| RENT A CENTER INC DE Item 1A Risk Factors |
| You should carefully consider the risks described below before making an investment decision |
| We believe these are all the material risks currently facing our business |
| Our business, financial condition or results of operations could be materially adversely affected by these risks |
| The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment |
| You should also refer to the other information included or incorporated by reference in this report, including our financial statements and related notes |
| We may not be able to successfully implement our growth strategy, which could cause our future earnings to grow more slowly or even decrease |
| As part of our growth strategy, we intend to increase our total number of rent-to-own stores in both existing markets and new markets through a combination of new store openings and store acquisitions |
| In 2005, however, we decreased our store base by 115 stores, as part of our critical evaluation of all stores and in anticipation of continued store growth |
| This growth strategy is subject to various risks, including uncertainties regarding our ability to open new rent-to-own stores and our ability to acquire additional rent-to-own stores on favorable terms |
| We may not be able to continue to identify profitable new store locations or underperforming competitors as we currently anticipate |
| Our continued growth also depends on our ability to increase sales in our existing rent-to-own stores |
| We also plan to grow through expansion into the financial services business |
| We face risks associated with integrating this new business into our existing operations |
| In addition, the financial services industry is highly competitive and regulated by federal, state and local laws |
| Our growth strategy could place a significant demand on our management and our financial and operational resources |
| If we are unable to implement our growth strategy, our earnings may grow more slowly or even decrease |
| If we fail to effectively manage the growth and integration of our new rent-to-own stores, our financial results may be adversely affected |
| The addition of new rent-to-own stores, both through store openings and through acquisitions, requires the integration of our management philosophies and personnel, standardization of training programs, realization of operating efficiencies and effective coordination of sales and marketing and financial reporting efforts |
| In addition, acquisitions in general are subject to a number of special risks, including adverse short-term effects on our reported operating results, diversion of management’s attention and unanticipated problems or legal liabilities |
| Further, a newly opened rent-to-own store generally does not attain positive cash flow during its first year of operations |
| There are legal proceedings pending against us seeking material damages |
| The costs we incur in defending ourselves or associated with settling any of these proceedings, as well as a material final judgment or decree against us, could materially adversely affect our financial condition by requiring the payment of the settlement amount, a judgment or the posting of a bond |
| Some lawsuits against us involve claims that our rental agreements constitute installment sales contracts, violate state usury laws or violate other state laws enacted to protect consumers |
| We are also defending a class action lawsuit alleging we violated the securities laws and lawsuits alleging we violated state wage and hour laws |
| Because of the uncertainties associated with litigation, we cannot estimate for you our ultimate liability for these matters, if any |
| Significant settlement amounts or final judgments could materially and adversely 13 _________________________________________________________________ [67]Table of Contents affect our liquidity |
| The failure to pay any judgment would be a default under our senior credit facilities and the indenture governing our outstanding subordinated notes |
| Our debt agreements impose restrictions on us which may limit or prohibit us from engaging in certain transactions |
| If a default were to occur, our lenders could accelerate the amounts of debt outstanding, and holders of our secured indebtedness could force us to sell our assets to satisfy all or a part of what is owed |
| Covenants under our senior credit facilities and the indenture governing our outstanding subordinated notes restrict our ability to pay dividends, engage in various operational matters, as well as require us to maintain specified financial ratios and satisfy specified financial tests |
| Our ability to meet these financial ratios and tests may be affected by events beyond our control |
| These restrictions could limit our ability to obtain future financing, make needed capital expenditures or other investments, repurchase our outstanding debt or equity, withstand a future downturn in our business or in the economy, dispose of operations, engage in mergers, acquire additional stores or otherwise conduct necessary corporate activities |
| Various transactions that we may view as important opportunities, such as specified acquisitions, are also subject to the consent of lenders under the senior credit facilities, which may be withheld or granted subject to conditions specified at the time that may affect the attractiveness or viability of the transaction |
| If a default were to occur, the lenders under our senior credit facilities could accelerate the amounts outstanding under the credit facilities, and our other lenders could declare immediately due and payable all amounts borrowed under other instruments that contain certain provisions for cross-acceleration or cross-default |
| In addition, the lenders under these agreements could terminate their commitments to lend to us |
| If the lenders under these agreements accelerate the repayment of borrowings, we may not have sufficient liquid assets at that time to repay the amounts then outstanding under our indebtedness or be able to find additional alternative financing |
| Even if we could obtain additional alternative financing, the terms of the financing may not be favorable or acceptable to us |
| The existing indebtedness under our senior credit facilities is secured by substantially all of our assets |
| Should a default or acceleration of this indebtedness occur, the holders of this indebtedness could sell the assets to satisfy all or a part of what is owed |
| Our senior credit facilities also contain certain provisions prohibiting the modification of our outstanding subordinated notes, as well as limiting the ability to refinance such notes |
| A change of control could accelerate our obligation to pay our outstanding indebtedness, and we may not have sufficient liquid assets to repay these amounts |
| Under our senior credit facilities, an event of default would result if a third party became the beneficial owner of 35dtta0prca or more of our voting stock or upon certain changes in the constitution of our Board of Directors |
| As of December 31, 2005, we were required to make principal payments under our senior credit facilities of dlra3dtta5 million in 2006, dlra3dtta5 million in 2007, dlra3dtta5 million in 2008, dlra168dtta0 million in 2009 and dlra166dtta3 million after 2009 |
| These payments reduce our cash flow |
| A change in control also would result in an event of default under our senior credit facilities, which would allow our lenders to accelerate indebtedness owed to them |
| If the lenders under our debt instruments accelerate these obligations, we may not have sufficient liquid assets to repay amounts outstanding under these agreements |
| Rent-to-own transactions are regulated by law in most states |
| Any adverse change in these laws or the passage of adverse new laws could expose us to litigation or require us to alter our business practices |
| As is the case with most businesses, we are subject to various governmental regulations, including specifically in our case regulations regarding rent-to-own transactions |
| There are currently 47 states that have 14 _________________________________________________________________ [68]Table of Contents passed laws regulating rental purchase transactions and another state that has a retail installment sales statute that excludes rent-to-own transactions from its coverage if certain criteria are met |
| These laws generally require certain contractual and advertising disclosures |
| They also provide varying levels of substantive consumer protection, such as requiring a grace period for late fees and contract reinstatement rights in the event the rental purchase agreement is terminated |
| The rental purchase laws of nine states limit the total amount of rentals that may be charged over the life of a rental purchase agreement |
| Several states also effectively regulate rental purchase transactions under other consumer protection statutes |
| We are currently subject to litigation alleging that we have violated some of these statutory provisions |
| Although there is currently no comprehensive federal legislation regulating rental-purchase transactions, adverse federal legislation may be enacted in the future |
| From time to time, legislation has been introduced in Congress seeking to regulate our business |
| In addition, various legislatures in the states where we currently do business may adopt new legislation or amend existing legislation that could require us to alter our business practices |
| Financial services transactions are regulated by federal law as well as the laws of certain states |
| Any adverse changes in these laws or the passage of adverse new laws with respect to the financial services business could slow our growth opportunities, expose us to litigation or alter our business practices in a manner that we may deem to be unacceptable |
| Our financial services business is subject to federal statutes and regulations such as the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, and similar state laws |
| In addition, thirty-four states and the District of Columbia provide safe harbor regulations for short term consumer lending, and two additional states permit short term consumer lending by licensed dealers |
| Safe harbor regulations typically set maximum fees, size and length of the loans |
| Congress and/or the various legislatures in the states where we currently intend to offer financial services products may adopt new legislation or amend existing legislation with respect to our financial services business that could require us to alter our business practices in a manner that we may deem to be unacceptable, which could slow our growth opportunities |
| Our business depends on a limited number of key personnel, with whom we do not have employment agreements |
| The loss of any one of these individuals could disrupt our business |
| Our continued success is highly dependent upon the personal efforts and abilities of our senior management, including Mark E Speese, our Chairman of the Board and Chief Executive Officer and Mitchell E Fadel, our President and Chief Operating Officer |
| We do not have employment contracts with or maintain key-person insurance on the lives of any of these officers and the loss of any one of them could disrupt our business |
| Our organizational documents and debt instruments contain provisions that may prevent or deter another group from paying a premium over the market price to our stockholders to acquire our stock |
| Our organizational documents contain provisions that classify our board of directors, authorize our board of directors to issue blank check preferred stock and establish advance notice requirements on our stockholders for director nominations and actions to be taken at annual meetings of the stockholders |
| In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law relating to business combinations |
| Our senior credit facilities and the indenture governing our subordinated notes each contain various change of control provisions which, in the event of a change of control, would cause a default under those provisions |
| These provisions and arrangements could delay, deter or prevent a merger, consolidation, tender offer or other business combination or change of control involving us that could include a premium over the market price of our common stock that some or a majority of our stockholders might consider to be in their best interests |
| 15 _________________________________________________________________ [69]Table of Contents We are a holding company and are dependent on the operations and funds of our subsidiaries |
| We are a holding company, with no revenue generating operations and no assets other than our ownership interests in our direct and indirect subsidiaries |
| Accordingly, we are dependent on the cash flow generated by our direct and indirect operating subsidiaries and must rely on dividends or other intercompany transfers from our operating subsidiaries to generate the funds necessary to meet our obligations, including the obligations under our senior credit facilities and our outstanding subordinated notes |
| The ability of our subsidiaries to pay dividends or make other payments to us is subject to applicable state laws |
| Should one or more of our subsidiaries be unable to pay dividends or make distributions, our ability to meet our ongoing obligations could be materially and adversely impacted |
| Our stock price is volatile, and you may not be able to recover your investment if our stock price declines |
| The price of our common stock has been volatile and can be expected to be significantly affected by factors such as: • quarterly variations in our results of operations, which may be impacted by, among other things, changes in same store sales, when and how many rent-to-own stores we acquire or open, and the rate at which we add financial services to our existing rent-to-own stores; • quarterly variations in our competitors’ results of operations; • changes in earnings estimates or buy/sell recommendations by financial analysts; • the stock price performance of comparable companies; and • general market conditions or market conditions specific to particular industries |
| Effective internal controls are necessary for us to provide reliable financial reports |
| If we cannot provide reliable financial reports, our brand and operating results could be harmed |
| All internal control systems, no matter how well designed, have inherent limitations |
| Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation |
| While we continue to evaluate and improve our internal controls, we cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future |
| Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations |
| We have completed documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments |
| For the year ended December 31, 2005, our management has determined that our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles |
| Please refer to management’s annual report on internal control over financial reporting, and the report by Grant Thornton LLP, which appear later in this report |
| If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act |
| Failure to achieve and maintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price |