<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-KA
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
APRIL 21, 1997 (FEBRUARY 6, 1997)
---------------------------------
Date of Report (Date of earliest event reported)
RENT-WAY, INC.
--------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 000-22026 25-1407782
------------ --------- ----------
(State or other jurisdiction (Commission File Number) (IRS Employer
of corporation) Identification No.)
3230 WEST LAKE ROAD, ERIE, PENNSYLVANIA 16505
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (814) 836-0618
--------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 6, 1997, Rent-Way, Inc. (the "Company") acquired all of the
outstanding shares of Perry Electronics, Inc. d/b/a Rental King ("Rental King")
for consideration of $23.8 million of which $17.9 million was paid in cash.
Prior to the acquisition, Rental King was wholly owned by Robert L. Thomas,
Norma J. Thomas, Randall L. Snyder and Niki L. Snyder. The amount and form of
consideration paid to such persons for the stock of Rental King was determined
through arms length negotiations. Pursuant to the terms of the acquisition,
$2.0 million of the purchase price was placed in escrow and held subject to the
terms on the escrow agreement. The escrow agreement provides for release
pending completion of an audit of Rental King's financial statements. The cash
paid in the acquisition was provided for from the net proceeds of a $20.0
million private placement of subordinated convertible debentures with a 7%
interest rate due in 2007 and with funds drawn on the Company's existing credit
agreement with National City Bank of Pennsylvania.
Rental King operated a chain of 70 rental-purchase stores located in Colorado,
Florida, Indiana, Kentucky, Michigan, Ohio and West Virginia. Annual revenues
for Rental King were approximately $24.0 million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
a. Financial statements of business acquired.
Audited Financial Statements of Perry Electronics, Inc. d/b/a Rental King
Report of Independent Accountants 4
Balance Sheets - December 31, 1996 and 1995 5
Statements of Operations - Years Ended
December 31, 1996 and 1995 6
Statement of Shareholders' Equity - Years
Ended December 31, 1996 and 1995 7
Statements of Cash Flows - Years Ended
December 31, 1996 and 1995 8
Notes to Financial Statements 9
b. Pro Forma Financial Information.
Rent-Way, Inc. and Perry Electronics, Inc. d/b/a Rental King Pro Forma Information
Unaudited Pro Forma Consolidated Balance Sheet - December 31, 1996 14
Notes to Unaudited Pro Forma Consolidated Balance Sheet 15
Unaudited Pro Forma Consolidated Statement of Income
For the Three Months Ended December 31, 1996 16
Unaudited Pro Forma Consolidated Statement of Income -
For the Year Ended September 30, 1996 17
Notes to Unaudited Pro Forma Consolidated Statements of Income 18
</TABLE>
2
<PAGE> 3
c. Exhibits in Accordance with the Provisions of Item 601 of
Regulation S-K:
Exhibit
(2)-7 Stock Purchase Agreement between Rent-Way, Inc., Perry
Electronics, Inc. d/b/a Rental King, Robert L. Thomas,
Norma J. Thomas, Randall L. Snyder and Niki L. Snyder
dated January 24, 1997.*
(2)-8 Closing Letter Agreement. Amendment to the Stock Purchase
Agreement Perry Electronics, Inc. d/b/a Rental King,
Robert L. Thomas, Norma J. Thomas, Randall L. Snyder and
Niki L. Snyder dated January 24, 1997.*
*Previously filed.
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-WAY, INC.
-------------------------
(Registrant)
Date April 21, 1997 /s/ JEFFREY A. CONWAY
----------------- -------------------------
(Signature)
JEFFREY A. CONWAY
CHIEF FINANCIAL OFFICER
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Perry Electronics, Inc.:
We have audited the accompanying balance sheets of Perry Electronics, Inc. as
of December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Perry Electronics, Inc. as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
March 28, 1997
4
<PAGE> 5
PERRY ELECTRONICS, INC.
BALANCE SHEETS
as of December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Cash $ 463,419 $ 645,401
Accounts receivable 141,897 185,604
Prepaid expenses 23,340 48,010
Note receivable, related parties 205,674 230,501
Insurance receivable - litigation settlements 550,000 -
Deferred state and local income taxes 30,038 30,027
Rental merchandise, net of accumulated depreciation totaling
$9,031,811 and $8,782,692, respectively 6,994,500 5,880,786
Property and equipment, net 1,768,058 1,468,858
Goodwill, net of accumulated amortization totaling $153,000
and $91,800, respectively 153,000 214,200
Other assets 28,425 27,634
-------------- --------------
Total assets $ 10,358,351 $ 8,731,021
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 593,826 $ 658,310
Accrued payroll 509,115 399,382
Accrued litigation settlement 550,000 -
Debt 2,539,485 1,660,240
Notes payable, related parties 824,000 772,000
Other liabilities 913,196 921,278
-------------- --------------
Total liabilities 5,929,622 4,411,210
Commitments and Contingencies (see note 7) - -
Shareholders' equity:
Common stock, $6.25 stated value, 500
shares authorized, 200 shares issued and outstanding 1,250 1,250
Additional paid-in capital 1,355 1,355
Retained earnings 4,426,124 4,317,206
-------------- --------------
Total shareholders' equity 4,428,729 4,319,811
-------------- --------------
Total liabilities and shareholders' equity $ 10,358,351 $ 8,731,021
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PERRY ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
REVENUES:
Rental revenue $ 20,702,388 $ 20,533,096
Other revenue 3,411,989 3,027,144
-------------- ---------------
Total revenues 24,114,377 23,560,240
COSTS AND OPERATING EXPENSES:
Depreciation and amortization:
Rental merchandise 6,763,510 6,861,655
Property and equipment 674,191 655,873
Goodwill 61,200 61,200
Salaries and wages 6,612,044 6,096,236
Advertising 1,057,594 901,416
Occupancy 1,720,730 1,708,090
Other operating expenses 5,664,250 5,233,865
-------------- ---------------
Total costs and operating expenses 22,553,519 21,518,335
Income from operations 1,560,858 2,041,905
-------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense (278,858) (334,028)
Interest income 45,807 43,230
Other income (expense), net 204,387 149,445
-------------- ---------------
Income before income taxes 1,532,194 1,900,552
Income tax expense 47,276 58,173
-------------- ---------------
Net income $ 1,484,918 $ 1,842,379
============== ===============
Pro forma income data (unaudited) Note 8:
Net income as reported $ 1,484,918 $ 1,842,379
Pro forma income tax expense 587,551 715,802
-------------- ---------------
Pro forma net income $ 897,367 $ 1,126,577
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
PERRY ELECTRONICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 200 $ 1,250 $ 1,355 $ 4,023,827 $ 4,026,432
Net income 1,842,379 1,842,379
Distribution to shareholders (1,549,000) (1,549,000)
------ --------- ---------- ------------- -------------
Balance at December 31, 1995 200 1,250 1,355 4,317,206 4,319,811
Net income 1,484,918 1,484,918
Distribution to shareholders (1,376,000) (1,376,000)
------ --------- ---------- ------------- -------------
Balance at December 31, 1996 200 $ 1,250 $ 1,355 $ 4,426,124 $ 4,428,729
====== ========= ========== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
PERRY ELECTRONICS, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,484,918 $ 1,842,379
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,498,901 7,423,940
Deferred state and local income taxes (11) (8,631)
(Gain) loss on sale of equipment (1,171) 23,653
Changes in assets and liabilities:
Rental merchandise (7,877,224) (6,479,939)
Accounts receivable 43,707 (70,925)
Prepaid expenses 24,670 (11,341)
Other assets (791) 8,014
Accounts payable (64,484) 54,215
Accrued payroll 109,733 (4,977)
Other liabilities (8,082) 33,511
-------------- ---------------
Net cash provided by operating activities 1,210,166 2,809,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (982,470) (645,875)
Proceeds from the sale of equipment 10,250 7,555
-------------- ---------------
Net cash used in investing activities (972,220) (638,320)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,550,000 -
Payments on borrowings (670,755) (587,724)
Distributions to shareholders (1,376,000) (1,549,000)
Payments on loans from related parties 24,827 23,546
Proceeds from loans to related parties 52,000 39,000
-------------- ---------------
Net cash used in financing activities (419,928) (2,074,178)
--------------- ----------------
(Decrease) increase in cash (181,982) 97,401
Cash at beginning of year 645,401 548,000
-------------- ---------------
Cash at end of year $ 463,419 $ 645,401
============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 271,314 $ 330,293
Income taxes $ 67,459 $ 36,830
Supplemental non-cash disclosure:
Insurance receivables - litigation settlements $ (550,000) $ -
Accrued litigation settlements $ 550,000 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
PERRY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting policies and practices followed by the Perry
Electronics, Inc. d/b/a Rental King (the "Company") are as follows:
DESCRIPTION OF BUSINESS: The Company operates a chain of 70
rental-purchase stores in Ohio, West Virginia, Michigan, Kentucky,
Florida, Indiana, and Colorado that rent durable household products such
as home entertainment equipment, furniture, major appliances, as well
as, jewelry to consumers on a weekly, bi-weekly, semi-monthly, or
monthly basis.
CORPORATE STATUS: The Company's shareholders have elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code,
effective January 1, 1987. Under those provisions, the Company does not
pay federal or certain state or local income taxes on its taxable
income. Instead, the shareholders are liable for individual income
taxes on their respective shares of the Company's taxable income.
However, the Company pays certain state and city income taxes as
provided by the various state and city statutes where the Company is
conducting business.
CASH: The Company has concentrated its credit risk for cash by
maintaining deposits at a single bank located in Stark County, Ohio.
Accounts are insured by the federal deposit insurance corporation up to
$100,000.
RENTAL MERCHANDISE, RELATED RENTAL REVENUE AND DEPRECIATION: Rental
merchandise is rented to customers pursuant to rental agreements with
maximum terms from twelve to twenty-four months which provide for either
weekly, bi-weekly, semi-monthly, or monthly payments collected in
advance. The rental arrangement may be terminated at any time by the
customers and if terminated, the rental merchandise is returned to the
Company. Rental revenue is recognized when collected, since at the time
of collection of the rental, merchandise has been placed in service and
costs of installation and delivery have been incurred. This method of
revenue recognition does not produce materially different results than
if rental revenue was recognized over the agreed upon rental period. At
any time during the agreement the individual can acquire the item or if
all periodic payments are made the individual takes ownership of the
merchandise.
Merchandise rented to customers or available for rent is classified in
the balance sheet as rental merchandise and is valued at cost and
depreciated over eighteen months by the straight-line method beginning
on the first rental date. Write-offs of rental merchandise arising from
customers' failure to return merchandise and losses due to excessive
wear and tear of merchandise are recognized using the direct write-off
method, which is materially consistent with the results that would be
recognized under the allowance method.
OTHER REVENUE: Other revenue includes revenue from various services and
charges to rental customers, including late fees, liability waiver fees,
and sale of used merchandise.
INTANGIBLE ASSETS: Goodwill is stated at cost less amortization
calculated on a straight-line basis over a five year period.
ADVERTISING REBATES: The Company participates in vendor advertising
rebate programs with the majority of its rental merchandise suppliers.
Rebates are recognized in the period earned. On a quarterly basis,
management calculates the amount of the rebate and either submits a
request for payment or credits the balance due the respective vendor.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Management has determined that the
carrying amount of financial instruments, as reported on the balance
sheet, approximates fair value.
BALANCE SHEET PRESENTATION: The Company presents an unclassified balance
sheet since its operating cycle exceeds a one year period which is
consistent with industry practice.
9
<PAGE> 10
PERRY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the
lives of depreciable assets are capitalized. Upon sale or other
retirement of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss
is reflected in operations.
Depreciation is computed on the straight-line and accelerated methods
based on the estimated useful lives of the depreciable assets as
follows:
Vehicles 5 years
Equipment, furniture and fixtures 5-7 years
Leasehold improvements 5 years
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may differ
from these estimates.
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Vehicles $ 2,547,143 $ 2,249,876
Equipment, furniture and fixtures 2,014,096 1,699,297
Leasehold improvements 758,269 631,785
------------- ------------
5,319,508 4,580,958
Less accumulated depreciation and amortization 3,551,450 3,112,100
------------- ------------
$ 1,768,058 $ 1,468,858
============= ============
</TABLE>
Depreciation and amortization expense totaled $674,191 and $655,873 for
the years ended December 31, 1996 and 1995, respectively.
3. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Note payable to a financial institution - term note for $1,608,664
collateralized by substantially all the assets of the Company, the
principal is payable in 46 equal monthly installments of $35,000 and
matures March 1997. Interest is payable monthly at 2.25% over the
financial institution's prime rate (10.50% and 10.75% at December 31,
1996 and 1995, respectively). $ 103,664 $ 523,664
Note payable to a financial institution - term note for $977,000
collateralized by substantially all the assets of the Company. Terms of
the financing require interest only from January 1993 through May 1995
payable in monthly installments at 2.25% over the financial institution's
prime rate (10.50% and 10.75% at December 31, 1996 and 1995,
respectively). The principal is payable in consecutive monthly
installments of $24,521 commencing August 1995 and matures
November 1997. 260,143 554,395
</TABLE>
10
<PAGE> 11
PERRY ELECTRONIC, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C> <C> <C>
3. DEBT, Continued:
Line of credit with a financial institution - collateralized by
substantially all of the assets of the Company, interest is payable on a
monthly basis and matures in June 1997 at 1.75% over the financial
institution's prime rate
(10.50% December 31, 1996). 1,550,000 -
Various vehicle notes, payable in monthly installments ranging from
$434 to $812, including interest ranging from 6.487% to 9.527% payable
through October
1998. 625,678 582,181
---------- ----------
$2,539,485 $1,660,240
========== ==========
</TABLE>
Aggregate annual maturities of debt for years subsequent to December 31,
1996 are as follows:
1997 $ 2,265,453
1998 184,455
1999 89,577
------------
Total $ 2,539,485
============
The Company must comply with certain debt covenants, such as net worth,
net current assets, rental obligations, fixed asset acquisition, and
transactions with related parties. At December 31, 1996 and December 31,
1995, the Company was in violation of several covenants, including net
worth and the transactions with related parties (See Note 8).
At December 31, 1995, the Company had an unused line of credit for
borrowings up to $1,750,000. Subsequent to December 31, 1996, certain
portions of debt were refinanced (See Note 8).
4. LEASES:
The Company leases certain real estate and under noncancelable operating
leases which generally require the payment of taxes, insurance, and
maintenance costs by the Company.
Corporate and selected store facilities are rented by the Company under
five lease agreements from the Company's major shareholder. Rental
payments of $10,058 are due monthly as of December 31, 1996, on leases
that expire through February 28, 1999. Rent expense on leases with the
majority shareholder was $136,560 and $136,560, for the years ended
December 31, 1996 and 1995, respectively.
All other store facilities are rented by the Company under
lease agreements with various lessors. Rental payments of $142,088 are
due monthly on leases that are on a month-to-month basis or which expire
at various times through June 13, 2001, with various options for
renewals. Rent expense related to these leases was $1,584,170 and
$1,571,530 for the years ended December 31, 1996 and 1995, respectively.
Future minimum lease payments under leases with initial or remaining
noncancelable lease terms in excess of one year as of December 31, 1996
are as follows:
1997 $ 1,358,746
1998 945,578
1999 624,840
2000 229,078
2001 and thereafter 94,748
------------
Total minimum
lease payments $ 3,252,990
============
Total rental expense for all operating leases was $1,720,730 and
$1,708,090 for the years ended December 31, 1996 and 1995, respectively
11
<PAGE> 12
PERRY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. RELATED PARTY TRANSACTIONS:
The Company has notes receivable due from the principal shareholders of
$205,674 and $230,501 at December 31, 1996 and 1995, respectively.
Interest is payable on a monthly basis and accrues at rates ranging from
8.75% to 10.25%, maturing periodically through January 2004 (See Note
8). Interest income on these notes receivable was $22,826 and $12,682
in 1996 and 1995, respectively.
Additionally, the Company has demand notes payable due to the principal
shareholders of $824,000 and $772,000 at December 31, 1996 and 1995,
respectively. Principal and interest are payable on a monthly basis.
Interest accrues at rates ranging from 1.75% to 2.50% over the financial
institution's prime rate (8.25% and 8.50% at December 31, 1996 and 1995,
respectively). A portion of these loans are subordinate to the term
loans entered into by the financial institutions (See Note 8). Interest
expense on these notes payable was $84,000 and $78,100 in 1996 and 1995,
respectively.
6. PROFIT SHARING PLAN:
A discretionary profit-sharing plan covering substantially all employees
was adopted by the Company effective January 1, 1990. Contributions to
the profit-sharing plan are determined by the Company's principal
shareholders. For the years ended December 31, 1996 and 1995,
contributions totaled $100,000 and $120,000 respectively.
7. COMMITMENTS AND CONTINGENCIES:
The Company is subject to commitments, legal proceedings and claims,
which arise in the ordinary course of business. In management's opinion,
the amount of ultimate liability from such matters will not materially
affect the financial position or operating results of the Company.
The Company is subject to legal proceedings and claims in the ordinary
course of its business that have not been finally adjudicated. Certain
of these cases have resulted in contingent liabilities ranging from
$450,000 to $1,040,000. One of these cases was settled in March 1997 for
approximately $450,000 which has been accrued for in the Company's
financial statements at December 31, 1996. One additional case has not
been settled as of the date of this report, however, the Company has
accrued $100,000 in connection with this case. Both cases are fully
insured and the Company has accordingly recorded insurance receivables
for $550,000 at December 31, 1996. The majority of the remaining claims
are, in the opinion of management, also covered by insurance policies
and therefore will not materially effect the financial position or
results of operations of the Company.
8. SUBSEQUENT EVENTS:
Effective February 1, 1997, the Company was merged with Rent-Way, Inc.
under the provisions of a Stock Purchase Agreement dated January 24,
1997. Concurrent with the merger, several portions of the financing
disclosed in Note 3 were paid in full. Included in this transaction were
notes payable to financial institutions including the line of credit for
$1,550,000, the term note for $103,664, the term note for $260,143 and
the related party note payable net of the related party note receivable
of $618,326 plus additional line of credit borrowings and accrued
interest since December 31, 1996. In addition, the Company has
previously entered into an employment agreement whereby the Company is
required to pay a severance package to an officer of the Company based
upon a predetermined calculation of the Company's financial statement
positions and other factors at the time of the sale and merger. The cost
of the severance package has not been finalized by the Company; however,
management estimates the cost to the Company will approximate $527,000.
Prior to the merger with Rent-Way, Inc., the Company operated as an S
Corporation and, as such, was not liable for federal and certain state
and local income taxes. As a result, the earnings of the Company have
been taxed for federal and certain state and local income tax purposes
directly to the shareholders rather than to the Company. Cash
distributions were regularly made by the Company, in part to fund
shareholders for these liabilities.
12
<PAGE> 13
PERRY ELECTRONICS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. SUBSEQUENT EVENTS, Continued:
Accordingly, net income, as reported in the accompanying statements of
operations does not include a provision for these income taxes.
Effective with the merger, the Company will no longer be treated as an S
Corporation and will be subject to all corporate federal and state and
local income taxes. Accordingly, for informational purposes, the
statements of operations include unaudited pro forma adjustments for
additional income taxes which would have been recorded if the Company
had been taxed as a C Corporation, based on the tax laws in effect
during those periods.
Unaudited pro forma income tax expense for each of the periods presented
is as follows:
<TABLE>
<CAPTION>
(Unaudited)
------------------------------
Years ended December 31,
------------------------------
1996 1995
--------- ----------
<S> <C> <C>
Current:
Federal $ 469,522 $ 840,389
State and local 118,453 212,016
--------- -----------
587,975 1,052,405
Deferred:
Federal (337) (267,556)
State and local (87) (69,047)
--------- -----------
(424) (336,603)
--------- -----------
Total $ 587,551 $ 715,802
========= ===========
</TABLE>
The difference between unaudited pro forma income taxes at the statutory
federal income tax rate of 34% and those reported in the statements of
operations are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
% OF PRETAX % OF PRETAX
1996 INCOME 1995 INCOME
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Federal tax at statutory rate $ 520,946 34.00 $ 646,187 34.00
Additional state and local income
taxes net of federal benefit 66,605 4.34 69,615 3.66
---------- -------- ---------- --------
$ 587,551 38.34 $ 715,802 37.66
========== ======== ========== ========
</TABLE>
13
<PAGE> 14
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31,1996
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA RENT-WAY
RENT-WAY RENTAL KING ADJUSTMENTS RENTAL KING
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 218,388 $ 463,419 $ 681,807
Prepaid expenses 1,668,548 23,340 1,691,888
Rental merchandise,net 21,091,472 6,994,500 $ (338,754)(2) 27,747,218
Deferred income taxes 1,473,522 1,201,515 (2) 2,675,037
Property and equipment, net 4,890,310 1,768,058 (884,029)(2) 5,774,339
Goodwill, net 21,774,297 153,000 13,180,539 (3) 35,107,836
Deferred financing costs, net 590,326 900,000 (4) 1,490,326
Prepaid consulting fee 997,024 997,024
Other assets 1,511,904 956,034 500,000 (3) 2,967,938
------------ ----------- ------------ ------------
Total assets $ 54,215,791 $10,358,351 $ 14,559,271 $ 79,133,413
============ =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,414,894 $ 593,826 $ 2,008,720
Other liabilities 1,678,732 1,972,311 3,651,043
Income tax payable 1,261,992 1,261,992
Debt 18,213,090 3,363,485 $ (1,012,000)(4) 20,564,575
Convertible subordinated debentures 20,000,000 (4) 20,000,000
------------ ----------- ------------ ------------
Total liabiilities 22,568,708 5,929,622 19,596,842 47,486,330
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 28,187,400 1,250 (1,250)(2) 28,187,400
Additional paid-in capital - 1,355 (1,355)(2) -
Retained earnings (deficit) 3,459,683 4,426,124 (4,426,124)(2) 3,459,683
------------ ----------- ------------ ------------
Total shareholders' equity 31,647,083 4,428,729 (4,428,729) 31,647,083
Total liabilities and
------------ ----------- ------------ ------------
Shareholders' equity $54,215,791 $10,358,351 $ 14,559,271 $ 79,133,413
============ =========== ============ ============
</TABLE>
See notes to unaudited condensed pro forma balance sheet
14
<PAGE> 15
RENT-WAY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) BASIS OF PRESENTATION
The unaudited pro forma condensed consolidated balance sheet has been
prepared assuming the acquisition of and Perry Electronics d/b/a Rental
King was consummated on December 31, 1995 The acquisition has been
accounted for as a purchase in accordance with the provisions of
Accounting Principles Board Opinion No. 16, and accordingly, the
purchase price has been allocated to the net assets acquired based on
historical information available to management and preliminary estimates
of fair market value.
(2) The excess purchase prices over the fair value of the net assets of
Rental King were calculated as follows:
<TABLE>
<S> <C>
Purchase price:
Cash $ 17,888,000
Other acquisition and closing costs 200,000
------------
Total purchase price 18,088,000
Net assets as reported (4,428,729)
Plus fair value adjustments: -
Adjustment to record rental
merchandise at fair value 338,754
Adjustment to record deferred
income taxes (1,201,515)
Adjustment to record property and
equipment at fair value 884,029
------------
Excess purchase price over fair value
of net assets $ 13,680,539
============
</TABLE>
(3) The excess purchase price over the fair value of the net assets was
allocated to assets and liabilities based on historical information and
preliminary estimates of fair value. The final purchase price allocation
is subject to refinement upon completion of a review of rental
merchandise, property and equipment, intangibles and certain accrued
liabilites. The excess of purchase price over the fair value of net
assets was allocated to non-compete agreements and goodwill as follows:
<TABLE>
<S> <C>
Adjustment to record non-compete
agreement $ 500,000
Adjustment to recognize goodwill 13,180,539
-----------
Excess purchase price over fair value
of net assets $13,680,539
===========
</TABLE>
(4) The unaudited pro forma condensed consolidated balance sheet has been
prepared assuming borrowings from the Company's senior revloving credit
facility and convertible subordinated debentures were used to pay for the
acquisitions and related acquisition costs of Rental King. The
borrowings from Rent-Way Inc.'s senior revolving credit facility and
convertible subordinated debentures were applied and obtained as
follows:
<TABLE>
<CAPTION>
Total
------------
<S> <C>
Cash payment $17,888,000
Payment of acquisition and closing
costs 200,000
Placement fee related to issuance
convertible subordinated debentures 900,000
Borrowings to refinance existing debt 2,504,604
-----------
Total borrowings $21,492,604
===========
Senior revolving credit facility $ 1,492,604
Convertible subordinated debentures 20,000,000
-----------
Total borrowings $21,492,604
===========
</TABLE>
15
<PAGE> 16
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA RENT-WAY &
RENT-WAY RENTAL KING ADJUSTMENTS RENTAL KING
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenue $ 13,689,843 $ 5,284,016 $ 18,973,859
Other revenue 1,974,055 882,070 2,856,125
------------ ----------- --------- ------------
Total revenues 15,663,898 6,166,086 - 21,829,984
COSTS AND OPERATING EXPENSES:
Depreciation and amortization:
Rental merchandise 3,700,681 1,633,824 5,334,505
Property and equipment 276,125 253,318 529,443
Amortization of goodwill 306,212 15,300 $ 149,457 (1) 470,969
Salaries and wages 4,368,970 2,100,268 (150,000)(2) 6,319,238
Advertising 823,374 366,595 1,189,969
Occupancy 1,034,984 393,470 1,428,454
Other operating expenses 3,016,066 1,082,173 25,000 (3) 4,123,239
------------ ----------- --------- ------------
Total costs and
Operating expenses 13,526,412 5,844,948 24,457 19,395,817
------------ ----------- --------- ------------
Operating income 2,137,486 321,138 (24,457) 2,434,167
OTHER INCOME (EXPENSE):
Interest expense (375,496) (190,072) (159,928)(4) (725,496)
Deferred financing expense - (20,000)(5) (20,000)
Interest income 505 11,531 12,036
Other income(expense), net (2,071) 66,018 63,947
------------ ----------- --------- ------------
Income before income taxes 1,760,424 208,615 (204,385) 1,764,654
------------ ----------- --------- ------------
Income tax expense (benefit) 811,033 44,676 (17,970)(6) 873,679
------------ ----------- --------- ------------
Income before extraordinary item 949,391 163,939 (222,355) 890,975
Extraordinary item (269,017) (269,017)
------------ ----------- --------- ------------
Net income 680,374 163,939 (222,355) 621,958
Redeemable preferred stock, -
Gain on redemption 280,175 280,175
------------ ----------- --------- ------------
Earnings applicable to
Common shares $ 960,549 $ 163,939 $(222,355) $ 902,133
============ =========== ========= ============
Fully diluted weighted average
Common shares outstanding (8) 7,026,327 7,026,327
============ ============
Fully diluted earnings per
Common share $ 0.14 $ 0.13
============ ============
</TABLE>
See notes to unaudited pro forma condensed statements of income.
16
<PAGE> 17
RENT-WAY, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA RENT-WAY &
RENT-WAY RENTAL KING ADJUSTMENTS RENTAL KING
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenue $ 43,890,708 $ 20,702,388 $ 64,593,096
Other revenue 7,280,629 3,411,989 10,692,618
------------ ------------ ------------ ------------
Total revenues 51,171,337 24,114,377 - 75,285,714
COSTS AND OPERATING EXPENSES:
Depreciation and amortization:
Rental merchandise 13,229,173 6,763,510 19,992,683
Property and equipment 775,169 674,191 1,449,360
Amortization of goodwill 874,668 61,200 $ 597,827 (1) 1,533,695
Salaries and wages 13,100,891 6,612,044 (600,000)(2) 19,112,935
Advertising 2,123,324 1,057,594 3,180,918
Occupancy 3,269,406 1,720,730 4,990,136
Other operating expenses 11,147,645 5,664,250 100,000 (3) 16,911,895
------------ ------------ ------------ ------------
Total costs and
Operating expenses 44,520,276 22,553,519 97,827 67,171,622
------------ ------------ ------------ ------------
Operating income 6,651,061 1,560,858 (97,827) 8,114,092
OTHER INCOME (EXPENSE):
Interest expense (1,493,143) (278,858) (1,121,142)(4) (2,893,143)
Deferred financing expense (93,649) - (80,000)(5) (173,649)
Interest income 60,267 45,807 106,074
Other income, net 103,838 204,387 308,225
------------ ------------ ------------ ------------
Income before income taxes 5,228,374 1,532,194 (1,298,969) 5,461,599
------------ ------------ ------------ ------------
Income tax expense (benefit) 2,381,062 47,276 (22,964)(6) 2,405,375
------------ ------------ ------------ ------------
Net income 2,847,312 1,484,918 (1,276,005) 3,056,224
Preferred stock
Dividend requirements (128,969) - (128,969)
------------ ------------ ------------ ------------
Earnings applicable to
Common shares $ 2,718,343 $ 1,484,918 $ (1,276,005) $ 2,927,255
============ ============ ============ ============
Fully diluted weighted average
Common shares outstanding (8) 6,070,445 6,070,445
============ ============
Fully diluted earnings per
Common share $ 0.45 $ 0.48
============ ============
</TABLE>
See notes to unaudited pro forma condensed statements of income.
17
<PAGE> 18
RENT-WAY, INC.
NOTES TO PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<S> <C>
(1) Adjustment to recognize amortization of goodwill on a straight line basis over twenty years.
Three months ended December 31, 1996 for Rental King $ 149,457
Year ended September 30, 1996 for Rental King $ 597,827
(2) Salaries and wages have been adjusted for the elimination of the former owners of Rental King
Three months ended December 31, 1996 for Rental King $ (150,000)
Year ended September 30, 1996 for Rental King $ (600,000)
(3) Adjustment for amortization of non-compete agreements:
Three months ended December 31, 1996 for Rental King $ 25,000
Year ended September 30, 1996 for Rental King $ 100,000
(4) Adjustment to record interest expense on borrowings for acquisitions offset by elimination of debt of Rental King.
Three months ended December 31, 1996 for Rental King $ (159,928)
Year ended September 30, 1996 for Rental King $ (1,121,142)
(5) Adjustment to record amortization of deferred financing costs on straight line basis over ten years.
Three months ended December 31, 1996 for Rental King $ (20,000)
Year ended September 30, 1996 for Rental King $ (80,000)
(6) Adjustment to record income tax expense as if Rental King had been treated as a C Corporation.
Income tax expenses of $587,551 (see Note 8 to audited financial statements for year ended
December 31, 1996) is offset by the benefit of Pro Forma adjustments taxed at 47%.
Three months ended December 31, 1996 for Rental King $ 17,970
Year ended September 30, 1996 for Rental King $ (22,964)
(7) Assumes no conversion of the Company's convertible subordinated notes or convertible subordinated
debentures because the effect of such conversion is non-dilutive to fully diluted earnings per common share.
</TABLE>
18
