UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 0-25370
RENTERS CHOICE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-1024367
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13800 Montfort, Suite 300
Dallas, Texas 75240
(214) 701-0489
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
NONE
(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 required
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 1, 1996:
CLASS OUTSTANDING
Common stock, $.01 par value per share 24,815,410
RENTERS CHOICE, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. Consolidated Financial Statements
Balance Sheets as of June 30, 1996 and December 31, 1995 ............ 1
Statements of Earnings for the six months ended
June 30, 1996 and 1995 ..................................... 2
Statements of Earnings for the three months ended
June 30, 1996 and 1995 ..................................... 3
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 ..................................... 4
Notes to Financial Statements ....................................... 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ........................................... 12
ITEM 6. Exhibits and Reports on Form 8-K ............................ 14
SIGNATURES
Exhibit 10.20........................................................ 21
Exhibit 11.1 ........................................................ 23
Exhibit 27 .......................................................... 24
<PAGE>
RENTERS CHOICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................................................... $ 6,985,140 $ 35,321,338
Rental merchandise, net
On rent ..................................................................... 57,245,497 49,700,354
Held for rent ............................................................... 17,957,672 14,539,645
Accounts receivable, net ....................................................... 2,418,114 --
Income taxes receivable ........................................................ 970,610 1,440,223
Deferred income taxes .......................................................... 10,626,581 6,976,576
Prepaid expenses and other assets .............................................. 1,068,787 2,391,220
Intangible assets, net ......................................................... 29,366,845 29,549,275
Property assets, net ........................................................... 10,139,903 7,375,667
------------- -------------
$ 136,779,149 $ 147,294,298
============= =============
LIABILITIES
Accounts payable - trade ....................................................... $ 4,074,584 $ 3,288,069
Accrued liabilities ............................................................ 6,260,812 4,213,624
Income taxes payable ........................................................... 4,345,999 --
Taxes other than income ........................................................ 2,641,497 2,458,984
Deferred income taxes .......................................................... 350,000 --
Other debt ..................................................................... 6,393,590 40,849,605
Reserve for loans sold with recourse ........................................... 1,016,605
------------- -------------
25,083,087 50,810,282
COMMITMENTS AND CONTINGENCIES ...................................................... -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000 shares authorized;
none issue .................................................................. -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
24,814,260 and 24,378,108 shares issued and
outstanding in 1996 and 1995, respectively .................................. 248,120 243,781
Additional paid-in capital ..................................................... 94,991,127 87,919,305
Unamortized value of stock award ............................................... (747,890) (897,890)
Retained earnings .............................................................. 17,204,705 9,218,820
------------- -------------
111,696,062 96,484,016
$ 136,779,149 $ 147,294,298
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
RENTERS CHOICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1995
------------ -----------
Unaudited
STORE REVENUE
Rentals and fees .......................... $ 93,428,734 $47,432,591
Merchandise sales ......................... 5,763,938 2,271,160
Other ..................................... 361,607 268,392
FRANCHISE REVENUE
Franchise merchandise sales ............... 6,498,404 --
Royalty income and fees ................... 705,279
------------ -----------
TOTAL REVENUE ................... 106,757,962 49,972,143
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise ..... 20,562,611 10,998,761
Cost of merchandise sold ............... 4,383,884 1,470,953
Salaries and other expenses ............ 54,695,439 24,741,798
Franchise operation expenses
Cost of franchise merchandise sales .... 6,201,945 --
------------ -----------
85,843,879 37,211,512
General and administrative expenses ....... 4,725,082 2,649,115
Amortization of intangibles ............... 2,287,100 1,324,025
------------ -----------
TOTAL OPERATING EXPENSES ........ 92,856,061 41,184,652
------------ -----------
OPERATING PROFIT ................ 13,901,901 8,787,491
INTEREST EXPENSE, NET ......................... 22,814 447,421
------------ -----------
EARNINGS BEFORE INCOME TAXES .... 13,879,087 8,340,070
INCOME TAX EXPENSE ............................ 5,893,202 3,725,920
------------ -----------
NET EARNINGS .................... $ 7,985,885 $ 4,614,150
============ ===========
Weighted average shares outstanding ........... 24,971,287 19,342,088
============ ===========
EARNINGS PER SHARE .............. $ 0.32 $ 0.24
============ ===========
The accompanying notes are an integral part of these statements.
2
<PAGE>
RENTERS CHOICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JUNE 30,
----------------------------
1996 1995
------------ -----------
Unaudited
STORE REVENUE
Rentals and fees ........................... $ 47,863,382 $27,547,335
Merchandise sales .......................... 2,509,485 1,195,648
Other ...................................... 179,671 183,735
FRANCHISE REVENUE
Franchise merchandise sales ................ 6,498,404 --
Royalty income and fees .................... 705,279
------------ -----------
TOTAL REVENUE .................... 57,756,221 28,926,718
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise ...... 10,407,964 6,634,957
Cost of merchandise sold ................ 1,982,072 739,754
Salaries and other expenses ............. 27,794,656 14,392,717
Franchise operation expenses
Cost of franchise merchandise sales ..... 6,201,945
------------ -----------
46,386,637 21,767,428
General and administrative expenses ........ 2,666,436 1,591,336
Amortization of intangibles ................ 1,145,345 575,496
------------ -----------
TOTAL OPERATING EXPENSES ......... 50,198,418 23,934,260
------------ -----------
OPERATING PROFIT ................. 7,557,803 4,992,458
INTEREST (INCOME) EXPENSE, NET ................. (49,828) 283,973
------------ -----------
EARNINGS BEFORE INCOME TAXES ..... 7,607,631 4,708,485
INCOME TAX EXPENSE ............................. 3,238,642 2,081,694
------------ -----------
NET EARNINGS ..................... $ 4,368,989 $ 2,626,791
============ ===========
Weighted average shares outstanding ............ 25,170,392 20,686,514
============ ===========
EARNINGS PER SHARE ............... $ 0.17 $ 0.13
============ ===========
The accompanying notes are an integral part of these statements.
3
<PAGE>
RENTERS CHOICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1995
------------ ------------
Unaudited
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ......................................................................... $ 7,985,885 $ 4,614,150
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation of rental merchandise ............................................. 20,562,611 10,998,761
Depreciation of property assets ................................................ 1,415,455 633,208
Amortization of intangibles .................................................... 2,287,100 1,324,025
Other .......................................................................... 150,000 --
Changes in operating assets and liabilities
Rental merchandise ............................................................. (30,161,300) (15,942,835)
Income taxes receivable ........................................................ 1,440,223 --
Prepaid expenses and other assets .............................................. 1,697,556 (319,005)
Accounts payable - trade ....................................................... (2,228,583) 2,440,949
Accrued liabilities ............................................................ (1,110,403) 1,403,814
Income taxes ................................................................... 3,367,427 (250,762)
Taxes other than income ........................................................ 182,513 (12,745)
Reserve for loans held with recourse ........................................... (123,615)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................. 5,464,869 4,889,560
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property assets .......................................................... (4,093,228) (1,892,180)
Proceeds from sale of property assets ................................................ 419,920 42,947
Acquisitions of businesses, net of cash acquired of $2,132,930 in 1996 ............... (4,863,535) (21,022,782)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ...................................... (8,536,843) (22,872,015)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (expenses) from public offerings ............................................ -- 23,396,209
Proceeds from exercise of options .................................................... 542,080 10,000
Distributions to stockholders ........................................................ -- (1,493,340)
Proceeds from debt ................................................................... 531,844 17,986,989
Repayments of debt ................................................................... (47,676,443) (16,693,124)
Repayments of note to stockholder .................................................... -- (6,250,000)
Repayment of notes receivable ........................................................ 21,338,295
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ........................ (25,264,224) 16,956,734
------------ ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS .......................................................... (28,336,198) (1,025,721)
Cash and cash equivalents at beginning of period ......................................... 35,321,338 1,441,001
------------ ------------
Cash and cash equivalents at end of period ............................................... $ 6,985,140 $ 415,280
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
RENTERS CHOICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim financial statements of Renters Choice, Inc. and Subsidiary
(the "Company") included herein have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995. In the opinion of management, the
accompanying unaudited interim financial statements contain all
adjustments, consisting only of those of a normal recurring nature,
necessary to present fairly the Company's results of operations and cash
flows for the periods presented. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for
the full year.
2. On May 15, 1996 the Company acquired all the outstanding common stock of
ColorTyme, Inc. ("ColorTyme") pursuant to a merger (the "Merger") of a
wholly owned subsidiary of the Company with ColorTyme. The total Merger
consideration consisted of cash of $4,665,751 paid to shareholders and
343,175 shares of the Company's common stock, valued at $19.04 per share.
The acquisition was accounted for as a purchase, and accordingly, the
operating results of ColorTyme have been included in the operating results
of the Company since May 1, 1996.
The following summary, prepared on a pro forma basis, combines the results
of operations as if ColorTyme had been acquired as of the beginning of each
of the six month and three month periods ending June 30, 1996 and 1995,
after including the impact of purchase accounting adjustments and the
additional shares issued as consideration.
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------- -------------------------
1996 1995 1996 1995
------------ ----------- ----------- -----------
Revenue ................. $120,952,000 $73,015,000 $61,559,000 $40,209,000
Net earnings ............ $ 8,444,000 $ 4,684,000 $ 4,710,000 $ 2,786,000
Earnings per common share $ 0.34 $ 0.24 $ 0.18 $ 0.13
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of operating results that would have
occurred had the acquisition been consummated as of the above dates, nor
are they necessarily indicative of future operating results. The assets
purchased, liabilities assumed and equity consideration were recorded by
the Company as follows:
ASSETS ACQUIRED
Rental merchandise ..................... $ 748,717
Accounts receivable ................ 23,756,408
Income taxes receivable ............ 970,610
Deferred income taxes .............. 3,650,000
Prepaid expenses and other assets .. 375,128
Intangible assets .................. 708,389
Property assets .................... 446,784
-----------
$30,656,036
5
RENTERS CHOICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
2. Continued.
LIABILITIES ASSUMED
Accounts payable - trade .............. $ 3,015,098
Accrued liabilities ................... 3,157,591
Income taxes payable .................. 978,572
Deferred income taxes ................. 350,000
Other debt ............................ 12,688,583
Reserve for loans sold with recourse .. 1,140,219
-----------
21,330,063
EQUITY CONSIDERATION
Common stock .......................... 3,462
Additional paid-in capital ............ 6,530,620
6,534,082
-----------
$27,864,145
CASH PURCHASE PRICE ....................... $ 2,791,891
===========
Immediately following the purchase of ColorTyme by the Company, ColorTyme
sold its franchise loan portfolio (with certain recourse provisions) to a
third party for an aggregate purchase price of approximately $21.7 million.
At June 30, 1996, ColorTyme's provision for future possible losses
related to the sale of the loan portfolio is $1,016,605. ColorTyme
simultaneously paid off related notes payable owed to Chrysler First
Commercial Corporation for $13.2 million. No gain or loss was recognized on
the sale.
The Company acquired the assets of an additional five stores in two
transactions during the three months ended June 30, 1996 for approximately
$2.1 million. The transactions were accounted for using the purchase method
of accounting.
The assets acquired were recorded by the Company as follows:
ASSETS ACQUIRED
Rental merchandise ................. $ 615,762
Intangible assets .................. 1,396,281
Property assets .................... 59,600
CASH PURCHASE PRICE .................... $2,071,643
==========
3. The Company has a credit agreement with its current lender for $40 million.
This agreement consists of a $10 million revolving credit facility and a
$30 million term loan facility. Borrowings under the term loan facility
bear interest at a rate equal to the National prime rate as published in
the WALL STREET JOURNAL
(8-1/4% per annum at June 30, 1996) and borrowings under the revolving
creditfacility bear interest at such designated prime rate, in each case as
adjusted monthly. All borrowings are secured by a lien on substantially all
of the Company's assets. Borrowings under the revolving credit facility are
due on April 30, 1997. Any term loan borrowings will be funded in
individual notes amortized over five-year periods payable in equal monthly
6
RENTERS CHOICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. Continued.
installments (including interest). The commitment on the term facility
expires April 30, 1997, and bears no commitment fee. The credit agreement
includes certain cash flow and net worth requirements, as well as covenants
which limit the ability of the Company to incur additional indebtedness,
grant liens, transfer assets out of the ordinary course of business or
engage in merger transactions. At June 30, 1996, there were no outstanding
borrowings under either of these facilities.
7
RENTERS CHOICE, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In April 1995, the Company acquired 72 stores located in 18 states from
Crown Leasing Corporation and certain of its affiliates (the "Crown
Acquisition") and two other stores in a separate transaction. In August 1995,
the Company acquired 135 stores located in 10 states by purchasing the issued
and outstanding stock of Pro Rental, Inc., the parent company of a chain of
rent-to-own stores doing business as Magic Rent-to-Own and Kelway Rent-to-Own
(the "Magic Acquisition" and, together with the Crown Acquisition, the "1995
Acquisitions"). In May 1996, the Company acquired all the issued and outstanding
stock of ColorTyme, a franchisor of 313 rent-to-own stores, pursuant to the
Merger. Prior to the Merger, ColorTyme operated six company owned stores, all of
which were purchased by the Company subsequent to the Merger. The Company
acquired an additional five stores in two separate transactions in June 1996
(together with the ColorTyme Acquisition, the "1996 Acquisitions"). The 1995 and
1996 Acquisitions were accounted for as purchases and, accordingly, the
operating results of the acquired stores and franchisor have been included in
the operating results of the Company since the respective dates of acquisition.
Primarily as a result of the impact of the 1995 and 1996 Acquisitions on the
results of operations, comparisons of the operating results for the three month
and six month periods ended June 30, 1996 and 1995 may not be meaningful or
indicative of future results.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Total revenue increased by $56.8 million, or 113.6%, to $106.8 million
for 1996 from $50 million for 1995. The increase in total revenue was primarily
attributable to the inclusion of the 209 stores purchased in 1995, and the 1996
Acquisitions. Total revenue exclusive of the 209 stores, and the 1996
Acquisitions increased by $4.2 million, or 9.7% to $47.7 million for 1996 from
$43.5 million in 1995. This improvement was primarily attributable to an
increase in both the number of items on rent and in revenue earned per item on
rent.
Depreciation of rental merchandise increased by $9.6 million, or 87.3%,
to $20.6 million for 1996 from $11.0 million for 1995. Depreciation of rental
merchandise expressed as a percent of rental revenue decreased from 23.2% in
1995 to 22.0% in 1996. The decrease was primarily attributable to higher rental
rates on rental merchandise purchased after the 1995 Acquisitions.
Salaries and other expenses expressed as a percentage of total store
revenue increased to 54.9% for 1996 from 49.5% for 1995. This increase is
attributable to increase in salaries for employees of acquired stores
immediately following the acquisitions while store revenues have increased
gradually. Additionally, the Company increased its advertising efforts during
the first six months of 1996 in the markets related to the 209 stores acquired
in 1995. Occupancy costs also increased as a percent of total revenue primarily
because of the relocation of certain stores acquired in the 1995 acquisitions to
stores that are larger in square footage. Revenues from these larger stores
increase gradually while the additional occupancy costs are incurred
immediately. The average relocated store is approximately 4,000 square feet.
General and administrative expenses expressed as a percent of total revenue
decreased to 4.4% for 1996 from 5.3% for 1995. The decrease is primarily
attributable to increased economies of scale resulting from the 1995
Acquisitions.
Operating profit increased by $5.1 million, or 58.0%, to $13.9 million
for 1996 from $8.8 million for 1995. This improvement was primarily attributable
to an increase in both the number of items on rent and in revenue earned per
item on rent, both in stores acquired before 1995 and in stores acquired in the
1995 Acquisitions.
8
RENTERS CHOICE, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
Net earnings increased by $3.4 million, or 73.9%, to $8.0 million in 1996 from
$4.6 million in 1995. The improvement was a result of the increase in operating
profit described above.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Total revenue increased by $28.9 million, or 100.0%, to $57.8 million
for 1996 from $28.9 million for 1995. The increase in total revenue was
primarily attributable to the inclusion of the 209 stores purchased in 1995, and
the 1996 Acquisitions. Total revenue exclusive of the 209 stores, and the 1996
Acquisitions increased by $1.5 million, or 6.7% to $24.0 million for 1996 from
$22.5 million in 1995. This improvement was primarily attributable to an
increase in both the number of items on rent and in revenue earned per item on
rent.
Depreciation of rental merchandise increased by $3.8 million, or 57.6%,
to $10.4 million for 1996 from $6.6 million for 1995. Depreciation of rental
merchandise expressed as a percent of rental revenue decreased to 21.7% in 1996
from 24.1% in 1995. The decrease was primarily attributable to higher rental
rates on rental merchandise purchased after the 1995 Acquisitions.
Salaries and other expenses expressed as a percentage of total store
revenue increased to 55.0% for 1996 from 49.8% for the comparative 1995 quarter.
This increase is attributable to increase in salaries for employees of acquired
stores immediately following the acquisitions while store revenues have
increased gradually. Additionally, the Company increased its advertising efforts
during the quarter ended June 30, 1996 in the markets related to the 209 stores
acquired in 1995. Occupancy costs also increased as a percent of total revenue
primarily because of the relocation of certain stores acquired in the 1995
acquisitions to stores that are larger in square footage. Revenues from these
larger stores increase gradually while the additional costs are incurred
immediately. The average relocated store is approximately 4,000 square feet.
General and administrative expenses expressed as a percent of total revenue
decreased to 4.6% for 1996 from 5.5% for 1995. The decrease is primarily
attributable to increased economies of scale resulting from the 1995
Acquisitions.
Operating profit increased by $2.6 million, or 52.0%, to $7.6 million
for 1996 from $5.0 million for 1995. This improvement was primarily attributable
to an increase in both the number of items on rent and in revenue earned per
item on rent, both in stores acquired before 1995 and in stores acquired in the
1995 Acquisitions.
Net earnings increased by $1.8 million, or 69.2%, to $4.4 million in
1996 from $2.6 million in 1995. The improvement was a result of the increase in
operating profit described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are the acquisition of
existing stores, the opening of new stores, the purchase of additional rental
merchandise and the replacement of rental merchandise which has been sold or
charged-off or is no longer suitable for rent. During the year ended December
31, 1995, the Company acquired 209 stores for an aggregate purchase price of $59
million, of which $21.7 million was paid in cash. During the six months ended
June 30, 1996, the Company acquired an additional five stores and ColorTyme for
a net cash purchase price of $4.9 million. The Company purchased $36.9 million
and $18.7 million of rental merchandise during the six month periods ended June
30, 1996 and 1995, respectively.
For the six months ended June 30, 1996, cash provided by operating
activities increased by $600,000 to $5.5 million in 1996 from $4.9 million in
1995, primarily due to increased earnings, timing of the payment of various
operating expenses offset by increased rental merchandise purchases. Cash used
in investing activities decreased by $14.4 million to $8.5 million in 1996 from
$22.9 in 1995, primarily relating to the Crown Acquisition in April 1995. Cash
used in financing activities was $25.3 million for the six months ended June 30,
9
RENTERS CHOICE, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
1996, which relates primarily to repayment of debt to the Magic selling
shareholders which was paid in full on January 2, 1996, offset by the net
proceeds of the sale of the ColorTyme franchise loan portfolio. Cash provided by
financing activities was $17.0 million for the six months ended June 30, 1995,
which relates primarily to the proceeds from the initial public offering in
January 1995 offset by repayment of the note to a stockholder.
The Company increased its credit agreement with its current lender from
$25 million to $40 million in the first quarter of 1996. This agreement consists
of a $10 million revolving credit facility and a $30 million term loan facility.
Borrowings under the term loan facility bear interest at a rate equal to the
National prime rate as published in the WALL STREET JOURNAL (8-1/4% per annum at
June 30, 1996) and borrowings under the revolving credit facility bear interest
at such designated prime rate, in each case as adjusted monthly. All borrowings
are secured by a lien on substantially all of the Company's assets. Borrowings
under the revolving credit facility are due on April 30, 1997. Any term loan
borrowings will be funded in individual notes amortized over five-year periods
payable in equal monthly installments (including interest). The commitment on
the term facility expires April 30, 1997, and bears no commitment fee. The
credit agreement includes certain cash flow and net worth requirements, as well
as covenants which limit the ability of the Company to incur additional
indebtedness, grant liens, transfer assets out of the ordinary course of
business or engage in merger transactions. On June 30, 1996, there were no
outstanding borrowings under either of these facilities.
In connection with the stores acquired in 1993, monthly payments of
$33,333 are due under a consulting agreement through April 1, 2001, and monthly
payments of $125,000 are due under a non-competition agreement from February
1996 through January 1998. If the settlement agreement described under the
caption "Part II. Item 1. Legal Proceedings - IN RE: DEF INVESTMENTS, INC." is
executed, the Company will be released from its obligation to make payments
under such consulting and non-competition agreements, in exchange for a cash
payment of $4.75 million (the "Settlement Amount"). Although management cannot
at this time estimate when it will be required to pay the Settlement Amount, if
ever, management believes that the Company's borrowing capacity under its credit
facility and cash flow from operations will be sufficient to fund the payment.
In connection with the Crown Acquisition, monthly payments of $16,667
are due under a consulting agreement through October 1996, and in connection
with the Magic Acquisition, monthly payments in the aggregate amount of $32,500
each are due under certain noncompetition agreements through August 2000.
The Company intends to increase the number of stores it operates
through acquisitions and new store openings. In particular, the Company's goal
is to increase the number of stores it operates by approximately 50-60 stores in
each of the next few years. The Company currently expects to open ten to fifteen
new stores during the last half of 1996. The Company estimates that the average
investment with respect to new stores is approximately $350,000 per store, of
which rental merchandise comprises approximately 75% to 80% of the investment.
The remaining investment consists of leasehold improvements, delivery trucks,
store signs, computer equipment and start-up costs. There can be no assurance
that the Company will open any new stores in the future, or as to the number,
location or profitability thereof. Additionally, management believes that there
are currently a number of possible future acquisition opportunities in the
rent-to-own industry, and it is possible that any acquisition could be material
to the Company. There can be no assurance that the Company will be able to
acquire any additional stores, or that any stores that are acquired will be or
will become profitable.
10
RENTERS CHOICE, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Continued
Management believes that cash flow from operations and the previously
described credit facilities will be adequate to fund the operations and
expansion plans of the Company during 1996. In addition, to provide any
additional funds necessary for the continued pursuit of the Company's growth
strategies, the Company may incur, from time to time, additional short-term and
long-term bank indebtedness and may issue, in public or private transactions,
its equity and debt securities. The availability and attractiveness of any
outside sources of financing will depend on a number of factors, some of which
will relate to the financial condition and performance of the Company, and some
of which will be beyond the Company's control such as prevailing interest rates
and general economic conditions. There can be no assurance that such additional
financing will be available, or if available, will be on terms acceptable to the
Company.
11
PART II. OTHER INFORMATION
RENTERS CHOICE, INC. AND SUBSIDIARY
ITEM 1. LEGAL PROCEEDINGS.
From time to time the Company is a party to various legal proceedings
arising in the ordinary course of its business. Except as described below, the
Company is not currently a party to any material litigation.
IN RE: DEF INVESTMENTS, INC.
On September 5, 1995, a complaint (the "Complaint") was filed in the
United States Bankruptcy Court for the District of Minnesota (the "Bankruptcy
Court") against Mr. and Mrs. Robert A. Hardesty (the "Hardestys") and the
Company, among others (collectively, the "Defendants"). The complaint was filed
by the trustee (the "Trustee") for DEF Investments, Inc. ("DEF"), in an
involuntary chapter 7 bankruptcy case against DEF (the "DEF Bankruptcy Case")
commenced on April 20, 1995.
The Complaint seeks (i) to avoid the transfer of certain assets
purchased in 1993 by a predecessor of the Company from DEF and certain of its
subsidiaries pursuant to the 1993 Acquisition and to obtain an order that such
assets be turned over to the Trustee, (ii) to nullify the Hardestys' consulting
and noncompetition agreements, pursuant to the terms of which the Company paid
$2.0 million to the Hardestys on the closing date of the 1993 Acquisition, has
paid them an additional $900,000 since the closing date and is obligated to pay
them approximately $5.3 million in varying amounts through April 1, 2001, (iii)
to require the Company to make all future payments under the consulting and
noncompetition agreements to the Trustee for the benefit of the DEF bankruptcy
estate, and (iv) to set aside all payments already made by the Company to the
Hardestys under the consulting and noncompetition agreements, and to grant
judgment against the Hardestys for the amount of all such payments.
On March 8, 1996, the Company reached an agreement with the Trustee and
the Hardestys to settle the lawsuit. The terms of the settlement provide that
the Company will be released from the fraudulent transfer claim and the future
obligation to pay $5.3 million under the consulting and noncompetition
agreements with the Hardestys in exchange for a cash payment of $4.75 million to
the Trustee. The agreement, which, as of August 12, 1996, has not yet been
reduced to writing and is subject to approval by the Bankruptcy Court after
notice and hearing, contemplates the nonrefundable payment by the Company of
$50,000 upon execution of the written settlement agreement in exchange for the
Trustee's dismissal of the Complaint against the Company without prejudice. As
to the balance of the settlement amount, $300,000 is attributable to the
Trustee's claims against the Company based upon payments already made to the
Hardestys, and $4.4 million is attributable to future obligations under the
noncompetition and consulting agreements.
As part of the overall settlement, the Company will receive a full
release from the fraudulent transfer claim by the Trustee on behalf of DEF, all
of its subsidiaries which have filed Chapter 7 bankruptcy cases and their
respective creditors. The settlement is also conditioned on the Bankruptcy Court
issuing protective orders enjoining the Hardestys from making any claims against
the Company or J. E. Talley and certain of their affiliates under the
noncompetition and consulting agreements.
The pending class action against DEF and other companies including, at
this point, the Company (the "Miller lawsuit") will not be dismissed entirely
under the settlement agreement. While the claims against the Hardestys will be
dismissed, the claims against the Company will not be. Nevertheless, the
plaintiffs have agreed that they must first pursue collection of any judgment
obtained against the Company through enforcement of the indemnity agreement
between the Company and Transamerica Commercial Finance Corporation, I
("Transamerica"). The plaintiff class has further agreed that it cannot collect
or enforce any judgment obtained against the Company in the Miller lawsuit until
it has exhausted collection through the indemnity agreement. Finally, the
settlement calls for the plaintiff class to release and covenant not to assert
any claims it may have against the Company except those contained in its current
pleading in the Miller lawsuit.
12
PART II. OTHER INFORMATION
RENTERS CHOICE, INC. AND SUBSIDIARY - Continued
Management believes that the execution of the settlement agreement, in the form
in which it is currently proposed, will not have a material adverse effect on
the Company's results of operations. Management cannot predict when the
settlement agreement will be executed and approved by the Bankruptcy Court, and
there can be no assurance that the settlement agreement will be entered into at
all. If the settlement agreement is not executed, the Trustee would be able to
proceed against the Company in the fraudulent transfer claim.
HINTON ET AL. V. COLORTYME, INC.
In May 1994, certain Wisconsin residents filed suit against ColorTyme
alleging that Colortyme had entered into contracts with them which were
violative of the Wisconsin Consumer Act (the "Wisconsin Act"). Specifically, the
plaintiffs allege that the ColorTyme contracts were consumer credit transactions
under the Wisconsin Act, and that ColorTyme failed to provide required
disclosures and violated the Wisconsin Act's collection practice restrictions.
Plaintiffs are seeking damages in excess of $2.0 million.
The plaintiffs recently provided ColorTyme with a proposed second amended
complaint seeking to add the Company as an additional defendant and adding
certain additional related claims. The plaintiffs also recently have proposed a
class definition. Management expects that there will be motion practice in the
near future to define the extent of the class and to determine whether the
Company may be added as a party. No trial date has been set.
Although management cannot predict the outcome of the case, management does
not expect the ultimate resolution of the case to have a material adverse effect
on the Company's consolidated results of operations.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
CURRENT REPORTS ON FORM 8-K
Current Report on Form 8-K dated May 15, 1996, filed May 30, 1996.
Current Report on Form 8-K/A dated May 15, 1996, filed July 26, 1996.
LISTING OF EXHIBITS
Exhibits followed by an (*) constitute management contracts or
compensatory plans or arrangements.
EXHIBIT
NUMBER DESCRIPTION
2.1(1) - Asset Purchase Agreement dated April 20, 1995 among Renters
Choice, Inc., Crown Leasing Corporation, Robert White,
individually and Robert White Company, a sole proprietorship
owned by Robert White
2.2(2) - Stock Purchase Agreement dated as of August 27, 1995 among
Renters Choice, Inc., Starla J. Flake, Rance D. Richter, Bruce S.
Johnson and Pro Rental, Inc.
2.3(3) - Stock Purchase Agreement dated September 29, 1995 between the
Company and Terry N. Worrell
2.4(4) - Partnership Interest Purchase Agreement dated September 29,
1995 among the Company, Worrell Investors, Inc., The Christy Ann
Worrell Trust and The Michael Neal Worrell Trust
2.5(5) - Agreement and Plan of Merger by and among Renters Choice, Inc.,
Pro Rental, Inc., MRTO Holdings, Inc. and Pro Rental II, Inc.
2.6(6) - Agreement and Plan of Reorganization dated as of May 15, 1996 by
and among Renters Choice, Inc., ColorTyme, Inc., and CT
Acquisition Corporation.
3.1(7) - Amended and Restated Certificate of Incorporation of the
Company
3.2(8) - Amended and Restated Bylaws of the Company
4.1(9) - Form of Certificate evidencing Common Stock
10.1(10)* - 1994 Renters Choice, Inc. Long-Term Incentive Plan
10.2(11) - Amended and Restated Loan Agreement dated as of April 13, 1995
between INTRUST Bank, N.A. and Renters Choice, Inc.
10.3(12) - Consulting Agreement dated April 1, 1993, by and between Bob A.
Hardesty and Brenda K. Hardesty and Renters Choice, L.P.
10.4(13) - Non-Competition Agreement dated April 1, 1993, by and between
Bob A. Hardesty and Brenda K. Hardesty and Renters Choice, L.P.
10.5(14) - Noncompetition Agreement dated as of April 20, 1995 between
Renters Choice, Inc. and Patrick S. White
10.6(15) - Consulting Agreement dated as of April 20, 1995 between Renters
Choice, Inc. and Jeffrey W. Smith
10.7(16) - Noncompetition Agreement dated as of August 27, 1995 between
Renters Choice, Inc. and Starla J. Flake
10.8(17) - Noncompetition Agreement dated as of August 27, 1995 between
Renters Choice, Inc. and Bruce S. Johnson
14
10.9(18) - Noncompetition Agreement dated as of August 27, 1995 between
Renters Choice, Inc. and Rance D. Richter
10.10(19) - Promissory Note dated August 27, 1995 executed by the Company
and payable to the order of Starla J. Flake
10.11(20) - Promissory Note dated August 27, 1995 executed by the Company
and payable to the order of Bruce S. Johnson
10.12(21) - Promissory Note dated August 27, 1995 executed by the Company
and payable to the order of Rance D. Richter
10.13(22) - Option Agreement dated August 27, 1995 between the Company and
Terry N. Worrell
10.14(23) - Option Agreement dated August 27, 1995 among the Company,
Worrell Investors, Inc., The Christy Ann Worrell Trust and The
Michael Neal Worrell Trust
10.15(24) - Promissory Note dated September 29, 1995 executed by the
Company and payable to Terry N. Worrell
10.16(25) - Promissory Note dated September 29, 1995 executed by the
Company and payable to Worrell Investors, Inc.
10.17(26) - Promissory Note dated September 29, 1995 executed by the
Company and payable to The Christy Ann Worrell Trust
10.18(27) - Promissory Note dated September 29, 1995 executed by the
Company and payable to The Michael Neal Worrell Trust
10.19(28) - First Amendment to Amended and Restated Loan Agreement dated
October 1995 by and between Intrust Bank, N.A. and Renters
Choice, Inc.
10.20 - Second Amendment to Amended and Restated Loan Agreement dated
April 30, 1996 by and between Intrust, N.A. and Renters Choice,
Inc.
10.21(29)* - Employment Agreement dated September 11, 1995 by and between
Renters Choice, Inc. and David D. Real
10.22(30) - Portfolio Acquisition Agreement dated May 15, 1996, by and among
Renters Choice, Inc., ColorTyme Financial Services, Inc., and STI
Credit Corporation.
11.1 - Computation of Earnings per share
27 - Financial Data Schedule
- -------------------
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated May 4, 1995
(2) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated August 27, 1995
(3) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(4) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(5) Incorporated herein by reference to Exhibit 2.7 to the registrant's Annual
Report on Form 10K for the year ended December 31, 1995.
15
(6) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated May 15, 1996.
(7) Incorporated herein by reference to Exhibit 3.2 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
(8) Incorporated herein by reference to Exhibit 3.4 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
(9) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
(10) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Registration Statement on Form S-8 (File No. 33-98800)
(11) Incorporated herein by reference to Exhibit 10.2 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(12) Incorporated herein by reference to Exhibit 10.5 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
(13) Incorporated herein by reference to Exhibit 10.6 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
(14) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(15) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(16) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(17) Incorporated herein by reference to Exhibit 10.11 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(18) Incorporated herein by reference to Exhibit 10.12 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(19) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(20) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(21) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(22) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current
Report on Form 8-K dated August 27, 1995
(23) Incorporated herein by reference to Exhibit 2.3 to the registrant's Current
Report on Form 8-K dated August 27, 1995
(24) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(25) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(26) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(27) Incorporated herein by reference to Exhibit 10.24 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(28) Incorporated herein by reference to Exhibit 10.25 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(29) Incorporated herein by reference to Exhibit 10.26 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(30) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Current Report on Form 8-K dated May 15, 1996.
16
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 duly authorized.
RENTERS CHOICE, INC.
By: /s/ DAVID D. REAL
David D. Real
SENIOR VICE PRESIDENT-FINANCE
AND CHIEF FINANCIAL OFFICER
Date: August 13, 1996
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1(1) - Asset Purchase Agreement dated April 20, 1995 among Renters
Choice, Inc., Crown Leasing Corporation, Robert White,
individually and Robert White Company, a sole proprietorship
owned by Robert White
2.2(2) - Stock Purchase Agreement dated as of August 27, 1995 among
Renters Choice, Inc., Starla J. Flake, Rance D. Richter, Bruce S.
Johnson and Pro Rental, Inc.
2.3(3) - Stock Purchase Agreement dated September 29, 1995 between the
Company and Terry N. Worrell
2.4(4) - Partnership Interest Purchase Agreement dated September 29,
1995 among the Company, Worrell Investors, Inc., The Christy Ann
Worrell Trust and The Michael Neal Worrell Trust
2.5(5) - Agreement and Plan of Merger by and among Renters Choice, Inc.,
Pro Rental, Inc., MRTO Holdings, Inc. and Pro Rental II, Inc.
2.6(6) - Agreement and Plan of Reorganization dated May 15, 1996, by and
among Renters Choice, Inc., ColorTyme, Inc., and CT Acquisition
Corporation.
3.1(7) - Amended and Restated Certificate of Incorporation of the
Company
3.2(8) - Amended and Restated Bylaws of the Company
4.1(9) - Form of Certificate evidencing Common Stock
10.1(10)* - 1994 Renters Choice, Inc. Long-Term Incentive Plan
10.2(11) - Amended and Restated Loan Agreement dated as of April 13, 1995
between INTRUST Bank, N.A. and Renters Choice, Inc.
10.3(12) - Consulting Agreement dated April 1, 1993, by and between Bob A.
Hardesty and Brenda K. Hardesty and Renters Choice, L.P.
10.4(13) - Non-Competition Agreement dated April 1, 1993, by and between
Bob A. Hardesty and Brenda K. Hardesty and Renters Choice, L.P.
10.5(14) - Noncompetition Agreement dated as of April 20, 1995 between
Renters Choice, Inc. and Patrick S. White
10.6(15) - Consulting Agreement dated as of April 20, 1995 between Renters
Choice, Inc. and Jeffrey W. Smith
10.7(16) - Noncompetition Agreement dated as of August 27, 1995 between
Renters Choice, Inc. and Starla J. Flake
10.8(17) - Noncompetition Agreement dated as of August 27, 1995 between
Renters Choice, Inc. and Bruce S. Johnson
10.9(18) - Noncompetition Agreement dated as of August 27, 1995 between
Renters Choice, Inc. and Rance D. Richter
10.10(19) - Promissory Note dated August 27, 1995 executed by the Company
and payable to the order of Starla J. Flake
10.11(20) - Promissory Note dated August 27, 1995 executed by the Company
and payable to the order of Bruce S. Johnson
18
10.12(21) - Promissory Note dated August 27, 1995 executed by the Company
and payable to the order of Rance D. Richter
10.13(22) - Option Agreement dated August 27, 1995 between the Company and
Terry N. Worrell
10.14(23) - Option Agreement dated August 27, 1995 among the Company,
Worrell Investors, Inc., The Christy Ann Worrell Trust and The
Michael Neal Worrell Trust
10.15(24) - Promissory Note dated September 29, 1995 executed by the
Company and payable to Terry N. Worrell
10.16(25) - Promissory Note dated September 29, 1995 executed by the
Company and payable to Worrell Investors, Inc.
10.17(26) - Promissory Note dated September 29, 1995 executed by the
Company and payable to The Christy Ann Worrell Trust
10.18(27) - Promissory Note dated September 29, 1995 executed by the
Company and payable to The Michael Neal Worrell Trust
10.19(28) - First Amendment to Amended and Restated Loan Agreement dated
October 1995 by and between Intrust Bank, N.A. and Renters
Choice, Inc.
10.20 - Second Amendment to Amended and Restated Loan Agreement dated
April 30, 1996 by and between Intrust, N.A. and Renters Choice,
Inc.
10.21(29)* - Employment Agreement dated September 11, 1995 by and between
Renters Choice, Inc. and David D. Real
10.22(30) - Portfolio Acquisition Agreement dated May 15, 1996, by and among
Renters Choice, Inc., ColorTyme Financial Services, Inc., and
STI Credit Corporation.
11.1 - Computation of Earnings per share
27 - Financial Data Schedule
- ----------------
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated May 4, 1995
(2) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated August 27, 1995
(3) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(4) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(5) Incorporated herein by reference to Exhibit 2.7 to the registrant's Annual
Report on Form 10K for the year ended December 31, 1995.
(6) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated May 15, 1996.
(7) Incorporated herein by reference to Exhibit 3.2 to Annual Report on Form
10-K for the year ended December 31, 1994.
(8) Incorporated herein by reference to Exhibit 3.4 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
(9) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
(10) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Registration Statement on Form S-8 (File No. 33-98800)
(11) Incorporated herein by reference to Exhibit 10.2 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(12) Incorporated herein by reference to Exhibit 10.5 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
19
(13) Incorporated herein by reference to Exhibit 10.6 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
(14) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(15) Incorporated herein by reference to Exhibit 10.8 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(16) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(17) Incorporated herein by reference to Exhibit 10.11 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(18) Incorporated herein by reference to Exhibit 10.12 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(19) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(20) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(21) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(22) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current
Report on Form 8-K dated August 27, 1995
(23) Incorporated herein by reference to Exhibit 2.3 to the registrant's Current
Report on Form 8-K dated August 27, 1995
(24) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(25) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(26) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(27) Incorporated herein by reference to Exhibit 10.24 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(28) Incorporated herein by reference to Exhibit 10.25 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(29) Incorporated herein by reference to Exhibit 10.26 to the registrant's
Registration Statement on Form S-1 (File No. 33-97012)
(30) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Current Report on Form 8-K dated May 15, 1996.
20
EXHIBIT 10.20
INTRUST Bank/Renters Choice
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT is executed this 30 day of April, 1996, by and
between RENTERS CHOICE, INC. ("Borrower"), and INTRUST BANK, N.A. ("Bank") and
amends that certain Amended and Restated Loan Agreement dated April 13, 1995, as
amended by that certain First Amendment to Amended and Restated Loan Agreement
dated October 19, 1995. (The Amended and Restated Loan Agreement, as amended by
the First Amendment and as amended herein, are hereinafter referred to as the
"Loan Agreement".)
1. Section 1.5 is hereby amended and restated in its entirety as
follows:
Section 1.5. TERM GUIDANCE FACILITY. Bank hereby extends its
commitment to lend to Borrower an amount not to exceed a total
principal amount of THIRTY MILLION AND NO/100 DOLLARS
($30,000,000) (the "Term Guidance Facility") from the date
hereof until April 30, 1997. Each advance under this
commitment will be evidenced by a promissory note or
promissory notes, substantially in the form of the promissory
note attached to the Amended and Restated Loan Agreement as
Appendix II (the "Term Guidance Note", or if more than one,
the "Term Guidance Notes.")
2. Section 1.6 is hereby amended and restated in its entirety as
follows:
The Term Guidance Notes shall be repaid, together with
interest, in accordance with the terms of this Agreement and
the Term Guidance Notes. Each of the Term Guidance Notes shall
be amortized into equal monthly installments over a period of
five (5) years and shall bear interest at the Index rate,
adjusted the first Business Day of each month. Interest shall
be calculated from the date of each advance until such advance
has been repaid in full. Borrower may make prepayments of
principal and interest at any time and from time to time
without penalty.
3. Section 4.2 is hereby deleted.
4. The first sentence of Section 4.8.a. is hereby amended and
restated in its entirety as follows:
Borrower shall maintain a minimum tangible net worth of
$50,000,000.
5. The Loan Documents remain in full force and effect, and
Borrower hereby ratifies and affirms the terms and conditions
set forth therein.
6. Borrower acknowledges, recognizes, covenants and agrees that
as of the date of this Second Amendment, neither the Facility
nor the Term Guidance Facility is subject to any claim,
counterclaim, demand, cause of action or right of offset of
any kind, that the Facility and the Term Guidance Notes will
be repaid and prepaid, together with interest, in accordance
with the Loan Agreement and the other Loan Documents.
-21-
7. Borrower further represents and warrants that as of the date
of the execution and delivery of this Second Amendment by
Borrower, Borrower is not in default under any of the terms
and obligations of the Loan Documents or under any of its
other obligations to Lender.
THIS SECOND AMENDMENT, TOGETHER WITH THE LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION HEREWITH
AND THEREWITH ARE THE FINAL EXPRESSION OF THE AGREEMENT BETWEEN LENDER AND
BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS
ORAL AGREEMENT BETWEEN US. LENDER ____________ AND BORROWER J.E. TALLEY HEREBY
ACKNOWLEDGE AND AFFIRM THAT NO SUCH UNWRITTEN, ORAL AGREEMENTS EXIST. EACH PARTY
HERETO ACKNOWLEDGES THAT SUFFICIENT SPACE HAS BEEN PROVIDED HEREIN, AND IN THE
OTHER LOAN DOCUMENTS, FOR THE PLACEMENT OF NONSTANDARD TERMS.
8. Except as expressly set forth herein, the terms of the Loan
Agreement remain the same.
DATED as if the date and year first written above.
BORROWER:
RENTERS CHOICE, INC.
By /s/ J. ERNEST TALLEY
J. Ernest Talley,
Chairman of the Board
APPROVED:
INTRUST Bank, N.A.
By /S/ W. RANDALL SUMMERS
W. Randall Summers, Vice President
-22-
EXHIBIT 11.1
RENTERS CHOICE, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
JUNE 30,1996
---------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Net earnings .......................................................... $ 4,368,989 $ 7,985,885
=========== ===========
Weighted average number of common shares outstanding .................. 24,643,124 24,510,616
Net effect of dilutive stock options based on the treasury stock
method using average market price .............................. 527,268 460,671
----------- -----------
Weighted average number of common and common equivalent
shares outstanding ............................................. 25,170,392 24,971,287
=========== ===========
PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE .......................................................... $ 0.17 $ 0.32
=========== ===========
FULLY DILUTED EARNINGS PER SHARE
Net earnings .......................................................... $ 4,368,989 $ 7,985,885
=========== ===========
Weighted average number of common shares outstanding .................. 24,643,124 24,510,616
Net effect of dilutive stock options based on the treasury stock method
using the greater of the average or ending market price ........ 558,507 500,513
----------- -----------
Weighted average number of common and common equivalents shares
outstanding .................................................... 25,201,631 25,011,129
=========== ===========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
ASSUMING FULL DILUTION ......................................... $ 0.17 $ 0.32
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND ON PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED
JUNE 30, 1996.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,985
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 17,958<F1>
<CURRENT-ASSETS> 0<F2>
<PP&E> 15,957
<DEPRECIATION> 5,817
<TOTAL-ASSETS> 136,779
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 248
<OTHER-SE> 111,448<F3>
<TOTAL-LIABILITY-AND-EQUITY> 136,779
<SALES> 12,262<F4>
<TOTAL-REVENUES> 106,758
<CGS> 10,586<F5>
<TOTAL-COSTS> 85,844
<OTHER-EXPENSES> 7,012<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 13,879
<INCOME-TAX> 5,893
<INCOME-CONTINUING> 7,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,986
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<FN>
<F1> RENTAL MERCHANDISE, HELD FOR RENT.
<F2> BALANCE SHEET IS UNCLASSIFIED.
<F3> ADDITIONAL PAID IN CAPITAL, UNAMORTIZED VALUE OF STOCK AWARD, AND RETAINED
EARNINGS.
<F4> STORE AND FRANCHISE MERCHANDISE SALES.
<F5> STORE AND FRANCHISE COST OF MERCHANDISE SOLD.
<F6> GENERAL AND ADMINISTRATIVE EXPENSE AND AMORTIZATION OF INTANGIBLES.
</FN>
</TABLE>
