Wdesk | 2014 Q4 Earnings Release 8-k
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
February 2, 2015
                  
RENT-A-CENTER, INC.
(Exact name of registrant as specified in charter)
 
Delaware
0-25370
45-0491516
(State or other jurisdiction of
incorporation or organization)
(Commission
File Number)
(IRS Employer
Identification No.)
5501 Headquarters Drive
Plano, Texas 75024
(Address of principal executive offices and zip code)
(972) 801-1100
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
                  
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (see General Instruction A.2. below):
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425).
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12).
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)).
 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
 
 







Item 2.02 Results of Operations and Financial Condition.
Attached hereto as Exhibit 99.1 is the Registrant's press release reflecting earnings information for the quarter and fiscal year ended December 31, 2014.
The press release contains information regarding EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure as defined in Item 10(e) of Regulation S-K. The press release also contains a reconciliation of EBITDA to the Registrant's reported earnings before income taxes. Management of the Registrant believes that presentation of EBITDA is useful to investors, as among other things, this information impacts certain financial covenants under the Registrant's senior credit facilities and the indentures governing its 6.625% senior unsecured notes due November 2020 and its 4.75% senior unsecured notes due May 2021. While management believes this non-GAAP financial measure is useful in evaluating the Registrant, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Further, the non-GAAP financial measure may differ from similar measures presented by other companies.
Pursuant to General Instruction B.2. of Form 8-K, all of the information contained in this Form 8-K and the accompanying exhibit shall be deemed to be "furnished" and not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and, therefore, shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit 99.1 Press Release, dated February 2, 2015.

 

2




SIGNATURES
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 hereunto duly authorized.
 
 
 
 
 
 
 
 
  
 
RENT-A-CENTER, INC.
 
 
 
 
Date:
February 2, 2015
 
By:
 
/s/ Guy J. Constant
 
 
 
 
 
Guy J. Constant
 
 
 
 
 
Executive Vice President - Finance,
 
 
 
 
 
Chief Financial Officer and Treasurer
 
3





EXHIBIT INDEX
 
 
 
 
Exhibit No.
 
Description
99.1
 
Press release, dated February 2, 2015



Wdesk | 2014 Q4 Exhibit 99.1

Exhibit 99.1
For Immediate Release:
RENT-A-CENTER, INC. REPORTS
FOURTH QUARTER AND YEAR END 2014 RESULTS
Rent-A-Center, Inc. Reports Increases in Fourth Quarter 2014 EPS and Consolidated Same Store Sales
______________________________________________

Plano, Texas, February 2, 2015 - Rent-A-Center, Inc. (the "Company") (NASDAQ/NGS: RCII) today announced results for the quarter and year ended December 31, 2014.

Highlights on the quarter include the following:
On a GAAP basis, earnings per diluted share increased to $0.48 compared to $0.25 for the fourth quarter of 2013. For the full year 2014, earnings per diluted share on a GAAP basis decreased to $1.81 compared to $2.33 in the prior year
Earnings per diluted share, excluding special items, increased to $0.50 compared to $0.25 for the fourth quarter of 2013. Earnings per diluted share, excluding special items, decreased to $1.95 compared to $2.33 for the full year 2013 (see non-GAAP reconciliation below). The change was driven primarily by investment in our transformational initiatives, additional cost to support growth in Acceptance Now, and higher skip/stolen losses
Consolidated total revenues, excluding special items, increased 4.0 percent to $797 million and same store sales increased 4.7 percent (see non-GAAP reconciliation below)
Core U.S. same store sales decreased by 0.6 percent, representing a sequential improvement of 300 basis points and the 4th consecutive quarterly improvement
Acceptance Now same store sales increased 28.4 percent, Mexico same store sales increased 17.0 percent, and we opened a net of 47 Acceptance Now locations in the quarter
The Company’s operating profit as a percentage of total revenues, excluding special items, improved 160 basis points from 4.5 percent to 6.1 percent (see non-GAAP reconciliation below)
For the full year 2014, cash flow from operations was $19.1 million, capital expenditures totaled $83.8 million, and the Company ended the year with $46.1 million of cash and cash equivalents
The Company paid a dividend of 23 cents per share in the fourth quarter, and declared a dividend of 24 cents per share to be paid in the first quarter of 2015
Progress on initiatives:
Smartphones were over 7 percent of Core U.S. total store revenues in the fourth quarter
Launched the flexible labor model pilot in November
Signed an agreement with NFI, a leading 3rd party logistics provider, as part of our sourcing and distribution initiative
Rolled out initial price changes in certain product categories as part of our pricing strategy initiative
Implemented our new technology in over 650 existing Acceptance Now manned locations
New POS system is fully operational in its first site following the system-wide implementation of the back office solution

"During the fourth quarter, Core U.S. same store sales were essentially flat and Acceptance Now continued to deliver strong same store sales growth. This resulted in total company same store sales of approximately 5 percent for the quarter. In addition, Core U.S. operating profit increased year over year for the first time in many quarters. However, our EPS did not meet our expectations because our margins were not as strong as projected and skip/stolen losses were too high. In short, we did not achieve the desired balance between sales growth and margin improvement that we ideally are seeking through our strategies," said Robert D. Davis, the Chief Executive Officer of Rent-A-Center, Inc.





“As a result, our resolve is strengthened in the pursuit of that balance and the urgency remains high in delivering on the initiatives and results that we have promised. To that end, our focus is on improving operational execution by implementing a new labor model for our Core U.S. stores, developing a new supply chain and implementing a customer-focused value-based pricing strategy. And, in our Acceptance Now business, we are already seeing some progress on getting skip/stolen losses back in line, and we remain excited about the growth prospects for the business, including the much-anticipated rollout of virtual Acceptance Now locations,” Mr. Davis concluded.

SAME STORE SALES
(Unaudited)
Table 1
 
2014
 
2013
Period
 
Core U.S.
 
Acceptance Now
 
Mexico
 
Total
 
Core U.S.
 
Acceptance Now
 
Mexico
 
Total
Three months ended March 31,
 
(6.1
)%
 
26.1
%
 
20.3
%
 
(0.8
)%
 
(8.7
)%
 
33.8
%
 
80.0
%
 
(4.3
)%
Three months ended June 30,
 
(4.7
)%
 
25.1
%
 
17.0
%
 
0.6
 %
 
(5.8
)%
 
32.0
%
 
61.3
%
 
(1.6
)%
Three months ended September 30,
 
(3.6
)%
 
25.7
%
 
25.9
%
 
1.9
 %
 
(5.0
)%
 
29.3
%
 
36.2
%
 
(0.8
)%
Three months ended December 31,
 
(0.6
)%
 
28.4
%
 
17.0
%
 
4.7
 %
 
(5.5
)%
 
26.4
%
 
31.4
%
 
(1.1
)%
Year ended December 31,
 
(4.0
)%
 
25.5
%
 
19.7
%
 
1.2
 %
 
(6.3
)%
 
30.1
%
 
47.1
%
 
(2.0
)%

Quarterly Operating Performance
Explanations of performance are excluding special items and compared to the prior year unless otherwise noted.

CORE U.S. fourth quarter revenues of $600.5 million decreased 2.4 percent year over year primarily due to the 150 store consolidation completed in the second quarter of 2014. As compared to the prior year, gross profit as a percentage of total revenue was negatively impacted by the introduction of smart phones. Labor, as a percent of store revenue, was positively impacted by the lower store count and health care costs were higher in the prior year due to an increase in large claims during the quarter. Other store expenses, as a percent of store revenue, were favorably impacted by lower gas prices, partially offset by higher skip/stolen losses primarily from smart phones. Core U.S. operating profit, as a percent of total revenue, increased 220 basis points compared to a year ago.

ACCEPTANCE NOW fourth quarter revenues of $169.8 million increased 30.8 percent year over year driven by the increased number of locations and same store sales. As compared to the prior year, gross profit as a percent of total revenue was negatively impacted by more Acceptance Now locations offering 90 day option pricing. Labor, as a percent of store revenue, was positively impacted by improved leverage in the business. Other store expenses, as a percent of store revenue, were negatively impacted by higher skip/stolen losses. Acceptance Now operating profit, as a percent of total revenue, decreased 80 basis points.

MEXICO fourth quarter revenues increased 38.5 percent and operating losses improved by $0.8 million.

FRANCHISING fourth quarter revenues increased 1.6 percent and operating profit increased by $0.9 million.

Other
Depreciation and amortization expense decreased $1.7 million for the quarter due to lower capital expenditures from fewer new store openings year over year.

General and administrative expenses decreased by $4.0 million primarily due to lower incentive compensation expense in the fourth quarter.

Interest expense was $12.7 million, an increase of $1.8 million year over year, driven by increased debt and a higher rate on our senior credit facility.

On a GAAP basis, the effective income tax rate decreased to 27.6 percent in the fourth quarter from 44.8 percent in the prior year. In Q4 2014, the tax rate was positively impacted by credits stemming from the extension of certain tax provisions that were approved by Congress in late December. In Q4 2013, the tax rate was negatively impacted by the reduction of non-deductible goodwill when we sold stores to franchisees as part of our ColorTyme re-branding initiative.





Non-GAAP Reconciliation
Rent-A-Center management believes that excluding special items from the financial results provides investors a clearer perspective of the Company's ongoing operating performance and a more relevant comparison to prior period results. Special items in the fourth quarter of 2014 consist primarily of a reduction in revenue due to consumer refunds as a result of an operating system programming error, additional costs related to the Core U.S. store closures done in the second quarter of 2014, and store closures in Mexico planned to occur in the first quarter of 2015.
Reconciliation of net income to net income excluding special items (in thousands, except per share data):
Table 2
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2013
 
 
Amount
 
Per Share
 
Amount
 
Per Share
Net income
 
$
25,550

 
$
0.48

 
$
13,237

 
$
0.25

Special items, net of taxes:
 
 
 
 
 
 
 
 
Revenue adjustment
 
471

 
0.01

 

 

Vendor settlement charge
 
189

 

 

 

Other charges
 
269

 
0.01

 

 

Net income excluding special items
 
$
26,479

 
$
0.50

 
$
13,237

 
$
0.25

Table 3
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
 
Amount
 
Per Share
 
Amount
 
Per Share
Net income
 
$
96,422

 
$
1.81

 
$
128,757

 
$
2.33

Special items, net of taxes:
 
 
 
 
 
 
 
 
Revenue adjustment
 
400

 
0.01

 

 

Vendor settlement credit, net
 
(4,630
)
 
(0.08
)
 

 

Other charges
 
8,437

 
0.16

 

 

Finance charges from refinancing
 
2,853

 
0.05

 

 

Net income excluding special items
 
$
103,482

 
$
1.95

 
$
128,757

 
$
2.33






2015 Outlook
2015 diluted earnings per share are expected to range between $2.05 and $2.30, including 10 to 12 cents dilution related to our Mexico operations
We project 2015 consolidated total revenue growth of three to six percent, or between 3.250 billion and 3.350 billion dollars driven by Core Same Store Sales of negative one percent to positive one percent
We expect 2015 Acceptance Now total revenues between 800 and 825 million dollars, including
Comp Store sales growth of 15 to 20 percent
150 new manned locations
1,150 new unmanned locations generating 2015 revenues of approximately 4 million dollars
Conversion of approximately 100 manned locations to unmanned locations
Approximately 50 closures
Gross profit as a percent of total revenues is expected to be down 50 to 100 basis points
Labor is expected to improve by 100 to 150 basis points as a percent of total store revenues
Other store expenses are expected to improve 25 to 75 basis points as a percent of total store revenues
General and administrative expenses are expected to be between 180 and 200 million dollars
Depreciation and amortization is expected to be between 80 and 90 million dollars
Capital expenditures are expected to be between 70 to 80 million dollars
Annual effective tax rate of 38 percent to 38.5 percent
Free cash flow is expected to be approximately 100 million dollars
The 2015 guidance does not include the potential impact of any repurchases of common stock the Company may make, changes in future dividends, material changes in outstanding indebtedness, or the potential impact of acquisitions or dispositions that may be completed or occur after February 2, 2015

Longer Term Guidance
Annual revenue growth target of three to five percent
Operating profit margin as a percent of total revenue improvement of 400 basis points by 2017
Target leverage ratio of 2.2x on a debt to EBITDA basis
The Company believes providing earnings per diluted share guidance provides investors the appropriate insight into the Company’s ongoing operating performance.

Guidance Policy
Rent-A-Center, Inc. provides annual guidance as it relates to same store sales, earnings per diluted share, and other key line items and will only provide updates if there is a material change versus the original guidance. Management will not discuss intra-period sales or other key operating results not yet reported as the limited data may not accurately reflect the final results of the period or quarter referenced.

Webcast Information
Rent-A-Center, Inc. will host a conference call to discuss the fourth quarter results, guidance and other operational matters on Tuesday morning, February 3, 2015, at 10:45 a.m. ET. For a live webcast of the call, visit http://investor.rentacenter.com. Certain financial and other statistical information that will be discussed during the conference call will also be provided on the same website.





About Rent-A-Center, Inc.
Rent-A-Center, Inc., headquartered in Plano, Texas, is the largest rent-to-own operator in North America, focused on improving the quality of life for its customers by providing them the opportunity to obtain ownership of high-quality, durable products such as consumer electronics, appliances, computers, furniture and accessories, under flexible rental purchase agreements with no long-term obligation. The Company owns and operates approximately 3,000 stores in the United States, Mexico, Canada and Puerto Rico, and approximately 1,400 Acceptance Now kiosk locations in the United States and Puerto Rico. Rent-A-Center Franchising International, Inc., a wholly owned subsidiary of the Company, is a national franchiser of approximately 190 rent-to-own stores operating under the trade names of "Rent-A-Center", "ColorTyme", and "RimTyme". For additional information about the Company, please visit our website at www.rentacenter.com.

Forward Looking Statement
This press release and the guidance above contain forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. The Company believes that the expectations reflected in such forward-looking statements are accurate. However, there can be no assurance that such expectations will occur. The Company's actual future performance could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: the general strength of the economy and other economic conditions affecting consumer preferences and spending; economic pressures, such as high fuel costs, affecting the disposable income available to the Company's current and potential customers; changes in the unemployment rate; difficulties encountered in improving the financial performance of the Core U.S. segment; the Companys ability to develop and successfully execute the competencies and capabilities which are the focus of the Companys multi-year program designed to transform and modernize the Companys operations; costs associated with the Company's multi-year program designed to transform and modernize the Companys operations; the Companys ability to successfully market smartphones and related services to its customers; the Company's ability to develop and successfully implement digital electronic commerce capabilities; the Company's ability to retain the revenue from customer accounts merged into another store location as a result of the store consolidation plan; the Company's ability to execute and the effectiveness of the store consolidation; rapid inflation or deflation in prices of the Company's products; the Company's available cash flow; the Company's ability to identify and successfully market products and services that appeal to its customer demographic; consumer preferences and perceptions of the Company's brand; uncertainties regarding the ability to open new locations; the Company's ability to acquire additional stores or customer accounts on favorable terms; the Company's ability to control costs and increase profitability; the Company's ability to enhance the performance of acquired stores; the Company's ability to retain the revenue associated with acquired customer accounts; the Company's ability to enter into new and collect on its rental or lease purchase agreements; the passage of legislation adversely affecting the rent-to-own industry; the Company's compliance with applicable statutes or regulations governing its transactions; changes in interest rates; adverse changes in the economic conditions of the industries, countries or markets that the Company serves; information technology and data security costs; the Company's ability to protect the integrity and security of individually identifiable data of its customers and employees; the impact of any breaches in data security or other disturbances to the Company's information technology and other networks; changes in the Company's stock price, the number of shares of common stock that it may or may not repurchase, and future dividends, if any; changes in estimates relating to self-insurance liabilities and income tax and litigation reserves; changes in the Company's effective tax rate; fluctuations in foreign currency exchange rates; the Company's ability to maintain an effective system of internal controls; the resolution of the Company's litigation; and the other risks detailed from time to time in the Company's SEC reports, including but not limited to, its annual report on Form 10-K for the year ended December 31, 2013, and its quarterly reports on Form 10-Q for the quarters ended March 31, 2014, June 30, 2014, and September 30, 2014. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

Contact for Rent-A-Center, Inc.:
Maureen Short
Senior Vice President - Finance, Investor Relations and Treasury
(972) 801-1899
maureen.short@rentacenter.com





Rent-A-Center, Inc. and Subsidiaries
STATEMENT OF EARNINGS HIGHLIGHTS - UNAUDITED
Table 4
 
Three Months Ended December 31,
 
 
2014
 
 
2014
 
 
2013
 
 
 
 
 
 
 
 
Revised
     (In thousands, except per share data)
 
Before
 
 
After
 
 
 
 
 
Special Items
 
 
Special Items
 
 
 
 
 
(Non-GAAP
 
 
(GAAP
 
 
(GAAP
 
 
Earnings)
 
 
Earnings)
 
 
Earnings)
Total Revenues
 
$
797,124

(1) 
 
$
796,534

 
 
$
766,175

Operating Profit
 
 
48,856

 
 
 
47,694

 
 
 
34,669

Net Earnings
 
 
26,479

(1) 
 
 
25,550

 
 
 
13,237

Diluted Earnings per Common Share
 
$
0.50

(1) 
 
$
0.48

 
 
$
0.25

Adjusted EBITDA
 
$
75,823

 
 
$
75,823

 
 
$
63,301

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings Before Income Taxes
 
$
36,457

(1) 
 
$
35,295

 
 
$
23,970

Add back:
 
 
 
 
 
 
 
 
 
 
 
Revenue adjustment
 
 

 
 
 
590

 
 
 

Vendor settlement charge
 
 

 
 
 
236

 
 
 

Other charges
 
 

 
 
 
336

 
 
 

Interest expense, net
 
 
12,399

 
 
 
12,399

 
 
 
10,699

Depreciation, amortization and write-down of intangibles
 
 
26,967

 
 
 
26,967

 
 
 
28,632

Adjusted EBITDA
 
$
75,823

 
 
$
75,823

 
 
$
63,301

(1) Excludes the effects of a $0.2 million pre-tax vendor settlement charge, $0.3 million of pre-tax restructuring charges and a $0.6 million pre-tax reduction of revenue due to consumer refunds as a result of an operating system programming error. These charges reduced net earnings and net earnings per diluted share for the three months ended December 31, 2014, by approximately $0.9 million and $0.02, respectively.






Table 5
 
Twelve Months Ended December 31,
 
 
2014
 
 
2014
 
 
2013
 
 
 
 
 
 
 
 
Revised
     (In thousands, except per share data)
 
Before
 
 
After
 
 
 
 
 
Special Items
 
 
Special Items
 
 
 
 
 
(Non-GAAP
 
 
(GAAP
 
 
(GAAP
 
 
Earnings)
 
 
Earnings)
 
 
Earnings)
Total Revenues
 
$
3,158,386

(2) 
 
$
3,157,796

 
 
$
3,094,018

Operating Profit
 
 
199,672

 
 
 
193,462

 
 
 
247,009

Net Earnings
 
 
103,482

(2) 
 
 
96,422

 
 
 
128,757

Diluted Earnings per Common Share
 
$
1.95

(2) 
 
$
1.81

 
 
$
2.33

Adjusted EBITDA
 
$
287,071

 
 
$
287,071

 
 
$
334,989

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings Before Income Taxes
 
$
152,776

(2) 
 
$
142,353

 
 
$
208,196

Add back (subtract):
 
 
 
 
 
 
 
 
 
 
 
Revenue adjustment
 
 

 
 
 
590

 
 
 

Vendor settlement credit, net
 
 

 
 
 
(6,836
)
 
 
 

Other charges
 
 

 
 
 
12,456

 
 
 

Finance charges from refinancing
 
 

 
 
 
4,213

 
 
 

Interest expense, net
 
 
46,896

 
 
 
46,896

 
 
 
38,813

Depreciation, amortization and write-down of intangibles
 
 
87,399

 
 
 
87,399

 
 
 
87,980

Adjusted EBITDA
 
$
287,071

 
 
$
287,071

 
 
$
334,989

(2) Excludes the effects of a $6.8 million pre-tax vendor settlement credit, a $7.9 million pre-tax restructuring charge, a $4.6 million pre-tax impairment charge, a $0.6 million pre-tax reduction of revenue due to consumer refunds as a result of an operating system programming error and a $4.2 million pre-tax refinancing charge. These charges reduced net earnings and net earnings per diluted share for the twelve months ended December 31, 2014, by approximately $7.1 million and $0.14, respectively.

SELECTED BALANCE SHEET HIGHLIGHTS - UNAUDITED
Table 6
 
December 31,
 
 
2014
 
 
2013
     (In thousands)
 
 
 
 
Revised
Cash and Cash Equivalents
 
$
46,126

 
 
$
42,274

Receivables, net
 
 
65,492

 
 
 
59,178

Prepaid Expenses and Other Assets
 
 
211,922

 
 
 
78,471

Rental Merchandise, net
 
 
 
 
 
 
 
On Rent
 
 
960,414

 
 
 
913,476

Held for Rent
 
 
277,442

 
 
 
210,722

Total Assets
 
$
3,276,969

 
 
$
3,018,175

 
 
 
 
 
 
 
 
Senior Debt
 
$
492,813

 
 
$
366,275

Senior Notes
 
 
550,000

 
 
 
550,000

Total Liabilities
 
 
1,887,574

 
 
 
1,682,306

Stockholders' Equity
 
$
1,389,395

 
 
$
1,335,869

Note: During the fourth quarter of 2014, the Company revised its 2013 balance sheet and its statements of earnings for the three- and twelve-month periods ended December 31, 2013, to correct immaterial errors from prior years that resulted in an understatement of accrued liabilities, an overstatement of held for rent merchandise and an understatement of receivables. The correction resulted in an increase in accrued liabilities of $10.8 million, a decrease in on rent merchandise of $1.1 million and an increase in receivables of $0.5 million at December 31, 2013. The above corrections resulted in increases to net income of $0.2 million and $0.5 million for the three- and twelve-month periods ended December 31, 2013, respectively.  The statements of earnings for the three-month periods ended March 31, 2014, June 30, 2014, and September 30, 2014, will be revised in future filings to increase (decrease) net earnings by $(1.6) million, $0.1 million and $0.6 million, respectively.





Rent-A-Center, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS - UNAUDITED
Table 7
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
(In thousands, except per share data)
 
 
Revised
 
 
 
Revised
Revenues
 
 
 
 
 
Store
 
 
 
 
 
 
 
Rentals and fees
$
697,550

 
$
683,380

 
$
2,745,828

 
$
2,695,895

Merchandise sales
64,591

 
51,582

 
290,739

 
278,753

Installment sales
21,545

 
20,165

 
75,198

 
71,475

Other
5,573

 
3,889

 
19,949

 
18,133

Total store revenues
789,259

 
759,016

 
3,131,714

 
3,064,256

Franchise
 
 
 
 
 
 
 
Merchandise sales
5,591

 
6,015

 
19,236

 
24,556

Royalty income and fees
1,684

 
1,144

 
6,846

 
5,206

Total revenues
796,534

 
766,175

 
3,157,796

 
3,094,018

Cost of revenues
 
 
 
 
 
 
 
Store
 
 
 
 
 
 
 
Cost of rentals and fees
180,738

 
173,128

 
704,595

 
676,674

Cost of merchandise sold
57,221

 
40,303

 
231,520

 
216,206

Cost of installment sales
8,056

 
7,228

 
26,084

 
24,541

Total cost of store revenues
246,015

 
220,659

 
962,199

 
917,421

Vendor settlement charge (credit)
236

 

 
(6,836
)
 

Franchise cost of merchandise sold
5,252

 
5,563

 
18,070

 
23,104

Total cost of revenues
251,503

 
226,222

 
973,433

 
940,525

Gross profit
545,031

 
539,953

 
2,184,363

 
2,153,493

Operating expenses
 
 
 
 
 
 
 
Store expenses
 
 
 
 
 
 
 
Labor
222,099

 
237,451

 
888,929

 
881,671

Other store expenses
210,451

 
197,734

 
839,801

 
789,212

General and administrative expenses
37,484

 
41,467

 
162,316

 
147,621

Depreciation, amortization and write-down of intangibles
26,967

 
28,632

 
87,399

 
87,980

Other charges
336

 

 
12,456

 

Total operating expenses
497,337

 
505,284

 
1,990,901

 
1,906,484

Operating profit
47,694

 
34,669

 
193,462

 
247,009

Finance charges from refinancing

 

 
4,213

 

Interest expense
12,665

 
10,855

 
47,843

 
39,628

Interest income
(266
)
 
(156
)
 
(947
)
 
(815
)
Earnings before income taxes
35,295

 
23,970

 
142,353

 
208,196

Income tax expense
9,745

 
10,733

 
45,931

 
79,439

NET EARNINGS
$
25,550

 
$
13,237

 
$
96,422

 
$
128,757

Basic weighted average shares
52,917

 
52,946

 
52,850

 
54,804

Basic earnings per common share
$
0.48

 
$
0.25

 
$
1.82

 
$
2.35

Diluted weighted average shares
53,294

 
53,247

 
53,126

 
55,162

Diluted earnings per common share
$
0.48

 
$
0.25

 
$
1.81

 
$
2.33







Rent-A-Center, Inc. and Subsidiaries

SEGMENT INFORMATION HIGHLIGHTS - UNAUDITED

On January 1, 2014, the Company realigned its reporting structure to include its Canadian stores in the Core U.S. segment, which were previously reported in the International segment. The accompanying prior-year amounts and store counts have been revised to reflect this change, and we now refer to the segment formerly reported as "International" as "Mexico" since only that country's results are reported therein.

During the fourth quarter of 2014, management reevaluated its operating segments and segment reporting, and determined that the chief operating decision makers relied more heavily on operating profit before corporate allocations when evaluating segment performance than operating profit after corporate allocations. In the following tables, segment operating profit is presented before corporate allocations. Corporate costs, which are primarily costs incurred at our U.S. corporate headquarters, are reported separately to reconcile to operating profit reported in the consolidated statements of operations. The costs incurred at our Mexico field support center are reported in the Mexico segment because our Executive Vice President of Mexico Operations is responsible for Mexico's operations and its field support center. The Franchising segment's corporate costs are reported in the Franchising segment because the President of RAC Franchising International is responsible for that segment's operations and corporate functions. Certain corporate assets used to support our Core U.S., Acceptance Now and Mexico segments, including the land and building in which the corporate headquarters are located and related property assets, cash and prepaid expenses were also allocated historically to these operating segments based on segment revenue. In the following tables, corporate assets are reported separately to reconcile to the consolidated balance sheets. Management believes that these changes provide investors with a more precise view of field operations and corporate costs that accurately aligns with management's view of the business.

Table 8
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
Revenues
 
 
Revised
 
 
 
Revised
Core U.S.
$
600,515

 
$
615,138

 
$
2,414,659

 
$
2,527,660

Acceptance Now
169,188

 
129,763

 
644,853

 
489,425

Mexico
19,556

 
14,115

 
72,202

 
47,171

Franchising
7,275

 
7,159

 
26,082

 
29,762

Total revenues
$
796,534

 
$
766,175

 
$
3,157,796

 
$
3,094,018

Table 9
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
Gross profit
 
 
Revised
 
 
 
Revised
Core U.S.
$
432,294

 
$
447,573

 
$
1,753,269

 
$
1,822,243

Acceptance Now
97,375

 
80,597

 
372,012

 
290,647

Mexico
13,339

 
10,187

 
51,070

 
33,945

Franchising
2,023

 
1,596

 
8,012

 
6,658

Total gross profit
$
545,031

 
$
539,953

 
$
2,184,363

 
$
2,153,493







Table 10
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
Operating profit (loss)
 
 
Revised
 
 
 
Revised
Core U.S.
$
67,864

 
$
56,113

 
$
264,967

 
$
311,301

Acceptance Now
26,203

 
21,531

 
112,918

 
89,075

Mexico
(5,033
)
 
(5,667
)
 
(21,961
)
 
(22,828
)
Franchising
1,104

 
209

 
3,295

 
1,853

Total segment operating profit (loss)
90,138

 
72,186

 
359,219

 
379,401

Corporate
(42,444
)
 
(37,517
)
 
(165,757
)
 
(132,392
)
Total operating profit
$
47,694

 
$
34,669

 
$
193,462

 
$
247,009


Table 11
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
Depreciation, amortization and write-down of intangibles
 
 
Revised
 
 
 
Revised
Core U.S.
$
19,548

 
$
22,173

 
$
61,555

 
$
64,042

Acceptance Now
897

 
651

 
2,917

 
2,287

Mexico
1,641

 
1,525

 
6,683

 
5,450

Franchising
49

 
19

 
184

 
79

Total segments
22,135

 
24,368

 
71,339

 
71,858

Corporate
4,832

 
4,264

 
16,060

 
16,122

Total depreciation, amortization and write-down of intangibles
$
26,967

 
$
28,632

 
$
87,399

 
$
87,980

Table 12
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
Capital expenditures
 
 
Revised
 
 
 
Revised
Core U.S.
$
7,900

 
$
11,600

 
$
31,228

 
$
44,715

Acceptance Now
1,302

 
768

 
3,833

 
3,047

Mexico
238

 
2,864

 
4,164

 
11,537

Franchising

 

 

 

Total segments
9,440

 
15,232

 
39,225

 
59,299

Corporate
12,612

 
19,374

 
44,560

 
49,068

Total capital expenditures
$
22,052

 
$
34,606

 
$
83,785

 
$
108,367

Table 13
On Rent at December 31,
 
Held for Rent at December 31,
 
2014
 
2013
 
2014
 
2013
 
 
 
Revised
 
 
 
Revised
Rental merchandise, net
 
 
 
 
 
 
 
Core U.S.
$
593,945

 
$
611,375

 
$
264,211

 
$
195,926

Acceptance Now
345,703

 
284,421

 
4,897

 
3,837

Mexico
20,766

 
17,680

 
8,334

 
10,959

Total on rent rental merchandise, net
$
960,414

 
$
913,476

 
$
277,442

 
$
210,722







Table 14
December 31,
 
2014
 
2013
Assets
 
 
Revised
Core U.S.
$
2,519,771

 
$
2,479,297

Acceptance Now
420,660

 
358,305

Mexico
59,841

 
69,826

Franchising
2,604

 
1,688

Total segments
3,002,876

 
2,909,116

Corporate
274,093

 
109,059

Total assets
$
3,276,969

 
$
3,018,175







Rent-A-Center, Inc. and Subsidiaries

LOCATION ACTIVITY - UNAUDITED
Table 15
Three Months Ended December 31, 2014
 
Core U.S.
 
Acceptance Now
 
Mexico
 
Franchising
 
Total
Locations at beginning of period
2,841

 
1,359

 
176

 
188

 
4,564

New location openings

 
69

 
1

 
7

 
77

Acquired locations remaining open
4

 

 

 

 
4

Closed locations
 
 
 
 
 
 
 
 
 
Merged with existing locations

 
22

 

 

 
22

Sold or closed with no surviving location
21

 

 

 
8

 
29

Locations at end of period
2,824

 
1,406

 
177

 
187

 
4,594

Acquired locations closed and accounts merged with existing locations
6

 

 

 

 
6

Table 16
Three Months Ended December 31, 2013
 
Core U.S.
 
Acceptance Now
 
Mexico
 
Franchising
 
Total
Locations at beginning of period
2,992

 
1,254

 
150

 
213

 
4,609

New location openings
22

 
91

 
1

 
31

 
145

Acquired locations remaining open
35

 

 

 

 
35

Closed locations
 
 
 
 
 
 
 
 
 
Merged with existing locations
7

 
13

 

 

 
20

Sold or closed with no surviving location
32

 
7

 

 
65

 
104

Locations at end of period
3,010

 
1,325

 
151

 
179

 
4,665

Acquired locations closed and accounts merged with existing locations
20

 

 

 

 
20

Table 17
Year Ended December 31, 2014
 
Core U.S.
 
Acceptance Now
 
Mexico
 
Franchising
 
Total
Locations at beginning of period
3,010

 
1,325

 
151

 
179

 
4,665

New location openings
10

 
209

 
31

 
30

 
280

Acquired locations remaining open
6

 

 

 

 
6

Closed locations
 
 
 
 
 
 
 
 
 
Merged with existing locations
163

 
127

 
5

 

 
295

Sold or closed with no surviving location
39

 
1

 

 
22

 
62

Locations at end of period
2,824

 
1,406

 
177

 
187

 
4,594

Acquired locations closed and accounts merged with existing locations
13

 

 

 

 
13

Table 18
Year Ended December 31, 2013
 
Core U.S.
 
Acceptance Now
 
Mexico
 
Franchising
 
Total
Locations at beginning of period
3,008

 
966

 
90

 
224

 
4,288

New location openings
37

 
411

 
63

 
40

 
551

Acquired locations remaining open
47

 

 

 

 
47

Closed locations
 
 
 
 
 
 
 
 
 
Merged with existing locations
46

 
44

 
2

 

 
92

Sold or closed with no surviving location
36

 
8

 

 
85

 
129

Locations at end of period
3,010

 
1,325

 
151

 
179

 
4,665

Acquired locations closed and accounts merged with existing locations
38

 

 

 

 
38