in ~~2019.~~2020.

Cost of Merchandise Sold. Cost of merchandise sold increased by ~~$27.0~~$141.3 million, or ~~35.4%~~143.1%, to ~~$103.0~~$240.1 million for the three months ended ~~June 30, 2020,~~March 31, 2021, from ~~$76.0~~$98.8 million in ~~2019,~~2020, primarily attributable to increases of ~~$17.5~~$123.9 million and ~~$9.6~~$17.4 million in the ~~Preferred Lease~~Acima and Rent-A-Center Business segments, respectively, as discussed further in the section ~~"Segment Performance"~~“Segment Performance” below. The gross margin percent of merchandise sales ~~increased~~decreased to ~~4.7%~~(3.1)% for the three months ended ~~June 30, 2020,~~March 31, 2021, from ~~(7.3)%~~2.6% in ~~2019.~~2020.

Gross Profit. Gross profit ~~decreased~~increased by ~~$8.6~~$90.3 million, or ~~2.1%~~21.5%, to ~~$399.5~~$510.5 million for the three months ended ~~June 30, 2020,~~March 31, 2021, from ~~$408.1~~$420.2 million in ~~2019,~~2020, due primarily to ~~decreases~~increases of ~~$9.0~~$45.9 million and ~~$2.0~~$41.6 million in the ~~Preferred Lease~~Acima and ~~Mexico~~Rent-A-Center Business segments, respectively, as discussed further in the section “Segment Performance” below. Gross profit as a percentage of total revenue decreased to 49.2% for the three months ended March 31, 2021, as compared to 59.9% in 2020.

Store Labor. Store labor increased by $2.9 million, or 1.9%, to $156.7 million, for the three months ended March 31, 2021, as compared to $153.8 million in 2020, primarily due to an increase of $3.2 million in the Acima segment, as discussed further in the section “Segment Performance” below. Store labor expressed as a percentage of total store revenue was 15.7% for the three months ended March 31, 2021, as compared to 22.5% in 2020.

Other Store Expenses. Other store expenses increased by $8.4 million, or 5.2%, to $170.1 million for the three months ended March 31, 2021, as compared to $161.7 million in 2020, primarily due to an increase of $18.0 million in the Acima segment, partially offset by ~~an increase~~a decrease of ~~$2.2~~$9.9 million in the Rent-A-Center Business segment, as discussed further in the section ~~"Segment Performance" below. Gross profit as a percentage of total revenue decreased to 58.4% for the three months ended June 30, 2020, as compared to 62.2% in 2019.~~

~~Store Labor.~~ Store labor decreased by $23.0 million, or 15.0%, to $129.9 million, for the three months ended June 30, 2020, as compared to $152.9 million in 2019, primarily due to decreases of $12.3 million and $10.1 million in the Preferred Lease and Rent-A-Center Business segments, respectively, as a result of a lower store base and cost savings initiatives, in addition to employee furloughs related to COVID-19. Store labor expressed as a percentage of total store revenue was 19.6% for the three months ended June 30, 2020, as compared to 23.9% in 2019.

~~Other Store Expenses.~~ Other store expenses increased by $11.6 million, or 7.7%, to $160.8 million for the three months ended June 30, 2020, as compared to $149.2 million in 2019, primarily due to an increase of $18.2 million in the Preferred Lease segment, partially offset by a decrease of $5.9 million in the Rent-A-Center Business segment, as discussed further in the section "Segment Performance"“Segment Performance” below. Other store expenses expressed as a percentage of total store revenue were ~~24.3%~~17.1% for the three months ended ~~June 30, 2020, compared to 23.3% in 2019.~~

~~General and Administrative Expenses.~~ General and administrative expenses decreased by $5.6 million, or 14.5%, to $32.9 million for the three months ended June 30, 2020, as compared to $38.5 million in 2019, primarily due to cost savings initiatives implemented in response to the COVID-19 pandemic. General and administrative expenses expressed as a percentage of total revenue were 4.8% for the three months ended June 30, 2020, compared to 5.9% in 2019.

~~Other Charges and (Gains).~~ Other charges and (gains) increased by $85.4 million, to $7.9 million for the three months ended June 30, 2020, as compared to $(77.5) million in 2019. Other charges for the three months ended June 30, 2020 primarily related to legal settlement and state sales tax assessment reserves, cost savings initiatives, inventory losses resulting from damage and looting related to social unrest, employee payroll and incremental sanitation costs in connection with COVID-19, and store closures impacts, partially offset by rent abatements and insurance proceeds, as discussed further in the section "Segment Performance" below. Other gains for the three months ended June 30, 2019 primarily related to the Vintage Settlement Proceeds and insurance proceeds related to the 2017 hurricanes, partially offset by associated merger termination legal and professional fees, store closures, state tax audit assessments, and cost savings initiatives.

~~Operating Profit.~~ Operating profit decreased by $76.2 million, to $53.6 million for the three months ended June 30, 2020, as compared to $129.8 million in 2019, primarily due to the increase in other charges described above. Operating profit expressed as a percentage of total revenue was 7.8% for the three months ended June 30, 2020, compared to 19.8% in 2019.

~~Income Tax.~~ Income tax expense for the three months ended June 30, 2020 was $11.2 million, as compared to $27.3 million in 2019. The effective tax rate was 22.6% for the three months ended June 30, 2020, compared to 22.4% in 2019.

~~Six Months Ended June 30, 2020, compared to Six Months Ended June 30, 2019~~

~~Store Revenue.~~ Total store revenue increased by $21.1 million, or 1.6%, to $1,346.1 million for the six months ended June 30, 2020, from $1,325.0 million for the six months ended June 30, 2019. This increase was primarily due to an increase of approximately $34.5 million in the Preferred Lease segment, partially offset by decreases of $11.0 million and $2.7 million in the Rent-A-Center Business and Mexico segments, respectively, as discussed further in the section "Segment Performance" 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 six months ended June 30, 2020, increased by $11.6 million, or 3.7%, to $322.6 million as compared to $311.0

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

million in 2019. This increase in cost of rentals and fees was primarily attributable to an increase of $20.3 million in the Preferred Lease segment, partially offset by a decrease of $8.0 million in the Rent-A-Center Business segment. Cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 29.3% for the six months ended June 30, 2020 as compared to 27.9% in 2019.

~~Cost of Merchandise Sold.~~ Cost of merchandise sold increased by $22.3 million, or 12.4%, to $201.7 million for the six months ended June 30, 2020, from $179.4 million in 2019, primarily attributable to increases of $21.1 million and $1.4 million in the Preferred Lease and Rent-A-Center Business segments, respectively, as discussed further in the section "Segment Performance" below. The gross margin percent of merchandise sales increased to 3.7% for the six months ended June 30, 2020, from (2.3)% in 2019.

~~Gross Profit.~~ Gross profit decreased by $13.2 million, or 1.6%, to $819.7 million for the six months ended June 30, 2020, from $832.9 million in 2019, due primarily to decreases of $7.0 million and $4.9 million in the Preferred Lease and Rent-A-Center Business segments, respectively, as discussed further in the section "Segment Performance" below. Gross profit as a percentage of total revenue decreased to 59.2% for the six months ended June 30, 2020, as compared to 61.6% in 2019.

~~Store Labor.~~ Store labor decreased by $30.9 million, or 9.8%, to $283.7 million, for the six months ended June 30, 2020, as compared to $314.6 million in 2019, primarily attributable to decreases of $16.5 million and $14.1 million in the Preferred Lease and Rent-A-Center Business segments, respectively, as discussed further in the section "Segment Performance" below. Store labor expressed as a percentage of total store revenue was 21.1% for the six months ended June 30, 2020, as compared to 23.7% in 2019.

~~Other Store Expenses.~~ Other store expenses increased by $9.5 million, or 3.0%, to $322.5 million for the six months ended June 30, 2020, as compared to $313.0 million in 2019, primarily attributable to an increase of $24.8 million in the Preferred Lease segment, partially offset by decreases of $13.9 million and $1.0 million in the Rent-A-Center Business Lease and Mexico segments, respectively, as discussed further in the section "Segment Performance" below. Other store expenses expressed as a percentage of total store revenue were 24.0% for the six months ended June 30, 2020,March 31, 2021, compared to 23.6% in ~~2019.~~2020.

General and Administrative Expenses. General and administrative expenses increased by ~~$0.6~~$9.9 million, or ~~0.9%~~25.4%, to ~~$72.1~~$49.1 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~$71.5~~$39.2 million in ~~2019.~~2020, primarily due to higher labor and incentive compensation in the Acima segment. General and administrative expenses expressed as a percentage of total revenue were ~~5.2%~~4.7% for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~5.3%~~5.6% in ~~2019.~~2020.

Other ~~Charges and (Gains).~~Charges. Other charges ~~and (gains)~~ increased by ~~$53.8~~$49.4 million, to ~~$9.6~~$51.1 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~$(44.2)~~$1.7 million in ~~2019.~~2020. Other charges for the ~~six~~three months ended ~~June 30,~~March 31, 2021 primarily included one-time transaction and integration costs, stock compensation expense related to equity consideration subject to vesting conditions, and depreciation and amortization of acquired software and intangible assets, related to the acquisition of Acima Holdings. Other charges for the three months ended March 31, 2020 primarily related to ~~legal settlement~~lease impairments and ~~state sales tax assessment reserves, cost savings initiatives, inventory losses resulting from damage~~other costs associated with store and ~~looting related to social unrest, employee payroll~~other facility closures, and ~~sanitation costs in connection with COVID-19, and store closure~~financial impacts ~~partially offset by rent abatements and insurance proceeds. Other gains for the six months ended June 30, 2019 primarily~~ related to the Vintage Settlement Proceeds, and insurance proceeds related to the 2017 hurricanes, partially offset by the Blair class action settlement costs, associated merger termination legal and professional fees,COVID-19 pandemic, including temporary store closures ~~state tax audit assessments,~~ and ~~cost savings initiatives~~furloughs.

Operating Profit. Operating profit ~~decreased~~increased by ~~$44.7~~$21.1 million, to ~~$102.5~~$70.0 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~$147.2~~$48.9 million in ~~2019,~~2020, primarily due to the increase in ~~other charges~~gross profit, as described above. Operating profit expressed as a percentage of total revenue was ~~7.4%~~6.8% for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~10.9%~~7.0% in 2019. Excluding other charges and (gains), operating profit was $112.1 million, or 8.1% of revenue for the six months ended June 30, 2020, compared to $103.0 million, or 7.6% of revenue for the comparable period of 2019.2020.

Income ~~Tax.~~Tax Expense (Benefit). Income tax expense (benefit) for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$6.5~~$6.8 million, as compared to ~~$28.8~~$(4.7) million in ~~2019.~~2020. The effective tax rate was ~~6.9%~~13.8% for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~22.0%~~(10.6)% in 2019. The decrease in income tax expense for the six months ended June 30, 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").2020.

2728

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Segment ~~Performance~~Performance.

Rent-A-Center Business segment


		Three Months Ended										Six Months Ended										Three Months Ended
		June 30,						Change						June 30,					Change					March 31,				Change
(dollar amounts in thousands)	(dollar amounts in thousands)	2020		2019		$		%		2020		2019		$		%		(dollar amounts in thousands)		2021		2020		$		%
Revenues	Revenues	$	459,192	$	451,096	$	8,096	1.8	%	$	914,157	$	925,153	$	(10,996)	(1.2)	%	Revenues		$	524,866	$	454,965	$	69,901	15.4	%
Gross profit	Gross profit	316,047		313,871		2,176		0.7	%	633,605		638,511		(4,906)		(0.8)	%	Gross profit		359,169		317,558		41,611		13.1	%
Operating profit	Operating profit	85,132		64,925		20,207		31.1	%	153,075		118,236		34,839		29.5	%	Operating profit		121,277		67,943		53,334		78.5	%
Change in same store revenue	Change in same store revenue							7.8	%							4.7	%	Change in same store revenue								23.4	%
Stores in same store revenue calculation⁽¹⁾	Stores in same store revenue calculation⁽¹⁾							1,494								1,546		Stores in same store revenue calculation(1)								1,546

⁽¹⁾ Same store sales generally represents revenue earned in stores that were operated by us for 13 months or more and are reported on a constant currency basis as a percentage of total revenue earned in stores of the segment during the indicated period. We exclude from the same store sales base any store that receives a certain level of customer accounts from closed stores or acquisitions. The receiving store will be eligible for inclusion in the same store sales base in the 2430^th full month following account transfer. Due to the COVID-19 pandemic and related temporary store closures, all 32 stores in Puerto Rico were excluded starting in March 2020 and will remain excluded ~~for 18 months.~~through September 2021.

Revenues. The ~~decrease~~increase in revenue for the ~~six~~three months ended ~~June 30, 2020 was driven primarily by a decrease in rentals and fees revenue of $28.9 million, partially offset by an increase in merchandise sales of $18.9 million,~~March 31, 2021, as compared to ~~2019. The decrease is~~2020, was primarily due to ~~our refranchising efforts and the rationalization of our Rent-A-Center Business store base, partially offset by~~ an increase in same store sales ~~which were positively impacted~~revenue driven by ~~government stimulus and supplemental unemployment benefits issued~~growth in e-commerce sales, partially offset by the ~~federal government~~impact of refranchising approximately 100 stores in ~~response to~~California in the ~~COVID-19 pandemic.~~fourth quarter of 2020.

Gross Profit. ~~Gross profit decreased for six months ended June 30, 2020, as compared to 2019, primarily due to the decreases in revenue described above, partially offset by decreases in costs of rentals and fees.~~ Gross profit increased for the three months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~2019,~~2020, driven primarily ~~due to increases in~~by increased segment revenue ~~described above, partially offset by increases in cost of merchandise sales.~~as discussed above. Gross profit as a percentage of segment revenues was ~~68.8% and 69.3%~~68.4% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~69.6% and 69.0%~~69.8% for the ~~respective periods~~corresponding period in ~~2019.~~2020.

Operating Profit. Operating profit as a percentage of segment revenues was ~~18.5% and 16.7%~~23.1% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~14.4% and 12.8%~~14.9% for the respective ~~periods~~period in ~~2019, primarily due~~2020. The increase in operating profit for the three months ended March 31, 2021, as compared to ~~decreases in store labor and other store expenses of $30.3 million and $16.0 million, respectively. Declines in store labor and other store expenses were~~2020 was driven primarily by increased operating leverage as a result of higher revenues and lower ~~store count, partially offset by higher~~operating expenses, including lower merchandise losses. 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 ~~3.7% and 3.8%~~3.0% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~3.2% and 3.4%~~3.7% for the respective ~~periods~~period in ~~2019.~~2020. Charge-offs in our Rent-A-Center Business lease-to-own stores due to other merchandise losses, expressed as a percentage of Rent-A-Center Business lease-to-own revenues, were approximately ~~1.7% and 1.4%~~1.3% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~1.1% and~~ 1.2% for the respective ~~periods~~period in ~~2019.~~2020. Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims.

~~Preferred Lease~~Acima segment


		Three Months Ended										Six Months Ended										Three Months Ended
		June 30,						Change						June 30,					Change					March 31,				Change
(dollar amounts in thousands)	(dollar amounts in thousands)	2020		2019		$		%		2020		2019		$		%		(dollar amounts in thousands)		2021		2020		$		%
Revenues	Revenues	$	191,243	$	176,389	$	14,854	8.4	%	$	407,370	$	372,911	$	34,459	9.2	%	Revenues		$	457,449	$	216,127	$	241,322	111.7	%
Gross profit	Gross profit	71,391		80,380		(8,989)		(11.2)	%	159,706		166,708		(7,002)		(4.2)	%	Gross profit		134,250		88,315		45,935		52.0	%
Operating profit	Operating profit	6,233		22,734		(16,501)		(72.6)	%	24,455		44,247		(19,792)		(44.7)	%	Operating profit		24,814		18,222		6,592		36.2	%

Revenues. The increase in revenue for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 compared to ~~2019,~~2020, was driven primarily ~~due to the implementation of the Preferred Lease virtual solution following~~by the acquisition of ~~Merchants Preferred in August 2019.~~Acima Holdings.

Gross Profit. Gross profit ~~decreased~~increased for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~2019, primarily~~2020, driven by a higher ~~number~~revenue, discussed above, partially offset by lower gross profit margin due to higher mix of ~~early payouts resulting~~rental agreements generated from ~~government stimulus and supplemental unemployment benefits issued by the federal government in response~~our virtual business model primarily related to the ~~COVID-19 pandemic.~~recent acquisition of Acima Holdings, and increased merchandise sales due to early payouts. Gross profit as a percentage of segment revenues decreased to ~~37.3% and 39.2%~~29.3% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~45.6% and 44.7%~~40.9% for the respective ~~periods~~period in ~~2019.~~2020.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Operating Profit. Operating profit ~~decreased~~increased by ~~72.6% and 44.7%~~36.2% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, as compared to ~~2019.~~2020. The ~~decreases~~increase in operating profit for the three ~~and six~~ months ended ~~June 30, 2020 were primarily~~March 31, 2021 was driven by higher revenue due to ~~increases in other store expenses. Operating profit as a percentage of segment revenues decreased to 3.3%~~the Acima Holdings acquisition and 6.0% for the three and six months ended June 30, 2020, compared to 12.9% and 11.9% for the respective periods in 2019. The increase in other store expenses was primarily due to higher merchandise losses, primarily due to incremental reserves recognized for higher expected skip / stolen losses related to COVID-19, a higher mix of virtual locations, and investments to support expected revenue growth.stronger lease performance. Charge-offs in our ~~Preferred Lease~~Acima locations due to customer stolen merchandise, expressed as a percentage of revenues, were approximately ~~18.4% and 15.1%~~8.6% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~9.6% and 9.8%~~12.2% for the respective ~~periods~~period in ~~2019.~~2020. Charge-offs in our ~~Preferred Lease~~Acima locations due to other merchandise losses, expressed as a

percentage of revenues, were approximately ~~0.3%~~0.4% for ~~both~~the three months ended March 31, 2021, compared to 0.4% in 2020. Operating profit as a percentage of segment revenues decreased to 5.4% for the three and ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~0.2% and 0.3%~~8.4% for the respective period in ~~2019.~~2020.

Mexico segment


		Three Months Ended										Six Months Ended										Three Months Ended
		June 30,						Change						June 30,					Change					March 31,				Change
(dollar amounts in thousands)	(dollar amounts in thousands)	2020		2019		$		%		2020		2019		$		%		(dollar amounts in thousands)		2021		2020		$		%
Revenues	Revenues	$	10,611	$	13,551	$	(2,940)	(21.7)	%	$	24,157	$	26,896	$	(2,739)	(10.2)	%	Revenues		$	14,498	$	13,546	$	952	7.0	%
Gross profit	Gross profit	7,432		9,411		(1,979)		(21.0)	%	16,960		18,680		(1,720)		(9.2)	%	Gross profit		10,212		9,528		684		7.2	%
Operating profit	Operating profit	1,052		1,474		(422)		(28.6)	%	2,019		2,693		(674)		(25.0)	%	Operating profit		1,954		967		987		102.1	%
Change in same store revenue	Change in same store revenue							(2.6)	%							2.7	%	Change in same store revenue								9.6	%
Stores in same store revenue calculation⁽¹⁾	Stores in same store revenue calculation⁽¹⁾							101								108		Stores in same store revenue calculation(1)								112

¹⁾(1) Same store sales generally represents revenue earned in stores that were operated by us for 13 months or more and are reported on a constant currency basis as a percentage of total revenue earned in stores of the segment during the indicated period. We exclude from the same store sales base any store that receives a certain level of customer accounts from closed stores or acquisitions. The receiving store will be eligible for inclusion in the same store sales base in the 2430^th full month following account transfer.

Revenues. Revenues for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 were negatively impacted by exchange rate fluctuations of approximately ~~$2.3 million and $2.9~~$0.4 million as compared to the same ~~periods~~period in ~~2019.~~2020. On a constant currency basis, revenues for the three months ended ~~June 30, 2020 decreased approximately $0.6 million and revenues for the six months ended June 30, 2020~~March 31, 2021 increased approximately ~~$0.2~~$1.4 million, as compared to the same ~~periods~~period in ~~2019.~~2020.

Gross Profit. Gross profit for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 was negatively impacted by exchange rate fluctuations of approximately ~~$1.6 million and $2.0~~$0.3 million as compared to the same ~~periods~~period in ~~2019.~~2020. On a constant currency basis, gross profit for the three months ended ~~June 30, 2020 decreased by approximately $0.4 million and gross profit for the six months ended June 30, 2020~~March 31, 2021 increased by approximately ~~$0.3~~$1.0 million as compared to the same ~~periods~~period in ~~2019.~~2020. Gross profit as a percentage of segment revenues was ~~70.0% and 70.2%~~70.4% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~69.4% and 69.5%~~70.3% for the respective ~~periods~~period in ~~2019.~~2020.

Operating Profit. Operating profit for the three ~~and six~~ months ended ~~June 30, 2020 were each negatively~~March 31, 2021 was minimally impacted by exchange rate fluctuations ~~of approximately $0.2 million~~as compared to ~~2019.~~the same period in 2020. Operating profit as a percentage of segment revenues ~~decreased~~increased to ~~9.9% and 8.4%~~13.5% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, from ~~10.9% and 10.0%~~7.1% for the respective ~~periods~~period in ~~2019.~~2020.

Franchising segment


		Three Months Ended										Six Months Ended										Three Months Ended
		June 30,						Change						June 30,					Change					March 31,				Change
(dollar amounts in thousands)	(dollar amounts in thousands)	2020		2019		$		%		2020		2019		$		%		(dollar amounts in thousands)		2021		2020		$		%
Revenues	Revenues	$	22,700	$	14,889	$	7,811	52.5	%	$	40,001	$	27,659	$	12,342	44.6	%	Revenues		$	39,969	$	17,301	$	22,668	131.0	%
Gross profit	Gross profit	4,662		4,409		253		5.7	%	9,439		9,038		401		4.4	%	Gross profit		6,892		4,777		2,115		44.3	%
Operating profit	Operating profit	3,029		1,803		1,226		68.0	%	5,548		3,581		1,967		54.9	%	Operating profit		4,985		2,519		2,466		97.9	%

Revenues. Revenues increased for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 compared to the respective ~~periods~~period in ~~2019,~~2020, primarily due to ~~an increase in franchise locations as~~ a ~~result~~higher store count, resulting from the refranchising of ~~refranchising~~ approximately ~~60 and~~ 100 ~~Rent-A-Center Business corporate~~California stores during ~~the preceding 15 and 18 months, respectively,~~2020 and higher inventory purchases by ~~our~~ franchisees.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Gross Profit. Gross profit as a percentage of segment revenues decreased to ~~20.5% and 23.6%~~17.2% for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, from ~~29.6% and 32.7%~~27.6% for the respective ~~periods~~period in ~~2019,~~2020, primarily due to ~~changes in our revenue mix of franchise royalties and fees and rental merchandise sales, related to the~~ increase in ~~franchise locations~~segment revenues described above.

Operating Profit. Operating profit as a percentage of segment revenues increased for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 to ~~13.3% and 13.9%~~12.5%, compared to ~~12.1% and 12.9%~~14.6% for the respective ~~periods~~period in ~~2019,~~2020, primarily due to ~~a decrease~~increase in ~~other store operating expenses.~~segment revenues described above.

Liquidity and Capital Resources

Overview. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we generated ~~$254.7~~$135.8 million in operating cash flow. We ~~paid down $41.0 million of debt using cash generated from operations, and~~ used cash in the amount of ~~$31.6~~$1,267.9 million for acquisitions, $46.1 million for debt issuance costs, $17.1 million for dividends, ~~$26.5 million for share repurchases,~~ and ~~$14.8~~$11.4 million for capital expenditures. We ended the ~~second~~first quarter of ~~2020~~2021 with ~~$206.4~~$123.0 million of cash and cash equivalents and outstanding indebtedness of ~~$198.5 million.~~$1.38 billion.

Analysis of Cash Flow. Cash provided by operating activities increased ~~$69.3~~by $88.4 million to ~~$254.7~~$135.8 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, from ~~$185.4~~$47.4 million in ~~2019. This increase was~~2020, primarily ~~attributable to a decrease in rental merchandise purchases during the six months ended June 30, 2020 compared~~due to the ~~same period~~Acima Holdings acquisition, in ~~2019, receipt of our federal tax refund of approximately $30 million,~~addition to improved operating profit in the Rent-A-Center Business, Mexico, and ~~other net changes in~~Franchising operating ~~assets and liabilities.~~segments.

Cash ~~(used in) provided by~~used in investing activities was ~~$(14.4)~~$1,279.3 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$9.5~~$9.0 million in ~~2019,~~2020, a change of ~~$(23.9)~~$1,270.3 million, primarily due to the Acima Holdings acquisition in February 2021.

Cash provided by financing activities was $1,107.3 million for the three months ended March 31, 2021, compared to $76.0 million in 2020, a decrease of $1,031.3 million, primarily due to an increase in ~~capital expenditures and lower~~debt proceeds ~~from~~of $1,292.0 million during the ~~sale of property assets.~~

~~Cash (used in) provided by financing activities was $(102.7) million for the six~~three months ended ~~June 30, 2020, compared to $2.4 million in 2019, a change of $(105.1) million,~~March 31, 2021 primarily due to ~~increases~~the Acima Holdings acquisition in debt repayments of $233.6 million, dividends paid of $31.6 million, and share repurchases of $26.5 million, partially offset by an increase in proceeds from debt of $192.6 million for the six months ended June 30, 2020.February 2021.

Liquidity Requirements. Our primary liquidity requirements are for rental merchandise ~~purchases and other operating expenses.~~purchases. Other capital requirements include expenditures for property assets, ~~including rental expense,~~ debt service, and dividends. ~~Historically, our~~Our primary ~~source~~sources of liquidity ~~has~~have been cash provided by operations. ~~Should we require additional funding sources, we maintain our ABL Credit Facility with commitments of up to $300 million, subject to the terms and availability of our ABL Credit Facility.~~

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 ~~March 2020, as a precautionary measure in response~~that regard, we may from time to ~~negative impacts to our operations stemming from~~time draw funds under the ~~COVID-19 pandemic, we drew down approximately $118.0 million against our~~ ABL Credit Facility for general corporate purposes. Amounts are drawn as needed due to ~~enhance~~the timing of cash flows and are generally paid down as cash is generated by our ~~financial flexibility and increase our available cash on hand. With~~operating activities. We believe cash flow generated from operations ~~in June 2020, we repaid the full outstanding balance of approximately $163.0 million borrowed against our ABL Credit Facility~~ and ~~had no outstanding borrowings as of June 30, 2020.~~

In response to the negative impacts to our business resulting from COVID-19, we proactively implemented 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, for a period of time, suspending further share repurchases. In addition, we received approximately $30 million in federal tax refunds described above, including $12 million related to net operating loss carrybacks at a 35% tax rate in connection with the CARES Act, and expect to defer approximately $19 million in employer payroll taxes to future periods.

Taking into consideration our efforts to minimize expenses in response to COVID-19 and benefits from the CARES Act, and based on current assumptions and expectations, we believe the cash flow generated from operations and other sources of liquidity including availability under our ABL Credit Facility will be sufficient to fund our operations ~~over~~during the next 12 months.

At ~~July 29, 2020,~~April 28, 2021, we had approximately ~~$190.3~~$95.9 million in cash on hand, and ~~$211.2~~$430.2 million available under our ABL Credit ~~Agreement at June 30, 2020. In addition,~~Facility.

We deferred approximately $23 million in ~~June 2020,~~employer payroll taxes to future periods as part of the ~~Rent-A-Center Board~~benefits received from the CARES Act passed by the U.S. Federal government in response to COVID-19. We expect to repay approximately $12 million of ~~Directors declared a cash dividend of $0.29 per share for~~these deferred taxes during 2021, beginning in the ~~third~~second quarter, ~~of 2020, which was paid on July 28, 2020~~and the remaining will continue to ~~stockholders of record at the close of business on July 10, 2020.~~be deferred until 2022.

Deferred Taxes. Certain federal tax legislation enacted during the period 2009 to 2017 permitted bonus first-year depreciation deductions ranging from 50% to 100% of the adjusted basis of qualified property placed in service during such years. The depreciation benefits associated with these tax acts are now reversing. The Protecting Americans from Tax Hikes Act of 2015 ("PATH") extended the 50% bonus depreciation to 2015 and through September 26, 2017, when it was updated by the Tax ~~Act.~~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

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

31, 2022, at which point it will begin to phase out. The bonus depreciation provided by the Tax Act resulted in an estimated benefit of ~~$194~~$211 million for us in ~~2019.~~2020. We estimate the remaining tax deferral associated with bonus depreciation from ~~the Tax Act was~~these Acts is approximately ~~$239~~$260 million at December 31, ~~2019,~~2020, of which approximately ~~78%~~80%, or ~~$189~~$207 million, will reverse in ~~2020,~~2021, and the majority of the remainder will reverse between ~~2021~~2022 and ~~2022.~~2023.

Merchandise Losses. Merchandise losses consist of the following:


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020
Customer stolen merchandise ⁽¹⁾	Customer stolen merchandise ⁽¹⁾	$	54,519	$	33,443	$	101,429	$	73,189	Customer stolen merchandise (1)	$	56,588	$	46,910
Other merchandise losses ⁽²⁾	Other merchandise losses ⁽²⁾	8,153		5,467		14,244		12,304		Other merchandise losses (2)	8,674		6,091
Total merchandise losses	Total merchandise losses	$	62,672	$	38,910	$	115,673	$	85,493	Total merchandise losses	$	65,262	$	53,001

⁽¹⁾Includes incremental ~~loss reserves of approximately $5.6 million due tohigher expected skip / stolen~~ 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 ~~$14.8~~$11.4 million and ~~$5.1~~$9.2 million on capital expenditures during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Acquisitions and New Location Openings. During the first ~~six~~three months of ~~2020,~~2021, we ~~did not acquire any new locations or~~acquired one rent-to-own store location and customer ~~accounts.~~accounts for an aggregate purchase price of approximately $0.3 million. The store location remained open upon acquisition as part of our Rent-A-Center Business segment.

The table below summarizes the store location activity for the ~~six-month~~three-month period ended ~~June 30, 2020~~March 31, 2021 for our Rent-A-Center Business, Mexico and Franchising operating segments.


		Rent-A-Center Business	Mexico	Franchising	Total		Rent-A-Center Business	Mexico	Franchising	Total
Locations at beginning of period	Locations at beginning of period	1,973	123	372	2,468	Locations at beginning of period	1,845	121	462	2,428
New location openings	New location openings	—	—	—	—	New location openings	—	—	2	2

Conversions	Conversions	—	—	—	—	Conversions	1	—	(1)	—
Closed locations	Closed locations					Closed locations
Merged with existing locations	Merged with existing locations	(18)	(2)	—	(20)	Merged with existing locations	(2)	—	—	(2)
Sold or closed with no surviving location	Sold or closed with no surviving location	(1)	—	(2)	(3)	Sold or closed with no surviving location	—	—	(2)	(2)
Locations at end of period	Locations at end of period	1,954	121	370	2,445	Locations at end of period	1,844	121	461	2,426

(1) Does not include locations in our Acima segment.

Senior Debt. ~~As discussed~~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 our option and under certain conditions, by up to an additional $125 million in ~~Note 7~~the aggregate (the “ABL Credit Facility”). Under the ABL Credit Facility, we may borrow only up to the ~~condensed consolidated financial statements~~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 ~~Part I, Item I of this Quarterly Report on Form 10-Q, in August 2019, we completed~~ the ~~refinancing~~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 us and certain of our ~~prior revolving facility and, effective August 5, 2019, redeemed in full our unsecured senior notes using cash on hand and proceeds from our new $300 million~~wholly owned domestic restricted subsidiaries, subject to certain exceptions. The obligations under the ABL Credit Facility and ~~$200 million from~~such guarantees are secured on a ~~new term loan under~~first-priority basis by all of our ~~ABL Credit Agreement. We may use,~~and the subsidiary guarantors’ accounts, inventory, deposit accounts, securities accounts, cash and cash equivalents, rental agreements, general intangibles (other than equity interests in o 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 ours and the subsidiary guarantors, subject to certain ~~limitations~~exceptions.

At April 28, 2021, we had outstanding borrowings of $905 million and ~~borrowing availability, $150~~available commitments of $430.2 million under our ABL Credit ~~Agreement for the issuance~~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, we may add up to $500 million of ~~which $88.8 million, primarily relating~~incremental term loan facilities to ~~workers compensation, had been so utilized as~~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 ~~July 29, 2020.~~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. 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 ours 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 us and our material wholly-owned domestic restricted subsidiaries that also guarantee the ABL Credit ~~Agreement has~~Facility.

The Term Loan Facility was fully drawn at the closing of the Acima Holdings acquisition to fund a ~~scheduled maturity date~~portion of the Aggregate Cash Consideration, repay certain of our outstanding indebtedness and our subsidiaries, repay all outstanding indebtedness of Acima and its subsidiaries and pay certain fees and expenses incurred in connection with the Acima Holdings acquisition. A portion of such proceeds were used to repay $197.5 million outstanding under our prior term loan facility, dated as of August 5, ~~2024.~~2019, among us, 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 Acima Holdings acquisition. Interest on the Notes is payable in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. We 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, we 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, we 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 we experience 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.

~~Store~~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~~five year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to ~~agreed~~agreed-upon formulas.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

~~Contractual Cash Commitments. The table below summarizes debt, lease and other minimum cash obligations outstanding as of June 30, 2020:~~

Payments Due by Period
(in thousands) Total 2020 2021-2022 2023-2024 Thereafter
Term Loan⁽¹⁾
$ 198,500 $ 1,000 $ 4,000 $ 4,000 $ 189,500
ABL Credit Agreement⁽²⁾
— — — — —
Operating Leases 329,782 67,972 162,975 69,512 29,323
Total⁽³⁾
$ 528,282 $ 68,972 $ 166,975 $ 73,512 $ 218,823

⁽¹⁾~~Does not include interest payments. Our Term Loan bears interest at varying rates equal to the Eurodollar rate plus 4.50%. The Eurodollar rate on our Term Loan at June 30, 2020, was 4.69%.~~

⁽²⁾~~Our ABL Credit Agreement bears interest at varying rates equal to the Eurodollar rate plus 1.50% to 2.00%. The weighted average Eurodollar rate on our ABL Credit Agreement at June 30, 2020, was 1.69%.~~

⁽³⁾As of ~~June 30, 2020,~~March 31, 2021, our total remaining obligation for existing store lease contracts was approximately $339.6 million.

We lease vehicles for all of our Rent-A-Center Business stores under operating leases with lease terms expiring 12 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 March 31, 2021, our total remaining minimum obligation for existing Rent-A-Center Business vehicle lease contracts was approximately $2.1 million.

We also lease vehicles for all of our Mexico stores which have terms expiring at various times through 2025 with rental rates adjusted periodically for inflation. As of March 31, 2021, our total remaining obligation for existing Mexico vehicle lease contracts was approximately $0.8 million.

See Note 5 of our consolidated financial statements for additional discussion of our store operating leases.

Uncertain Tax Position. As of March 31, 2021, we have recorded ~~$23.2~~$21.8 million in uncertain tax positions. ~~Because of the uncertainty of~~Although these positions represent a potential future cash liability to us, the amounts ~~to be ultimately paid as well as the~~and timing of such payments ~~uncertain tax positions~~ are ~~not reflected in the contractual obligations table.~~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 ~~when~~ compared to other quarters throughout the year.

New 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 to 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.

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,~~As of March 31, 2021, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Interest Rate Sensitivity~~

As of June 30, 2020, we had $198.5 million outstanding under our term loan credit agreement at interest rates indexed to the Eurodollar rate or the prime rate. Carrying value approximates fair value for this 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~~As of March 31, 2021, we had $875.0 million outstanding ~~debt with variable~~under our term loan credit agreement and $55.0 million outstanding under our ABL credit agreement, each at interest rates indexed to the Eurodollar rate or the prime ~~or Eurodollar rates that~~rate, which exposes us to the risk of increased interest costs if interest rates rise. ~~As of June 30, 2020, we have not entered into any interest rate swap agreements.~~ Based on our overall interest rate exposure at ~~June 30, 2020,~~March 31, 2021, a hypothetical 1.0% increase or decrease in market interest rates would have the effect of causing an additional ~~$2.0~~$9.4 million annualized pre-tax charge or credit to interest expense in our consolidated statement of operations.

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

We have not entered into any interest rate swap agreements as of March 31, 2021.

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.

Item 4. Controls and Procedures.

Disclosure ~~controls~~control 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 Quarterly Report on Form 10-Q. Based on this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of ~~June 30, 2020,~~March 31, 2021, 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.

Changes in internal controls over financial reporting. ~~For~~In February 2021, we acquired Acima Holdings. We are currently in the process of integrating Acima Holdings into our assessment of our internal control over financial reporting. Management's assessment and conclusions on the effectiveness of our disclosure controls and procedures as of March 31, 2021 excludes an assessment of the internal control over financial reporting of Acima Holdings.

Other than as described above, for the quarter ended ~~June 30, 2020,~~March 31, 2021, 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.

PART II – Other Information

Item 1. Legal Proceedings

~~California Attorney General.~~ ~~The California Attorney General (“CAG”) previously issued an investigative subpoena seeking information~~From time to time, we, along with ~~respect~~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 ~~Acceptance Now business practices (now part of the Preferred Lease segment). The request for documents and information was sought in connection with~~legal reserves on a broader investigation of the rent-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. The proposed settlement terms include civil penalties, disgorgement of certain revenues, additional training requirements, and recommended changes to Acceptance Now business practices.quarterly basis. 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~~expect these losses to have a material impact on our consolidated financial ~~statements.~~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 13 in the Notes to our Financial Statements for additional discussion of our legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A of Part 1, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, ~~2019 and in Item 1A of Part II, "Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

3335

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

Item 6. Exhibits.


Exhibit No.			Description

3.1			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)

3.2			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)

3.3			Amended and Restated Bylaws of Rent-A-Center, Inc. ~~(incorporated~~(i ncorporated herein by reference to Exhibit ~~3.1~~3.2 to the registrant's Current Report on Form 8-K dated as of ~~September 28, 2011)~~December 1, 2020.)

3.4			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)

4.1			Form of Certificate evidencing Common Stock (incorporated herein by reference to Exhibit 4.1 to the registrant's Current Report on Form 10-Q for the quarter ended March 31, 2017)

4.2			Indenture, dated as of February 17, 2021, by and between Radiant Funding SPV, LLC and Truist Bank (i ncorporated herein by reference to Exhibit 4.1 to the registrant's Current Report on Form 8-K dated as of February 17, 2021.)

10.1			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 (i ncorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K dated as of January 27, 2021).

10.2			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 (i ncorporated herein by reference to Exhibit 10.2 to the registrant's Current Report on Form 8-K dated as of February 17, 2021.)

10.3			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 (i ncorporated herein by reference to Exhibit 10.3 to the registrant's Current Report on Form 8-K dated as of February 17, 2021.)

10.4			Registration Rights Agreement, dated as of February 17, 2021, by and among Rent-A-Center, Inc. and certain former owners of Acima Holdings, LLC (i ncorporated herein by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K dated as of February 17, 2021.)

31.1*			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

31.2*			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

32.1*			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

32.2*			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

101.INS*			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

101.SCH*			XBRL Taxonomy Extension Schema Document

101.CAL*			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*			XBRL Taxonomy Extension Label Linkbase Document

101.PRE*			XBRL Taxonomy Extension Presentation Linkbase Document

104*			Cover page Interactive Data File (embedded within the inline XBRL document contained in Exhibit 101)


*			Filed herewith.

3436

~~RENT-A-CENTER, INC. AND SUBSIDIARIES~~

SIGNATURE

Pursuant to the requirements 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.



			RENT-A-CENTER, INC.

			By:			/S/ MAUREEN B. SHORT
						Maureen B. Short
						EVP, Chief Financial Officer

Date: ~~August 6, 2020~~May 7, 2021

3537


	Three Months Ended June 30, 2019
	Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated
(In thousands)
Store
Rentals and fees	$	399,799	$	139,104	$	12,777	$	—	$	551,680
Merchandise sales	32,935		37,140		767		—		70,842
Installment sales	17,270		—		—		—		17,270
Other	1,092		145		7		—		1,244
Total store revenues	451,096		176,389		13,551		—		641,036
Franchise
Merchandise sales	—		—		—		10,673		10,673
Royalty income and fees	—		—		—		4,216		4,216
Total revenues	$	451,096	$	176,389	$	13,551	$	14,889	$	655,925


	Six Months Ended June 30, 2019
	Rent-A-Center Business		Preferred Lease		Mexico		Franchising		Consolidated
(In thousands)
Store
Rentals and fees	$	807,379	$	282,297	$	25,358	$	—	$	1,115,034
Merchandise sales	83,493		90,296		1,523		—		175,312
Installment sales	32,706		—		—		—		32,706
Other	1,575		318		15		—		1,908
Total store revenues	925,153		372,911		26,896		—		1,324,960
Franchise
Merchandise sales	—		—		—		19,129		19,129
Royalty income and fees	—		—		—		8,530		8,530
Total revenues	$	925,153	$	372,911	$	26,896	$	27,659	$	1,352,619


(in thousands)	Term Loan		ABL Credit Facility		Total
2020	$	1,000	$	—	$	1,000
2021	2,000		—		2,000
2022	2,000		—		2,000
2023	2,000		—		2,000
2024	2,000		—		2,000
Thereafter	189,500		—		189,500
Total senior debt	$	198,500	$	—	$	198,500


(in thousands)	Accrued Charges at December 31, 2019		Charges & Adjustments		Payments & Adjustments		Accrued Charges at June 30, 2020
Cash charges:
Labor costs	$	738	$	1,484	$	(957)	$	1,265
Lease obligations⁽¹⁾	—		(414)		414		—

Shutdown and holding costs	—		1,307		(1,307)		—
Total cash charges	$	738	2,377		$	(1,850)	$	1,265
Non-cash charges:
Rental merchandise losses⁽²⁾			620
Asset impairments⁽³⁾			955
Other⁽⁴⁾			5,672
Total other charges			$	9,624


	Payments Due by Period
(in thousands)	Total		2020		2021-2022		2023-2024		Thereafter
Term Loan⁽¹⁾	$	198,500	$	1,000	$	4,000	$	4,000	$	189,500
ABL Credit Agreement⁽²⁾	—		—		—		—		—
Operating Leases	329,782		67,972		162,975		69,512		29,323
Total⁽³⁾	$	528,282	$	68,972	$	166,975	$	73,512	$	218,823