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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-44451
SUPPLEMENT
TO
JOINT PROXY STATEMENT
OF
ALRENCO, INC.
AND
RTO, INC.
---------------------
PROSPECTUS
OF
ALRENCO, INC.
This Supplement (this "Supplement") to the Joint Proxy Statement/Prospectus
relates to the proposed merger and certain related transactions contemplated by
the Agreement and Plan of Merger, dated as of September 28, 1997, as amended
(the "Merger Agreement"), by and between Alrenco, Inc., an Indiana corporation
("Alrenco") and RTO, Inc., a Delaware corporation ("RTO"). The Joint Proxy
Statement/Prospectus was originally mailed to shareholders of Alrenco (the
"Alrenco Shareholders") and stockholders of RTO (the "RTO Stockholders") on or
about January 21, 1998. Subsequent to such mailing, management of both Alrenco
and RTO have developed additional information relating to the results of
operations of Alrenco and RTO for the fiscal quarter ended December 31, 1997.
The purpose of this Supplement is to inform you of such developments. See
"Recent Developments."
This Supplement also constitutes a supplement to the Prospectus of Alrenco
filed as part of the Registration Statement on Form S-4 under the Securities Act
of 1933, as amended, with respect to up to 12,280,316 shares of common stock, no
par value, of Alrenco, to be issued to RTO Stockholders pursuant to the terms of
the Merger Agreement. To the extent information in this Supplement differs from
or conflicts with information contained in the Joint Proxy Statement/Prospectus,
then this Supplement shall supersede and replace the Joint Proxy
Statement/Prospectus. To the extent certain capitalized terms are used herein
and not otherwise defined herein, such terms shall have the meanings ascribed
thereto in the Joint Proxy Statement/Prospectus. All information contained
herein with respect to Alrenco has been furnished by Alrenco and all information
contained herein with respect to RTO has been furnished by RTO.
SEE "RISK FACTORS" BEGINNING ON PAGE 19 OF THE JOINT PROXY
STATEMENT/PROSPECTUS FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE SHARES OF ALRENCO
COMMON STOCK OFFERED THEREBY AND HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Supplement is February 11, 1998. This Supplement is first
being mailed to the Alrenco Shareholders and the RTO Stockholders on or about
February 12, 1998.
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RECENT DEVELOPMENTS
ALRENCO
On February 6, 1998, Alrenco reported financial results for the fourth
quarter and year ended December 31, 1997. Revenue for the year ended December
31, 1997 increased 61% to $102.6 million from $63.9 million in 1996. Operating
profit was $7.0 million compared with $6.7 million for the year earlier period.
Net earnings for the year decreased 2% to $3.6 million from $3.7 million for the
prior year. Earnings per diluted share were $0.59 for 1997 compared with $0.76
for 1996.
For the fourth quarter, revenue increased 34% to $26.4 million from $19.7
million for the fourth quarter of 1996. Operating profit was $218,000 compared
with an operating profit of $1.4 million for the year earlier period. Net loss
for the quarter was ($540,000), or ($0.09) per diluted share, compared with net
earnings of $914,000, or $0.15 per diluted share, for the prior year period.
Operating results for the fourth quarter were adversely affected by several
factors, including (i) a decline in number of units on rent and collection
rates, (ii) settlement costs incurred in connection with a federal income tax
audit, (iii) write-offs or unsaleable rental merchandise, and (iv) establishment
of additional reserves for self-insurance and rental merchandise. The following
discussion provides additional information and analysis regarding Alrenco's
operations and financial results for the fourth quarter of 1997.
Revenue. Revenue for the quarter was adversely affected by several
factors, including (i) the midyear decline in units on rent of over 6,000 units,
(ii) a decline in average collection percentage of approximately 4% following
the announcement of the merger with RTO, (iii) lower gross profits due to an
aggressive discounting program and (iv) the failure to recover the 6,000 units
forecast for the fourth quarter. The effect on net income from these items was
approximately $760,000 for the quarter and approximately $2.1 million for the
year. Earnings per diluted share for the quarter and year were negatively
impacted by $0.13 and $0.35, respectively.
Partial Settlement of Income Tax Audit. In December 1997, Alrenco reached
a partial settlement with the Internal Revenue Service on an income tax audit
for the years 1992 through 1995. The settlement resulted in the payment of
$167,200 in additional income taxes and $50,300 in interest. Those one-time
expenses resulted in an earnings per share decline for the quarter and total
year of $0.03. Management of Alrenco is in the process of appealing the
remaining unresolved issues.
Changes in Estimates. Alrenco merged a number of stores to effect a more
efficient and profitable environment for the markets in which those stores are
situated. The resulting lease abandonment and write-off of prepaid rents
amounted to a loss of $110,000 for the quarter and year of $0.01 per diluted
share.
Alrenco is largely self-insured and must therefor provide reserves for
self-insurance losses. These reserves are periodically reviewed and adjusted
based on loss experience. Adjustments in the fourth quarter impacted net income
by approximately $60,000 or $0.01 per share.
In November and December 1997, management of Alrenco began a process of
critically reviewing the condition of rental merchandise held by Alrenco with a
goal of establishing any needed reserves to reduce the carrying value to true
market value. In doing so, it was determined that certain units of inventory and
rental accounts had significantly reduced or no value. In December unsaleable
rental merchandise of $160,000 was written off. Additionally, some functional
units were sold at bargain prices, generating a gross loss of approximately
$30,000. To ensure all remaining units are carried at a realizable level,
additional provisions of $480,000 were created. The impact of these items was
approximately $402,000 or $0.07 per diluted share.
Miscellaneous Expenses. Alrenco incurred various unanticipated
administrative and advertising expenses in the fourth quarter. The aggregate
impact of these items on net earnings was approximately $355,000 or $0.06 per
share.
RTO
Based upon preliminary unaudited financial results, RTO expects to report a
loss before income tax of approximately $8.5 million to $9.5 million during the
quarter ended December 31, 1997, as compared to a pre-tax loss for the third
quarter of 1997 of approximately $2.0 million. This loss is primarily
attributable to
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(i) losses incurred at stores opened during 1997, (ii) costs incurred with
respect to the Merger, (iii) higher advertising expenses and other costs
associated with changing the name of 165 of RTO's existing stores to "Home
Choice," (iv) higher store level expenses and (v) higher corporate expenses due
both to the Merger and to RTO's substantial growth since its inception.
New store openings. During the fourth quarter of 1997, RTO opened 18 new
stores, as compared to a total of 16 new stores opened during the first three
quarters of 1997. RTO expects an operating loss of approximately $1.5 million
from these 34 stores during the quarter ended December 31, 1997 compared to a
loss of approximately $800,000 during the quarter ended September 30, 1997. For
the year, RTO expects these stores to report an operating loss of approximately
$3.0 million. RTO also expects these stores to continue to incur losses in the
near term.
Merger related expenses. During the quarter ended December 31, 1997, RTO
incurred costs related to the Merger, including legal and accounting expenses,
of approximately $1.5 million. RTO expects to incur additional merger related
expenses in the first quarter of 1998.
Expenses associated with name change and other promotional
activities. During the quarter ended December 31, 1997, RTO incurred
advertising expenses of approximately $1.4 million in excess of normally
recurring levels for advertising and other marketing costs related to changing
the name of RTO's 267 stores and, upon completion of the Merger, Alrenco's
stores to "Home Choice", as well as a new marketing campaign directed at
promoting the "Home Choice" name. RTO incurred additional expenses relating to
the name change of approximately $800,000 for items such as expensing the net
carrying value of replaced old signs and branded supplies at 165 of RTO's 267
stores, as well as expensing new vehicle decals for 600 of RTO's 750 vehicles
consistent with prior accounting policies. RTO's accounting policy with respect
to advertising costs is to expense these costs when incurred. RTO began its
advertising campaign in 1997 and plans to continue the campaign, and expects to
incur additional costs, throughout 1998. Advertising and other promotional
expenses, other than those associated with the name change, increased by
approximately $350,000 primarily as a result of the costs of RTO's "customer
appreciation day" promotion in December.
Other direct store expenses. During the fourth quarter of 1997, store
level staffing increased (i) in anticipation of the Merger, (ii) in order to
effectively manage the growth that RTO has experienced since its inception in
June 1996 and (iii) in response to seasonal business trends. For these reasons
and due to the inclusion of a full quarter of expenses of Amigo's stores in the
fourth quarter, store level salaries and related expenses (excluding employee
insurance and new store expenses) increased approximately $450,000 during the
fourth quarter as compared to the third quarter of 1997. In addition, other
direct store expenses, excluding expenses for new stores and advertising,
increased approximately $700,000 due to (i) the inclusion in the fourth quarter
of a full quarter of expenses of the Amigo group of stores which were acquired
in July 1997, (ii) higher insurance expense resulting from increases in store,
vehicle and employee counts and the temporary extension of the Company's
property, casualty and workers compensation coverages at higher than normal
rates while permanent coverages with a new carrier were being purchased and
(iii) increases in product cost resulting primarily from lower margins on a
comparable level of cash sales to the third quarter and higher fee revenue
related expenses that increased proportionately to the related fee revenue.
While increased staffing of the combined company will continue to be
necessary, management of RTO cannot estimate to what extent such additional
personnel will result in duplication of functions in the combined company. To
the extent functions may be duplicative, salary expenses may be reduced in the
future.
Corporate expenses. Salaries and related expenses have increased at the
corporate level by approximately $930,000 due primarily to recruiting and
relocating certain key employees, including RTO's chief operating officer,
vice-president of marketing and corporate controller, increasing support staff,
severance costs relating to the termination of certain employees and year-end
support staff bonuses. Interest expense will be approximately $250,000 higher
compared to the quarter ended September 30, 1997, because of a higher balance
outstanding under RTO's credit facilities.
RTO does not believe that the expected loss for the quarter ended December
31, 1997 reflects any material adverse change in its business. Units on rent
increased by 20,808, or 10%, during the fourth quarter as compared to units on
rent at September 30, 1997. RTO believes that the fourth quarter loss is
primarily attributable to higher costs associated with the growth of its
business through new store openings and
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acquisitions of stores and expenses incurred to manage new stores opened during
1997 and stores acquired during 1997 as well as higher expenses incurred in
anticipation of managing Alrenco's 165 stores and in connection with the Merger.
RTO expects to open 50 new stores during 1998, including 8 or 9 stores
during the first quarter of 1998, and expects to continue to acquire existing
stores during 1998. New stores opened during 1998 are expected to operate at a
loss for a period of 6 to 9 months after opening. Acquired stores may also be
unprofitable when acquired or may become unprofitable during the period of
acquisition due to disruptions in their business operations caused by the
acquisition. Some stores acquired as part of an acquisition of a larger group of
stores may be closed because they are unprofitable. The operating results of new
and acquired stores may also suffer because of disruptions associated with
integrating their operations into the existing operations of RTO.
Because of these factors, the growth of RTO's business through new store
openings and acquisitions of existing stores is likely to affect RTO's results
of operations and financial condition. Such factors may also cause quarterly
results to vary from quarter to quarter and may cause the market price of the
common stock of the combined company to fluctuate substantially.
ADJOURNMENT OF THE MEETINGS
ALRENCO
In order to provide the Alrenco Shareholders with sufficient time to
consider the information contained in this Supplement, the Alrenco Board has
decided to adjourn the Alrenco Special Meeting to a new date and time. The
adjourned Alrenco Special Meeting will resume on February 26, 1998, at 10:00
a.m., local time, at the offices of King & Spalding, 50th Floor, 191 Peachtree
Street, Atlanta, Georgia 30303. At the Alrenco Special Meeting, the Alrenco
Shareholders will be asked to consider and vote upon a proposal to approve the
Merger Agreement, including the Stock issuance and the Articles Amendment.
Consummation of the Merger is conditioned upon approval by the Alrenco
Shareholders of the Merger Agreement, including the Stock Issuance and the
Articles Amendment.
A form of proxy for the Alrenco Special Meeting was enclosed with the
copies of the Joint Proxy Statement/Prospectus that were sent to Alrenco
Shareholders. All shares of Alrenco Common Stock held of record as of the
Alrenco Record Date represented by properly executed proxies will, unless such
proxies have been previously revoked, be voted in accordance with the
instructions indicated on such proxies. If no instructions are indicated, such
shares will be voted FOR the proposal to approve the Merger Agreement, including
the Stock Issuance and the Articles Amendment and, in the discretion of the
proxy holder, as to any other matter which may properly come before the Alrenco
Special Meeting. An additional proxy card has been enclosed with this
Supplement. If you have not yet returned your proxy or you wish to change your
prior vote, you should complete, sign and date the enclosed proxy card and
return it in the enclosed postage-prepaid envelope. If you have already returned
your proxy card, your prior vote on the Merger will still be counted, unless you
revoke your prior vote or send in a new proxy card.
The Alrenco Board is not aware of any other matters which may be presented
for action at the Alrenco Special Meeting, but if other matters do properly come
before the Alrenco Special Meeting, it is intended that shares represented by
proxies in the form accompanying the Joint Proxy Statement/Prospectus will be
voted by the persons named in the proxy in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked in writing by the
person giving it at any time before the proxy is exercised by giving written
notice to the Alrenco Secretary or by submitting a proxy having a later date or
by such person appearing at the Alrenco Special Meeting and electing to vote in
person.
THE ALRENCO BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE ALRENCO SHAREHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT, INCLUDING THE STOCK ISSUANCE AND THE
ARTICLES AMENDMENT.
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RTO
In order to provide the RTO Stockholders with sufficient time to consider
the information contained in this Supplement, the RTO Board has decided to
adjourn the RTO Special Meeting to a new date and time. The adjourned RTO
Special Meeting will resume on February 26, 1998, at 10:00 a.m., local time, at
the offices of King & Spalding, 50th Floor, 191 Peachtree Street, Atlanta,
Georgia 30303. At the RTO Special Meeting, the RTO Stockholders will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement.
Consummation of the Merger is conditioned upon approval and adoption by the RTO
Stockholders of the Merger Agreement.
A form of proxy for the RTO Special Meeting was enclosed with the copies of
the Joint Proxy Statement/Prospectus that were sent to RTO Stockholders. All
shares of RTO Common Stock held of record as of the RTO Record Date represented
by properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such shares will be voted FOR the proposal to
approve and adopt the Merger Agreement and, in the discretion of the proxy
holder, as to any other matter which may properly come before the RTO Special
Meeting. An additional proxy card has been enclosed with this Supplement. If you
have not yet returned your proxy or you wish to change your prior vote, you
should complete, sign and date the enclosed proxy card and return it in the
enclosed postage-prepaid envelope. If you have already returned your proxy card,
your prior vote on the Merger will still be counted, unless you revoke your
prior vote or send in a new proxy card.
The RTO Board is not aware of any other matters which may be presented for
action at the RTO Special Meeting, but if other matters do properly come before
the RTO Special Meeting, it is intended that shares represented by proxies in
the form accompanying the Joint Proxy Statement/Prospectus will be voted by the
persons named in the proxy in accordance with their best judgment. Any proxy
given pursuant to this solicitation may be revoked in writing by the person
giving it at any time before the proxy is exercised by giving written notice to
the RTO Secretary or by submitting a proxy having a later date or by such person
appearing at the RTO Special Meeting and electing to vote in person.
THE RTO BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS
THAT THE RTO STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
FORWARD LOOKING STATEMENTS
Certain matters discussed in this Supplement constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The forward-looking statements relate to anticipated financial
performance, management's plans and objectives for future operations, growth
strategies, business prospects, industry trends and other matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements in certain circumstances. Forward-looking statements
include the information concerning possible or assumed future results of
operations of the combined company after the Merger and other statements in this
Supplement identified by words such as "anticipate," "estimate," "expect" and
"believe."
Readers are cautioned that such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the combined company following the
Merger to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors may affect the combined company's operations, markets, products,
services and prices. In addition to any assumptions and other factors referred
to specifically in connection with such forward-looking statements, factors that
could cause the combined company's actual results to differ materially from
those contemplated in any forward-looking statement include, among others, the
following: general economic and business conditions; changes in the competitive
environment within the rental-purchase industry; the ability of Alrenco and RTO
to integrate their respective operations following the Merger; the ability to
integrate and manage future acquired businesses; the rate of acquisitions and
new store openings; the ability to open new rental-purchase stores on a
profitable basis; the ability of Alrenco and RTO to implement and to obtain
anticipated cost savings related to the Merger and realize anticipated cost
savings; the actual costs required to effect the Merger and to realize Merger
synergies and cost savings; and changes in business strategy or development
plans.
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