Objective
We report financial operating performance under four operating segments, including our Rent-A-Center Business segment (formerly CoreU.S. ), which represents our company-owned stores and e-commerce platform through rentacenter.com; our Preferred Lease segment (formerly Acceptance Now), which includes our virtual, staffed, and hybrid business models; and ourMexico and Franchising segments. The following discussion focuses on recent developments expected to have current and future impacts on the results of our business, trends and uncertainties within our industry and business model that may impact our financial results, our recent results of operations, and discussion of our liquidity and capital resources. You should read the following discussion in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Recent Developments Acima Acquisition. OnDecember 20, 2020 , we entered into the Merger Agreement withRadalta, LLC , aUtah limited liability company and wholly owned subsidiary of the Company, Acima, andAaron Allred , solely in his capacity as the representative of the former owners of Acima, providing for the merger ofRadalta, LLC with and into Acima, with Acima surviving the Merger as a wholly owned subsidiary of the Company. The Merger was completed onFebruary 17, 2021 . In accordance with the Merger Agreement, we issued to the former owners of Acima an aggregate of 10,779,923 shares of our common stock (the "Aggregate Stock Consideration"), with a value of$51.14 per share based on the closing price of our common stock on the date of closing, and paid to them aggregate cash consideration of$1,273.3 million (the "Aggregate Cash Consideration"). Under the terms of the Merger Agreement,$50 million of the Aggregate Cash Consideration was placed into escrow at the closing of the Merger to cover certain potential tax and regulatory indemnification obligations of the former owners of Acima under the Merger Agreement. Although the Company currently believes the escrow holdback amount, which serves as the sole recourse of the Company with respect to any indemnifiable claims, will be sufficient to cover any such potential tax and regulatory matters, there is no assurance that any actual payments by the Company with respect to such matters will not exceed the escrow holdback amount. In accordance with the terms of the Merger Agreement, the portion of the Aggregate Stock Consideration issued to former owners of Acima who are also employees of Acima is subject to certain vesting conditions over a three year period. The portion of the Aggregate Stock Consideration issued to non-employee former owners of Acima is subject to the terms of an 18-month lockup agreement, pursuant to which one-third of the aggregate shares of common stock of the Company received by a non-employee former owner in the Merger becomes transferable after each six month period following the closing of the Merger. The Company entered into a Registration Rights Agreement, dated as ofFebruary 17, 2021 , pursuant to which certain former owners of Acima are entitled to registration rights in respect of the portion of the Aggregate Stock Consideration received by them in the Merger. In connection with the signing of the Merger Agreement, we entered into employment agreements with certain executives of Acima, includingAaron Allred , Chairman and Founder of Acima, which became effective upon the closing of the Merger. Dividends. OnDecember 3, 2020 , we announced that our board of directors approved an increased quarterly cash dividend of$0.31 per share for the first quarter of 2021. The dividend was paid onJanuary 12, 2021 to our common stockholders of record as of the close of business onDecember 15, 2020 . 35 -------------------------------------------------------------------------------- Trends and Uncertainties COVID-19 Pandemic. Beginning in the latter half ofMarch 2020 , the worldwide spread of COVID-19 caused significant disruptions to theU.S. and world economies. OnMarch 11, 2020 , theWorld Health Organization declared the COVID-19 outbreak a worldwide pandemic. OnMarch 13, 2020 , the president ofthe United States declared a national state of emergency for the nation. In response to the issuance ofU.S. federal guidelines to contain the spread of COVID-19,U.S. state and local jurisdictions implemented various containment or mitigation measures, including temporary shelter-in-place orders and the temporary closure of non-essential businesses. As a result of COVID-19 and related jurisdictional ordinances implemented inthe United States beginning in the latter half ofMarch 2020 to contain the spread of COVID-19 or mitigate its effects, a significant number of Preferred Lease retail partner locations were temporarily closed, resulting in the initial closure of approximately 65% of our staffed Preferred Lease locations, which operated within those stores. In addition, while the majority of our Rent-A-Center Business stores remained open, due to government orders in certain jurisdictions, beginning inmid-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 ourMexico operating segment were also temporarily closed or had restricted operations due to COVID-19. All locations in our Rent-A-Center Business, Franchising andMexico operating segments and staffed Preferred Lease locations, temporarily or partially closed at the onset of the pandemic were reopened in the second quarter of 2020. In the latter portion of 2020 and into the first couple weeks of 2021, the number of COVID-19 cases increased significantly and certain governmental authorities imposed or re-imposed restrictions on certain businesses. As ofFebruary 19, 2021 , all locations in ourRent-A-Center Business, Franchising andMexico operating segments and staffed Preferred Lease locations are providing full in-store services subject to local requirements for sanitization, social distancing and capacity limitations and, inMexico , 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 Preferred Lease customers to facilitate contactless transactions. There are no assurances we will not be subject to future government actions negatively impacting our business as the pandemic progresses. However, while we may also be impacted by deteriorating worldwide economic conditions, including elevated unemployment rates throughoutthe United States , which could have a sustained impact on discretionary consumer spending, the lease-to-own industry has remained resilient because it provides credit constrained customers with a viable option to obtain merchandise they may not otherwise be able to obtain through other retailers offering financing options due to the tightening of credit by traditional financing. See "Risk Factors" in Part I, Item 1A in this Annual Report on Form 10-K for additional discussion of operational impacts to our business and additional risks associated with COVID-19. Results of Operations Overview The following briefly summarizes certain of our financial information for the twelve months endedDecember 31, 2020 as compared to the twelve months endedDecember 31, 2019 . During the twelve months endedDecember 31, 2020 , consolidated revenues increased approximately$144.3 million , primarily due to increases in same store sales in our Rent-A-Center Business and invoice volume growth in our Preferred Lease segment, in addition to increases in merchandise sales and royalties in our Franchising segment. Operating profit decreased approximately$16.5 million for the twelve months endedDecember 31, 2020 , primarily due to our receipt during the second quarter of 2019 of$92.5 million in settlement of litigation relating to our termination of the merger agreement by and amongVintage Rodeo Parent, LLC ,Vintage Rodeo Acquisition, Inc. andRent-A-Center, Inc. , of which we retained net pre-tax proceeds of approximately$80 million following payment of all remaining costs, fees and expenses relating to the termination (the "Vintage Settlement Proceeds"), partially offset by decreases in labor in 2020 due to previous store closures and refranchise sales in addition to temporary furloughs in response to COVID-19. Revenues in our Rent-A-Center Business segment increased approximately$52.2 million for the twelve months endedDecember 31, 2020 , driven primarily by an increase in same store sales resulting from higher merchandise sales 36 -------------------------------------------------------------------------------- and growth in e-commerce sales. Gross profit as a percentage of revenue increased 0.2%. Operating profit increased$97.4 million for the twelve months endedDecember 31, 2020 , primarily driven by decreased labor and operating expenses. The Preferred Lease segment revenues increased approximately$60.9 million for the twelve months endedDecember 31, 2020 , primarily due to the implementation and growth of the Preferred Lease virtual solution following the acquisition of Merchants Preferred inAugust 2019 , despite negative impacts related to the temporary closure of stores due to the COVID-19 pandemic. Gross profit as a percent of revenue decreased 5.0% and operating profit decreased approximately$25.2 million for the twelve months endedDecember 31, 2020 primarily due to a higher number of early payouts, higher merchandise losses primarily due to the COVID-19 pandemic, and investments to support the growth of the business. TheMexico segment revenues decreased by 6.3% for the twelve months endedDecember 31, 2020 , driving a decrease in gross profit of 4.9%, or$1.8 million . Cash flow from operations was$236.5 million for the twelve months endedDecember 31, 2020 . We paid down$42.0 million of debt during the year, ending the period with$159.4 million of cash and cash equivalents. In connection with the Merger, we refinanced and incurred substantial additional indebtedness inFebruary 2021 as discussed in the "Liquidity and Capital Resources-Senior Debt" and "Liquidity and Capital Resources-Senior Notes" sections below. 37 --------------------------------------------------------------------------------
The following table is a reference for the discussion that follows.
Year Ended December 31, 2020-2019 Change 2019-2018 Change (Dollar amounts in thousands) 2020 2019 2018 $ % $ % Revenues Store Rentals and fees$ 2,263,091 $ 2,224,402 $ 2,244,860 $ 38,689 1.7 %$ (20,458) (0.9) % Merchandise sales 378,717 304,630 304,455 74,087 24.3 % 175 0.1 % Installment sales 68,500 70,434 69,572 (1,934) (2.7) % 862 1.2 % Other 3,845 4,795 9,000 (950) (19.8) % (4,205) (46.7) % Total store revenues 2,714,153 2,604,261 2,627,887 109,892 4.2 % (23,626) (0.9) %
Franchise
Merchandise sales 80,023 49,135 19,087 30,888 62.9 % 30,048 157.4 % Royalty income and fees 20,015 16,456 13,491 3,559 21.6 % 2,965 22.0 % Total revenues 2,814,191 2,669,852 2,660,465 144,339 5.4 % 9,387 0.4 % Cost of revenues Store Cost of rentals and fees 655,612 634,878 621,860 20,734 3.3 % 13,018 2.1 % Cost of merchandise sold 382,182 319,006 308,912 63,176 19.8 % 10,094 3.3 % Cost of installment sales 24,111 23,383 23,326 728 3.1 % 57 0.2 % Total cost of store revenues 1,061,905 977,267 954,098 84,638 8.7 % 23,169 2.4 % Franchise cost of merchandise sold 80,134 48,514 18,199 31,620 65.2 % 30,315 166.6 % Total cost of revenues 1,142,039 1,025,781 972,297 116,258 11.3 % 53,484 5.5 % Gross profit 1,672,152 1,644,071 1,688,168 28,081 1.7 % (44,097) (2.6) % Operating expenses Store expenses Labor 579,125 630,096 683,422 (50,971) (8.1) % (53,326) (7.8) % Other store expenses 609,370 617,106 656,894 (7,736) (1.3) % (39,788) (6.1) % General and administrative 153,108 142,634 163,445 10,474 7.3 % (20,811) (12.7) % Depreciation, amortization and write-down of intangibles 56,658 61,104 68,946 (4,446) (7.3) % (7,842) (11.4) % Other charges and (gains) 36,555 (60,728) 59,324 97,283 160.2 % (120,052) (202.4) % Total operating expenses 1,434,816 1,390,212 1,632,031 44,604 3.2 % (241,819) (14.8) % Operating profit 237,336 253,859 56,137 (16,523) (6.5) % 197,722 352.2 % Write-off of debt issuance costs - 2,168 475 (2,168) (100.0) % 1,693 356.4 % Interest, net 14,557 27,908 41,821 (13,351) (47.8) % (13,913) (33.3) % Earnings before income taxes 222,779 223,783 13,841 (1,004) (0.4) % 209,942 1,516.8 % Income tax expense 14,664 50,237 5,349 (35,573) (70.8) % 44,888 839.2 % Net earnings$ 208,115 $ 173,546 $ 8,492 $ 34,569 19.9 %$ 165,054 1,943.6 % Comparison of the Years EndedDecember 31, 2020 and 2019 Store Revenue. Total store revenue increased by$109.9 million , or 4.2%, to$2,714.2 million for the year endedDecember 31, 2020 , from$2,604.3 million for 2019. This increase was primarily due to increases of approximately$60.9 million and$52.2 million in the Preferred Lease and Rent-A-Center Business segments, respectively, as discussed further in the "Segment Performance" section below. Cost of Rentals and Fees. Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the year endedDecember 31, 2020 increased by$20.7 million , or 3.3%, to$655.6 million , as compared to$634.9 38 -------------------------------------------------------------------------------- million in 2019. This increase in cost of rentals and fees was primarily attributable to an increase of$20.1 million in the Preferred Lease segment as a result of higher rentals and fees revenue. Cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 29.0% for the year endedDecember 31, 2020 as compared to 28.5% in 2019. Cost of Merchandise Sold. Cost of merchandise sold represents the net book value of rental merchandise at time of sale. Cost of merchandise sold increased by$63.2 million , or 19.8%, to$382.2 million for the year endedDecember 31, 2020 , from$319.0 million in 2019, attributable to increases of$53.5 million and$9.9 million in the Preferred Lease and Rent-A-Center Business segments, respectively, as discussed further in the "Segment Performance" section below. The gross margin percent of merchandise sales increased to (0.9)% for the year endedDecember 31, 2020 , from (4.7)% in 2019. Gross Profit. Gross profit increased by$28.1 million , or 1.7%, to$1,672.2 million for the year endedDecember 31, 2020 , from$1,644.1 million in 2019, due primarily to an increase of$39.5 million in the Rent-A-Center Business segment, partially offset by a decrease of$12.7 million in the Preferred Lease segment, as discussed further in the "Segment Performance" section below. Gross profit as a percentage of total revenue decreased to 59.4% in 2020, as compared to 61.6% in 2019. Store Labor. Store labor includes all salaries and wages paid to store-level employees and district managers' salaries, together with payroll taxes and benefits. Store labor decreased by$51.0 million , or 8.1%, to$579.1 million for the year endedDecember 31, 2020 , as compared to$630.1 million in 2019, primarily attributable to decreases of$28.9 million and$21.3 million in the Rent-A-Center Business and Preferred Lease segments, respectively, as discussed further in the "Segment Performance" section below. Store labor expressed as a percentage of total store revenue was 21.3% for the year endedDecember 31, 2020 , as compared to 24.2% in 2019. Other Store Expenses. Other store expenses include charge-offs due to customer stolen merchandise and occupancy, delivery, advertising, selling, insurance, travel and other store-level operating expenses. Other store expenses decreased by$7.7 million , or 1.3%, to$609.4 million for the year endedDecember 31, 2020 , as compared to$617.1 million in 2019, primarily attributable to a decrease of$33.1 million in the Rent-A-Center Business segment, partially offset by an increase of$27.4 million in the Preferred Lease segment, as discussed further in the "Segment Performance" section below. Other store expenses expressed as a percentage of total store revenue were 22.5% for the year endedDecember 31, 2020 , compared to 23.7% in 2019. General and Administrative Expenses. General and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries, payroll taxes and benefits, stock-based compensation, occupancy, administrative and other operating expenses, as well as salaries and labor costs for our regional directors, divisional vice presidents and executive vice presidents. General and administrative expenses increased by$10.5 million , or 7.3%, to$153.1 million for the year endedDecember 31, 2020 , as compared to$142.6 million in 2019. General and administrative expenses expressed as a percentage of total revenue were 5.4% for the year endedDecember 31, 2020 , compared to 5.3% in 2019. Other Charges and (Gains). Other charges and (gains) increased by$97.3 million to$36.6 million in 2020, as compared to$(60.7) million in 2019. Other charges for the year endedDecember 31, 2020 primarily related to a loss on the sale of our stores inCalifornia , expenses related to the Merger and the related financing transactions, legal settlement and state sales tax assessment reserves, cost savings initiatives, inventory losses resulting from damage related to looting, employee payroll and sanitation costs in connection with COVID-19, store closure impacts, and asset disposals, partially offset by proceeds from the sale of a legal antitrust claim, rent abatements, and insurance proceeds related to hurricane Maria in 2017. Other gains for the year endedDecember 31, 2019 primarily related to receipt of the Vintage Settlement Proceeds and gain recorded on the sale of our corporate headquarters, partially offset by merger termination and other incremental legal and professional fees, legal settlements, state sales tax audit assessments, acquisition transaction fees, and charges related to cost savings initiatives and store closures. Operating Profit. Operating profit decreased$16.6 million , or 6.5%, to$237.3 million for the year endedDecember 31, 2020 , as compared to$253.9 million in 2019, primarily due to an increase in other charges and (gains) driven by the Vintage termination settlement received in 2019 documented above, partially offset by the increase in gross profit, as described above. Operating profit expressed as a percentage of total revenue was 8.4% for the year endedDecember 31, 2020 , compared to 9.5% in 2019. Excluding other charges and (gains), operating profit was$273.9 million , or 9.7% of revenue for the year endedDecember 31, 2020 , compared to$193.1 million or 7.2% of revenue for the comparable period of 2019. Income Tax Expense. Income tax expense for the twelve months endedDecember 31, 2020 was$14.7 million , as compared to$50.2 million in 2019. The effective tax rate was 6.6% for the twelve months endedDecember 31, 2020 , compared to 22.4% in 2019. The decrease in income tax expense for the twelve months endedDecember 31, 2020 compared to 2019 was primarily related to the tax benefit of net operating loss carrybacks at a 35% tax rate as a result of changes from the Coronavirus Aid, Relief, and Economic Security Act, enacted onMarch 27, 2020 (the "CARES Act") and the release of domestic and foreign tax valuation allowances. 39 -------------------------------------------------------------------------------- Comparison of the Years EndedDecember 31, 2019 and 2018 Store Revenue. Total store revenue decreased by$23.6 million , or 0.9%, to$2,604.3 million for the year endedDecember 31, 2019 , from$2,627.9 million for 2018. This was primarily due to a decrease of approximately$55.2 million in the Rent-A-Center Business segment, partially offset by an increase of$26.7 million in the Preferred Lease segment, as discussed further in the "Segment Performance" section below. Cost of Rentals and Fees. Cost of rentals and fees consists primarily of depreciation of rental merchandise. Cost of rentals and fees for the year endedDecember 31, 2019 increased by$13.0 million , or 2.1%, to$634.9 million , as compared to$621.9 million in 2018. The increase in cost of rentals and fees was primarily attributable to an increase of$31.5 million in the Preferred Lease segment as a result of higher rentals and fees revenue, partially offset by a decrease of$19.9 million in the Rent-A-Center Business segment. Cost of rentals and fees expressed as a percentage of rentals and fees revenue increased to 28.5% for the year endedDecember 31, 2019 as compared to 27.7% in 2018. Cost of Merchandise Sold. Cost of merchandise sold represents the net book value of rental merchandise at time of sale. Cost of merchandise sold increased by$10.1 million , or 3.3%, to$319.0 million for the year endedDecember 31, 2019 , from$308.9 million in 2018, primarily attributable to increases of$9.3 million and$1.0 million in the Rent-A-Center Business and Preferred Lease segments, respectively. The gross margin percent of merchandise sales decreased to (4.7)% for the year endedDecember 31, 2019 , from (1.5)% in 2018. Gross Profit. Gross profit decreased by$44.1 million , or 2.6%, to$1,644.1 million for the year endedDecember 31, 2019 , from$1,688.2 million in 2018, due primarily to decreases of$44.7 million and$5.8 million in theRent-A-Center Business and Preferred Lease segments, respectively partially offset by increases of$3.3 million and$3.1 million in the Franchising andMexico segments, respectively, in each case as discussed further in the "Segment Performance" section below. Gross profit as a percentage of total revenue decreased to 61.6% in 2019 compared to 63.5% in 2018. Store Labor. Store labor includes all salaries and wages paid to store-level employees and district managers' salaries, together with payroll taxes and benefits. Store labor decreased by$53.3 million , or 7.8%, to$630.1 million for the year endedDecember 31, 2019 , as compared to$683.4 million in 2018, primarily attributable to a decrease of$53.7 million in theRent-A-Center Business segment, driven by our cost savings initiatives and lowerRent-A-Center Business store base (see Note N to the consolidated financial statements for additional detail). Store labor expressed as a percentage of total store revenue was 24.2% for the year endedDecember 31, 2019 , as compared to 26.0% in 2018. Other Store Expenses. Other store expenses include occupancy, charge-offs due to customer stolen merchandise, delivery, advertising, selling, insurance, travel and other store-level operating expenses. Other store expenses decreased by$39.8 million , or 6.1%, to$617.1 million for the year endedDecember 31, 2019 , as compared to$656.9 million in 2018, primarily attributable to a decrease of$55.1 million in the Rent-A-Center Business segment, as a result of lower Rent-A-Center Business store base, partially offset by an increase of$13.1 million in the Preferred Lease segment, primarily related to merchandise losses. Other store expenses expressed as a percentage of total store revenue decreased to 23.7% for the year endedDecember 31, 2019 , from 25.0% in 2018. General and Administrative Expenses. General and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries, payroll taxes and benefits, stock-based compensation, occupancy, administrative and other operating expenses, as well as salaries and labor costs for our regional directors, divisional vice presidents and executive vice presidents. General and administrative expenses decreased by$20.8 million , or 12.7%, to$142.6 million for the year endedDecember 31, 2019 , as compared to$163.4 million in 2018, primarily as a result of our cost savings initiatives. General and administrative expenses expressed as a percentage of total revenue decreased to 5.3% for the year endedDecember 31, 2019 , compared to 6.1% in 2018. Other (Gains) and Charges. Other charges decreased by$120.0 million , or 202.4%, to$(60.7) million in 2019, as compared to$59.3 million in 2018. Other gains for the year endedDecember 31, 2019 were primarily related to receipt of the Vintage Settlement Proceeds and gain recorded on the sale of our corporate headquarters, partially offset by merger termination and other incremental legal and professional fees, legal settlements, state sales tax audit assessments, acquisition transaction fees, and charges related to cost savings initiatives and store closures. Operating Profit. Operating profit increased$197.8 million , or 352.2%, to$253.9 million for the year endedDecember 31, 2019 , as compared to$56.1 million in 2018, primarily due to an increase of$114.9 million in the Corporate segment primarily due to the other gains discussed above, and an increase of$88.2 million in the Rent-A-Center Business segment, as discussed further in the "Segment Performance" section below. Operating profit expressed as a percentage of total revenue was 9.5% for the year endedDecember 31, 2019 , as compared to 2.1% for 2018. Excluding other charges, profit was$193.1 million or 7.2% 40 -------------------------------------------------------------------------------- of revenue for the year endedDecember 31, 2019 , compared to$115.5 million or 4.3% of revenue for the comparable period of 2018. Income Tax Expense. Income tax expense for the twelve months endedDecember 31, 2019 was$50.2 million , as compared to$5.3 million in 2018. The effective tax rate was 22.4% for the twelve months endedDecember 31, 2019 , compared to 38.6% in 2018. Segment Performance Rent-A-Center Business segment. Year Ended December 31, 2020-2019 Change 2019-2018
Change
(Dollar amounts in thousands) 2020 2019 2018 $ % $ % Revenues$ 1,852,641 $ 1,800,486 $ 1,855,712 $ 52,155 2.9 %$ (55,226) (3.0) % Gross profit 1,294,695 1,255,153 1,299,809 39,542 3.2 % (44,656) (3.4) % Operating profit 333,379 235,964 147,787 97,415 41.3 % 88,177 59.7 % Change in same store revenue 9.0 % 4.1 % Stores in same store revenue calculation 1,676 1,795 Revenues. The increase in revenue for the year endedDecember 31, 2020 was driven primarily by an increase in same store sales resulting from higher merchandise sales and growth in e-commerce sales, which were positively impacted by government stimulus and supplemental unemployment benefits issued by the federal government in response to the COVID-19 pandemic, as compared to 2019, partially offset by decreases in revenue due to our refranchising efforts and the rationalization of our Rent-A-Center Business store base. Gross Profit. Gross profit increased in 2020 primarily due to the increases in revenue described above, partially offset by increases in the cost of rentals and fees and cost of merchandise sold. Gross profit as a percentage of segment revenues increased to 69.9% in 2020 from 69.7% in 2019. Operating Profit. Operating profit as a percentage of segment revenues was 18.0% for 2020 compared to 13.1% for 2019. The increase in operating profit for the year endedDecember 31, 2020 was partially due to the increase in gross profit described above, in addition to decreases in store labor and other store expenses. Declines in store labor and other store expenses were driven primarily by lower store count and a decrease in customer stolen merchandise. Charge-offs in our Rent-A-Center Business lease-to-own stores due to customer stolen merchandise, expressed as a percentage of Rent-A-Center Business lease-to-own revenues, were approximately 3.0% for the year endedDecember 31, 2020 , compared to 3.8% in 2019. Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims. Charge-offs in ourRent-A-Center Business lease-to-own stores due to other merchandise losses, expressed as a percentage of revenues, were approximately 1.5% for the year endedDecember 31, 2020 , compared to 1.3% in 2019. Preferred Lease segment. Year Ended December 31, 2020-2019 Change 2019-2018 Change (Dollar amounts in thousands) 2020 2019 2018 $ % $ % Revenues$ 810,151 $ 749,260 $ 722,562 $ 60,891 8.1 %$ 26,698 3.7 % Gross profit 321,110 333,798 339,616 (12,688) (3.8) % (5,818) (1.7) % Operating profit 57,847 83,066 93,951 (25,219) (30.4) % (10,885) (11.6) % Revenues. The increase in revenue for the year endedDecember 31, 2020 compared to 2019 was primarily due to the implementation and expansion of the Preferred Lease virtual solution following the acquisition of Merchants Preferred inAugust 2019 , partially offset by challenges with availability of products at many retail partners in the second half of 2020. Gross Profit. Gross profit decreased for the year endedDecember 31, 2020 compared to 2019, primarily driven by a higher number of early payouts resulting from government stimulus and supplemental unemployment benefits issued by the federal government in response to the COVID-19 pandemic. Gross profit as a percentage of segment revenue decreased to 39.6% in 2020 as compared to 44.6% in 2019. Operating Profit. Operating profit decreased by 30.4% compared to 2019, primarily due to increases in other store expenses. The increase in other store expenses was primarily due to higher merchandise losses, primarily related to COVID-19, a higher mix of virtual locations, and investments to support expected revenue growth. Charge-offs in our Preferred Lease locations due to customer stolen merchandise, expressed as a percentage of revenues, were approximately 13.3% in 2020 as compared to 41 -------------------------------------------------------------------------------- 10.7% in 2019. Other merchandise losses include unrepairable merchandise and loss/damage waiver claims. Charge-offs in our Preferred Lease locations due to other merchandise losses, expressed as a percentage of revenues, were approximately 0.4% and 0.3% in 2020 and 2019, respectively.Mexico segment. Year Ended December 31, 2020-2019 Change 2019-2018 Change (Dollar amounts in thousands) 2020 2019 2018 $ % $ % Revenues$ 50,583 $ 53,960 $ 49,613 $ (3,377) (6.3) %$ 4,347 8.8 % Gross profit 35,665 37,488 34,364 (1,823) (4.9) % 3,124 9.1 % Operating profit (loss) 5,798 5,357 2,605 441 8.2 % 2,752 105.6 % Change in same store revenue 5.2 % 9.7 % Stores in same store revenue calculation 121 108 Revenues. Revenues for 2020 were negatively impacted by exchange rate fluctuations of approximately$5.5 million , as compared to 2019. On a constant currency basis, revenues for the year endedDecember 31, 2020 increased approximately$2.1 million . Gross Profit. Gross profit for the year endedDecember 31, 2020 was negatively impacted by exchange rate fluctuations of approximately$3.9 million , as compared to 2019. On a constant currency basis, gross profit for the year endedDecember 31, 2020 increased approximately$2.1 million . Gross profit as a percentage of segment revenues increased to 70.5% in 2020, compared to 69.5% in 2019. Operating Profit. Operating profit for the year endedDecember 31, 2020 was negatively impacted by exchange rate fluctuations of approximately$0.6 million , compared to 2019. On a constant currency basis, operating profit for the year endedDecember 31, 2020 increased approximately$1.0 million . Operating profit as a percentage of segment revenues increased to 11.5% in 2020, compared to 9.9% in 2019. Franchising segment. Year Ended December 31, 2020-2019 Change 2019-2018 Change (Dollar amounts in thousands) 2020 2019 2018 $ % $ % Revenues$ 100,816 $ 66,146 $ 32,578 $ 34,670 52.4 %$ 33,568 103.0 % Gross profit 20,682 17,632 14,379 3,050 17.3 % 3,253 22.6 % Operating profit 12,570 7,205 4,385 5,365 74.5 % 2,820 64.3 % Revenues. Revenues increased for the year endedDecember 31, 2020 , compared to 2019, primarily due to an increase in franchise locations as a result of refranchising Rent-A-Center Business corporate stores, and higher inventory purchases by our franchisees. Gross Profit. Gross profit as a percentage of segment revenues decreased to 20.5% in 2020 from 26.7% in 2019, primarily due to changes in our revenue mix of franchise royalties and fees and rental merchandise sales, related to the increase in franchise locations described above. Operating Profit. Operating profit as a percentage of segment revenues increased to 12.5% in 2020 from 10.9% for 2019, primarily due to a decrease in operating expenses. Liquidity and Capital Resources Overview. For the year endedDecember 31, 2020 , we generated$236.5 million in operating cash flow. We paid down$42.0 million of debt using cash generated from operations, and used cash in the amount of$63.1 million for dividends,$26.6 million for share repurchases, and$34.5 million for capital expenditures. We ended the year with$159.4 million of cash and cash equivalents and outstanding indebtedness of$197.5 million . In connection with the Merger, we refinanced and incurred substantial additional indebtedness inFebruary 2021 as discussed in the "Senior Debt" and "Senior Notes" sections below. Analysis of Cash Flow. Cash provided by operating activities increased by$21.1 million to$236.5 million in 2020 from$215.4 million in 2019. This increase was primarily attributable to a decrease in rental merchandise purchases during the year endedDecember 31, 2020 , compared to the same period in 2019, receipt of our federal tax refund of approximately$30 million , and other net changes in operating assets and liabilities. 42 -------------------------------------------------------------------------------- Cash (used in) provided by investing activities decreased approximately$41.4 million to$(20.6) million in 2020 from$20.8 million in 2019, primarily due to an increase in capital expenditures and lower proceeds from the sale of property assets, offset by cash consideration paid for the acquisition of Merchants Preferred in 2019. Cash used in financing activities decreased by$194.9 million to$126.7 million in 2020 from$321.6 million in 2019, primarily due to a net decrease in debt repayments compared to debt proceeds of$261.2 million , partially offset by increases in dividends paid of$49.4 million , and share repurchases of$25.3 million during the twelve months endedDecember 31, 2020 . Liquidity Requirements. Our primary liquidity requirements are for rental merchandise purchases. Other capital requirements include expenditures for property assets, debt service, and dividends. Our primary sources of liquidity have been cash provided by operations. We utilize our ABL Credit Facility for the issuance of letters of credit, as well as to manage normal fluctuations in operational cash flow caused by the timing of cash receipts. In that regard, we may from time to time draw funds under the ABL Credit Facility for general corporate purposes. Amounts are drawn as needed due to the timing of cash flows and are generally paid down as cash is generated by our operating activities. We believe cash flow generated from operations and availability under our ABL Credit Facility, will be sufficient to fund our operations during the next 12 months. AtFebruary 19, 2021 , we had approximately$70.7 million in cash on hand, and$294 million available under our ABL Credit Facility. Deferred Taxes. Certain federal tax legislation enacted during the period 2009 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 throughSeptember 26, 2017 , when it was updated by the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The Tax Act allows 100% bonus depreciation for certain property placed in service betweenSeptember 27, 2017 andDecember 31, 2022 , at which point it will begin to phase out. The bonus depreciation provided by the Tax Act resulted in an estimated benefit of$211 million for us in 2020. We estimate the remaining tax deferral associated with bonus depreciation from these Acts is approximately$260 million atDecember 31, 2020 , of which approximately 80%, or$207 million , will reverse in 2021, and the majority of the remainder will reverse between 2022 and 2023. Merchandise Losses. Merchandise losses consist of the following: Year Ended December 31, (In thousands) 2020 2019 2018
Customer stolen merchandise(1)
(1)Includes incremental losses related to COVID-19 (2)Other merchandise losses include unrepairable and missing merchandise, and loss/damage waiver claims. Capital Expenditures. We make capital expenditures in order to maintain our existing operations, acquire new capital assets in new and acquired stores and invest in information technology. We spent$34.5 million ,$21.2 million and$28.0 million on capital expenditures in the years 2020, 2019 and 2018, respectively. 43 -------------------------------------------------------------------------------- Acquisitions and New Location Openings. During 2020, we acquired two new Rent-A-Center Business locations and customer accounts for an aggregate purchase price of approximately$0.7 million in two transactions. The store locations were closed upon acquisition and consolidated into existing store operations in our Rent-A-Center Business segment. The tables below summarize the location activity for the years endedDecember 31, 2020 , 2019 and 2018. Year Ended December 31, 2020 Rent-A-Center Business Mexico Franchising Total Locations at beginning of period(1) 1,973 123 372 2,468 Conversions (99) - 99 - Closed locations Merged with existing locations (28) (2) - (30) Sold or closed with no surviving location (1) - (9) (10) Locations at end of period(1) 1,845 121 462 2,428
Acquired locations closed and accounts merged with existing locations
2 - - 2 Total approximate purchase price (in millions) $ 0.7 $ - $ -$ 0.7
(1) Does not include locations in our Preferred Lease segment.
Year Ended December 31, 2019 Rent-A-Center Business Mexico Franchising Total Locations at beginning of period(1) 2,158 122 281 2,561 New location openings - 1 2 3 Conversions (97) - 97 - Closed locations Merged with existing locations (84) - - (84) Sold or closed with no surviving location (4) - (8) (12) Locations at end of period(1) 1,973 123 372 2,468
Acquired locations closed and accounts merged with existing locations
4 - - 4 Total approximate purchase price (in millions) $ 0.5 $ - $ -$ 0.5
(1) Does not include locations in our Preferred Lease segment.
Year Ended
Rent-A-Center Business Mexico Franchising Total Locations at beginning of period(1) 2,381 131 225 2,737 New location openings - - 3 3 Acquired locations remaining open 1 - - 1 Conversions (71) - 71 - Closed locations Merged with existing locations (137) (8) - (145) Sold or closed with no surviving location (16) (1) (18) (35) Locations at end of period(1) 2,158 122 281 2,561
Acquired locations closed and accounts merged with existing locations
6 - - 6
Total approximate purchase price (in millions) $ 2.0
$ - $ -$ 2.0 (1) Does not include locations in our Preferred Lease segment. Senior Debt. OnFebruary 17, 2021 , we entered into a credit agreement withJPMorgan Chase Bank, N.A ., as administrative agent, and lenders party thereto, that provides for a five-year asset-based revolving credit facility with commitments of$550 million and a letter of credit sublimit of$150 million , which commitments may be increased, at the Company's option and 44 -------------------------------------------------------------------------------- under certain conditions, by up to an additional$125 million in the aggregate (the "ABL Credit Facility"). Under the ABL Credit Facility, the Company may borrow only up to the lesser of the level of the then-current borrowing base and the aggregate amount of commitments under the ABL Credit Facility. The borrowing base is tied to the amount of eligible installment sales accounts, inventory and eligible rental contracts, reduced by reserves. The ABL Credit Facility bears interest at a fluctuating rate determined by reference to the eurodollar rate plus an applicable margin of 1.50% to 2.00%, which margin, as ofFebruary 19, 2021 , was 2.125%. A commitment fee equal to 0.250% to 0.375% of the unused portion of the ABL Credit Facility fluctuates dependent upon average utilization for the prior month as defined by a pricing grid included in the documentation governing the ABL Credit Facility. Loans under the ABL Credit Facility may be borrowed, repaid and re-borrowed untilFebruary 17, 2026 , at which time all amounts borrowed must be repaid. The obligations under the ABL Credit Facility are guaranteed by the Company and certain of its wholly owned domestic restricted subsidiaries, subject to certain exceptions. The obligations under the ABL Credit Facility and such guarantees are secured on a first-priority basis by all of the Company's and the subsidiary guarantors' accounts, inventory, deposit accounts, securities accounts, cash and cash equivalents, rental agreements, general intangibles (other than equity interests in the Company's subsidiaries), chattel paper, instruments, documents, letter of credit rights, commercial tort claims related to the foregoing and other related assets and all proceeds thereof related to the foregoing, subject to permitted liens and certain exceptions (such assets, collectively, the "ABL Priority Collateral") and a second-priority basis in substantially all other present and future tangible and intangible personal property of the Company and the subsidiary guarantors, subject to certain exceptions. AtFebruary 19, 2021 , we had outstanding borrowings of$165 million and available commitments of$294 million under our ABL Credit Facility, net of letters of credit. OnFebruary 17, 2021 , we also entered into a term loan credit agreement withJPMorgan Chase Bank, N.A ., as administrative agent, and lenders party thereto, that provides for a seven-year$875 million senior secured term loan facility (the "Term Loan Facility"). Subject in each case to certain restrictions and conditions, the Company may add up to$500 million of incremental term loan facilities to the Term Loan Facility or utilize incremental capacity under the Term Loan Facility at any time by issuing or incurring incremental equivalent term debt. Interest on borrowings under the Term Loan Facility is payable at a fluctuating rate of interest determined by reference to the eurodollar rate plus an applicable margin of 4.00%, subject to a 0.75% LIBOR floor. Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.000% per annum of the original aggregate principal amount thereof, with the remaining balance due at final maturity. The Term Loan Facility is secured by a first-priority security interest in substantially all of present and future tangible and intangible personal property of the Company and the subsidiary guarantors, other than the ABL Priority Collateral, and by a second-priority security interest in the ABL Priority Collateral, subject to certain exceptions. The obligations under the Term Loan Facility are guaranteed by the Company and the Company's material wholly-owned domestic restricted subsidiaries that also guarantee the ABL Credit Facility. The Term Loan Facility was fully drawn at the closing of the Merger to fund a portion of the Aggregate Cash Consideration payable in the Merger, repay certain outstanding indebtedness of the Company and its subsidiaries, repay all outstanding indebtedness of Acima and its subsidiaries and pay certain fees and expenses incurred in connection with the Merger. A portion of such proceeds were used to repay$197.5 million outstanding under the Company's prior term loan facility, dated as ofAugust 5, 2019 , among the Company,JPMorgan Chase Bank, N.A ., as administrative agent, and the lenders party thereto (the "Prior Term Loan Facility"), which Prior Term Loan Facility was terminated in connection with such repayment. AtFebruary 19, 2021 , we had outstanding borrowings of$875 million under the Term Loan Facility. Senior Notes. OnFebruary 17, 2021 , we issued$450.0 million in senior unsecured notes dueFebruary 15, 2029 , at par value, bearing interest at 6.375% (the "Notes"), the proceeds of which were used to fund a portion of the Aggregate Cash Consideration upon closing of the Merger to acquire Acima. Interest on the Notes is payable in arrears onFebruary 15 andAugust 15 of each year, beginning onAugust 15, 2021 . The Company may redeem some or all of the Notes at any time on or afterFebruary 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 toFebruary 15, 2024 , the Company may redeem up to 40% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings at a redemption price of 106.375% plus accrued and unpaid interest to, but not including, the redemption date. In addition, the Company may redeem some or all of the Notes prior toFebruary 15, 2024 , at a redemption price of 100% of the principal amount of the Notes plus accrued and unpaid interest to, but not including, the redemption date, plus a "make-whole" premium. If the Company experiences specific kinds of change of control, it will be required to offer to purchase the Notes at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest. 45 -------------------------------------------------------------------------------- Operating Leases. We lease space for all of our Rent-A-Center Business andMexico stores under operating leases expiring at various times through 2027. In addition we lease space for certain support facilities under operating leases expiring at various times through 2032. Most of our store leases are five year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed-upon formulas. As ofDecember 31, 2020 , our total remaining obligation for existing store lease contracts was approximately$322.3 million . We lease vehicles for all of our Rent-A-Center Business stores under operating leases with lease terms expiring twelve months after the start date of the lease. We classify these leases as short-term and have elected the short-term lease exemption for our vehicle leases, and have therefore excluded them from our operating lease right-of-use assets within our condensed consolidated balance sheet. As ofDecember 31, 2020 , our total remaining minimum obligation for existing Rent-A-Center Business vehicle lease contracts was approximately$0.7 million . We also lease vehicles for all of ourMexico stores which have terms expiring at various times through 2024 with rental rates adjusted periodically for inflation. As ofDecember 31, 2020 , our total remaining obligation for existingMexico vehicle lease contracts was approximately$1.0 million . Reference Note G of our consolidated financial statements for additional discussion of our store operating leases. Uncertain Tax Position. As ofDecember 31, 2020 , we have recorded$22.2 million in uncertain tax positions. Although these positions represent a potential future cash liability to the Company, the amounts and timing of such payments are uncertain. Seasonality. Our revenue mix is moderately seasonal, with the first quarter of each fiscal year generally providing higher merchandise sales than any other quarter during a fiscal year. Generally, our customers will more frequently exercise the early purchase option on their existing rental purchase agreements or purchase pre-leased merchandise off the showroom floor during the first quarter of each fiscal year, primarily due to the receipt of federal income tax refunds. Furthermore, we tend to experience slower growth in the number of rental purchase agreements in the third quarter of each fiscal year compared to other quarters throughout the year. 46 -------------------------------------------------------------------------------- Critical Accounting Estimates, Uncertainties or Assessments in Our Financial Statements The preparation of our consolidated financial statements in conformity with accounting principles generally accepted inthe United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent losses and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. In applying accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. We believe the following are areas where the degree of judgment and complexity in determining amounts recorded in our consolidated financial statements make the accounting policies critical. If we make changes to our reserves in accordance with the policies described below, our earnings would be impacted. Increases to our reserves would reduce earnings and, similarly, reductions to our reserves would increase our earnings. A pre-tax change of approximately$0.6 million in our estimates would result in a corresponding$0.01 change in our diluted earnings per common share as ofDecember 31, 2020 . Self-Insurance Liabilities. We have self-insured retentions with respect to losses under our workers' compensation, general liability, vehicle liability and health insurance programs. We establish reserves for our liabilities associated with these losses by obtaining forecasts for the ultimate expected losses and estimating amounts needed to pay losses within our self-insured retentions. We continually institute procedures to manage our loss exposure and increases in health care costs associated with our insurance claims through our risk management function, including a transitional duty program for injured workers, ongoing safety and accident prevention training, and various other programs designed to minimize losses and improve our loss experience in our store locations. We make assumptions on our liabilities within our self-insured retentions using actuarial loss forecasts, company-specific development factors, general industry loss development factors, and third-party claim administrator loss estimates which are based on known facts surrounding individual claims. These assumptions incorporate expected increases in health care costs. Periodically, we reevaluate our estimate of liability within our self-insured retentions. At that time, we evaluate the adequacy of our reserves by comparing amounts reserved on our balance sheet for anticipated losses to our updated actuarial loss forecasts and third-party claim administrator loss estimates, and make adjustments to our reserves as needed. As ofDecember 31, 2020 , the amount reserved for losses within our self-insured retentions with respect to workers' compensation, general liability and vehicle liability insurance was$88.3 million , as compared to$97.3 million atDecember 31, 2019 . However, if any of the factors that contribute to the overall cost of insurance claims were to change, the actual amount incurred for our self-insurance liabilities could be more or less than the amounts currently reserved. Rental Merchandise. Rental merchandise is carried at cost, net of accumulated depreciation. Depreciation for merchandise is generally provided using the income forecasting method, which is intended to match as closely as practicable the recognition of depreciation expense with the consumption of the rental merchandise, and assumes no salvage value. The consumption of rental merchandise occurs during periods of rental and directly coincides with the receipt of rental revenue over the rental purchase agreement period. Under the income forecasting method, merchandise held for rent is not depreciated and merchandise on rent is depreciated in the proportion of rents received to total rents provided in the rental contract, which is an activity-based method similar to the units of production method. We depreciate merchandise (including computers and tablets) that is held for rent for at least 180 consecutive days using the straight-line method over a period generally not to exceed 18 months. Beginning in 2016, smartphones are depreciated over an 18-month straight-line basis beginning with the earlier of on rent or 90 consecutive days on held for rent. Rental merchandise which is damaged and inoperable is expensed when such impairment occurs. In addition, any minor repairs made to rental merchandise are expensed at the time of the repair. If a customer does not return merchandise on-rent or make a payment, the remaining book value of the rental merchandise associated with delinquent accounts is generally charged off on or before the 90th day following the time the account became past due in theRent-A-Center Business andMexico segments, and during the month following the 150th day in the Preferred Lease segment. We maintain a reserve for these expected losses, which estimates the merchandise losses incurred but not yet identified by management as of the end of the accounting period based on a combination of historical write-offs and expected future losses. As ofDecember 31, 2020 and 2019, the reserve for merchandise losses was$58.1 million and$55.2 million , respectively. Income Taxes. Our annual tax rate is affected by many factors, including the mix of our earnings, legislation and acquisitions, and is based on our income, statutory tax rates and tax planning opportunities available to us in the jurisdictions in which we operate. Tax laws are complex and subject to differing interpretations between the taxpayer and the taxing authorities. Significant judgment is required in determining our tax expense, evaluating our tax positions and evaluating uncertainties. Deferred income tax assets represent amounts available to reduce income taxes payable in future years. Such assets arise 47 -------------------------------------------------------------------------------- because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. We use our historical experience and our short- and long-range business forecasts to provide insight and assist us in determining recoverability. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon the ultimate settlement with the relevant tax authority. A number of years may elapse before a particular matter, for which we have recorded a liability, is audited and effectively settled. We review our tax positions quarterly and adjust our liability for unrecognized tax benefits in the period in which we determine the issue is effectively settled with the tax authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available. Valuation ofGoodwill . We perform an assessment of goodwill for impairment at the reporting unit level annually onOctober 1 , or between annual tests, if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Factors which could necessitate an interim impairment assessment include, but are not limited to, a sustained decline in our market capitalization, prolonged negative industry or economic trends and significant underperformance relative to historical or projected future operating results. Based on our assessment, if the fair value of the reporting unit exceeds its carrying value, then the goodwill is not deemed impaired. If the carrying value of the reporting unit exceeds fair value, goodwill is deemed impaired and the impairment is measured as the difference between the carrying value and the fair value of the respective reporting unit. As an alternative to performing a quantitative assessment to measure the fair value of the relevant unit, the Company may perform a qualitative assessment for impairment if it believes it is not more likely than not that the carrying value of the net assets of the reporting unit exceeds its fair value. Our reporting units are our reportable operating segments identified in Note T to the consolidated financial statements. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions that we believe are reasonable but inherently uncertain, and actual results may differ from those estimates. These estimates and assumptions include, but are not limited to, future cash flows based on revenue growth rates and operating margins, and future economic and market conditions approximated by a discount rate derived from our weighted average cost of capital. Factors that could affect our ability to achieve the expected growth rates or operating margins include, but are not limited to, the general strength of the economy and other economic conditions that affect consumer preferences and spending and factors that affect the disposable income of our current and potential customers. Factors that could affect our weighted average cost of capital include changes in interest rates and changes in our effective tax rate. During the period from our 2019 goodwill impairment assessment through the third quarter 2020, we periodically analyzed whether any indicators of impairment had occurred, including by comparing the estimated fair value of the Company, as determined based on our consolidated stock price, to its net book value. As the estimated fair value of the company was higher than its net book value during each of these periods, no additional testing was deemed necessary. We completed a qualitative assessment for impairment of goodwill as ofOctober 1, 2020 , concluding it was not more likely than not that the carrying value of net assets of our reporting units exceeded their fair value. AtDecember 31, 2020 and 2019, the amount of goodwill allocated to the Rent-A-Center Business and Preferred Lease segments was$1.5 million and$68.7 million , respectively. Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe our consolidated financial statements fairly present in all material respects the financial condition, results of operations and cash flows of our company as of, and for, the periods presented in this Annual Report on Form 10-K. However, we do not suggest that other general risk factors, such as those discussed elsewhere in this report as well as changes in our growth objectives or performance of new or acquired locations, could not adversely impact our consolidated financial position, results of operations and cash flows in future periods. 48 -------------------------------------------------------------------------------- Recently Issued Accounting Pronouncements InDecember 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 beginningJanuary 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, we believe the impact of any other recently issued standards that are not yet effective are either not applicable to us at this time or will not have a material impact on our consolidated financial statements upon adoption. Please reference Note A for discussion of recently adopted accounting pronouncements, and the impacts of adoption to our consolidated financial statements. 49
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