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 16, 1998 (February 4, 1998)
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>
Item 2. Acquisition or Disposition of Assets
On February 5, 1998, Rent-Way, Inc. ("the Company") completed the stock purchase
of Champion Rentals, Inc. ("Champion"), a rental-purchase chain, for
consideration of $88,500,000 net of certain liabilities. Prior to the
acquisition, Champion was owned by Bill C. Ogle, Sr. and other minority
shareholders. The amount and form of consideration was determined through arm's
length negotiations. Pursuant to terms of the acquisition, $2,500,000 of the
purchase price was placed in escrow and held subject to terms of the escrow
agreement. The cash paid for the acquisition was drawn on the Company's existing
credit facility with a syndicate of banks co-led by National City Bank of
Pennsylvania and NationsBank, N.A.
Champion operated a chain of 147 rental-purchase stores located in Alabama,
Arkansas, Florida, Georgia, Kentucky, Louisiana, North Carolina, Ohio, South
Carolina, Tennessee and Virginia. Annual revenues were approximately $71.0
million.
Item 7. Financial Statements and Exhibits
a. Financial statements of business acquired:
Audited Financial Statements of Champion Rentals, Inc.
Report of Independent Certified Public Accountants 4
Balance Sheets - as of December 27, 1997 and
December 28, 1996 5
Statements of Income for the years ended December 27, 1997,
December 28, 1996 and December 23, 1995 6
Statements of Stockholders Equity for the years ended
December 27, 1997, December 28, 1996 and December 23, 1995 7
Statements of Cash Flows for the years ended December 27, 1997,
December 28, 1996 and December 23, 1995 8
Notes to Financial Statements 10
b. Pro-forma condensed financial information:
Rent-Way, Inc. and Champion Rentals, Inc.
Unaudited Pro Forma Condensed Balance Sheet *
Unaudited Pro Forma Statement of Income
For the Three Months Ended December 31, 1997 18
Unaudited Pro Forma Statement of Income
For the Year Ended September 30, 1997 19
Notes to Unaudited Pro Forma Statements of Income 20
* previously filed with Company's March 31, 1998 10-Q
<PAGE>
c. Exhibits in Accordance with the Provisions of Item
601 of Regulation S-K:
Exhibit
(2)-3 Stock Purchase Agreement between Rent-Way, Inc.,
Champion Rentals, Inc., Bill C. Ogle, Sr., and the other
shareholders of Champion Rentals, Inc., dated january 30, 1998.*
(2)-4 Closing Letter Agreement dated February 4, 1998 between
Rent-Way, Inc., Champion Rentals, Inc., Bill C. Ogle, Sr.,
and the other shareholders of Champion Rentals, Inc.*
* 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 16, 1998 /s/ Jeffrey A. Conway
(Signature)
Jeffrey A. Conway
Chief Financial Officer
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors
Champion Rentals, Inc.
We have audited the accompanying balance sheets of Champion Rentals, Inc.
(Company) as of December 27, 1997 and December 28, 1996 and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 27, 1997. 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 Champion Rentals, Inc. at
December 27, 1997 and December 28, 1996 and the results of its operations and
its cash flows for each of the three years in the period ended December 27,
1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Orlando, Florida
February 11, 1998
<PAGE>
Champion Rentals, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 27 1997 December 28 1996
------------------------------------
------------------------------------
Assets
<S> <C> <C>
Cash and cash equivalents $ 1,697,050 $ 202,269
Rental units (net) 20,997,433 10,029,328
Accounts receivable 348,858 493,047
Fixed assets (net) 6,305,167 3,437,390
Prepaids 738,108 571,410
Deposits 179,505 131,137
Investments in affiliates - 1,224,267
Intangible assets--loan costs (net) 97,918 28,273
Intangible assets--goodwill (net) 5,513,176 -
------------------------------------
====================================
Total assets $35,877,215 $16,117,121
====================================
====================================
Liabilities and stockholders' equity
Liabilities:
Accounts payable $ 5,520,841 $ 1,645,853
Accrued expenses 1,503,816 1,139,682
Notes payable 10,021,926 3,694,357
Note payable to stockholder 1,833,825 1,256,700
Capital lease obligations 3,504,359 1,812,716
Minority interests - (110,222)
------------------------------------
Total liabilities 22,384,767 9,439,086
Stockholders' equity:
Common stock, $1 par value, 7,500 and 8,500 shares authorized at December 27,
1997 and December 28, 1996, respectively, 1,000 and 750 shares issued and
outstanding at December 27, 1997 and
December 28, 1996, respectively 1,000 750
Additional paid-in capital 9,514,378 3,095,402
Retained earnings 3,977,070 3,581,883
------------------------------------
------------------------------------
Total stockholders' equity 13,492,448 6,678,035
====================================
Total liabilities and stockholders' equity $35,877,215 $16,117,121
====================================
</TABLE>
See accompanying notes.
<PAGE>
Champion Rentals, Inc.
Statements of Income
<TABLE>
<CAPTION>
Year ended
December 27 1997 December 28 1996 December 23 1995
------------------------------------------------------
<S> <C> <C> <C>
Revenue $71,214,135 $40,947,476 $36,301,249
Cost of service 23,923,588 14,908,392 12,731,594
------------------------------------------------------
------------------------------------------------------
Gross profit 47,290,547 26,039,084 23,569,655
Operating expenses 21,090,171 12,365,309 10,794,586
------------------------------------------------------
------------------------------------------------------
Income from operations 26,200,376 13,673,775 12,775,069
Nonperformance expenses 9,748,658 5,836,673 5,004,208
------------------------------------------------------
Profit contribution 16,451,718 7,837,102 7,770,861
Other expenses:
Home office expenses 9,232,612 4,604,881 3,134,417
Market allocation expenses 3,331,970 857,849 1,262,176
Interest expense 1,073,127 524,654 610,207
------------------------------------------------------
Total other expenses 13,637,709 5,987,384 5,006,800
------------------------------------------------------
------------------------------------------------------
Operating income 2,814,009 1,849,718 2,764,061
Equity in earnings of unconsolidated affiliates -- 104,165 50,382
Minority interest in loss of consolidated affiliate -- 9,675 1,845
Income attributable to minority interests for the period December 29, 1996
through April 26, 1997
(91,490) - -
------------------------------------------------------
Net income $ 2,722,519 $ 1,963,558 $ 2,816,288
======================================================
</TABLE>
See accompanying notes.
<PAGE>
Champion Rentals, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Capital Retained Earnings
Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 25, 1994 $ 750 $3,095,402 $1,793,679 $ 4,889,831
Net income - - 2,816,288 2,816,288
Stockholder distributions - - (1,585,003) (1,585,003)
------------------------------------------------------------------------
Balance at December 23, 1995 750 3,095,402 3,024,964 6,121,116
Net income - - 1,963,558 1,963,558
Stockholder distributions - - (1,406,639) (1,406,639)
------------------------------------------------------------------------
Balance at December 28, 1996 750 3,095,402 3,581,883 6,678,035
Issuance of common stock 27 859,973 - 860,000
Net income - - 2,722,519 2,722,519
Stockholder distribution in connection
with acquisition of Westgate TV, Inc.
- - (128,979) (128,979)
Stockholder distributions - - (2,198,353) (2,198,353)
Acquisition of affiliates 223 5,559,003 - 5,559,226
========================================================================
Balance at December 27, 1997 $1,000 $9,514,378 $3,977,070 $13,492,448
========================================================================
</TABLE>
See accompanying notes.
<PAGE>
Champion Rentals, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended
December 27 1997 December 28 1996 December 23 1995
------------------------------------------------------
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 2,722,519 $ 1,963,558 $ 2,816,288
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 20,466,225 12,527,160 10,959,842
Rental unit disposals and losses 2,781,377 1,829,194 1,573,882
Gain on sale of rental units (843,391) (224,773) (175,688)
(Gain) loss on sale of fixed assets 7,117 (21,495) 3,225
Equity in earnings of affiliates 81,241 (104,165) (50,382)
Minority interests earnings (losses) 10,249 (9,675) (1,845)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 342,365 (197,223) (47,315)
(Increase) decrease in prepaids, deposits and
intangible assets (638) 65,316 (179,581)
Increase (decrease) in accounts payable and accrued
expenses 2,071,056 (728,957) 1,470,458
------------------------------------------------------
Net cash provided by operating activities 27,638,120 15,098,940 16,368,884
Cash flows from investing activities
Acquisition of rental units (25,542,210) (12,592,412) (14,068,605)
Acquisition of fixed assets (1,487,783) (518,807) (1,193,134)
Acquisitions of rental stores (1,375,133) - -
Proceeds from sale of rental units 1,029,823 343,654 288,072
Proceeds from sale of fixed assets 192,090 46,949 39,200
Acquisition of affiliates, net of overdraft assumed (126,209) - -
------------------------------------------------------
------------------------------------------------------
Net cash used in investing activities (27,309,422) (12,720,616) (14,934,467)
</TABLE>
<PAGE>
Champion Rentals, Inc.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended
December 27 1997 December 28 1996 December 23 1995
------------------------------------------------------
Cash flows from financing activities
<S> <C>
Proceeds from issuance of common stock 860,000 - -
Stockholder distributions (2,327,332) (1,406,639) (1,585,003)
Proceeds from notes payable 15,205,974 2,470,220 2,330,320
Repayment of notes payable (11,210,000) (3,036,535) (1,849,648)
Repayment of capital lease obligation (1,362,559) (818,130) (482,996)
------------------------------------------------------
------------------------------------------------------
Net cash provided by (used in) financing activities 1,166,083 (2,791,084) (1,632,327)
------------------------------------------------------
------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,494,781 (412,760) (197,910)
Cash and cash equivalents at beginning of year 202,269 615,029 812,939
------------------------------------------------------
======================================================
Cash and cash equivalents at end of year $ 1,697,050 $ 202,269 $ 615,029
======================================================
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1,116,531 $ 652,690 $ 638,226
======================================================
======================================================
Supplemental disclosure of noncash activities
Acquisition of vehicles by financing leases $ 1,887,915 $ 1,176,740 $ 676,582
======================================================
======================================================
Acquisition of affiliates by common stock exchange $ 5,559,226 $ - $ -
======================================================
</TABLE>
See accompanying notes.
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
December 27, 1997
1. Summary of Business and Significant Accounting Policies
Organization and Nature of Business
The Company owns and operates rental stores in the southeastern United States.
The stores offer consumer electronics, household appliances, furniture and
jewelry for rent with ownership potential. As of December 27, 1997, December 28,
1996 and December 23, 1995, 147, 79 and 71 stores, respectively, were owned and
operated by the Company. The Company is part of a group, affiliated through
common ownership, which operates as retail establishments known as Champion Rent
to Own.
The nature of the Company's rental activity is rent-to-own and is governed in
many states in which it operates by rent-to-own legislation.
The essential elements of the rent-to-own rental agreement are:
Weekly, or sometimes monthly, rental agreements providing for no
obligation on the part of the renting party beyond each weekly or
monthly rental period.
Provision for ownership of the rental units upon the payment of a
specified number of fixed payment amounts.
Revenues are recorded when payment is received in accordance with renewable
rental agreements. Receivables are not recorded because the customer is not
legally obligated to continue the payments. Historically, few agreements are
renewed for sufficient successive weeks or months for the customer to obtain
ownership.
Annual Closing Date
The Company's fiscal years are the 52, 53 and 52 week periods ending December
27, 1997, December 28, 1996 and December 23, 1995, respectively.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
1. Summary of Business and Significant Accounting Policies (continued)
Rental Units
Rental unit inventory is recorded at cost as determined by specific
identification. Depreciation, for financial statement purposes, is computed by
the straight-line method over the economic life of the related asset, which
ranges from 6 to 21 months. Depreciation expense was approximately $18,040,000,
$11,260,000 and $9,933,000 for 1997, 1996 and 1995, respectively.
Accounts Receivable
The direct write-off method, rather than the allowance method, is used to
determine carrying value of receivables and the resulting bad debt expense. The
effect of this method on the financial statements is not materially different
from the allowance method.
Fixed Assets
Fixed assets are recorded at cost. For assets placed in service prior to 1994,
depreciation is computed principally by the accelerated method over the
estimated useful lives of the related assets. Effective December 26, 1993, the
Company began depreciating newly-acquired assets using the straight-line method,
which conforms to prevailing industry practice. Useful lives range from 3 to 7
years. Depreciation expense was approximately $2,244,000, $1,235,000 and
$1,005,000 for 1997, 1996 and 1995, respectively.
Intangible Assets
Loan Fees--Intangible assets are comprised of loan fees incurred in connection
with the Company's financing as disclosed in Note 6. The fees are being
amortized using the straight-line method over the life of the term loan.
Accumulated amortization at December 27, 1997 and December 28, 1996 was
approximately $5,000 and $78,000, respectively.
Goodwill--Goodwill represents the excess of the purchase price of acquisitions
over the fair value of the net assets acquired. Such excess costs are being
amortized on a straight-line basis over 20 years. Accumulated amortization at
December 27, 1997 was approximately $165,000. The carrying value of goodwill is
evaluated periodically in relation to the operating performance and future
undiscounted net cash flows to the related business.
Based upon its most recent analysis, the Company believes that no material
impairment of intangible assets exists at December 27, 1997. Amortization of
goodwill and loan fees was approximately $182,000, $32,000 and $22,000 in 1997,
1996 and 1995, respectively.
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
1. Summary of Business and Significant Accounting Policies (continued)
Income Taxes
The Company has elected by consent of its stockholders to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those provisions,
the Company does not pay Federal corporate income taxes on its taxable income.
Instead, the stockholders are liable for individual federal income taxes on the
Company's taxable income.
Advertising
The Company expenses the cost of advertising as incurred. Advertising expense
was approximately $2,078,000, $1,372,000 and $1,192,000 for 1997, 1996 and 1995,
respectively.
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 could differ from those estimates.
Reclassifications
Certain amounts for the prior years have been reclassified to conform with the
presentation adopted in 1997.
2. Business Combinations
The Company was part of a group, affiliated through common ownership. Effective
April 26, 1997, Champion Concepts, Inc., B & G Concepts, Inc., B & G Columbia,
Inc., Westgate TV of Tenn., Inc. and Champion Rentals, Inc. were merged.
Champion Rentals, Inc. is the surviving legal entity. The transaction was
accomplished through an exchange of 223 shares of common stock in Champion
Rentals, Inc.
The combination of the Company under direct control of the principal stockholder
and his ownership in the other companies prior to the merger has been accounted
for in a manner similar to a pooling of interests. Purchase accounting has been
applied as applicable to the acquisition of the other ownership interests where
majority control did not exist. Goodwill in the amount of approximately
$4,750,000 has been recorded in connection with this transaction and is being
amortized over 20 years.
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
2. Business Combinations (continued)
Also on April 26, 1997, Champion Rentals, Inc. acquired substantially all of the
assets and assumed substantially all of the liabilities of Westgate TV, Inc., an
affiliated company owned entirely by the principal stockholder, in a cash
transaction. Total consideration paid was approximately $129,000. This
transaction was accounted for in a manner similar to a pooling of interests.
Simultaneously, with the above transactions, stock aggregating 2% of the
outstanding stock of Champion Rentals, Inc. was issued to officers of the
surviving company.
Revenue and net income of the separate companies for the periods preceding the
acquisitions were as follows:
<TABLE>
<CAPTION>
Net Income (Loss)
Revenue
------------------------------------
Period December 29, 1996 through April 26, 1997:
<S> <C> <C>
Champion Rentals, Inc. $14,163,449 $ 554,814
Westgate TV of Tenn, Inc. 1,873,463 (654,969)
B & G Concepts, Inc. 5,611,472 525,679
B & G Columbia, Inc. 1,212,182 252,848
Westgate TV, Inc. (unaudited) 1,172,111 (25,965)
Adjustment (1,172,111) -
====================================
Combined $22,860,566 $ 652,407
====================================
Fiscal year ended December 28, 1996:
Champion Rentals, Inc. $40,947,476 $2,117,517
Westgate TV of Tenn, Inc. 5,410,673 213,826
B & G Concepts, Inc. 14,693,120 1,471,801
B & G Columbia, Inc. 3,514,110 278,352
------------------------------------
As previously reported 64,565,379 4,081,496
Westgate TV, Inc. (unaudited) 3,436,142 (267,804)
Adjustment (3,436,142) -
====================================
Combined $64,565,379 $3,813,692
====================================
</TABLE>
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
2. Business Combinations (continued)
<TABLE>
<CAPTION>
Net Income (Loss)
Revenue
------------------------------------
Fiscal year ended December 23, 1995:
<S> <C> <C>
Champion Rentals, Inc. $36,301,249 $2,721,546
Westgate TV of Tenn, Inc. 5,346,275 498,880
B & G Concepts, Inc. 12,601,490 2,386,400
B & G Columbia, Inc. 3,118,393 185,434
------------------------------------
As previously reported 57,367,407 5,792,260
Westgate TV, Inc. (unaudited) 3,153,319 42,505
Adjustment (3,153,319) -
====================================
Combined $57,367,407 $5,834,765
====================================
During 1997, the Company purchased five rental stores in two transactions and
rental agreements in one transaction. The transactions were as follows:
Friends, Inc. $ 745,724
Southern Home Rentals, Inc. 561,471
Tuskegee T.V. Rental, Inc. 67,938
===================
$1,375,133
===================
</TABLE>
For financial statement purposes, the acquisitions were accounted for as
purchases and, accordingly, the operating results of the acquisitions are
included in the financial statements since their respective acquisition dates.
The purchases were financed through available cash. The aggregate amount of the
purchase price representing goodwill, approximately $928,000, is being amortized
over 20 years.
3. Rental Units
Rental units at December 27, 1997 and December 28, 1996, consist of the
following:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
------------------------------------
<S> <C> <C>
Rental units $43,343,699 $23,267,942
Less accumulated depreciation (22,346,266) (13,238,614)
------------------------------------
====================================
$20,997,433 $10,029,328
====================================
</TABLE>
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
4. Fixed Assets
Fixed assets at December 27, 1997 and December 28, 1996, consist of the
following:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
------------------------------------
<S> <C> <C>
Vehicles $ 7,637,007 $4,308,232
Leasehold improvements 2,716,013 1,495,429
Office furniture and equipment 2,099,837 2,076,819
Machinery, tools and equipment 1,441,266 836,546
------------------------------------
------------------------------------
13,894,123 8,717,026
Less accumulated depreciation (7,588,956) (5,279,636)
====================================
$ 6,305,167 $3,437,390
====================================
5. Investments in Affiliates
Investments in affiliates consists of a 50% interest in Westgate TV of Tenn,
Inc. and a 47.5% interest in each B & G Concepts, Inc. and B & G Columbia, Inc.
(collectively, the Companies). The Companies owned and operated 12, 26 and 6
rental stores, respectively, at December 28, 1996. The Company's recorded
investments at December 28, 1996 were approximately $251,000, $991,000 and
$(18,000) in Westgate TV of Tenn, Inc., B&G Concepts, Inc. and B & G Columbia,
Inc., respectively. As described in Note 2, the Companies were merged with
Champion Rentals, Inc.
during 1997 and the investment accounts eliminated at that time.
6. Notes Payable
Notes payable at December 27, 1997 and December 28, 1996, consist of the
following:
1997 1996
------------------------------------
Senior debt
$2,700,000 three year term loan with principal and interest payable in
monthly installments at prime plus 1.5%. $ $2,358,334
-
$4,000,000 revolving line of credit with principal and interest payable
in monthly installments at prime plus 1.25%. - 1,000,000
$8,000,000 five year term loan with principal and interest payable in monthly
installments at LIBOR plus 2.6% or prime plus .25%
(currently 8.75%). 7,600,000 -
</TABLE>
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
6. Notes Payable (continued)
<TABLE>
<CAPTION>
1997 1996
------------------------------------
$8,000,000 revolving line of credit with interest payable in monthly
<S> <C> <C>
installments at prime plus .25% (currently 8.75%). 2,200,000 -
Stockholder Loan
Note payable with interest payable monthly at prime (currently 8.50%).
1,833,825 1,256,700
Equipment Financing
$1,300,000 equipment line of credit is payable in monthly installments
at prime plus .75% (currently 9.25%). 221,926 336,023
------------------------------------
Total notes payable $11,855,751 $4,951,057
====================================
</TABLE>
All debt was repaid in connection with the transaction described in Note 9.
7. Lease Obligations
The Company is obligated for the rental of various store locations under
noncancellable operating leases. The leases expire at various dates through the
year 2004. The following is a schedule by year of the approximate future minimum
lease payments:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 4,492,921
1999 3,693,303
2000 2,446,258
2001 1,336,621
2002 624,280
Thereafter 152,814
-------------------
===================
$12,746,197
===================
</TABLE>
For the years ended December 27, 1997, December 28, 1996 and December 23, 1995,
total rental expenses included in nonperformance expenses were approximately
$4,309,000, $2,538,000 and $2,181,000, respectively.
The Company has entered into various vehicle leases which are 50 months in
duration and offer purchase options. Obligations under capital leases have been
recorded in the accompanying financial statements at the present value of future
minimum lease payments. The capitalized costs of approximately $6,192,000 and
$3,399,000, less accumulated amortization of approximately
<PAGE>
Champion Rentals, Inc.
Notes to Financial Statements
7. Lease Obligations (continued)
$2,860,000 and $1,717,000, at December 27, 1997 and December 28, 1996,
respectively, are included in fixed assets in the accompanying financial
statements. Amortization expense for these vehicles for the years ended December
27, 1997, December 28, 1996 and December 23, 1995 was approximately $1,345,000,
$735,000 and $549,000, respectively.
The future minimum lease payments under capital leases and the net present value
of future minimum lease payments are as follows for the years ended December:
<TABLE>
<CAPTION>
<S> <C>
1998 $1,605,500
1999 1,221,540
2000 802,740
2001 367,111
2002 3,462
-------------------
Total minimum lease payments 4,000,353
Less amounts representing interest (495,994)
===================
Present value of net minimum lease payments $3,504,359
===================
</TABLE>
Total interest charged to operations under all capital leases was approximately
$307,000, $165,000 and $120,000 in 1997, 1996 and 1995, respectively.
8. Retirement Savings Plan
Effective January 1, 1993, the Company initiated a qualified tax deferred
retirement savings plan under the provisions of Section 401(k) of the Internal
Revenue Code. The Plan covers all full-time employees who have completed one
year of service with the Company. Elective contributions made by eligible
employees are matched by the Company on the basis of $.25 for each dollar
contributed not exceeding five percent of the employees' compensation.
Additional contributions are made to the Plan at the discretion of the Board of
Directors. The Company contributed approximately $79,000, $51,000 and $36,000 to
the Plan for 1997, 1996 and 1995, respectively.
9. Subsequent Events
Sale of Stock
On February 5, 1998, the stockholders of the Company sold 100% of their stock to
Rent-Way, Inc. making Champion Rentals, Inc. a wholly-owned subsidiary.
<PAGE>
Rent-Way, Inc.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
For the Three Months Ended December 31, 1997 for Rent-Way
For the Three Months Ended December 27, 1997 for Champion
<TABLE>
<CAPTION>
Pro Forma
Rent-Way Champion Adjustments Pro Forma(1)
-------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental revenue $ 23,515,013 $ 17,231,624 $ 40,746,637
Other revenue 3,151,130 1,123,488 4,274,618
-------------- ------------- ------------- -------------
Total revenues 26,666,143 18,355,112 - 45,021,255
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 6,259,770 5,225,812 11,485,582
Property and equipment 565,855 572,699 1,138,554
Amortization of goodwill 590,802 42,789 $ 450,663 (2) 1,084,254
Salaries and wages 6,975,988 5,479,888 (794,705) (3) 11,661,171
Advertising 1,228,284 589,444 1,817,728
Occupancy 1,841,436 1,340,922 3,182,358
Other operating expenses 4,927,909 4,165,879 87,500 (4) 9,181,288
-------------- ------------- ------------- -------------
Total costs and
Operating expenses 22,390,044 17,417,433 (256,542) 39,550,935
-------------- ------------- ------------- -------------
Operating income 4,276,099 937,679 256,542 5,470,320
Other Income (expense):
Interest expense (795,409) (269,269) (1,180,828) (5) (2,245,506)
Deferred financing expense (5,000) (28,333) (6) (33,333)
Interest income 109,655 - 109,655
Other income(expense), net (8,184) - (8,184)
-------------- ------------- ------------- -------------
Income before income taxes 3,582,161 663,410 (952,619) 3,292,952
-------------- ------------- ------------- -------------
Income tax expense (benefit) 1,547,494 - (131,525) (7) 1,415,969
-------------- ------------- ------------- -------------
============== ============= ============= =============
Net income $ 2,034,667 $ 663,410 $ (821,094) $ 1,876,983
============== ============= ============= =============
Diluted weighted average
Common shares outstanding 10,790,233 10,790,233
============== =============
Diluted earnings per
Common share $ 0.21 $ 0.19
============== =============
</TABLE>
See notes to unaudited pro forma condensed statement of income.
<PAGE>
Rent-Way, Inc.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
Year Ended September 30, 1997 for Rent-Way
Year Ended December 27, 1997 for Champion
<TABLE>
<CAPTION>
Pro Forma
Rent-Way Champion Adjustments Pro Forma(1)
-------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Rental revenue $ 77,498,328 $ 66,816,982 $144,315,310
Other revenue 10,545,206 4,397,153 14,942,359
-------------- ------------- ------------- -------------
Total revenues 88,043,534 71,214,135 - 159,257,669
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 20,314,482 20,103,246 40,417,728
Property and equipment 1,530,133 2,181,551 3,711,684
Amortization of goodwill 1,926,287 165,000 $ 1,802,652 (2) 3,893,939
Salaries and wages 22,809,722 21,731,633 (3,178,821) (3) 41,362,534
Advertising 3,898,610 2,077,595 5,976,205
Occupancy 5,987,604 5,345,722 11,333,326
Other operating expenses 17,790,535 15,796,742 350,000 (4) 33,937,277
-------------- ------------- ------------- -------------
Total costs and
Operating expenses 74,257,373 67,401,489 (1,026,169) 140,632,693
-------------- ------------- ------------- -------------
Operating income 13,786,161 3,812,646 1,026,169 18,624,976
Other Income (expense):
Interest expense (3,129,894) (1,073,127) (4,723,310) (5) (8,926,331)
Deferred financing expense (239,086) (17,000) (116,333) (6) (372,419)
Interest income 920 - 920
Other income, net (103,681) - - (103,681)
-------------- ------------- ------------- -------------
Income before income taxes
and extraordinary items 10,314,420 2,722,519 (3,813,475) 9,223,464
Income tax expense (benefit) 4,629,477 - (663,387) (7) 3,966,090
-------------- ------------- ------------- -------------
Income before extraordinary item 5,684,943 2,722,519 (3,150,088) 5,257,374
Extraordinary item (269,017) - - (269,017)
-------------- ------------- ------------- -------------
Net income 5,415,926 2,722,519 (3,150,088) 4,988,357
Preferred stock
Dividend requirements 280,175 - 280,175
-------------- ------------- ------------- -------------
Earnings applicable to
Common shares $ 5,696,101 $ 2,722,519 $ (3,150,088) $ 5,268,532
============== ============= ============= =============
Diluted weighted average
Common shares outstanding 9,322,925 9,322,925
============== =============
Diluted earnings per
Common share $ 0.72 $ 0.67
============== =============
</TABLE>
See notes to unaudited pro forma condensed statement of income.
<PAGE>
Rent-Way, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(1) BASIS OF PRESENTATION
The unaudited pro forma condensed financial statements have been prepared
assuming the acquisition of Champion had occurred on October 1,
1997. 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. 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.
(2) Adjustment to recognize amortization of goodwill on a straight line
basis over thirty years. (net of the effect of the elimination of Champion
goodwill amortization expense)
<TABLE>
<CAPTION>
<S> <C>
Three months $ 450,663
Year ended $ 1,802,652
(3) Salaries and wages have been adjusted for the elimination of the former
sharesholders of Champion Rentals Inc. Salaries and wages include all
bonuses and distributions made to shareholders.
Three months ended December 31, 1997 $ (794,705)
Year ended September 30, 1997 $(3,178,821)
(4) Adjustment for amortization of non-compete agreements and customer
lists with a five and two year life respectively.
Three months ended December 31, 1997 $ 87,500
Year ended September 30, 1997 $ 350,000
(5) Adjustment to record interest expense on borrowings for acquisitions offset by elimination of debt and interest
expense for Champion Rentals Inc.
Three months ended December 31, 1997 $(1,180,828)
Year ended September 30, 1997 $(4,723,310)
(6) Adjustment to record deferred financing expense associated with Rent-Way's amendment to its credit
facility, offset with the elimination of Champion's deferred financing epense
Three months ended December 31, 1997 $ (28,333)
Year ended September 30, 1997 $ (116,333)
(7) Adjustment to record income tax expense based on effective tax rate for the combined entity of 43%
Three months ended December 31, 1997 $ (131,525)
Year ended September 30, 1997 $ (663,387)
</TABLE>
