RENT A CENTER INC DE - FORM 8-K/A - EX-99.2 - February 23, 2021

Attached files

file filename
EX-99.3 - EX-99.3 - RENT A CENTER INC DEex-993_proforma930inancials.htm
EX-99.1 - EX-99.1 - RENT A CENTER INC DEex-991_acima123119financia.htm
EX-23.1 - EX-23.1 - RENT A CENTER INC DEex-231_consentoftannerllc.htm
8-K/A - 8-K/A - RENT A CENTER INC DErcii-20210217.htm
EXHIBIT 99.2









ACIMA HOLDINGS, LLC

Consolidated Financial Statements (Unaudited)
September 30, 2020 and 2019



ACIMA HOLDINGS, LLC
Consolidated Balance Sheets
(Unaudited)


As of
September 30, 2020		As of
September 30, 2019
Assets
Cash$25,407,652 $18,036,364 
Lease receivables, net19,635,267 17,000,142 
Leased assets, net315,430,446 240,563,099 
Intangible assets, net10,966,109 9,399,536 
Other assets, net2,886,965 1,407,934 
Total assets$374,326,439 $286,407,075 
Liabilities and Equity
Operating liabilities$3,685,042 $3,747,885 
Lease liabilities17,696,549 12,252,003 
Income tax distribution payable49,900,000 3,300,000 
Sales tax obligation, net3,654,967 3,654,707 
Senior debt150,000,000 125,000,000 
Senior debt deferred costs— (547,768)
Junior debt2,500,000 2,500,000 
Total liabilities227,436,558 149,906,827 
Commitments and contingencies
Equity146,889,881 136,500,248 
Total liabilities and equity$374,326,439 $286,407,075 


See notes to consolidated financial statements.

1


ACIMA HOLDINGS, LLC
Consolidated Statements of Operations
(Unaudited)


For the
Nine Months Ended September 30, 2020		For the
Nine Months Ended September 30, 2019
Lease portfolio revenues, net$914,111,811 $618,927,960 
Direct lease portfolio costs:
Depreciation of leased assets692,572,458 476,450,131 
Direct lease costs25,392,503 20,383,006 
Total direct lease portfolio costs717,964,961 496,833,137 
Gross profit from lease portfolio196,146,850 122,094,823 
Interest costs:
Senior debt8,861,293 9,537,909 
Junior debt259,863 391,205 
Total interest costs9,121,156 9,929,114 
Net profit from lease portfolio187,025,694 112,165,709 
Operating costs:
Payroll costs, net21,323,426 16,763,095 
Other operating costs8,494,532 6,326,754 
Equity-based compensation995,007 532,232 
Total operating costs30,812,965 23,622,081 
Net income$156,212,729 $88,543,628 


See notes to consolidated financial statements.

2


ACIMA HOLDINGS, LLC
Consolidated Statements of Equity
(Unaudited)



For the
Nine Months Ended September 30, 2020		For the
Nine Months Ended September 30, 2019
Beginning equity$142,345,162 $63,579,522 
Equity-based compensation995,007 532,232 
Redemption of equity(3,235,272)(62,500)
Distributions(149,427,745)(16,092,634)
Net income156,212,729 88,543,628 
Ending equity$146,889,881 $136,500,248 


See notes to consolidated financial statements.

3


ACIMA HOLDINGS, LLC
Consolidated Statements of Cash Flows
(Unaudited)


For the
Nine Months Ended September 30, 2020		For the
Nine Months Ended September 30, 2019
Cash flows from operating activities:
Net income$156,212,729 $88,543,628 
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Net change in leased assets:
Purchases of leased assets(739,365,488)(538,859,690)
Depreciation of leased assets692,572,458 476,450,131 
Capitalized direct lease costs, net(144,194)(756,108)
(46,937,224)(63,165,667)
Other amortization:
Amortization of intangible assets2,473,279 1,853,493 
Deferred costs on debt313,009 704,277 
Equity-based compensation995,007 532,232 
3,781,295 3,090,002 
Net changes in other operating accounts:
Lease receivables1,118,981 (6,452,742)
Other assets(1,559,227)(21,681)
Operating liabilities(976,483)623,062 
Lease liabilities5,284,470 4,176,942 
Sales tax obligation4,815 (39,876)
3,872,556 (1,714,295)
Net cash provided by (used in) operating activities116,929,356 26,753,668 
Cash flows from investing activities:
Investment in intangible assets(3,408,313)(3,902,441)
Cash flows from financing activities:
Net change in junior debt— (2,500,000)
Redemption of equity(3,235,272)(62,500)
Distributions(105,427,745)(14,392,634)
Net cash provided by (used in) financing activities(108,663,017)(16,955,134)
Net change in cash4,858,026 5,896,093 
Beginning cash20,549,626 12,140,271 
Ending cash$25,407,652 $18,036,364 
Supplementary information:
Cash paid for interest$9,121,156 $9,929,114 


See notes to consolidated financial statements.

4

ACIMA HOLDINGS, LLC
Notes to Consolidated Financial Statements
(Unaudited)


1.Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Acima Credit, LLC was organized as a limited liability company in the State of Utah on March 8, 2013 (Inception). Until January 2017, Acima Credit, LLC was named Simple RTO, LLC and did business as Simple Finance. Acima Holdings, LLC was organized as a limited liability company in the State of Utah on April 20, 2018 and owns 100% of Acima Credit, LLC, and the former ownership group of Acima Credit, LLC was effectively transferred to Acima Holdings, LLC. Acima Solutions, LLC was organized as a limited liability company in the State of Utah on December 28, 2018 and is also 100% owned by Acima Holdings, LLC.

Our consolidated financial statements include the accounts of Acima Holdings, LLC, Acima Credit, LLC, and Acima Solutions, LLC (collectively, the Company). All material intercompany accounts and transactions are eliminated in consolidation. Acima Credit, LLC has historically held all lease activity and continues to hold all merchant point-of-sale lease activity. Acima Solutions, LLC took over all merchant ecommerce lease activity in 2020. Acima Holdings, LLC has essentially no activity.

Headquartered in Salt Lake City, Utah, Acima Credit, LLC offers a lease/purchase program in 46 states to customers of retail stores and merchants as an alternative to traditional financing. Leased assets consist primarily of home furniture, mattresses, appliances, and automobile tires. Under the lease program, lessees enter into a lease agreement, typically with the following basic terms and conditions:

•Periodic payments in fixed amounts
•Lease-to-own term typically approximately twelve months
•Same-as-cash purchase option within 90 days
•Discounted purchase option (65% of unpaid obligation)
•Cancelable anytime

Use of Estimates
Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The allowance for uncollectable receivables and the reserve for impaired leased assets are significant estimates.

Management estimates the allowance for uncollectable receivables and the reserve for impaired leased assets using statistical methods based on historical payment behaviors, collection trends, and underwriting characteristics. We have long used these methods to underwrite and monitor our lease portfolio and we believe them to be reliable for purposes of determining the necessary allowance and reserve.

For accounts with a regularly scheduled billing that is delinquent by 120 days or more, the related receivables are either charged off as uncollectable or reduced to zero net of the allowance, and the related leased asset is either fully depreciated or reduced to zero net of the reserve.

The provision for uncollectable receivables addressed in Note 2 consists of the net change in the allowance for uncollectable receivables and the amount of all lease receivables charged off during the period. The provision for unrecoverable leased assets addressed in Note 3 consists of the net change in the reserve for impaired leased assets, which acts to temporarily accelerate depreciation.

Concentrations of Credit Risk
The Company is exposed to the credit risk associated with its leases. If the Company’s customers quit making payments as contractually provided in their lease arrangements, the related lease receivables may not be collectable, and the related net leased assets may not be recoverable. The Company is also exposed to the credit risk associated with its cash balances that either are not insured or that exceed Federally insured limits.




5

ACIMA HOLDINGS, LLC
Notes to Consolidated Financial Statements - Continued
(Unaudited)


1.Nature of Business and Summary of Significant Accounting Policies
Continued
Lease Portfolio Income Recognition
Lease portfolio revenues consist of revenues earned from the lease or sale of leased assets. Revenues from the lease of leased assets is earned on a straight-line basis over the term of the lease, commencing once the lessee signs the lease agreement and receives the leased asset and the Company funds the lease, and ending when final payment is made. Revenues from the sale of leased assets (purchase option) is recognized upon receipt of the proceeds from sale.

Scheduled lease payments are considered receivable when billed. Lease payments received in excess of amounts billed are recognized as lessee deposits. For leases where lease revenues earned exceed the amounts billed, the excess is recognized as unbilled revenues earned. For leases where amounts billed exceed the lease revenues earned, the excess is recognized as unearned revenues billed.

The lease receivables line item in the consolidated balance sheets consists of billed and uncollected lease payments, unbilled revenues earned, and unearned revenues billed, less the allowance for uncollectable receivables. The lease liabilities line item in the consolidated balance sheets consists of lessee deposits, and sales taxes collected and held for remittance.

Servicing fees (e.g., late fees and insufficient-fund fees) and other lease income are recognized upon receipt.

Leased Assets
Leased assets are recorded at cost less accumulated depreciation and the reserve for impairment. Leased assets are depreciated on a straight-line basis over the term of the lease (generally twelve months). When leased assets are sold (purchase option) or the related accounts are settled or charged off, the remaining net cost is fully depreciated.

Direct Lease Costs
Direct lease costs consist of commissions and sales wages directly related to successful lease originations, plus the portion of processing, audit, and credit reporting costs spent on successful lease originations. Direct lease costs are capitalized with leased assets and amortized in a pattern that mirrors the depreciation of leased assets.

Intangible Assets
Intangible assets consist predominantly of the cost of developing internal-use software systems used to manage the Company’s lease operations. The cost of development deemed capitalizable under US generally accepted accounting principles (US GAAP) is capitalized in monthly tranches, and each month’s tranche is amortized on a straight-line basis over five years, which is the estimated average useful life of new systems development before it is superseded by new development. The internal-use software systems are evaluated for impairment. Impairment loss is recognized if the net carrying amount of an internal-use software system exceeds the undiscounted sum of cash flows expected to result from its use and disposition. Through September 30, 2020, no impairment has been recognized.

Fair Value of Financial Instruments
Our financial instruments include cash, receivables, payables, senior debt, and junior debt. The carrying amounts of cash, receivables, and payables approximate fair value because of the short maturities of these instruments. The interest rates on the senior debt are variable and so the carrying value approximates fair value. The junior debt is due on demand and so the carrying amount approximates fair value.






6

ACIMA HOLDINGS, LLC
Notes to Consolidated Financial Statements - Continued
(Unaudited)


1.Nature of Business and Summary of Significant Accounting Policies
Income Taxes
As a limited liability company, taxable income or loss from the Company is allocated to its members. Therefore, no provision or liability for income taxes has been included in the financial statements.
Continued
Sales Tax
In jurisdictions that require sales tax to be levied on lease payments received from the lessee, sales tax collected from the lessee is recognized as a liability until remitted, and no sales tax expense is recognized. In jurisdictions that require sales tax to be levied on the purchase of leased assets, sales tax has been capitalized as part of the cost of the leased assets.

Prior to March 1, 2017, sales tax was paid on the purchase of leased assets in all jurisdictions. For any lease executed prior to March 1, 2017 in jurisdictions that instead require sales tax to be levied on lease payments received from the lessee, the Company did not charge the lessee sales tax on lease payments, but has instead chosen to recognize a sales tax obligation, resulting in the recognition of expense.

Subsequent Events
The Company has evaluated, for potential accounting and disclosure, events and transactions occurring after September 30, 2020 through January 14, 2021, the date these consolidated financial statements were available to be issued.


2. Lease Receivables
Lease receivables consist of the following:
As of
September 30, 2020		As of
September 30, 2019
Billed lease receivables$31,590,700 $36,993,214 
Unbilled revenues earned18,542,261 13,732,133 
Unearned revenues billed(5,324,369)(4,436,794)
Allowance for uncollectability(25,173,325)(29,288,411)
Lease receivables, net$19,635,267 $17,000,142 
The provisions for uncollectable receivables totaling $106,871,739 and $88,790,543 for the nine months ended September 30, 2020 and 2019, respectively, were netted against lease portfolio revenues. Lease receivables charged off totaled $114,404,690 and $80,663,620 for the nine months ended September 30, 2020 and 2019, respectively.




7

ACIMA HOLDINGS, LLC
Notes to Consolidated Financial Statements - Continued
(Unaudited)


3. Leased Assets
Leased assets consist of the following:
As of
September 30, 2020		As of
September 30, 2019
Leased assets$501,456,498 $399,214,026 
Accumulated depreciation(176,704,830)(143,389,888)
Reserve for impairment(16,069,406)(21,331,854)
308,682,262 234,492,284 
Direct lease costs19,519,612 16,428,156 
Accumulated amortization(12,771,428)(10,357,341)
6,748,184 6,070,815 
Leased assets, net$315,430,446 $240,563,099 
The reserve for impairment is temporarily provided against unrecoverable leased assets until the leased asset becomes recoverable or fully depreciates. The provisions (recoveries) for unrecoverable leased assets totaling $(7,151,191) and $5,101,664 for the nine months ended September 30, 2020 and 2019, respectively, were added to (subtracted from) the depreciation of leased assets.
 
Direct lease costs consist of the capitalized cost of sales commissions and rebates; sales, processing, and underwriting wages; and consumer credit information. Direct lease costs totaling $14,545,966 and $12,477,467 were capitalized in the nine months ended September 30, 2020 and 2019, respectively.


4. Intangible Assets
Intangible assets consist of the following:
As of
September 30, 2020		As of
September 30, 2019
Internal-use software systems$19,426,467 $14,658,332 
Accumulated amortization(8,460,358)(5,258,796)
Intangible assets, net$10,966,109 $9,399,536 
Internal-use software systems consist of the capitalized cost of employed software developers. Development costs totaling $3,408,313 and $3,902,441 were capitalized in the nine months ended September 30, 2020 and 2019, respectively.





8

ACIMA HOLDINGS, LLC
Notes to Consolidated Financial Statements - Continued
(Unaudited)


5. Lease Liabilities
Lease liabilities consist of the following:
As of
September 30, 2020		As of
September 30, 2019
Customer deposits held$12,672,248 $7,654,841 
Sales tax collected and payable5,024,301 4,597,162 
Lease liabilities$17,696,549 $12,252,003 
6. Borrowings
Senior debt consists of the following:
As of
September 30, 2020		As of
September 30, 2019
Senior Debt *
Comvest debt facility, borrowings limited to 69% of eligible receivables** limited to $150 million, interest paid monthly at LIBOR plus 6%, principal and unpaid interest is due April 26, 2021
$150,000,000 $125,000,000 
Senior debt deferred costs— (547,768)
Net senior debt$150,000,000 $124,452,232 
*The senior debt is secured by the Company’s leases, its assets, and the members’ ownership in the Company. The senior debt is senior in priority to the junior debt. The Company is in compliance with its senior debt covenants.

**Eligible receivables are defined as the sum of the cost of all leased assets originated in the trailing 12 months multiplied by 127.5%, minus the sum of all lease payments received related to the leased assets originated in the trailing 12 months, subject to certain concentration limits.






9

ACIMA HOLDINGS, LLC
Notes to Consolidated Financial Statements - Continued
(Unaudited)


6. Borrowings
Continued
Junior debt consists of the following:
As of
September 30, 2020		As of
September 30, 2019
Junior Debt ***
Notes payable to the CEO (and principal owner) with principal due on demand:
     Interest at 15% paid monthly
$2,000,000 $2,000,000 
     Interest at 10% paid monthly500,000 500,000 
Total junior debt$2,500,000 $2,500,000 
***All junior debt is unsecured and subordinated to the senior debt. In the event any payment is made on junior debt, the Company must remain in good standing with the senior debt (no event of default).

As of September 30, 2020, total borrowings come due as follows:
Junior debt due on demand
$2,500,000 
Senior debt due April 26, 2021150,000,000 
$152,500,000 
7. Contingencies
In the ordinary course of the Company’s operations, the Company may be subject to contingent losses as a result of claims or assessments. As of September 30, 2020, management believes no known asserted claim or assessment will have a significant effect on the financial position or operations of the Company. It is too early to determine whether any unasserted claim or assessment will have a significant effect on the financial position or operations of the Company.

8. Equity and
Equity-Based Compensation
The Company’s equity consists of Class A and Class B Units. There is no meaningful difference between the two classes of equity, in terms of preferences or otherwise, except that Class A Units represent capital interests and Class B Units represent profits interests. Class A Units were issued to founders and investors, and Class B Units were issued to certain key employees. As of September 30, 2020, Class A and Class B Units totaled 198,804,633 and the Company was authorized to issue additional Class B Units totaling 1,195,367.





10

ACIMA HOLDINGS, LLC
Notes to Consolidated Financial Statements - Continued
(Unaudited)


8. Equity and
Equity-Based Compensation Continued
Equity transactions consist of the following (in units):
As of and
For the
Nine Months Ended September 30, 2020		As of and
For the
Nine Months Ended September 30, 2019
Class A Units:
Number of units178,236,600 178,236,600 
Class B Units:
Beginning number of units
19,099,978 20,099,978 
Issuances as incentives4,230,000 650,000 
Forfeitures of unvested(734,167)(104,167)
Redemptions(2,027,778)(45,833)
Ending number of units20,568,033 20,599,978 
Total number of units198,804,633 198,836,578 
Equity-based compensation totaled $995,007 and $532,232 for the nine months ended September 30, 2020 and 2019, respectively.

9. Premises Rent
On February 7, 2020, the Company entered into a lease agreement to rent premises in Draper, Utah for a period of 66 months. Minimum rents come due after September 30, 2020 as follows:
In the years ending December 31:
2020
$155,199 
2021
2,131,866 
2022
2,195,821 
2023
2,261,688 
2024
2,329,529 
2025
1,994,595 
$11,068,698 
In February 2016, the Financial Accounting Standards Board issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842). Starting for the annual period ending December 31, 2021, this guidance will require the Company to recognize its obligation to make future premises lease payments as a liability, and to recognize its right to use the leased premises as an asset, in the consolidated balance sheets. Currently, no premises lease liability or premises right-of-use asset is presented in the consolidated balance sheets.

Amortization of the premises right-of-use asset shall be patterned such that, when combined with Interest accrued on the premises lease liability, the combined lease cost behaves as a single lease cost recognized on a straight-line basis over the term of the lease. Currently, premises rent is already recognized on a straight-line basis over the term of the lease. The Company has the option to renew the premises lease for an additional five years.

10. Subsequent EventOn December 20, 2020, the Company entered into a definitive agreement to be acquired by Rent-A-Center (NASDAQ: RCII). Total consideration consists of $1.273 billion in cash and approximately 10.8 million shares of Rent-A-Center common stock valued at $377 million at the time of signing. Regulatory approval is required before the acquisition is closed. Regulatory approval remains outstanding as of January 14, 2021, the date these consolidated financial statements were available to be issued.




11

RENT A CENTER INC DE Reports