|
|
|
|
|
|
|
|
|
|
|
|
|
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 28, 1998
RENTERS CHOICE, INC.
(Exact name of registrant as specified in its charter)
Commission File Number 0-25370
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)
<PAGE> 2
Item 2. ACQUISITION OF ASSETS
On May 28, 1998, the Registrant purchased substantially all of
the assets of Central Rents, Inc. used in or related to the
operation of 176 rent-to-own stores (the "Stores") for
approximately $100 million pursuant to that certain Asset
Purchase Agreement, dated May 1, 1998, by and among the
Registrant, Central Rents, Inc. ("Central"), Central Rents
Holding, Inc. ("Holdings") and Banner Holdings, Inc.
("Banner"), as amended by that certain Letter Agreement, dated
as of May 26, 1998, by and among the Registrant, Central,
Holdings and Banner (collectively, the "Asset Purchase
Agreement").
Pursuant to the Asset Purchase Agreement, the Registrant paid
the purchase price in cash. The Registrant also assumed
certain liabilities related to the assets acquired. The total
purchase price and structure of the consideration paid was
determined by negotiation between the Registrant, Central,
Holdings and Banner. The source of the cash consideration was
the proceeds from an advance under the Registrant's revolving
credit facility with Comerica Bank, N.A., as agent. Prior to
commencing negotiation of the Asset Purchase Agreement, there
was no material relationship between (i) the Registrant, any
of its affiliates, any of its officers or directors, or any
associate of such officers and directors, and (ii) Central,
Holdings Banner, any affiliates of Central, Holdings or
Banner, any of the officers or directors of Central, Holdings
or Banner or any associate of such officers and directors.
The Registrant intends to continue operating the Stores as
rent-to-own stores. The Stores are located in 20 states and
generate approximately $100 million in annual revenue.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Incorporated herein by reference to Central Rents, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
Incorporated herein by reference to Central Rents, Inc.
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
(b) PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
Pro Forma financial information of Renters Choice, Inc. and Central Rents, Inc.:
Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998 Page 3
Notes to Unaudited Pro Forma Combined Balance Sheet as of
March 31, 1998 Page 4
Unaudited Pro Forma Combined Statement of Operations for the
Year ended December 31, 1997 Page 6
Notes to Unaudited Pro Forma Combined Statement of Operations
For the Year ended December 31, 1997 Page 7
Unaudited Pro Forma Combined Statement of Operations the
Three months ended March 31, 1998 Page 9
Notes to Unaudited Pro Forma Combined Statement of Operations
For the three months ended March 31, 1998 Page 10
</TABLE>
2
<PAGE> 3
RENTERS CHOICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
RCI and
RCI and Central Rents
Central Rents Pro Forma Pro Forma
Historical(1) Adjustments Combined
------------- ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 17,422 $ (11,509)(3) $ 5,913
Accounts receivable 4,592 (2,005)(3) 2,587
Rental Merchandise, net 148,860 (3,425)(3) 145,435
Prepaids and other assets 4,175 (1,666)(3) 2,509
Property assets, net 21,939 (1,911)(3) 20,028
Deferred income taxes 17,524 (11,045)(3) 6,479
Intangible assets, net 66,957 64,972 (3) 131,929
------------ ------------ ------------
Total assets $ 281,469 $ 33,411 $ 314,880
============ ============ ============
Liabilities
Accounts payable $ 19,146 $ (2,964)(3) $ 16,182
Accrued liabilities 30,697 (9,506)(3) 21,191
Debt 73,346 42,943(3) 116,289
------------ ------------ ------------
Total liabilities 123,189 30,473 153,662
Stockholders' Equity 158,280 2,938(3) 161,218
------------ ------------ ------------
Total liabilities and stockholders' equity $ 281,469 $ 33,411 $ 314,880
============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
RENTERS CHOICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(In thousands, except per share data)
(1) The following historical combined balance sheet data of the Company and
Central Rents, Inc. as of March 31, 1998 has been derived from the
unaudited interim financial statements of the respective entities.
<TABLE>
<CAPTION>
RCI and
Central Rents
Historical
RCI Central Rents Combined
------------ ------------- ------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 5,896 $ 11,526 $ 17,422
Accounts receivable 2,576 2,016 4,592
Rental Merchandise, net 117,137 31,723 148,860
Prepaids and other assets 2,509 1,666 4,175
Property assets, net 18,368 3,571 21,939
Deferred income taxes 6,479 11,045 17,524
Intangible assets, net 60,408 6,549 66,957
------------ ------------ ------------
$ 213,373 $ 68,096 $ 281,469
============ ============ ============
Liabilities
Accounts payable $ 16,182 $ 2,964 $ 19,146
Accrued liabilities 21,064 9,633 30,697
Debt 14,909 58,437 73,346
------------ ------------ ------------
52,155 71,034 123,189
Stockholders' Equity 161,218 (2,938) 158,280
------------ ------------ ------------
$ 213,373 $ 68,096 $ 281,469
============ ============ ============
</TABLE>
(2) The unaudited pro forma combined balance sheet gives effect to the
Central Rents, Inc. acquisition as if it occurred on March 31, 1998.
The acquisition has been accounted for as a purchase in accordance with
the provisions of Accounting Principles Board Opinion No. 16, and
accordingly, the purchase price has been allocated to the net assets
acquired based on historical information available to management and
preliminary estimates of fair market value. The final purchase price
allocation is subject to refinement upon completion of a review of
rental merchandise, property and equipment, and other assets.
4
<PAGE> 5
(3) The aggregate purchase price paid by the Company and the related
purchase accounting for the acquisition of certain Central Rents, Inc.
net assets is as follows:
<TABLE>
<S> <C>
Aggregate purchase price of Central Rents, Inc.
Purchase price $ 99,830
Acquisition costs 1,550
------
Borrowings under revolving credit agreement required to
finance the Central Rents, Inc. acquisition $101,380
=======
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Central Central Adjustment
Rents Rents Increase
Historical Pro Forma (Decrease)
------------ ------------ ------------
<S> <C> <C> <C>
Allocation of purchase price:
Cash $ 11,526 $ 17 $ (11,509)
Accounts receivables 2,016 11 (2,005)
Rental merchandise, net 31,723 28,298 (3,425)
Prepaids and other assets 1,666 -- (1,666)
Property assets, net 3,571 1,660 (1,911)
Deferred income taxes 11,045 -- (11,045)
Intangible assets 6,549 71,521 64,972
------------ ------------ ------------
Total assets $ 68,096 $ 101,507 $ 33,411
============ ============ ============
Accounts payable $ 2,964 $ -- $ (2,964)
Accrued liabilities 9,633 127 (9,506)
Debt58,437 101,380 42,943
Stockholders' equity (2,938) -- 2,938
------------ ------------ ------------
Total liabilities and stockholders' equity $ 68,096 $ 101,507 $ 33,411
============ ============ ============
</TABLE>
5
<PAGE> 6
RENTERS CHOICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
RCI and
RCI and Central Rents
Central Rents Pro Forma Pro Forma
Historical(1) Adjustments Combined
------------- ------------ ------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C>
Revenues
Store
Rentals and fees $ 373,926 $ -- $ 373,926
Merchandise sales 18,972 -- 18,972
Other 793 -- 793
Franchise
Merchandise sales 37,385 -- 37,385
Royalty income and fees 4,008 -- 4,008
------------ ------------ ------------
Total revenues $ 435,084 -- $ 435,084
Operating Expenses
Direct store expenses
Depreciation of rental merchandise $ 87,630 -- $ 87,630
Cost of merchandise sold 14,885 -- 14,885
Salaries and other expenses 162,458 57,844 220,342
Franchise cost of merchandise sold 35,841 -- 35,841
General and administrative expenses 77,559 (60,484)(3) 17,075
Amortization of intangibles 6,957 939 7,896
------------ ------------ ------------
Total Operating Expenses 385,330 (1,661) 383,669
Operating profit 49,754 1,661 51,415
Interest expense 10,043 (752)(5) 9,291
Interest income (304) -- (304)
------------ ------------ ------------
Earnings before income taxes 40,015 2,413 42,428
Income tax expense (benefit) 17,044 965 18,009
------------ ------------ ------------
Net earnings $ 22,971 $ 1,448 $ 24,419
============ ============ ============
Basic weighted average common
shares outstanding 24,844
Diluted weighted average common
shares outstanding 25,194
Basic earnings per common share $ 0.98
============
Diluted earnings per common share $ 0.97
============
</TABLE>
See accompanying notes.
6
<PAGE> 7
RENTERS CHOICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share data)
(1) The following historical combined statement of operations of the
Company and Central Rents, Inc. for the year ended December 31, 1997
has been derived from the audited financial statements of the
respective entities.
<TABLE>
<CAPTION>
RCI and
Central Rents
Historical
RCI Central Rents Combined
------------ ------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Revenues
Store
Rentals and fees $ 275,344 $ 98,582 $ 373,926
Merchandise sales 14,125 4,847 18,972
Other 679 114 793
Franchise
Merchandise sales 37,385 -- 37,385
Royalty income and fees 4,008 -- 4,008
------------ ------------ ------------
Total revenues $ 331,541 $ 103,543 $ 435,084
Operating Expenses
Direct store expenses
Depreciation of rental merchandise 57,223 30,407 $ 87,630
Cost of merchandise sold 11,365 3,520 14,885
Salaries and other expenses 162,458 -- 162,458
Franchise cost of merchandise sold 35,841 -- 35,841
General and administrative expenses 13,304 64,255 77,559
Amortization of intangibles 5,412 1,545 6,957
------------ ------------ ------------
Total Operating Expenses 285,603 99,727 385,330
Operating profit 45,938 3,816 49,754
Interest expense 2,194 7,849 10,043
Interest income (304) -- (304)
------------ ------------ ------------
Earnings before income taxes 44,048 (4,033) 40,015
Income tax expense (benefit) 18,170 (1,126) 17,044
------------ ------------ ------------
Net earnings $ 25,878 $ (2,907) $ 22,971
============ ============ ============
Basic weighted average common
shares outstanding 24,844
============
Diluted weighted average common
shares outstanding 25,194
============
Basic earnings per common share $ 1.04
============
Diluted earnings per common share $ 1.03
============
</TABLE>
7
<PAGE> 8
(2) The unaudited pro forma combined statement of operations gives effect
to the Central Rents, Inc. acquisition as if it occurred on January 1,
1997. The acquisition has been accounted for as a purchase in
accordance with the provisions of Accounting Principles Board Opinion
No. 16, and accordingly, the purchase price has been allocated to the
net assets acquired based on historical information available to
management and preliminary estimates of fair market value. The final
purchase price allocation is subject to refinement upon completion of a
review of rental merchandise, property and equipment, and other assets.
(3)
<TABLE>
<CAPTION>
Increase (decrease)
--------------------------
Store
Expenses General and
Salaries Administrative
and Other Expenses
----------- -------------
<S> <C> <C>
Reclassification of Central Rents, Inc. other store expenses
to conform with the Company's presentation $57,684 $(57,684)
Elimination of duplicate corporate overhead and additional field
expenses as a result of the Central Rents, Inc. acquisition 200 (2,800)
------- --------
$57,884 $(60,484)
======= ========
</TABLE>
(4) Reversal of historical intangible amortization and record the pro forma
intangible amortization required as a result of the Central Rents, Inc.
acquisition using estimated useful lives of 5 years for the noncompete
agreement and 30 years for excess costs over fair market value of net
assets acquired:
<TABLE>
<S> <C>
Reversal of historical intangible amortization $ (1,545)
Pro forma intangible amortization 2,484
---------
$ 939
=========
</TABLE>
(5) Change in interest expense for three months as a result of borrowings
on the existing revolving credit agreement used to finance the Central
Rents, Inc. acquisition:
<TABLE>
<S> <C>
Borrowings of $101.4 million at 7% on the existing revolving credit agreement
used to finance the Central Rents, Inc. acquisition $ 7,097
Elimination of historical interest expense for Central Rents, Inc. (7,849)
--------
$ (752)
========
</TABLE>
(6) Income tax expense adjustment related to the effects of the Central
Rents, Inc. acquisition pro forma adjustments at a 40% effective tax
rate.
8
<PAGE> 9
RENTERS CHOICE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
RCI and
RCI and Central Rents
Central Rents Pro Forma Pro Forma
Historical(1) Adjustments Combined
------------ ------------ ------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C>
Revenues
Store
Rentals and fees $ 99,143 $ -- $ 99,143
Merchandise sales 7,446 -- 7,446
Other 118 -- 118
Franchise
Merchandise sales 7,621 -- 7,621
Royalty income and fees 1,106 -- 1,106
------------ ------------ ------------
Total revenues 115,434 -- 115,434
Operating Expenses
Direct store expenses
Depreciation of rental merchandise 23,169 -- 23,169
Cost of merchandise sold 5,612 -- 5,612
Salaries and other expenses 44,497 14,171(3) 58,668
Franchise cost of merchandise sold 7,343 -- 7,343
General and administrative expenses 18,938 (14,821)(3) 4,117
Amortization of intangibles 1,453 556(4) 2,009
------------ ------------ ------------
Total Operating Expenses 101,012 (94) 100,918
Operating profit 14,422 94 14,516
Interest expense 2,429 (205)(5) 2,224
Interest income (114) -- (114)
------------ ------------ ------------
Earnings before income taxes 12,107 299 12,406
Income tax expense (benefit) 5,079 120(6) 5,199
------------ ------------ ------------
Net earnings $ 7,028 $ 179 $ 7,207
============ ============ ============
Basic weighted average common
shares outstanding 24,921
Diluted weighted average common
shares outstanding 25,171
Basic earnings per common share $ 0.29
============
Diluted earnings per common share $ 0.29
============
</TABLE>
See accompanying notes.
9
<PAGE> 10
RENTERS CHOICE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(In Thousands, except per share data)
(1) The following historical combined statement of operations of the
Company and Central Rents, Inc. for the three months ended March 31,
1998 have been derived from the unaudited interim financial statements
of the respective entities.
<TABLE>
<CAPTION>
RCI and
Central Rents
Historical
RCI Central Rents Combined
------------ ------------- ------------
<S> <C> <C> <C>
Revenues
Store
Rentals and fees $ 75,426 $ 23,717 $ 99,143
Merchandise sales 5,962 1,484 7,446
Other 118 -- 118
Franchise
Merchandise sales 7,621 -- 7,621
Royalty income and fees 1,106 -- 1,106
------------ ------------ ------------
Total revenues 90,233 25,201 115,434
Operating Expenses
Direct store expenses
Depreciation of rental merchandise 15,505 7,664 23,169
Cost of merchandise sold 4,554 1,058 5,612
Salaries and other expenses 44,497 -- 44,497
Franchise cost of merchandise sold 7,343 -- 7,343
General and administrative expenses 3,225 15,713 18,938
Amortization of intangibles 1,388 65 1,453
------------ ------------ ------------
Total Operating Expenses 76,512 24,500 101,012
Operating profit 13,721 701 14,422
Interest expense 450 1,979 2,429
Interest income (114) -- (114)
------------ ------------ ------------
Earnings before income taxes 13,385 (1,278) 12,107
Income tax expense (benefit) 5,529 (450) 5,079
------------ ------------ ------------
Net earnings $ 7,856 $ (828) $ 7,028
============ ============ ============
Basic weighted average common
shares outstanding 24,921
============
Diluted weighted average common
shares outstanding 25,171
============
Basic earnings per common share $ 0.32
============
Diluted earnings per common share $ 0.31
============
</TABLE>
10
<PAGE> 11
(2) The unaudited pro forma combined statement of operations gives effect
to the Central Rents, Inc. acquisition as if it occurred on January 1,
1997. The acquisition has been accounted for as a purchase in
accordance with the provisions of Accounting Principles Board Opinion
No. 16, and accordingly, the purchase price has been allocated to the
net assets acquired based on historical information available to
management and preliminary estimates of fair market value. The final
purchase price allocation is subject to refinement upon completion of a
review of rental merchandise, property and equipment, and other assets.
(3)
<TABLE>
<CAPTION>
Increase (decrease)
------------------------------
Store
Expenses General and
Salaries Administrative
and Other Expenses
------------ -------------
<S> <C> <C>
Reclassification of Central Rents, Inc. other store expenses
to conform with the Company's presentation $ 14,121 $ (14,121)
Elimination of duplicate corporate overhead and additional field
expenses as a result of the Central Rents, Inc. acquisition 50 (700)
--------- ---------
$ 14,171 $ (14,821)
========= =========
</TABLE>
(4) Reversal of historical intangible amortization and record the pro forma
intangible amortization required as a result of the Central Rents, Inc.
acquisition using estimated useful lives of 5 years for the noncompete
agreement and 30 years for excess costs over fair market value of net
assets acquired:
<TABLE>
<S> <C>
Reversal of historical intangible amortization $ (65)
Pro forma intangible amortization 621
-------
$ 556
=======
</TABLE>
(5) Change in interest expense for three months as a result of borrowings
on the existing revolving credit agreement used to finance the Central
Rents, Inc. acquisition:
<TABLE>
<S> <C>
Borrowings of $101.4 million at 7% on the existing revolving credit agreement
used to finance the Central Rents, Inc. acquisition $ 1,774
Elimination of historical interest expense for Central Rents, Inc. (1,979)
--------
$ (205)
========
</TABLE>
(6) Income tax expense adjustment related to the effects of the Central
Rents, Inc. acquisition pro forma adjustments at a 40% effective tax
rate.
11
<PAGE> 12
(c) EXHIBITS
2.1 Asset Purchase Agreement, dated May 1, 1998, by and among the
Registrant, Central Rents, Inc., Central Rents Holding, Inc. and Banner
Holdings, Inc.*
2.2 Letter Agreement, dated as of May 26, 1998, by and among the
Registrant, Central Rents, Inc., Central Rents Holding, Inc. and Banner
Holdings, Inc. with respect to Exhibit 2.1*
23.1 Consent of Arthur Anderson, L.L.P.
- ----------------------------
*Previously filed
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RENTERS CHOICE, INC.
By: /s/ J. ERNEST TALLEY
-------------------------
J. Ernest Talley
Chief Executive Officer
Date: August 7, 1998
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1 Asset Purchase Agreement, dated May 1, 1998, by and
among the Registrant, Central Rents, Inc., Central Rents
Holding, Inc. and Banner Holdings, Inc.*
2.2 Letter Agreement, dated as of May 26, 1998, by and among
the Registrant, Central Rents, Inc., Central Rents
Holding, Inc. and Banner Holdings, Inc., with respect to
Exhibit 2.1*
23.1 Consent of Arthur Anderson, L.L.P.
</TABLE>
---------------------------
*Previously Filed
14
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 8-K/A of our report dated March 19, 1998 relating to
Central Rents, Inc. included in Commission File Number 0-25370 for Renters
Choice, Inc. It should be noted that we have not audited any financial
statements of Central Rents, Inc. subsequent to December 31, 1997 or performed
any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Los Angeles, CA
August 3, 1998
15
|
|