UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: July 9, 1995
or
[ ] Transition Report Pursuant to Section 13 or (15(d) of the
Securities Exchange Act of 1934
For the transition period from __________________ to __________
Commission file number: 0-1234-8
Advantage Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 48-1156618
(State or otherjurisdiction of incorporation (I.R.S.
or organization) Employer ID No.)
9323 E. 37th St. North, Wichita, Kansas 67226-2000
(Address of principal executive office) (Zip Code)
Registrants telephone number, including area code: (316) 634-0333
____________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ______
4,241,938 common shares were outstanding as of July 9, 1995.
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<TABLE>
Part 1. Financial Information
Item I. Financial Statements
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
<S>
ASSETS
July 9, 1995 January 22, 1995
<C> <C>
Cash and cash equivalents $ 2,834,044 $ 2,304,731
Rental merchandise, net 18,563,620 18,517,632
Property and equipment, net 9,171,335 8,130,184
Franchise fees, net 956,446 1,008,947
Deferred income tax benefit 2,218,133 2,218,133
Prepaid expenses 580,795 311,721
Accounts receivable and other 483,615 411,255
$34,807,988 $32,902,603
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S>
<C> <C>
Accounts payable $ 1,330,347 $ 1,239,867
Accrued liabilities 1,584,682 1,648,441
Accrued compensation 2,241,704 2,765,218
Income taxes payable 578,190 355,802
Note payable - 500,000
_________ _________
5,734,923 6,509,328
STOCKHOLDERS' EQUITY
Preferred stock 1,400,000 1,400,000
Common stock 43,740 43,740
Paid-in capital 5,434,950 5,445,075
Retained earnings 24,080,354 21,509,190
____________ __________
30,959,044 28,398,005
Less treasury stock, at cost
(132,062 at July 9, 1995, and
141,562 at January 22, 1995) 1,885,979 2,004,730
29,073,065 26,393,275
___________ ___________
$34,807,988 $32,902,603
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
July 9, 1995 July 10, 1994 July 9, 1995 July 10, 1994
<S> <C> <C> <C> <C>
Revenues
Rental income $16,343,498 $15,619,436 $32,654,039 $31,140,933
Sales of merchandise 1,000,851 949,057 2,206,835 2,081,223
17,344,349 16,568,493 34,860,874 33,222,156
Costs and operating expenses
Cost of merchandise sold 820,561 591,178 1,727,005 1,293,093
Depreciation and amortization
Rental merchandise 4,435,210 4,304,391 8,961,385 8,438,166
Other 646,484 540,882 1,256,418 1,076,061
Salaries and wages 4,170,189 3,513,889 8,060,642 6,961,683
Advertising 913,220 842,227 1,817,927 1,702,954
Other operating expenses 4,562,197 4,236,491 8,817,327 8,361,084
15,547,861 14,029,058 30,640,704 27,833,041
Operating income 1,796,488 2,539,435 4,220,170 5,389,115
Net interest income 21,176 1,575 56,342 20,917
Earnings before
income taxes 1,817,664 2,541,010 4,276,512 5,410,032
Income taxes 689,745 980,792 1,621,348 2,062,844
NET EARNINGS $1,127,919 $1,560,218 $2,655,164 $3,347,188
Earnings per common share
- primary and fully diluted $ .22 $ .31 $ .53 $.66
Weighted average common and
common equivalent
shares outstanding 5,034,439 5,017,496 5,033,031 5,035,461
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
ADVANTAGE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (decrease) in cash and cash equivalents
<CAPTION>
Twenty-four Weeks Ended
July 9, 1995 July 10, 1994
<S> <C> <C>
Net cash flows provided by operating activities $12,040,527 $10,998,595
Cash flows from investing activities
Purchase of rental merchandise (11,060,697) (11,222,978)
Purchase of property and equipment (2,211,242) (1,425,045)
Payment of initial franchise fees (54,000) (45,000)
Proceeds from sales of rental merchandise 2,206,835 2,081,223
Proceeds from sales of property and equipment 83,264 -
Net cash used in investing activities (11,035,840) (10,611,800)
Cash flows from financing activities
Purchase of treasury stock - (1,527,857)
Proceeds from issuance of note payable - 500,000
Repayment of note payable (500,000) (500,000)
Issuance of common stock 108,626 211,510
Payment of preferred stock dividends (84,000) (84,000)
Net cash used in financing activities (475,374) (1,400,347)
Net increase (decrease) in cash 529,313 (1,013,552)
Cash and cash equivalents
at beginning of period 2,304,731 2,226,210
Cash and cash equivalents at end of period $ 2,834,044 $ 1,212,658
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
ADVANTAGE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. Condensed consolidated financial statements
The consolidated balance sheet of Advantage Companies, Inc. ("Advantage"
or the "Registrant") as of July 9, 1995, the consolidated statements of earnings
for the twelve and twenty-four week periods ended July 9, 1995 and July 10,
1994, and the consolidated statements of cash flows for the periods then ended
have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the consolidated financial position, results of
operations and cash flows at July 9, 1995 and for all periods presented have
been made.
The consolidated balance sheet at January 22, 1995 has been taken from
the audited consolidated financial statements at that date, and condensed.
Certain other information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be read
in conjunction with the Company's audited consolidated financial statements
and notes thereto included in its January 22, 1995 annual report to
shareholders. The consolidated results of operations for the period ended
July 9, 1995, are not necessarily indicative of the consolidated operating
results for the full year.
B. Income Taxes
The Internal Revenue Service (IRS) has examined COMCOA's January 27,
1991 federal income tax return and proposed additional taxes of $1,132,571.
The issue concerns the depreciation method for rental merchandise. For income
tax reporting purposes, the Company uses the income forecasting method of
depreciation for rental merchandise which is widely used throughout the
rental-purchase industry and which the Company believes accurately matches
its depreciation expenses to revenues. The IRS disallowance was based upon its
determination that depreciation expressed in terms of years must instead be
utilized.
The Company paid the additional federal tax, plus interest in fiscal 1995
and anticipates paying additional state taxes. Accordingly, a provision was
included in the fiscal 1994 statements for interest of $345,217 and federal and
state taxes payable in the amount of $1,250,767 with a corresponding increase
in the deferred income tax benefit. The Company filed a claim for refund
which has been disallowed by the IRS, and has the option to file a suit for
refund in the future.
C. Earnings per share
Class A preferred stock for the period is included in the per share
computations. Primary and fully diluted earnings per common share are
considered equal in all periods that are presented. The data used in the
computation of earnings per common share is as follows:
Twelve Weeks Ended Twenty-four Weeks Ended
July 9, 1995 July 10, 1994 July 9, 1995 July 10, 1994
Weighted average
common shares 4,238,741 4,241,349 4,236,810 4,255,299
Add common stock equivalents:
Convertible
preferred stock 700,000 700,000 700,000 700,000
Common stock options 95,698 76,150 96,221 80,162
________ ________ ________ _________
5,034,439 5,017,496 5,033,031 5,035,461
D. Contingency
The Company was named as one of several defendants in a lawsuit filed
by THORN Americas, Inc. (THORN) concerning the Company's Rent-A-Center franchise
contract and development agreement with THORN. The lawsuit was filed in
response to the defendant's involvement with AdvantEdge. The lawsuit seeks to
enjoin the defendants from disclosing propriety information, or operating or
performing any duty or act in relation to the operation of any stores owned by
AdvantEdge or any other rental-purchase stores other than Rent-A-Center
franchise stores. The suit also seeks to enjoin the Company from employing or
seeking to employ any person who has worked for THORN in the last six months.
Negotiations between the parties have resulted in the signing of a letter
of intent between the Company and THORN pursuant to which the Company would be
acquired by THORN. The letter of intent calls for consideration of $18.50 per
share of Common Stock to be paid to all Company stockholders other than
Daniel J. Taylor, Robert W. Moore, Daniel M. Carney and Leslie G. Rudd, who
will receive $17.50 per share. In July 1995, THORN obtained an order of the
court staying proceedings in the lawsuit until November 30, 1995 for the
purpose of allowing the parties time to settle their disputes "through
certain acquisitions."
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The fiscal year-end of Advantage Companies, Inc. is based upon a 52- to
53-week period which ends four weeks after the last Sunday in December. The
following discussion pertains to the Company's results of operations for the
twelve and twenty-four week periods ended July 9, 1995 and to its financial
condition as of that date, and as of the most recent fiscal year ended
January 22, 1995.
<PAGE>
RESULTS OF OPERATIONS
At the end of the second quarterly period of the current fiscal year, the
Company owned and operated 98 Rent-A-Center stores and 6 AdvantEdge Rental
Purchase stores. During the same period in the previous year, the Company owned
and operated 91 Rent-A-Center stores.
Total revenues increased $775,856 or 4.7% compared to the same quarter last
year. Approximately $260,000 of this increase was attributable to the Company's
subsidiary, AdvantEdge Rental Purchase, Inc., which ended the quarter with six
stores in operation. The Company acquired this subsidiary in the fourth
quarter of last year. The balance of the revenue increase is attributable
to the Company's other subsidiary, COMCOA, Inc., and its operations of
Rent-A-Center stores. Following is a summary of consolidated revenue
changes grouped by store maturation:
SUMMARY OF SECOND QUARTER REVENUE CHANGES
ADVANTAGE COMPANIES, INC.
Twelve Weeks Twelve Weeks
No. of Fiscal Year 7/9/95 7/10/94 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
9 1996 $ 172,719 $ -- $172,719 N/A
6 1995 717,317 59,052 658,265 1114.7%
10 1994 1,562,281 1,272,052 290,229 22.8%
4 1993 704,801 680,400 24,401 3.6%
75 Prior to 1993 14,187,231 14,556,989 (369,758) (2.5%)
104 TOTAL $17,344,349 $16,568,493 $775,856 4.7%
Costs and operating expenses increased 10.8% over the same quarter in
the previous year. Approximately 46% of this increase is from AdvantEdge
Rental Purchase, Inc., with the remainder due to COMCOA's increase in
revenues and the number of stores operated.
Operating income decreased by $742,947 or 29.3% as compared to the same
quarter last year. Approximately $550,000 of this decrease is attributable
to start-up losses and added costs to the parent company directly associated
with AdvantEdge Rental Purchase, Inc. Another $121,000 is attributable to
new COMCOA stores opened in the second quarter, with the balance of the
decrease resulting from the COMCOA stores in operation at the beginning of
the year.
<PAGE>
Twenty-four Weeks Twenty-four Weeks
No. of Fiscal Year Ended 7/9/95 Ended 07/10/94 Increase Percentage
Stores Opened Revenues Revenues (Decrease) Change
9 1996 $ 174,744 $ -- $ 174,744 N/A
6 1995 1,296,201 83,789 1,212,412 1447.0%
10 1994 3,137,031 2,369,659 767,372 32.4%
4 1993 1,425,672 1,345,784 79,888 5.9%
75 Prior to 1993 28,827,226 29,422,924 (595,698) (2.0%)
104 TOTAL $34,860,874 $33,222,156 $1,638,718 4.9%
Costs and operating expenses increased 10.1% over the same twenty-four
week period in the previous year. Approximately 36% of this increase is from
AdvantEdge Rental Purchase, Inc., with the remainder due to COMCOA's increase
in revenues and the number of stores operated.
Operating income decreased by $1,168,945 or 21.7% as compared to the
same twenty-four week period last year. Approximately $850,000 of this
decrease is attributable to start-up losses and added costs to the parent
company directly associated with AdvantEdge Rental Purchase, Inc. Another
$121,000 is attributable to new COMCOA stores opened in the second quarter
of this year, with the balance of the decrease resulting from the COMCOA
stores in operation at the beginning of the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds to finance its business have been
its cash flow provided from operations and bank borrowings. The funds have
been used chiefly to purchase and carry additional rental merchandise for
existing Rent-A-Center and AdvantEdge Rental Purchase, Inc. stores as well
as rental merchandise and the related assets required for the opening of
new stores.
During the second quarterly period of fiscal 1996, the net cash provided
by operating activities totaled $12,040,527 compared to $10,998,595 in the
first twenty-four weeks of last year. The Company currently has a revolving
note payable agreement with a financial institution that expires April 30,
1996. The note provides for a maximum amount outstanding of $5 million.
Management believes that this resource, coupled with the anticipated cash
flows from operations, will be sufficient to provide capital to finance
existing stores.
<PAGE>
PART II.
Item 1. Legal Proceedings.
The Company was named as one of several defendants in a lawsuit filed
by THORN Americas, Inc. ("THORN") in the District Court of Sedgwick County, K
Kansas on December 27, 1994. THORN is the franchisor of COMCOA's Rent-A-Center
stores. The lawsuit sought declaratory judgment and injunctive relief
with respect to the development and operation of AdvantEdge's rent-to-own
stores and asserted various breaches of COMCOA's franchise contracts and
development agreements and violations of the Kansas Trade Secrets
Act. THORN sought to enjoin the defendants from disclosing proprietary
information, or operating or performing any duty or act in relation to the
operation of any stores owned by AdvantEdge. The suit also sought to
enjoin the Company from employing or seeking to employ any person who has
worked for THORN in the last six months.
While management continues in its belief that the Company has good
defenses to all of THORN's claims, settlement negotiations between the
parties have resulted in the signing of a Letter of Intent between the
Company and THORN, pursuant to which the Company would be acquired by
THORN. THORN and the Company are currently engaged in the negotiation
of a definitive merger agreement under which the Company would be merged
with a newly formed subsidiary of THORN and the shareholders of the
Company would receive cash consideration. On July 18, 1995, THORN
obtained an order of the District Court staying proceedings until
November 30, 1995 for the express purpose of allowing the parties time to
settle their disputes "through certain acquisitions."
Item 4. Submission of Matters to Vote of Security Holders
On June 9, 1995, the Company held its annual meeting of stockholders.
The first matter was to elect five directors to hold office for the next
annual term. The board of directors, namely Daniel J. Taylor, Daniel M.
Carney, Robert W. Moore, William A. Simon and James G. Steckart, was
re-elected in its entirety.
The second matter was to approve and ratify the appointment of Grant
Thornton LLP, Independent Certified Public Accounts, as auditors for the
current fiscal year. The stockholders voted 4,177,760 for the proposal,
1,000 against and 900 abstained.
The third matter was to approve and adopt the 1995 Incentive Stock
Option Plan with regard to 425,000 shares of common stock. The stockholders
voted 3,858,908 for, 101,000 against and 1,300 abstained.
<PAGE>
Item 5. Other Information.
As previously reported on Form 8-K filed on July 24, 1995, the Company
and THORN have entered into a Letter of Intent which contemplates the merger
of the Company into a subsidiary of THORN with merger consideration of $18.50
per share of Common Stock to be paid to all Company stockholders other than
Daniel J. Taylor, Robert W. Moore, Daniel M. Carney and Leslie G. Rudd, who
will receive $17.50 per share of Common Stock or Common Stock equivalents.
The above-named individuals who own, in the aggregate, approximately
74% of the Company's outstanding Common Stock and equivalents on a fully
diluted basis, have granted to THORN options to purchase their Common Stock
at the aforementioned price. The Company and THORN are currently engaged in
negotiations pertaining to the definitive merger agreement between the parties.
If these negotiations are successful, it is contemplated that the merger
will be put to a vote of the shareholders. The foregoing individual
shareholders have granted to THORN an irrevocable proxy to vote their shares
until at least November 30, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - Form 8-K was filed on July 24, 1995 with respect
to events occurring on July 9, 1995. The items reported pertain to
the execution of the Letter of Intent between the Company and THORN
and execution of the Advantage Agreement between THORN and majority
shareholders Daniel J. Taylor, Robert W. Moore, Daniel M. Carney,
and Leslie G. Rudd. No financial statements were filed with
respect to the Form 8-K. Exhibits included copies of the Letter of
Intent dated July 9, 1995, the Advantage Agreement between THORN and
Messrs. Taylor, Moore, Carney and Rudd and the press release of
the Company dated July 10, 1995.
<PAGE>
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 thereunto duly authorized.
ADVANTAGE COMPANIES, INC.
(Registrant)
Date: August 23, 1995 By: /s/ Daniel J. Taylor
Daniel J. Taylor, Chief Executive Officer
and Chairman of the Board
Date: August 23, 1995 By: /s/ William A. Simon
William A. Simon, Senior Vice President -
Administration and Chief Financial Officer
