<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number 0-25370
RENTERS CHOICE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-1024367
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13800 Montfort Drive, Suite 300
Dallas, Texas 75240
(972) 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 November 9, 1998:
<TABLE>
<CAPTION>
Class Outstanding
- ---------------------------------------- ----------------
<S> <C>
Common stock, $.01 par value per share 24,074,734
</TABLE>
<PAGE> 2
RENTERS CHOICE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Balance Sheets as of September 30, 1998 and December 31, 1997 3
Statements of Earnings for the nine months ended
September 30, 1998 and 1997 4
Statements of Earnings for the three months ended
September 30, 1998 and 1997 5
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 26
Exhibit 27 30
</TABLE>
2
<PAGE> 3
RENTERS CHOICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(In Thousands) Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 90,483 $ 4,744
Rental merchandise, net
On rent 371,018 89,007
Held for rent 110,963 23,752
Accounts receivable, trade 2,676 2,839
Prepaid expenses and other assets 89,646 3,164
Property assets, net 89,001 17,700
Deferred income taxes 163,109 6,479
Intangible assets, net 695,266 61,183
Due from seller of acquired business 34,651 --
------------ ------------
$ 1,646,813 $ 208,868
============ ============
LIABILITIES
Senior term debt $ 716,880 $ 26,280
Subordinated notes payable 175,000 --
Accounts payable - trade 93,173 11,935
Accrued liabilities 250,877 17,008
Other debt 1,032 892
Preferred dividends payable 1,496 --
------------ ------------
1,238,458 56,115
COMMITMENTS AND CONTINGENCIES -- --
PREFERRED STOCK
Redeemable Preferred Stock, $.01 par value; 5,000 shares
authorized; 260 shares issued 259,476 --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000 shares authorized;
24,063 and 24,850 shares issued and outstanding
in 1998 and 1997, respectively 251 249
Additional paid-in capital 100,973 99,381
Retained earnings 72,655 53,123
------------ ------------
173,879 152,753
Treasury stock, 990 shares at cost (25,000) --
------------ ------------
148,879 152,753
------------ ------------
$ 1,646,813 $ 208,868
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
RENTERS CHOICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------
1998 1997
----------- -----------
(In Thousands Of Dollars, except for per share data) Unaudited
<S> <C> <C>
STORE REVENUE
Rentals and fees $ 400,793 $ 200,970
Merchandise sales 24,329 10,774
Other 2,094 525
----------- -----------
427,216 212,269
FRANCHISE REVENUE
Franchise merchandise sales 28,440 23,971
Royalty income and fees 3,777 3,013
----------- -----------
TOTAL REVENUE 459,433 239,253
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 91,382 42,271
Cost of merchandise sold 16,600 8,355
Salaries and other expenses 238,577 119,339
Franchise operation expenses
Cost of franchise merchandise sales 27,318 22,929
----------- -----------
373,877 192,894
General and administrative expenses 18,054 9,597
Amortization of intangibles 7,767 4,016
----------- -----------
TOTAL OPERATING EXPENSES 399,698 206,507
----------- -----------
OPERATING PROFIT 59,735 32,746
INTEREST INCOME (1,932) (256)
INTEREST EXPENSE 18,469 1,402
NON-RECURRING FINANCING COSTS 5,017 --
----------- -----------
EARNINGS BEFORE INCOME TAXES 38,181 31,600
INCOME TAX EXPENSE 17,153 13,108
----------- -----------
NET EARNINGS 21,028 18,492
PREFERRED DIVIDENDS 1,496 --
----------- -----------
NET EARNINGS ALLOCABLE TO COMMON STOCKHOLDERS $ 19,532 $ 18,492
=========== ===========
BASIC EARNINGS PER SHARE $ 0.79 $ 0.74
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.78 $ 0.74
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
RENTERS CHOICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three months ended September 30,
----------------------------
1998 1997
----------- -----------
(In Thousands Of Dollars, except for per share data) Unaudited
<S> <C> <C>
STORE REVENUE
Rentals and fees $ 237,350 $ 70,820
Merchandise sales 13,816 3,317
Other 1,813 186
----------- -----------
252,979 74,323
FRANCHISE REVENUE
Franchise merchandise sales 11,379 8,510
Royalty income and fees 1,528 1,031
----------- -----------
TOTAL REVENUE 265,886 83,864
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 57,543 14,761
Cost of merchandise sold 8,298 2,747
Salaries and other expenses 143,290 42,196
Franchise operation expenses
Cost of franchise merchandise sales 10,932 8,203
----------- -----------
220,063 67,907
General and administrative expenses 10,860 2,824
Amortization of intangibles 4,496 1,367
----------- -----------
TOTAL OPERATING EXPENSES 235,419 72,098
----------- -----------
OPERATING PROFIT 30,467 11,766
INTEREST INCOME (1,694) (176)
INTEREST EXPENSE 16,914 732
NON-RECURRING FINANCING COSTS 5,017 --
----------- -----------
EARNINGS BEFORE INCOME TAXES 10,230 11,210
INCOME TAX EXPENSE 5,587 4,486
----------- -----------
NET EARNINGS 4,643 6,724
PREFERRED DIVIDENDS 1,496 --
----------- -----------
NET EARNINGS ALLOCABLE TO COMMON STOCKHOLDERS $ 3,147 $ 6,724
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.13 $ 0.27
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
RENTERS CHOICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands Of Dollars) Nine months ended September 30,
------------------------------
1998 1997
------------ ------------
Unaudited
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 19,532 $ 18,492
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities
Depreciation of rental merchandise 91,382 42,271
Depreciation of property assets 10,539 3,985
Amortization of intangibles 7,767 4,017
Non-recurring charges - financing costs 5,017 --
Non-recurring charges - assets retired related to name change 2,451 --
Amortization of financing fees 546 --
Other -- (5)
Changes in operating assets and liabilities, net of effects of
acquisitions
Rental merchandise (98,839) (47,093)
Accounts receivable 464 495
Prepaid expenses and other assets (19,036) 544
Deferred income taxes 1,826 --
Intangible assets -- (1,169)
Accounts payable - trade 20,812 (5,539)
Accrued liabilities and preferred dividends payable (74,320) 5,643
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (31,859) 21,641
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property assets (9,732) (7,636)
Proceeds from sale of property assets 1,029 219
Acquisitions of businesses, net of cash acquired of $56,028 in 1998 (946,117) (29,274)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (954,820) (36,691)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (25,000) --
Proceeds from exercise of options 1,594 752
Financing fees paid (29,035) --
Proceeds from issuance of preferred stock 259,476 --
Proceeds from debt 1,250,863 71,290
Repayments of debt (385,480) (56,631)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,072,418 15,411
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 85,739 361
Cash and cash equivalents at beginning of period 4,744 5,920
------------ ------------
Cash and cash equivalents at end of period $ 90,483 $ 6,281
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
RENTERS CHOICE, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. The interim financial statements of Renters Choice, Inc. (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 disclosures 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,
1997 and its Quarterly Reports on Form 10-Q for the three months and six
months ended March 31, 1998 and June 30, 1998. 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 28, 1998, the Company completed its acquisition of 176 rent-to-own
stores from Central Rents, Inc. and certain of its affiliates for
approximately $100 million (the "Central Acquisition"). On August 5, 1998
the Company completed its acquisition of 1,409 rent-to-own stores from
Rent-A-Center, Inc. (formerly known as Thorn Americas, Inc.) and certain of
its affiliates for approximately $900 million, including the repayment of
certain debt of Rent-A-Center, Inc. (the "Rent-A-Center Acquisition"),
subject to adjustment. Exclusive of the Rent-A-Center Acquisition and the
Central Acquisition, the Company acquired the assets of 48 rent-to-own
stores in 13 separate transactions for approximately $25.3 million in cash
during the nine months ended September 30, 1998. Of the 48 stores, 41 were
acquired in the three months ended September 30, 1998 for approximately
$23.3 million in cash in 7 separate transactions. All acquisitions have
been accounted for as purchases and, accordingly, the operating results of
the acquired stores have been included in the financial statements of the
Company since their respective dates of acquisition. The following
pro-forma information combines the results of operations as if the
acquisitions had been consummated as of the beginning of each of the nine
and three month periods ending September 30, 1998 and 1997, after including
the impact of adjustment for amortization of intangibles and interest
expense on acquisition borrowings.
(In Thousands Of Dollars, except per share data)
<TABLE>
<CAPTION>
Nine months ended September 30, Three months ended September 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 1,027,163 $ 977,513 $ 341,141 $ 329,180
Net Earnings $ 17,547 $ 16,995 $ 3,094 $ 5,531
Basic earnings per common share $ .71 $ .68 $ .13 $ .22
Diluted earnings per common share $ .70 $ .68 $ .13 $ .22
</TABLE>
7
<PAGE> 8
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 acquisitions been consummated as of the above dates, nor
are they necessarily indicative of future operating results. The assets
purchased and liabilities assumed were recorded by the Company as follows:
<TABLE>
<CAPTION>
(In Thousands of Dollars)
(unaudited)
<S> <C>
ASSETS
Cash and cash equivalents $ 56,028
Rental merchandise, net 361,765
Accounts receivable, net 301
Prepaid expenses and other assets 43,974
Property assets, net 75,588
Deferred tax asset 158,456
Intangible assets, net 641,850
Due from Thorn 34,651
----------
$1,372,613
==========
LIABILITIES
Accounts payable - trade $ 60,426
Accrued liabilities 285,903
Other debt 357
----------
346,686
==========
PURCHASE PRICE 1,025,927
Less: Additional purchase price remaining to be paid 23,782
----------
CASH PURCHASE PRICE $1,002,145
==========
</TABLE>
8
<PAGE> 9
3. EARNINGS PER SHARE
Basic and diluted earnings per common share is computed based on the
following information:
<TABLE>
<CAPTION>
(In Thousands, except for per share data) Three months ended September 30, 1998
-----------------------------------------
Net earnings Shares Per share
------------ ---------- ----------
<S> <C> <C> <C>
Basic earnings per common share $ 3,147 24,821 $ 0.13
Effect of dilutive stock options -- 201
---------- ----------
Diluted earnings per share(1) $ 3,147 25,022 $ 0.13
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30, 1997
-----------------------------------------
Net earnings Shares Per share
------------ ---------- ----------
<S> <C> <C> <C>
Basic earnings per common share $ 6,724 24,867 $ 0.27
Effect of dilutive stock options -- 474
---------- ----------
Diluted earnings per share $ 6,724 25,341 $ 0.27
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1998
-----------------------------------------
Net earnings Shares Per share
------------ ---------- ----------
<S> <C> <C> <C>
Basic earnings per common share $ 19,532 24,910 $ 0.79
Effect of dilutive stock options -- 232
---------- ----------
19,532 25,142
Add: Preferred dividends 1,496 --
Add: Weighted average convertible
preferred shares -- 1,892
---------- ----------
Diluted earnings per share $ 21,028 27,034 $ 0.78
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1997
-----------------------------------------
Net earnings Shares Per share
------------ ---------- ----------
<S> <C> <C> <C>
Basic earnings per common share $ 18,492 24,825 $ 0.74
Effect of dilutive stock options -- 387
----------- ---------
Diluted earnings per share $ 18,492 25,212 $ 0.74
=========== ========= ==========
</TABLE>
- --------------------
(1) The effect of the Convertible Preferred Stock is anti-dilutive for the three
months ended September 30, 1998.
9
<PAGE> 10
RENTERS CHOICE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
This report contains forward-looking statements that involve risks and
uncertainties. Such forward looking statements generally can be identified by
the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate," or "believe," or the negative thereof or
variations thereon or similar terminology. Although the Company believes that
the expectations reflected in such forward-looking statements will prove to be
correct, the Company can give no assurance that such expectations will prove to
have been correct. The actual future performance of the Company could differ
materially from such statements. Factors that could cause or contribute to such
differences include, but are not limited to, (i) the uncertainties and or
potential delays associated with respect to implementing the Company's business
plans in the stores acquired in the Rent-A-Center Acquisition and the Central
Acquisition, (ii) the ability to enhance the performance of the other acquired
stores and to integrate the other acquired stores into the Company's operations,
(iii) the ability to acquire additional rent-to-own stores on favorable terms,
(iv) uncertainties regarding the ability to open new stores, (v) the passage of
legislation adversely affecting the rent-to-own industry, (vi) interest rates,
(vii) the ability of the Company to collect on its rental purchase agreements at
the current rate, and (viii) the other risks detailed from time to time in the
Company's SEC reports, including its annual report Form 10-K for the year ended
December 31, 1997 and its Quarterly Reports on Form 10-Q for the three months
and six months ended March 31, 1998 and June 30, 1998, respectively. You are
cautioned not to place reliance on these forward-looking statements, which speak
only as of the date of this report. Except as required by law, the Company is
not obligated to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this report or
to reflect the occurrence of unanticipated events.
The Company is the largest operator in the United States rent-to-own
("RTO") industry with approximately 25% market share (based on store count). In
June 1998, the Company entered into an agreement to acquire Rent-A-Center, Inc.
(f/k/a Thorn Americas, Inc.) ("Rent-A-Center") with Thorn plc, a UK-based
company. On August 5, 1998, the Company acquired Rent-A-Center for
approximately $900 million in cash (including the repayment of certain debt of
Rent-A-Center), subject to adjustment. Prior to this acquisition, Rent-A-Center
was the largest RTO competitor with 1,409 company-owned stores and 65 franchised
stores in 49 states and the District of Columbia. Rent-A-Center operated 1,158
stores under the Rent-A-Center brand, the most widely recognized store name in
the RTO industry.
The Company financed the Rent-A-Center Acquisition through certain
financing arrangements, consisting of a senior credit facility and a senior
subordinated facility. The Company also issued a total of $260 million in
preferred stock to certain affiliates of Apollo Management, IV, L.P. ("Apollo")
and to an affiliate of Bear, Stearns & Co. Inc. to assist in the funding of the
Rent-A-Center Acquisition, to repurchase $25 million of the Company's common
stock, and to repay its prior credit facility. On August 18, 1998, following the
Rent-A-Center Acquisition, the Company issued $175 million of senior
subordinated notes to repay the senior subordinated facility. Rent-A-Center has
certain ongoing litigation, including an adverse New Jersey state court
judgement currently on appeal that was pending at the time of the Rent-A-Center
Acquisition. For additional information, see the section entitled "Risk Factors
- - Legal Proceedings." The Company is currently in the process of integrating the
stores acquired in the Rent-A-Center Acquisition.
In May 1998, the Company acquired substantially all of the assets of
Central Rents, Inc. for approximately $100 million in cash. Central Rents
operated 176 stores located primarily in California, the Southwest, Midwest, and
South. This acquisition expanded the Company's presence in a region of the
country, the Southwest, which the Company strategically targeted for expansion.
Since 1993, the Company's store count has grown from 27 to 2,125
through the above acquisitions as well as other acquisition activity and new
store openings. Significant other acquisition activity is described briefly
below.
10
<PAGE> 11
In April 1995, the Company acquired 72 stores located in 18 states,
including nine states in which the Company previously had no operations, from
Crown Leasing Corporation and certain of its affiliates (the "Crown
Acquisition"), and in September 1995, the Company completed the acquisition of
an additional 135 stores located in 10 states, including one state in which the
Company previously had no operations, from the shareholders of the parent
company of a chain of RTO 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, Inc. ("ColorTyme"), a franchisor of, at the time
of closing, 313 RTO stores in 40 states and 7 directly owned RTO stores (the
"ColorTyme Acquisition"), one of which was sold after the ColorTyme Acquisition
to a third party and the remainder of which were purchased by the Company. The
Company acquired 88 stores between May 1 and December 31, 1996 (exclusive of the
6 stores purchased from ColorTyme) in 23 separate transactions (together with
the ColorTyme Acquisition, the "1996 Acquisitions"). The Company acquired 71
stores in 18 separate transactions during the twelve months ended December 31,
1997 (the "1997 Acquisitions").
All of the aforementioned acquisitions were accounted for as purchases
and, accordingly, the operating results of the acquired stores and ColorTyme
franchisor operations have been included in the operating results of the Company
since their respective dates of acquisition. Because of the significant growth
of the Company since its formation, the Company's historical results of
operations, its period-to-period comparisons of such results and certain
financial data may not be comparable, meaningful or indicative of future
results.
RECENT DEVELOPMENTS
Net earnings for the quarter ended September 30, 1998, before certain
non-recurring expenses associated with the Rent-A-Center Acquisition and the
Central Acquisition described above, were $9.1 million. Non-recurring expenses
of approximately $7.5 million reduced net earnings for the quarter to $.13 per
share. These non-recurring expenses include $5.0 million of costs associated
with the interim financing utilized in the Rent-A-Center Acquisition until
permanent financing was obtained. This financing was repaid upon the Company's
successful issuance of $175 million of subordinated notes on August 18, 1998.
Additionally, the non-recurring expenses include a non-cash charge of $2.5
million to reflect the Company's decision to establish Rent-A-Center as the
nationwide brand-name for all of its 2,125 company owned stores. This name
change, which is being implemented during the fourth quarter of 1998, requires
that the Company expense the remaining assets related to the "Renters Choice"
brand name as the existing 675 Renters Choice locations will be converted to the
Rent-A-Center brand.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Total revenue increased by $220.1 million, or 92.0%, to $459.4 million
for 1998 from $239.3 million for 1997. The increase in total revenue was
primarily attributable to the Rent-A-Center Acquisition and the Central
Acquisition. Same store revenues increased by $17.1 million, or 8.7% to $214.0
million for 1998 from $196.9 million in 1997. Same store revenues represent
those revenues earned in stores that were operated by the Company for the entire
nine-month periods ending September 30, 1998 and 1997. 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 $49.1 million, or
116.2%, to $91.4 million for 1998 from $42.3 million for 1997. Depreciation of
rental merchandise expressed as a percent of total store rental and fee revenue
increased from 21.0% in 1997 to 22.8% in 1998. The increase was primarily
attributable to the Central Acquisition and the Rent-A-Center Acquisition, as
these companies were experiencing depreciation rates of 22.9% and 29.8%
respectively. The Company is in the process of implementing its pricing strategy
and inventory management practices in the stores acquired pursuant to the
Rent-A-Center Acquisition and the Central Acquisition.
Salaries and other expenses expressed as a percentage of total store
revenue decreased to 55.8% for 1998 from 56.2% for 1997. This decrease is
attributable to the increase in store revenues from the Rent-A-Center
Acquisition and the Central Acquisition, as well as the same store base, and the
Company has experienced some efficiencies in spreading costs over a larger store
base, in particular advertising costs and certain service costs. General and
administrative expenses expressed as a percent of total revenue decreased from
4.0% in 1997 to 3.9% in
11
<PAGE> 12
1998. This decrease was the result of increased revenues from the Central
Acquisition as well as the Rent-A-Center Acquisition, allowing the Company to
leverage its fixed and semi-fixed costs over the larger revenue base.
Operating profit, including non-recurring charges of $2.5 million in
1998 to effect a name change of the Renters Choice stores to Rent-A-Center,
increased by $27.0 million, or 82.5%, to $59.7 million for 1998 from $32.7
million for 1997. 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 1996 and 1997
Acquisitions offset by the non-recurring charges. Net interest expense increased
from $1.1 million of interest expense in 1997 to $16.5 million of interest
expense in 1998. The increased interest expense and debt level relates primarily
to the financing associated with Central Acquisition in May 1998 and the
Rent-A-Center Acquisition in August 1998. Net earnings for the period were also
impacted negatively by non-recurring financing cost of $5.0 million associated
with the interim financing utilized in the Rent-A-Center Acquisition until
permanent financing was obtained. Net earnings after non-recurring charges
increased by $2.5 million, or 13.7%, to $21.0 million in 1998 from $18.5 million
in 1997. The improvement was a result of the increase in operating profit
described above.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Total revenue increased by $182.0 million, or 217.0%, to $265.9 million
for 1998 from $83.9 million for 1997. The increase in total revenue was
primarily attributable to the Rent-A-Center Acquisition and the Central
Acquisition. Same store revenues increased by 9.5%, from $73.8 million to $80.8
million. Same store revenues represents those revenues earned in stores that
were operated by the Company for the entire three-month periods ending September
30, 1997 and 1998. 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 $42.8 million, or
289.8%, to $57.5 million for 1998 from $14.8 million for 1997. Depreciation of
rental merchandise expressed as a percent of total store rental and fee revenue
increased from 20.8% in 1997 to 24.2% in 1998. The increase was primarily
attributable to the Central Acquisition and the Rent-A-Center Acquisition as
these companies were experiencing depreciation rates higher than the Company
average. The Company is in the process of implementing its pricing strategy and
inventory management practices in the stores acquired pursuant to the
Rent-A-Center Acquisition and the Central Acquisition.
Salaries and other expenses expressed as a percentage of total store
revenue decreased to 56.6% for 1998 from 56.8% for 1997 primarily as a result of
increased revenues in the 1997 Acquisitions, the Central Acquisition and the
Rent-A-Center Acquisition, as well as the leveraging of the Company's fixed and
semi-fixed costs in these stores. General and administrative expenses expressed
as a percent of total revenue increased from 3.4% in 1997 to 4.1% in 1998. This
increase was primarily the result of a $2.5 million non-cash charge relating to
the Company's decision to establish Rent-A-Center as its sole nationwide
brand-name.
Operating profit increased by $18.7 million, or 158.9% to $30.5 million
for 1998 from $11.8 million for 1997. This improvement was attributable to the
efficiencies discussed above and the profit contribution from ColorTyme, as well
as the increased profits associated with the Central Acquisition and the
Rent-A-Center Acquisition.
Net earnings decreased by $2.1 million, or 30.9%, to $4.6 million in
1998 from $6.7 million in 1997. The decrease was a result of $7.5 million in
non-recurring acquisition related charges, which is comprised of $5.0 million of
financing costs included in interest expense and $2.5 million included in
general and administrative expenses related to the Company's decision to
establish Rent-A-Center as its sole nationwide brand-name.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are: the acquisition of
existing stores; the opening of new stores; the integration of acquired stores;
purchase of additional rental merchandise; and the replacement of rental
merchandise which has been sold, charged-off or is no longer suitable for rent.
During the nine months ended September 30, 1998, the Company acquired 1,632
stores for an aggregate purchase price of approximately $1.0 billion. The
Company also opened 1 new store during the first three quarters of 1998.
The Company purchased $120.1 million and $62.0 million of rental
merchandise during the nine months ended September 30, 1998 and 1997,
respectively.
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For the nine months ended September 30, 1998, cash provided (used) by
operating activities decreased by $53.5 million, from $21.6 million in 1997 to
($31.9) million in 1998, primarily due to the assumption of liabilities
associated with the Rent-A-Center Acquisition. Cash used in investing activities
increased by $918.1 million from $36.7 million in 1997 to $954.8 million in
1998, principally related to the greater number of stores acquired in 1998 as
compared to the number of stores acquired during the same period for 1997. Cash
provided by financing activities was $1,072 million for the nine months ended
September 30, 1998.
At September 30, 1998, the Company had in place a $962 million Senior
Secured Credit Facility arranged by Chase Securities, Inc. (the "Senior Credit
Facility"). Borrowings under the Senior Credit Facility bore interest at a rate
equal to 0.25% to 1.75% over the designated prime rate (8.5% per annum at
September 30, 1998) or 1.25% to 2.75% over LIBOR (5.375% at September 30, 1998)
at the Company's option. At September 30, 1998, the average rate on outstanding
borrowings was 8.2%. For the quarter, the weighted average interest rate under
the Senior Credit Facility was 8.4%. During the quarter, the Company entered
into certain interest rate protection agreements (the "Interest Rate
Agreements") with two banks. Under the terms of the Interest Rate Agreements,
the LIBOR rate used to calculate the interest rate charged on $500 million of
the outstanding senior term debt has been fixed at an average rate of 5.59%.
These Interest Rate Agreements have terms of three and five years. Borrowings
were collateralized by a lien on substantially all of the assets of the Company.
A commitment fee equal to .25% to .50% of the unused portion of the term loan
facility was payable quarterly. The Senior Credit Facility included certain net
worth and fixed charge coverage requirements, as well as covenants which
restrict additional indebtedness and the disposition of assets not in the
ordinary course of business. On September, 30, 1998, the outstanding borrowings
under the Senior Credit Facility were $716.9 million.
During the quarter ended September 30, 1998, the Company issued $175
million of Senior Subordinated Notes in a private placement transaction under
Rule 144A (the "Note Issuance"). The proceeds from the Note Issuance were used
to retire a $175 million senior subordinated credit facility entered into in
conjunction with the Senior Credit Facility.
During the next twelve to twenty-four months, the Company's central
business strategy is to successfully integrate the Rent-A-Center Acquisition and
the Central Acquisition into the Renters Choice system. Once completed, the
Company intends to resume its strategy to increase its store base and annual
revenues and profits through the opening of new stores, as well as opportunistic
acquisitions. The Company anticipates ample opportunities to increase its store
base through its continued participation in the industry consolidation and the
possibility for increased penetration and expansion of its existing customer
base.
After the assimilation of the Rent-A-Center Acquisition and the Central
Acquisition, the Company plans to accomplish its future growth through selective
and opportunistic acquisitions, with an increasing emphasis on new store
development. Typically, a newly opened rental store is profitable on a monthly
basis in the sixth to seventh month after its initial opening. Historically, a
typical store has achieved break-even profitability in twelve to fifteen months
after its initial opening. Total financing requirements of a typical new store
approximates $350,000, with roughly 80% to 85% of that amount relating to the
purchase of rental merchandise inventory (both on-rent and idle). A newly opened
store historically has achieved results consistent with other Company mature
stores (stores that have been operating within the system for greater than two
years) by the end of its third year of operation. 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, nor is there any assurance
that the Company will open any new stores in the future, or as to the number,
location or profitability thereof.
Management believes that cash flow from operations and its Senior
Credit Facility, the proceeds from the issuance of its Preferred Stock and the
proceeds from the Note Issuance will be adequate to fund the operations,
integration and expansion plans of the Company during 1998 and 1999. 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 or long-term bank indebtedness and may issue, in public or
private transactions, 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 such additional financing will be available, or if available, will be
on terms acceptable to the Company.
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YEAR 2000 ISSUE
Year 2000 issues exist when dates are recorded in computers using two
digits (rather than four) and are then used for arithmetic operations,
comparisons or sorting. A two-digit recording may recognize a date using "00" as
1900 rather than 2000, which could cause the Company's computer systems to
perform inaccurate computations. The Company has received confirmation from its
management information systems vendors that the Company's system is Year 2000
compliant. The Company expects that all the Company's systems will be able to
properly handle the rollover to the year 2000 in a timely fashion. The Company's
Year 2000 issues relate not only its own systems, but also to those of its
suppliers. It is anticipated that systems replacements and modifications will
resolve the Year 2000 issue with respect to the Company's suppliers. There is no
guarantee, however, that such systems replacements and modifications or the
Company's efforts to achieve Year 2000 compliance will be completed successfully
and on time, which could have a material adverse affect on the Company.
RISK FACTORS
You should carefully consider the information below in addition to
everything else we have told you in our filings with the Commission in
evaluating our Company.
RISKS ASSOCIATED WITH THE ACQUISITION OF RENT-A-CENTER
Expected Benefits of Combined Business May Not Be Achieved. We believe
the combination of Renters Choice and Rent-A-Center will be of significant
benefit to our stockholders. However, you should be aware that these benefits
may not be realized if combining Renters Choice's business and Rent-A-Center's
business cannot be accomplished in an efficient and effective manner. This
combination will require, among other things, the integration of management
philosophies and personnel, arrangements with third party vendors,
standardization of training programs, realization of operating efficiencies, and
effective coordination of sales and marketing and financial reporting efforts.
Additionally, you should be aware that acquisitions in general are subject to a
number of special risks, including adverse short-term effects on our reported
operating results, diversion of management's attention, and unanticipated
problems or legal liabilities. Although we have a history of successful
acquisitions, we cannot assure you that this acquisition and the integration of
Rent-A-Center's operations into Renters Choice's will be successful or
accomplished efficiently. You should be aware that if we fail to integrate
Rent-A-Center's operations successfully with Renters Choice's, the Company could
be affected, both materially and adversely.
Increased Size of Company. Although we have successfully acquired many
businesses since our initial public offering, we have never been this large of a
company. Our operations more than doubled with the purchase of Rent-A-Center.
Our future operations depend largely upon our ability to manage this sizeable
and growing business profitably. We believe, with the implementation of our
management philosophy, that we can accomplish this task. However, we cannot
guarantee to you that we will. If we fail to manage the size and the growth of
our business, a material adverse effect could result.
SIGNIFICANT LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
Because of the acquisition of Rent-A-Center, we have a significant
amount of debt outstanding. You should be aware that this significant amount of
debt could have important consequences to you as a stockholder. Below we have
identified for you many, but not all, of the consequences resulting from this
significant amount of debt that we now owe.
o We may be unable to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate
purposes.
o A significant portion of our cash flow from operations must be
dedicated to the repayment of the indebtedness, thereby reducing
the amount of cash we have available for other purposes.
o We may be disadvantaged as compared to our competitors as a result
of the significant amount of debt.
o Our ability to adjust to changing market conditions and our
ability to withstand competition may be hampered by the amount of
debt we now owe. It may also make us more vulnerable in a
downturned market.
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You should be aware that our ability to repay or refinance our current
debt depends on our successful financial and operating performance. Our ability
to meet our payment obligations may depend on our ability to successfully
implement our business strategy. Unfortunately, we cannot assure you that we
will be successful in implementing our strategy or in realizing our anticipated
financial results. You should also be aware that our financial and operational
performance depends upon a number of factors, many of which are beyond our
control. These factors include:
o the current economic and competitive conditions in the RTO
industry,
o any operating difficulties, operating costs or pricing pressures
we may experience,
o the passage of legislation or other regulatory developments that
affects us adversely, and
o any delays in implementing any strategic projects we may have.
In the event that we are unable to repay our current debt, we may be
forced to reduce or delay expansion, sell some of our assets, obtain additional
equity capital or refinance or restructure our debt. We cannot assure you that
our cash flow and capital resources will be sufficient to repay any indebtedness
we may incur in the future, or that we will be successful in obtaining
alternative financing.
LEGAL PROCEEDINGS
The RTO industry is the subject of class action litigation involving
claims that RTO contracts are in fact disguised installment sales contracts or
involve undisclosed excessive interest charges. We are involved in such
litigation in five states: New Jersey, Pennsylvania (with respect to RTO
contracts entered into prior to Pennsylvania's enactment of an RTO statute),
Wisconsin, New York and Minnesota.
We are involved in three class actions in New Jersey, one of which
(Robinson v. Thorn Americas, Inc.) was originally filed against Rent-A-Center.
In Robinson v. Thorn Americas, Inc., a New Jersey state court entered a judgment
against Rent-A-Center and ordered Rent-A-Center to pay the class of plaintiffs
an amount in excess of $140 million which will increase until this litigation is
resolved. Rent-A-Center posted a $163 million supersedeas bond, which amount was
derived from an accounting by the plaintiffs of the projected amount of judgment
liability as of April 1999. Rent-A-Center is appealing the Robinson decision.
The other two other class actions in New Jersey are entitled Gallagher v. Crown
Leasing Corporation and Handy Boykin v. Renters Choice, Inc. In these cases, the
plaintiffs allege we (or, in the Gallagher case, Renters Choice as the successor
to Crown) violated the New Jersey Consumer Fraud Act and the New Jersey Retail
Installment Sales Act. The claims arising from the Boykin and Gallagher cases
are similar to the claims made against our subsidiary Rent-A-Center in Robinson
v. Thorn Americas, Inc. Claims have also been made that Rent-A-Center violated
RTO statutes in certain other states. We intend to vigorously defend ourselves
in all pending or asserted actions against us.
A class action entitled Fogie v. Thorn Americas, Inc. has been filed in
Minnesota alleging Rent-A-Center's RTO contracts violated Minnesota's Consumer
Credit Sales Act and the Minnesota General Usury Statute. Furthermore, a class
action entitled Colon v. Thorn Americas, Inc. has been filed in New York state
court, alleging that Rent-A-Center has a duty to disclose "effective interest"
under New York consumer protection laws and seeks damages for Rent-A-Center's
failure to do so. An adverse ruling in any of these cases could have a material
adverse effect on the Company.
Rent-A-Center was also named in a class action in Wisconsin entitled
Burney v. Thorn Americas, Inc. In Burney v. Thorn Americas, Inc., a plaintiff
filed a class action in Wisconsin state court alleging Rent-A-Center violated
the Wisconsin Consumer Act. This matter was settled in principle for
approximately $16.25 million. A claim was also filed against Rent-A-Center
alleging discrimination against its African-American employees. This matter was
settled in principle for approximately $6.75 million.
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GOVERNMENT REGULATION
As is the case with most businesses, we are subject to certain
governmental regulations, specifically with respect to RTO transactions. There
are currently 45 states that have passed laws regulating rental purchase
transactions and another state that has a retail installment sales statute that
excludes RTO transactions from its coverage if certain criteria are met. These
laws generally require certain contractual and advertising disclosures. They
also provide varying levels of substantive consumer protection, such as
requiring a grace period for late fees and contract reinstatement rights in the
event the rental purchase agreement is terminated. The rental purchase laws of
nine states limit the total amount of rentals that may be charged over the life
of a rental purchase agreement. Certain states also effectively regulate rental
purchase transactions under other consumer protection statutes. You should also
be aware that we are currently subject to outstanding judgments and other
litigation alleging that we, or our subsidiaries, have violated some of these
statutory provisions.
Although there is no comprehensive federal legislation regulating
rental-purchase transactions, we cannot assure you that such legislation will
not be enacted in the future. From time to time, legislation has been introduced
in Congress seeking to regulate our business. In the event that legislation
having a negative impact on our business is adopted, you should be aware that it
could have a material adverse impact on us. In addition, we cannot assure you
that the various legislators in the states where we currently do business will
not adopt new legislation or amend existing legislation that negatively affects
us.
DEPENDENCE UPON KEY PERSONNEL
As a stockholder, you have no right to participate in the Company's
management. The Company's continued success is highly dependent upon the
personal efforts and abilities of our senior management, including J. Ernest
Talley, our Chairman of the Board and Chief Executive Officer, Mark E. Speese,
our President and Chief Operating Officer, and L. Dowell Arnette, our Executive
Vice President. We do not have employment contracts with any of these officers
and the loss of any one of them could impact the Company in a negative way.
CONTROL BY PRINCIPAL STOCKHOLDERS
You should be aware that a total of approximately 42.0% of the
Company's voting stock on a fully diluted basis is controlled by Messrs. Talley,
Speese and by certain affiliates of Apollo Investment Fund, IV. As a result, in
the event they act together, they have the ability to exercise practical control
over the outcome of actions requiring the approval of our stockholders,
including potential acquisitions, elections of the Company's Board of Directors
and sales or changes in control of the Company.
RELIANCE ON INFORMATION SYSTEMS
As is common with large organizations, we rely extensively on our
information systems to manage our operations. As a result, we regularly invest
in various upgrades to our systems in order to achieve optimum performance
compared to the costs involved. We are currently implementing our information
systems in the stores we acquired in the Rent-A-Center acquisition and expect
this process to be completed by early December 1998. However, you should be
aware that any difficulties or delays that we may experience in implementing our
system in the acquired stores, or any other disruption with respect to our
information systems, could negatively impact our financial and operating
results.
YEAR 2000
Year 2000 issues exist when dates are recorded in computers using two
digits (rather than four) and are then used for arithmetic operations,
comparisons or sorting. A two-digit recording may recognize a date using "00" as
1900 rather than 2000, which could cause our computer systems to perform
inaccurate computations. We have received confirmation from our management
information systems vendors that our system is Year 2000 compliant. You should
be aware that Year 2000 issues relate not only to our systems, but also to those
used by our suppliers. We anticipate that system replacements and modifications
will resolve any Year 2000 issues that may exist with our suppliers or their
suppliers. However, we cannot guarantee to you that such replacements or
modifications will be completed successfully or on time and, as a result, any
failure to complete such modifications on time could materially affect our
financial and operating results in a negative way.
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RESTRICTIVE DEBT COVENANTS
Certain financing documents that we have entered into impose
significant operating and financial restrictions on us and our subsidiaries.
These restrictions may significantly limit or prohibit us from engaging in
certain transactions, including the following:
o borrowing additional money,
o paying dividends or other distributions to our stockholders,
o making certain investments,
o creating certain liens on our assets,
o selling certain assets currently held by us,
o entering into transactions with any of our affiliates, and
o engaging in certain mergers or consolidations involving the
Company.
The Senior Credit Facilities impose significant restrictive covenants
and require the Company and certain of its subsidiaries to maintain specified
financial ratios and satisfy certain financial tests. Our ability to meet these
financial ratios and tests may be affected by events beyond our control and, as
a result, we cannot guarantee to you that we will be able to meet such tests. In
addition, the restrictions contained in the Senior Credit Facilities could limit
our ability to obtain future financing, make needed capital expenditures,
withstand a future downturn in our business or in the economy or otherwise
conduct necessary corporate activities. Our failure to comply with the
restrictions in the Indenture (the "Indenture") related to our 11% Senior
Subordinated Notes and the Senior Credit Facilities could lead to a default
under the terms of those documents. In the event of such a default, the
applicable lender could declare all amounts borrowed and all amounts due under
other instruments that contain certain provisions for cross-acceleration or
cross-default due and payable, including all interest that is accrued and
unpaid. In addition, the lenders under such agreements could terminate their
commitments to lend to us. If that does occur, we cannot assure you that we
would be able to make the necessary payments to the lenders and we cannot give
you any assurance that we would be able to find additional alternative
financing. Even if we could obtain additional alternative financing, we cannot
assure you that it would be on terms that are favorable or acceptable to the
Company.
You should also be aware that the existing indebtedness under the
Senior Credit Facilities is secured by substantially all of our and our
subsidiaries' assets. Should a default or acceleration of such indebtedness
occur, the holders of such indebtedness could seize these assets securing the
indebtedness and sell the assets to satisfy all or a part of what is owed. The
Senior Credit Facilities also contain provisions prohibiting the modification of
the Notes (subject to certain exceptions favorable to the lenders under the
Senior Credit Facilities) and that limit our ability to refinance the Notes
without the consent of such lenders.
COMPETITION
We operate in a highly competitive industry. Competition is based
primarily on store location, product selection and availability, customer
service, and rental rates and terms. Several of our competitors operate on a
regional basis and some may, in the future, have significantly greater financial
and operating resources and name recognition than us. We also face competition
from sources outside the RTO industry, such as department stores, discount
stores and rental stores offering short-term rent-to-rent arrangements. Because
barriers to entry in the RTO industry are relatively low, additional competition
may arise from new sources. As a result of these competitive conditions, we may
not be able to sustain past levels of revenue or continue our recent revenue
growth or profitability.
DIVIDEND POLICY
We do not anticipate paying any dividends on our Common Stock in the
foreseeable future. You should be aware that we are required to pay dividends on
our Preferred Stock on a quarterly basis to the holders of the Preferred Stock
pursuant to the terms of the Preferred Stock.
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ANTI-TAKEOVER PROVISIONS
Our governing documents (the Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws) contain, among other things,
provisions establishing a classified board of directors, authorizing the
issuance of "blank check" preferred stock and establishing advance notice
requirements for director nominations and actions to be taken at annual
meetings. We are also subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware. Such provisions and arrangements could
delay, deter or prevent a merger, consolidation, tender offer or other business
combination or change of control involving the Company that some or a majority
of the Company's stockholders might consider to be in their best interests,
including offers or attempted takeovers that might otherwise result in such
stockholders receiving a premium over the market price for our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict whether future sales of shares of Common Stock, or
the availability of such shares for future sale, will have any effect on the
market price of our Common Stock. Sales of large amounts of our Common Stock
(including shares issued upon the exercise of employee stock options), or the
perception that these sales could occur, could adversely affect prevailing
market prices for our Common Stock. As of November 9, 1998, we had 24,074,734
shares of our Common Stock outstanding. In addition, there are 260,000 shares of
Series A Convertible Preferred Stock outstanding that are convertible into
9,307,321 shares of Common Stock. For the first five years, the 3 3/4% per annum
dividends of the Series A Convertible Preferred Stock may be payable, at the
option of the Company, in cash or additional shares of Series A Convertible
Preferred Stock. The holders of the Series A Convertible Preferred Stock have
certain registration rights under registration rights agreements with the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company, along with its subsidiaries, is party
to various legal proceedings arising in the ordinary course of business. The
majority of the material proceedings involve claims that may be generally
characterized into one of two categories, recharacterization claims and
statutory compliance claims. Recharacterization claims generally involve claims
(i) in states that do not have RTO legislation, (ii) that RTO transactions are
disguised installment sales in violation of applicable state installment
statutes, and (iii) that allege greater damages. Statutory compliance claims
generally involve claims (i) in states that have RTO legislation, (ii) that the
operator failed to comply with applicable state rental purchase statutes (e.g.,
notices and late fees), and (iii) that allege lesser damages. Except as
described below, the Company is not currently a party to any material
litigation.
The following litigation matters were acquired from Rent-A-Center
pursuant to the Rent-A-Center Acquisition. In connection with accounting for the
Rent-A-Center Acquisition, the Company made appropriate purchase accounting
adjustments for liabilities associated with outstanding litigation.
Robinson v. Thorn Americas, Inc. The plaintiffs filed this class action on April
19, 1994 in state court in New Jersey. The class consists of all residents of
New Jersey who are or have been parties to Rent-A-Center RTO contracts since
April 19, 1988. During this period, Rent-A-Center operated approximately 23
stores in New Jersey. The plaintiffs' claims are for alleged violations of the
New Jersey Retail Installment Sales Act and the New Jersey Consumer Fraud Act,
usury, unlawful contractual penalty and conversion. On January 5, 1998, the
court entered a judgment against Rent-A-Center and ordered Rent-A-Center to pay
the plaintiffs the amount equal to (i) all reinstatement fees collected by
Rent-A-Center since April 29, 1988, and (ii) 40% of all rental revenue collected
by Rent-A-Center from the plaintiffs from April 29, 1988, trebled. Later, the
court added an incentive award to the class representative, the inclusion of
attorneys' fees, and granted plaintiff's counsel 25% of the amount to be
distributed to the class. The judgment is secured by a supersedeas bond posted
by Rent-A-Center in the amount of $163 million, which amount was derived from an
accounting by plaintiffs of the projected amount of the judgment liability
through April 1999. Rent-A-Center filed its notice of appeal on January 26, 1998
and the appeal is now fully briefed. The Company is vigorously defending this
action. However, there can be no assurance that the Company will be successful
on appeal.
Burney v. Thorn Americas, Inc. The plaintiffs originally filed a class action in
federal court in Wisconsin alleging Rent-A-Center's RTO contracts violated the
Wisconsin Consumer Act and federal RICO and truth-in-lending statutes. The court
first granted the plaintiffs' motion for summary judgment as to liability. The
court then withdrew that decision and dismissed the action for lack of federal
subject matter jurisdiction once the plaintiffs withdrew their truth-in-lending
claims. The plaintiffs refiled the action on February 28, 1997 in state court in
Wisconsin, and the court granted plaintiffs' motion for class certification on
July 7, 1998. The class is comprised of the persons who were party to RTO
contracts with Rent-A-Center in Wisconsin after October 19, 1988 and who have
paid Rent-A-Center an amount equal to or greater than the value of the
merchandise. During this period, Rent-A-Center operated approximately 23 stores
in Wisconsin. (The plaintiffs have asserted that the value of the merchandise
for class certification purposes is 60% of the amount required to obtain
ownership.) This limitation on the members of the class distinguishes Burney
from Robinson. The Company has settled this matter for $16.25 million, subject
to final approval by the court. The court has preliminarily approved the
settlement and notices to class members are being prepared.
Colon v. Thorn Americas, Inc. The plaintiffs filed this class action in November
1997 in New York state court. Rent-A-Center removed the case to the U.S.
District Court for the Southern District of New York. Plaintiffs filed a motion
to remand, which was granted. The plaintiffs acknowledge that RTO transactions
in New York are subject to the provisions of New York's Rental Purchase Statute
but contend the Rental Purchase Statute does not provide Rent-A-Center immunity
from suit for other statutory violations. Plaintiffs allege Rent-A-Center has a
duty to disclose "effective interest" under New York consumer protection laws,
and seek damages for Rent-A-Center's failure to do so. This suit also alleges
violations relating to late fees, harassment, undisclosed charges, and the ease
of use and accuracy of its payment records. No damages theory was specified in
the complaint. The proposed class includes all New York residents who were party
to Rent-A-Center RTO contracts from November 26, 1991 through November 26, 1997.
The Company is vigorously defending this action and on September 24, 1998, filed
motions to
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deny class certification and dismiss the complaint. However, there can be no
assurance that such motions will be granted or that Rent-A-Center will be found
not to have any liability.
Anslono v. Thorn Americas, Inc. This is a putative class action filed in
Massachusetts state court on January 6, 1998. Plaintiffs acknowledge that RTO
contracts constitute "consumer leases" under Massachusetts' RTO statute, but
contend that Rent-A-Center failed to comply with certain statutory provisions
and Rent-A-Center failed to provide certain disclosures. Plaintiffs seek actual
and statutory damages and an injunction to prohibit Rent-A-Center from engaging
in the acts complained of. The proposed class includes all Massachusetts
residents who were parties to Rent-A-Center RTO contracts in the four-year
period prior to the January 6, 1998 filing. The Company is vigorously defending
this action. However, there can be no assurance that Rent-A-Center will be found
not to have any liability.
Allen v. Thorn Americas, Inc. The plaintiffs filed August 15, 1997 a putative
nationwide class action suit in federal court in Missouri, alleging that
Rent-A-Center has discriminated against African-Americans in its hiring,
compensation, promotional and termination policies. The Company has settled this
matter in principle for approximately $6.75 million.
Cooks v. Thorn Americas, Inc. The plaintiff filed a putative class action in
Texas state court in 1993, alleging violations of Texas's usury statute,
Deceptive Trade Practices Act and Insurance Code. This case has been dormant
since 1994. The Company intends to vigorously defend its subsidiary in this
action should it once again become active. However, there can be no assurance
that Rent-A-Center will be found not to have any liability.
In connection with the Rent-A-Center Acquisition, Thorn plc agreed to
indemnify and hold harmless the Company and Rent-A-Center from the following two
lawsuits and deposited $40 million in escrow in respect of these two lawsuits
and other indemnification claims that the Company may have against Thorn plc.
Fogie v. Thorn Americas, Inc. The plaintiffs filed this class action on December
4, 1991 in Minnesota. The class consists of residents of Minnesota who entered
rental purchase contracts with Rent-A-Center from August 1, 1990 through
November 30, 1996. The plaintiffs alleged that Rent-A-Center's RTO contracts
violated Minnesota's Consumer Credit Sales Act and the Minnesota General Usury
Statute. On April 15, 1998, the court entered a final judgment against
Rent-A-Center and ordered it to pay approximately $30 million to the plaintiffs.
Under certain provisions of the judgment, Rent-A-Center may receive certain
credits against the judgment. On May 15, 1998, Rent-A-Center filed a notice of
appeal from the damages finding only, and is vigorously pursuing its appeal.
Willis v. Thorn Americas, Inc. The Willis action consolidated three separate but
related actions, the first of which was filed in 1994, that cover the period
from December 22, 1988 to September 9, 1996. The plaintiffs alleged that prior
to Pennsylvania's enactment of RTO legislation, Rent-A-Center's RTO contracts
were actual installment sales contracts in violation of Pennsylvania law.
Rent-A-Center entered into a settlement agreement with the plaintiffs whereby
Rent-A-Center agreed to pay $9,350,000. On July 8, 1998, the court approved the
settlement.
The following litigation matters against the Company are also pending:
Gallagher v. Crown Leasing Corporation. On January 3, 1996, Renters Choice was
served with a class action complaint adding it as a defendant in this action
originally filed in April 1994 against Crown and certain of its affiliates in
state court in New Jersey. The class consists of all New Jersey residents who
entered into RTO contracts with Crown between April 25, 1988 and April 20, 1995.
During this period, Crown operated approximately 5 stores in New Jersey. The
lawsuit alleges, among other things, that under certain RTO contracts entered
into between the plaintiff class and Crown, some of which were purportedly
acquired by Renters Choice pursuant to the acquisition of Crown and certain of
its affiliates (the "Crown Acquisition"), the defendants failed to make the
necessary disclosures and charged the plaintiffs fees and expenses that violated
the New Jersey Consumer Fraud Act and the New Jersey Retail Installment Sales
Act. The plaintiffs seek damages including, among other things, a refund of all
excessive fees and/or interest charged or collected by the defendants in
violation of such acts, state usury laws and other related statutes and treble
damages, as applicable. Pursuant to the Asset Purchase Agreement entered into
between Crown, its controlling shareholder and Renters Choice in connection with
the Crown Acquisition, Renters Choice did not contractually assume any
liabilities pertaining to Crown's RTO contracts for the period prior to the
acquisition of Crown. The plaintiffs have obtained class certification and a
summary judgment against Crown on the liability issues. Subsequent to these
decisions by the New Jersey state court, Crown filed for protection from its
creditors under Chapter 11 of the federal bankruptcy laws. The bankruptcy court
has
20
<PAGE> 21
allowed the lawsuit to proceed in New Jersey, where the state court recently
granted summary judgment on the plaintiffs' damages formula against Crown. The
plaintiffs calculated actual damages for purposes of their summary judgment
motion at approximately $7.6 million. The court ruled that the plaintiffs are
entitled to three times actual damages. However, the state court's ruling
requires certain minor adjustments pursuant to an accounting. Although the
plaintiffs were unsuccessful in their attempt to certify a class against Renters
Choice, the plaintiffs have attempted to assert a theory of successor liability
against Renters Choice. The Company will take appropriate steps to defend the
successor liability issues at trial. Due to the uncertainties associated with
any litigation, the ultimate outcome of this matter cannot presently be
determined.
Michelle Newhouse v. Renters Choice, Inc./Handy Boykin v. Renters Choice, Inc.
On November 26, 1997 a class action complaint was filed against the Company by
Michelle Newhouse in New Jersey state court alleging, among other things, that
under certain RTO contracts entered into between the plaintiffs and the Company,
the Company failed to make the necessary disclosures and charged the plaintiffs
fees and expenses that violated the New Jersey Consumer Fraud Act and the New
Jersey Installment Sales Act. The claims arising from this action are similar to
the claims made in Robinson v. Thorn Americas, Inc. and Gallagher v. Crown
Leasing Corporation. The proposed class consists of all residents of New Jersey
who are or have been parties to contracts to RTO merchandise from the Company
within the past six years. During this period, the Company operated
approximately 17 stores in New Jersey.
The Company removed the case to federal court on January 21, 1998, and
was then advised by the plaintiffs' attorney that Michelle Newhouse no longer
wished to serve as class representative. A motion to voluntarily dismiss the
Newhouse case filed by the plaintiffs' attorney was granted shortly thereafter.
However, on May 1, 1998, a new class action complaint against the Company made
by Handy Boykin was filed by the plaintiffs' attorney in the Newhouse matter in
New Jersey state court alleging the same causes of action with the same proposed
class as that of the Newhouse matter. This new filing essentially constitutes a
replacement of the named plaintiff in the Newhouse matter with a new named
plaintiff, Handy Boykin. Management anticipated such a replacement and intends
to defend this matter vigorously. The Company removed the Boykin case to federal
court, where Boykin's motion to remand to New Jersey state court is now pending.
No motion for class certification has been made; however, due to the
uncertainties associated with any litigation, the ultimate outcome of this
matter cannot presently be determined. An adverse decision in this case could
have a material effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 5, 1998, the Company issued 250,000 shares of Convertible
Preferred Stock (134,414 of which were Series A and 115,586 of which were Series
B) at $1,000 per share to Apollo and on August 18, 1998, issued 10,000 shares of
Convertible Preferred Stock (5,377 of which were Series A and 4,623 of which
were Series B) to an affiliate of Bear, Stearns & Co. Inc. at $1,000 per share,
resulting in aggregate proceeds to the Company of $260 million. The proceeds
from the sale of the Convertible Preferred Stock were used to finance a portion
of the cost of the Rent-A-Center Acquisition and to repurchase $25 million of
the Company's common stock from the Company's Chairman of the Board and Chief
Executive Officer. Both sales of Convertible Preferred Stock were made pursuant
to an exemption under ss.4(2) of the Securities Act of 1933, as amended, as the
sales were made in a private transaction and did not involve a public offering.
The Series A Convertible Preferred Stock is convertible at any time into shares
of the Company's common stock at a price equal to $27.395 per share. On October
20, 1998, the stockholders approved the conversion of the Series B Convertible
Preferred Stock into shares of Series A Convertible Preferred Stock. Upon such
approval, the Series B Convertible Preferred Stock automatically converted into
Series A Preferred Stock.
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
CURRENT REPORTS ON FORM 8-K
1. Current Report on Form 8-K/A dated May 28, 1998, filed on
August 7, 1998, filing the required financial statements of
the Company and Central Rents, Inc.
2. Current Report on Form 8-K dated August 5, 1998 (as amended
by the Current Report on Form 8-K/A dated August 5, 1998 and
filed on August 25, 1998).
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------------------------------------------------------------------------------
<S> <C>
1.1(1) - Purchase Agreement, dated August 13, 1998, by and among
Renters Choice, Inc., Chase Securities Inc., Bear, Stearns &
Co. Inc., Credit Suisse First Boston Corporation and
NationsBanc Montgomery Securities LLC
2.1(2) - Agreement and Plan of Reorganization dated May 15, 1996,
among Renters Choice, Inc., ColorTyme, Inc., and CT Acquisition
Corporation. (Pursuant to the rules of the Commission, the
schedules and exhibits have been omitted. Upon the request of
the Commission, the Company will supplementally supply such
schedules and exhibits to the Commission.)
2.2(3) - Asset Purchase Agreement, dated May 1, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents
Holding, Inc. and Banner Holdings, Inc. (Pursuant to the rules
of the Commission, the schedules and exhibits have been
omitted. Upon the request of the Commission, the Company will
supplementally supply such schedules and exhibits to the
Commission.)
2.3(4) - Letter Agreement, dated as of May 26, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents
Holding, Inc. and Banner Holdings, Inc. (Pursuant to the rules
of the Commission, the schedules and exhibits have been
omitted. Upon the request of the Commission, the Company will
supplementally supply such schedules and exhibits to the
Commission.)
2.4(5) - Stock Purchase Agreement, dated as of June 16, 1998, among
Renters Choice, Inc., Thorn International BV and Thorn plc.
(Pursuant to the rules of the Commission, the schedules and
exhibits have been omitted. Upon the request of the Commission,
the Company will supplementally supply such schedules and
exhibits to the Commission.)
3.1(6) - Amended and Restated Certificate of Incorporation of the
Company
3.2(7) - Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Company
3.3(8) - Amended and Restated Bylaws of the Company
3.4(9) - Amendment to the Amended and Restated Bylaws of the Company
4.1(10) - Form of Certificate evidencing Common Stock
4.2(11) - Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of Renters Choice,
Inc.
4.3(12) - Certificate of Designations, Preferences and Relative Rights
and Limitations of Series B Preferred Stock of Renters Choice,
Inc.
4.4(13) - Indenture, dated as of August 18, 1998, by and among Renters
Choice, Inc., as Issuer, ColorTyme, Inc. and Rent-A-Center,
Inc., as Subsidiary Guarantors, and IBJ Schroder Bank &
Trust Company, as Trustee
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
10.1(14) - Amended and Restated 1994 Renters Choice, Inc. Long-Term
Incentive Plan
10.2(15) - Revolving Credit Agreement dated as of November 27, 1996
between Comerica Bank, as agent, Renters Choice, Inc. and
certain other lenders
10.3(16) - Portfolio Acquisition Agreement dated May 15, 1996, by and
among Renters Choice, Inc., ColorTyme Financial Services, Inc.,
and STI Credit Corporation
10.4(17) - Employment Agreement, dated March 28, 1997, by and between
Renters Choice, Inc. and Danny Z. Wilbanks
10.5(18) - Stock Option Agreement, dated April 1, 1997, by and between
Renters Choice, Inc. and Danny Z. Wilbanks
10.6(19) - Credit Agreement, dated August 5, 1998, among Renters Choice,
Inc., Comerica Bank, as Documentation Agent, NationsBanc N.A.,
as Syndication Agent, and The Chase Manhattan Bank, as
Administrative Agent, and certain other lenders
10.7(20) - Guarantee and Collateral Agreement, dated August 5, 1998,
made by Renters Choice, Inc., and certain of its Subsidiaries
in favor of the Chase Manhattan Bank, as Administrative Agent
10.8(21) - $175,000,000 Senior Subordinated Credit Agreement, dated as
of August 5, 1998, among Renters Choice, Inc., certain other
lenders and the Chase Manhattan Bank
10.9(22) - Stockholders Agreement, dated as of August 5, 1998, by and
among Apollo Investment Fund IV, L.P., Apollo Overseas Partners
IV, L.P., J. Ernest Talley, Mark E. Speese, Renters Choice,
Inc., and certain other persons
10.10(23)- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P.,
and Apollo Overseas Partners IV, L.P., related to the Series A
Convertible Preferred Stock
10.11(24)- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P.,
and Apollo Overseas Partners IV, L.P., related to the Series B
Convertible Preferred Stock
10.12(25)- Stock Purchase Agreement, dated August 5, 1998, among Renters
Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo
Overseas Partners IV, L.P.
10.13(26)- Exchange and Registration Rights Agreement, dated August 18,
1998, by and among Renters Choice, Inc. and Chase Securities
Inc., Bear, Stearns & Co. Inc., NationsBanc Montgomery
Securities LLC and Credit Suisse First Boston Corporation
27.1* - Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 1.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-65787)
(2) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated May 15, 1996
(3) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated May 28, 1998
23
<PAGE> 24
(4) Incorporated herein by reference to Exhibit 2.2 to the registrant's
Current Report on Form 8-K dated May 15, 1996
(5) Incorporated herein by reference to Exhibit 2.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(6) 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
(7) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
(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 3.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(10) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
(11) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(12) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(13) Incorporated herein by reference to the registrant's Registration
Statement on Form S-4 (File No. 333-65787)
(14) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Registration Statement on Form S-8 (File No. 333-53471)
(15) Incorporated herein by reference to Exhibit 10.2 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
(16) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Current Report on Form 8-K dated May 15, 1996
(17) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(18) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(19) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(20) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(21) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(22) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(23) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
24
<PAGE> 25
(24) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(25) Incorporated herein by reference to Exhibit 2.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(26) Incorporated herein by reference to the registrant's Registration
Statement on Form S-4 (file No. 333-65787)
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the registrant has duly caused this Report to be signed on its behalf
by the undersigned duly authorized officer.
RENTERS CHOICE, INC.
By: /s/ DANNY Z. WILBANKS
---------------------------------
Danny Z. Wilbanks
Senior Vice President-Finance
and Chief Financial Officer
Date: November 13, 1998
Renters Choice, Inc.
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------------------------------------------------------------------------------
<S> <C>
1.1(1) - Purchase Agreement, dated August 13, 1998, by and among
Renters Choice, Inc., Chase Securities Inc., Bear, Stearns &
Co. Inc., Credit Suisse First Boston Corporation and
NationsBanc Montgomery Securities LLC
2.1(2) - Agreement and Plan of Reorganization dated May 15, 1996,
among Renters Choice, Inc., ColorTyme, Inc., and CT Acquisition
Corporation. (Pursuant to the rules of the Commission, the
schedules and exhibits have been omitted. Upon the request of
the Commission, the Company will supplementally supply such
schedules and exhibits to the Commission.)
2.2(3) - Asset Purchase Agreement, dated May 1, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents
Holding, Inc. and Banner Holdings, Inc. (Pursuant to the rules
of the Commission, the schedules and exhibits have been
omitted. Upon the request of the Commission, the Company will
supplementally supply such schedules and exhibits to the
Commission.)
2.3(4) - Letter Agreement, dated as of May 26, 1998, by and among
Renters Choice, Inc., Central Rents, Inc., Central Rents
Holding, Inc. and Banner Holdings, Inc. (Pursuant to the rules
of the Commission, the schedules and exhibits have been
omitted. Upon the request of the Commission, the Company will
supplementally supply such schedules and exhibits to the
Commission.)
2.4(5) - Stock Purchase Agreement, dated as of June 16, 1998, among
Renters Choice, Inc., Thorn International BV and Thorn plc.
(Pursuant to the rules of the Commission, the schedules and
exhibits have been omitted. Upon the request of the Commission,
the Company will supplementally supply such schedules and
exhibits to the Commission.)
3.1(6) - Amended and Restated Certificate of Incorporation of the
Company
3.2(7) - Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Company
3.3(8) - Amended and Restated Bylaws of the Company
3.4(9) - Amendment to the Amended and Restated Bylaws of the Company
4.1(10) - Form of Certificate evidencing Common Stock
4.2(11) - Certificate of Designations, Preferences and Relative Rights
and Limitations of Series A Preferred Stock of Renters Choice,
Inc.
4.3(12) - Certificate of Designations, Preferences and Relative Rights
and Limitations of Series B Preferred Stock of Renters Choice,
Inc.
4.4(13) - Indenture, dated as of August 18, 1998, by and among Renters
Choice, Inc., as Issuer, ColorTyme, Inc. and Rent-A-Center,
Inc., as Subsidiary Guarantors, and IBJ Schroder Bank &
Trust Company, as Trustee
10.1(14) - Amended and Restated 1994 Renters Choice, Inc. Long-Term
Incentive Plan
10.2(15) - Revolving Credit Agreement dated as of November 27, 1996
between Comerica Bank, as agent, Renters Choice, Inc. and
certain other lenders
10.3(16) - Portfolio Acquisition Agreement dated May 15, 1996, by and
among Renters Choice, Inc., ColorTyme Financial Services, Inc.,
and STI Credit Corporation
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
10.4(17) - Employment Agreement, dated March 28, 1997, by and between
Renters Choice, Inc. and Danny Z. Wilbanks
10.5(18) - Stock Option Agreement, dated April 1, 1997, by and between
Renters Choice, Inc. and Danny Z. Wilbanks
10.6(19) - Credit Agreement, dated August 5, 1998, among Renters Choice,
Inc., Comerica Bank, as Documentation Agent, NationsBanc N.A.,
as Syndication Agent, and The Chase Manhattan Bank, as
Administrative Agent, and certain other lenders
10.7(20) - Guarantee and Collateral Agreement, dated August 5, 1998,
made by Renters Choice, Inc., and certain of its Subsidiaries
in favor of the Chase Manhattan Bank, as Administrative Agent
10.8(21) - $175,000,000 Senior Subordinated Credit Agreement, dated as
of August 5, 1998, among Renters Choice, Inc., certain other
lenders and the Chase Manhattan Bank
10.9(22) - Stockholders Agreement, dated as of August 5, 1998, by and
among Apollo Investment Fund IV, L.P., Apollo Overseas Partners
IV, L.P., J. Ernest Talley, Mark E. Speese, Renters Choice,
Inc., and certain other persons
10.10(23)- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P.,
and Apollo Overseas Partners IV, L.P., related to the Series A
Convertible Preferred Stock
10.11(24)- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P.,
and Apollo Overseas Partners IV, L.P., related to the Series B
Convertible Preferred Stock
10.12(25)- Stock Purchase Agreement, dated August 5, 1998, among Renters
Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo
Overseas Partners IV, L.P.
10.13(26)- Exchange and Registration Rights Agreement, dated August 18,
1998, by and among Renters Choice, Inc. and Chase Securities
Inc., Bear, Stearns & Co. Inc., NationsBanc Montgomery
Securities LLC and Credit Suisse First Boston Corporation
27.1* - Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 1.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-65787)
(2) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated May 15, 1996
(3) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K dated May 28, 1998
(4) Incorporated herein by reference to Exhibit 2.2 to the registrant's
Current Report on Form 8-K dated May 15, 1996
(5) Incorporated herein by reference to Exhibit 2.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(6) 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
<PAGE> 29
(7) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
(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 3.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(10) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Registration Statement on Form S-1 (File No. 33-86504)
(11) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(12) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(13) Incorporated herein by reference to the registrant's Registration
Statement on Form S-4 (File No. 333-65787)
(14) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Registration Statement on Form S-8 (File No. 333-53471)
(15) Incorporated herein by reference to Exhibit 10.2 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
(16) Incorporated herein by reference to Exhibit 10.1 to the registrant's
Current Report on Form 8-K dated May 15, 1996
(17) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(18) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(19) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(20) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(21) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(22) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(23) Incorporated herein by reference to Exhibit 10.22 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(24) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(25) Incorporated herein by reference to Exhibit 2.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(26) Incorporated herein by reference to the registrant's Registration
Statement on Form S-4 (file No. 333-65787)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS
FOUND ON PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 90,483
<SECURITIES> 0
<RECEIVABLES> 2,676
<ALLOWANCES> 39
<INVENTORY> 110,963<F1>
<CURRENT-ASSETS> 0<F2>
<PP&E> 114,125
<DEPRECIATION> 15,826
<TOTAL-ASSETS> 1,634,060
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
259,476
<COMMON> 251
<OTHER-SE> 173,628<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,634,060
<SALES> 52,769<F4>
<TOTAL-REVENUES> 459,433
<CGS> 43,918<F5>
<TOTAL-COSTS> 404,715
<OTHER-EXPENSES> 25,821<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,536
<INCOME-PRETAX> 38,181
<INCOME-TAX> 17,153
<INCOME-CONTINUING> 21,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,028
<EPS-PRIMARY> .79
<EPS-DILUTED> .78
<FN>
<F1>RENTAL MERCHANDISE, HELD FOR RENT.
<F2>BALANCE SHEET IS UNCLASSIFIED.
<F3>ADDITIONAL PAID IN CAPITAL 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>
