UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q/A
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20042005
Commission File Number 0-25370
RENT-A-CENTER, INC.Rent-A-Center, Inc .
Delaware | 45-0491516 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
5700 Tennyson Parkway, Third FloorSuite 100
Plano, Texas 75024
(972) 801-1100
(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]þ NO [ ]o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES [X]þ NO [ ]o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of April 30,27, 2004:
Class | Outstanding | |||
Common stock, $.01 par value per share | 74,743,061 |
EXPLANATORY NOTE
The registrant is filing this Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 filed with the SEC on May 3, 2004 (the “Form 10-Q”) for the purpose of deleting a reference to a third party in Note 11 of the Consolidated Financial Statements. The deletion was in response to a comment by the SEC staff to two of our registration statements on Form S-3s, which requested that we delete the reference to the third party or have the third party file a consent to be named as an expert in such registration statements. This Form 10-Q/A continues to speak as of the date that the initial Form 10-Q was filed with the SEC, and we have not updated the disclosures herein to reflect any information or events subsequent to the filing of the initial Form 10-Q. For a discussion of events and developments thereafter, please see our reports filed with the SEC since May 3, 2004, including the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. Other than revisions to the signature pages as permitted by Rule 12b-15, the remainder of this Form 10-Q/A is unchanged and all subsequent references to “Form 10-Q” shall refer to the initial Form 10-Q, as amended by this Form 10-Q/A.
TABLE OF CONTENTS
2i
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended March 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
(In thousands, except per share data) | Three months ended March 31, | Unaudited | ||||||||||||||
2004 | 2003 | |||||||||||||||
Unaudited | ||||||||||||||||
Revenues | ||||||||||||||||
Store | ||||||||||||||||
Rentals and fees | $ | 504,290 | $ | 493,419 | $ | 518,622 | $ | 504,290 | ||||||||
Merchandise sales | 59,423 | 52,664 | 62,770 | 59,423 | ||||||||||||
Installment sales | 6,698 | 6,045 | 6,584 | 6,698 | ||||||||||||
Other | 1,080 | 715 | 1,078 | 1,080 | ||||||||||||
Franchise | ||||||||||||||||
Merchandise sales | 12,464 | 12,072 | 11,344 | 12,464 | ||||||||||||
Royalty income and fees | 1,425 | 1,491 | 1,411 | 1,425 | ||||||||||||
585,380 | 566,406 | 601,809 | 585,380 | |||||||||||||
Operating expenses | ||||||||||||||||
Direct store expenses | ||||||||||||||||
Depreciation of rental merchandise | 108,315 | 106,660 | ||||||||||||||
Cost of rentals and fees | 112,468 | 108,543 | ||||||||||||||
Cost of merchandise sold | 39,611 | 36,548 | 42,067 | 39,383 | ||||||||||||
Cost of installment sales | 3,145 | 3,231 | 2,863 | 3,145 | ||||||||||||
Salaries and other expenses | 309,084 | 292,496 | 334,041 | 309,084 | ||||||||||||
Franchise cost of merchandise sold | 11,892 | 11,551 | 10,866 | 11,892 | ||||||||||||
472,047 | 450,486 | 502,305 | 472,047 | |||||||||||||
General and administrative expenses | 18,186 | 16,756 | 19,215 | 18,186 | ||||||||||||
Amortization of intangibles | 2,488 | 2,873 | 2,297 | 2,488 | ||||||||||||
Litigation reversion | (8,000 | ) | — | |||||||||||||
Total operating expenses | 492,721 | 470,115 | 515,817 | 492,721 | ||||||||||||
Operating profit | 92,659 | 96,291 | 85,992 | 92,659 | ||||||||||||
Interest expense | 10,359 | 13,523 | 10,868 | 10,359 | ||||||||||||
Interest income | (1,503 | ) | (771 | ) | (1,402 | ) | (1,503 | ) | ||||||||
Earnings before income taxes | 83,803 | 83,539 | 76,526 | 83,803 | ||||||||||||
Income tax expense | 31,594 | 32,580 | 28,857 | 31,594 | ||||||||||||
NET EARNINGS | 52,209 | 50,959 | 47,669 | 52,209 | ||||||||||||
Preferred dividends | — | — | — | — | ||||||||||||
Net earnings allocable to common stockholders | $ | 52,209 | $ | 50,959 | $ | 47,669 | $ | 52,209 | ||||||||
Basic earnings per common share | $ | 0.65 | $ | 0.58 | $ | 0.64 | $ | 0.65 | ||||||||
Diluted earnings per common share | $ | 0.63 | $ | 0.57 | $ | 0.63 | $ | 0.63 | ||||||||
See accompanying notes to consolidated financial statements.
1
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2005 | 2004 | |||||||
(In thousands, except share data) | Unaudited | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 75,246 | $ | 58,825 | ||||
Accounts receivable, net | 17,161 | 16,269 | ||||||
Prepaid expenses and other assets | 37,138 | 65,050 | ||||||
Rental merchandise, net | ||||||||
On rent | 610,103 | 596,447 | ||||||
Held for rent | 181,652 | 162,664 | ||||||
Merchandise held for installment sale | 1,423 | 1,311 | ||||||
Property assets, net | 141,991 | 144,818 | ||||||
Goodwill, net | 915,626 | 913,415 | ||||||
Intangible assets, net | 6,961 | 8,989 | ||||||
$ | 1,987,301 | $ | 1,967,788 | |||||
LIABILITIES | ||||||||
Accounts payable – trade | $ | 84,987 | $ | 94,399 | ||||
Accrued liabilities | 277,618 | 207,835 | ||||||
Deferred income taxes | 130,490 | 163,031 | ||||||
Senior debt | 347,375 | 408,250 | ||||||
Subordinated notes payable, net of discount | 300,000 | 300,000 | ||||||
Redeemable convertible voting preferred stock | 2 | 2 | ||||||
1,140,472 | 1,173,517 | |||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.01 par value; 250,000,000 shares authorized; 102,549,899 and 102,297,937 shares issued in 2005 and 2004, respectively | 1,026 | 1,023 | ||||||
Additional paid-in capital | 623,353 | 618,486 | ||||||
Retained earnings | 813,473 | 765,785 | ||||||
Treasury stock, 27,900,399 shares at cost | (591,023 | ) | (591,023 | ) | ||||
846,829 | 794,271 | |||||||
$ | 1,987,301 | $ | 1,967,788 | |||||
See accompanying notes to consolidated financial statements.
2
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, | ||||||||
2005 | 2004 | |||||||
(In thousands) | Unaudited | |||||||
Cash flows from operating activities | ||||||||
Net earnings | $ | 47,669 | $ | 52,209 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities | ||||||||
Depreciation of rental merchandise | 110,735 | 108,315 | ||||||
Depreciation of property assets | 13,263 | 11,249 | ||||||
Amortization of intangibles | 2,297 | 2,488 | ||||||
Amortization of financing fees | 395 | 474 | ||||||
Deferred income taxes | (32,540 | ) | (24,535 | ) | ||||
Changes in operating assets and liabilities, net of effects of acquisitions | ||||||||
Rental merchandise | (142,216 | ) | (119,650 | ) | ||||
Accounts receivable, net | (892 | ) | (557 | ) | ||||
Prepaid expenses and other assets | 27,576 | 28,032 | ||||||
Accounts payable – trade | (9,412 | ) | 23,416 | |||||
Accrued liabilities | 70,684 | 75,954 | ||||||
Net cash provided by operating activities | 87,559 | 157,395 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property assets | (10,930 | ) | (13,418 | ) | ||||
Proceeds from sale of property assets | 493 | 3,246 | ||||||
Acquisitions of businesses, net of cash acquired | (3,813 | ) | (14,101 | ) | ||||
Net cash used in investing activities | (14,250 | ) | (24,273 | ) | ||||
Cash flows from financing activities | ||||||||
Purchase of treasury stock | — | (8,366 | ) | |||||
Exercise of stock options | 3,987 | 5,694 | ||||||
Repayments of debt | (60,875 | ) | (1,000 | ) | ||||
Net cash used in financing activities | (56,888 | ) | (3,672 | ) | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 16,421 | 129,450 | ||||||
Cash and cash equivalents at beginning of period | 58,825 | 143,941 | ||||||
Cash and cash equivalents at end of period | $ | 75,246 | $ | 273,391 | ||||
Supplemental cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 5,069 | $ | 3,727 | ||||
Income taxes | $ | 821 | $ | 592 |
During the first three months of 2005 and 2004, the Company paid dividends on its preferred stock of approximately $19.00 in cash.
See accompanying notes to consolidated financial statements.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) | March 31, | December 31, | ||||||
2004 | 2003 | |||||||
Unaudited | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 273,391 | $ | 143,941 | ||||
Accounts receivable, net | 15,506 | 14,949 | ||||||
Prepaid expenses and other assets | 42,444 | 70,702 | ||||||
Rental merchandise, net | ||||||||
On rent | 557,484 | 542,909 | ||||||
Held for rent | 140,418 | 139,458 | ||||||
Property assets, net | 120,831 | 121,909 | ||||||
Goodwill, net | 796,779 | 788,059 | ||||||
Intangible assets, net | 7,821 | 9,375 | ||||||
$ | 1,954,674 | $ | 1,831,302 | |||||
LIABILITIES | ||||||||
Accounts payable – trade | $ | 96,124 | $ | 72,708 | ||||
Accrued liabilities | 208,798 | 132,844 | ||||||
Deferred income taxes | 108,383 | 132,918 | ||||||
Senior debt | 397,000 | 398,000 | ||||||
Subordinated notes payable, net of discount | 300,000 | 300,000 | ||||||
Redeemable convertible voting preferred stock | 2 | 2 | ||||||
1,110,307 | 1,036,472 | |||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.01 par value; 125,000,000 shares authorized; 101,571,531 and 101,148,417 shares issued in 2004 and 2003, respectively | 1,016 | 1,012 | ||||||
Additional paid-in capital | 578,318 | 572,628 | ||||||
Retained earnings | 662,139 | 609,930 | ||||||
Treasury stock, 21,292,591 and 21,020,041 shares at cost in 2004 and 2003, respectively | (397,106 | ) | (388,740 | ) | ||||
844,367 | 794,830 | |||||||
$ | 1,954,674 | $ | 1,831,302 | |||||
See accompanying notes to consolidated financial statements.
4
RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, | ||||||||
(In thousands) | 2004 | 2003 | ||||||
Unaudited | ||||||||
Cash flows from operating activities | ||||||||
Net earnings | $ | 52,209 | $ | 50,959 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities | ||||||||
Depreciation of rental merchandise | 108,315 | 106,660 | ||||||
Depreciation of property assets | 11,249 | 10,120 | ||||||
Amortization of intangibles | 2,488 | 2,873 | ||||||
Amortization of financing fees | 212 | 262 | ||||||
Deferred income taxes | (24,535 | ) | (10,430 | ) | ||||
Changes in operating assets and liabilities, net of effects of acquisitions | ||||||||
Rental merchandise | (119,650 | ) | (117,896 | ) | ||||
Accounts receivable, net | (557 | ) | (3,525 | ) | ||||
Prepaid expenses and other assets | 28,294 | 15,422 | ||||||
Accounts payable – trade | 23,416 | 35,931 | ||||||
Accrued liabilities | 75,954 | 34,414 | ||||||
Net cash provided by operating activities | 157,395 | 124,790 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property assets | (13,418 | ) | (9,245 | ) | ||||
Proceeds from sale of property assets | 3,246 | 223 | ||||||
Acquisitions of businesses, net of cash acquired | (14,101 | ) | (91,065 | ) | ||||
Net cash used in investing activities | (24,273 | ) | (100,087 | ) | ||||
Cash flows from financing activities | ||||||||
Purchase of treasury stock | (8,366 | ) | (13,438 | ) | ||||
Exercise of stock options | 5,694 | 6,163 | ||||||
Repayments of debt | (1,000 | ) | — | |||||
Net cash used in financing activities | (3,672 | ) | (7,275 | ) | ||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 129,450 | 17,428 | ||||||
Cash and cash equivalents at beginning of period | 143,941 | 85,723 | ||||||
Cash and cash equivalents at end of period | $ | 273,391 | $ | 103,151 | ||||
Supplemental cash flow information | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 3,727 | $ | 20,839 | ||||
Income taxes | $ | 592 | $ | 2,569 | ||||
Supplemental schedule of non-cash investing and financing activities | ||||||||
Fair value of assets acquired | $ | 14,101 | $ | 91,065 | ||||
Cash paid | $ | 14,101 | $ | 91,065 |
During the first three months of 2004 and 2003, the Company paid dividends on its preferred stock of approximately $19 in cash.
See accompanying notes to consolidated financial statements.
5
RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | Significant Accounting Policies and Nature of Operations. | |||
The interim financial statements of Rent-A-Center, Inc. included herein have been prepared by us 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 accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the Commission’s rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. We suggest that these financial statements be read in conjunction with the financial statements and notes included in our Annual Report on Form | ||||
Principles of Consolidation and Nature of Operations.These financial statements include the accounts of Rent-A-Center, Inc. and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Unless the context indicates otherwise, references to “Rent-A-Center” refer only to Rent-A-Center, Inc., the parent, and references to “we,” “us” and “our” refer to the consolidated business operations of Rent-A-Center and all of its direct and indirect subsidiaries. | ||||
At March 31, | ||||
ColorTyme, Inc., an indirect wholly-owned subsidiary of Rent-A-Center, is a nationwide franchisor of rent-to-own stores. At March 31, | ||||
Three Months Ended | Three Months Ended | |||||||
March 31, 2004 | March 31, 2003 | |||||||
(in thousands) | ||||||||
Beginning merchandise value | $ | 682,367 | $ | 631,724 | ||||
Inventory additions through acquisitions | 4,200 | 50,364 | ||||||
Purchases | 177,261 | 172,500 | ||||||
Depreciation of rental merchandise | (108,315 | ) | (106,660 | ) | ||||
Cost of goods sold | (42,756 | ) | (39,779 | ) | ||||
Skips and stolens | (12,613 | ) | (10,469 | ) | ||||
Other inventory deletions(1) | (2,242 | ) | (4,356 | ) | ||||
Ending merchandise value | $ | 697,902 | $ | 693,324 | ||||
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RENT-A-CENTER, INC. AND SUBSIDIARIES
March 31, 2004 | December 31, 2003 | |||||||||||||||||||
Avg. | Gross | Gross | ||||||||||||||||||
Life | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
(years) | Amount | Amortization | Amount | Amortization | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||||||
Franchise network | 10 | $ | 3,000 | $ | 2,325 | $ | 3,000 | $ | 2,250 | |||||||||||
Non-compete agreements | 4 | 5,014 | 1,984 | 5,275 | 1,788 | |||||||||||||||
Customer relationships | 1.5 | 21,893 | 17,777 | 20,699 | 15,561 | |||||||||||||||
Total | 29,907 | 22,086 | 28,974 | 19,599 | ||||||||||||||||
Intangible assets not subject to amortization | ||||||||||||||||||||
Goodwill | 895,941 | 99,162 | 887,221 | 99,162 | ||||||||||||||||
Total intangibles | $ | 925,848 | $ | 121,248 | $ | 916,195 | $ | 118,761 | ||||||||||||
Estimated | ||||
Amortization Expense | ||||
(In thousands) | ||||
2004 | $ | 4,398 | ||
2005 | 2,116 | |||
2006 | 1,216 | |||
2007 | 91 | |||
2008 | — | |||
Total | $ | 7,821 | ||
At March 31, 2004 | At December 31, 2003 | |||||||
(in thousands) | ||||||||
Balance as of January 1, | $ | 788,059 | $ | 736,395 | ||||
Additions from acquisitions | 8,594 | 48,445 | ||||||
Post purchase price allocation adjustments | 126 | 3,219 | ||||||
Balance as of the end of the period | $ | 796,779 | $ | 788,059 | ||||
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Stock Based Compensation. | ||||
Rent-A-Center’s Amended and Restated Long-Term Incentive Plan (the “Plan”) for the benefit of certain employees, consultants and directors provides the Board of Directors broad discretion in creating equity incentives. Under the Plan, 14,562,865 shares of Rent-A-Center’s common stock were reserved for issuance under stock options, stock appreciation rights or restricted stock grants. Options granted to our employees under the Plan generally become exercisable over a period of one to four years from the date of grant and may be exercised up to a maximum of 10 years from the date of grant. Options granted to directors are immediately exercisable. There have been no grants of stock appreciation rights or restricted stock grants and all options have been granted with fixed prices. At March 31, |
4
RENT-A-CENTER, INC. AND SUBSIDIARIES
Rent-A-Center accounts for the Plan under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees(“APB 25”), and related Interpretations. No stock-based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. |
Three months ended March 31, | Three Months Ended March 31, | |||||||||||||||
2004 | 2003 | 2005 | 2004 | |||||||||||||
(In thousands, except per share data) | (In thousands, except per share data) | |||||||||||||||
Net earnings allocable to common stockholders | ||||||||||||||||
As reported | $ | 52,209 | $ | 50,959 | $ | 47,669 | $ | 52,209 | ||||||||
Deduct: Total stock-based employee compensation under fair value based method for all awards, net of related tax expense | 3,176 | 3,704 | 3,077 | 3,176 | ||||||||||||
Pro forma | $ | 49,033 | $ | 47,255 | $ | 44,592 | $ | 49,033 | ||||||||
Basic earnings per common share | ||||||||||||||||
As reported | $ | 0.65 | $ | 0.58 | $ | 0.64 | $ | 0.65 | ||||||||
Pro forma | $ | 0.61 | $ | 0.54 | $ | 0.60 | $ | 0.61 | ||||||||
Diluted earnings per common share | ||||||||||||||||
As reported | $ | 0.63 | $ | 0.57 | $ | 0.63 | $ | 0.63 | ||||||||
Pro forma | $ | 0.59 | $ | 0.53 | $ | 0.59 | $ | 0.59 |
New Accounting Pronouncements.In December 2004, the FASB enacted Statement of Financial Accounting Standards 123—revised 2004 (“SFAS 123R”),Share-Based Payment,which replaces SFAS 123, and supersedes APB 25.SFAS 123R requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statement of earnings. The accounting provisions of SFAS 123R are effective for fiscal years beginning after June 15, 2005. | ||||
We are required to adopt SFAS 123R in the first quarter of 2006. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. See theStock-Based Compensationsection shown above for the pro forma net earnings and earnings per share amounts for the first quarter of 2005 and 2004 as if we had used a fair-value-based method similar to the methods required under SFAS 123 to measure compensation expense for employee stock incentive awards. Although we have not yet determined whether the adoption of SFAS 123R will result in amounts that are different from the current pro forma disclosures under SFAS 123, we are evaluating the requirements under SFAS 123R and expect the adoption to have a significant impact on our consolidated statement of earnings and earnings per share, but no impact on our financial condition or cash flows. |
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RENT-A-CENTER, INC. AND SUBSIDIARIES
2. | Reconciliation of Merchandise Inventory. |
Three Months Ended | Three Months Ended | |||||||
March 31, 2005 | March 31, 2004 | |||||||
(In thousands) | ||||||||
Beginning merchandise value | $ | 760,422 | $ | 682,367 | ||||
Inventory additions through acquisitions | 1,275 | 4,200 | ||||||
Purchases | 204,858 | 177,261 | ||||||
Depreciation of rental merchandise | (110,735 | ) | (108,315 | ) | ||||
Cost of goods sold | (44,930 | ) | (42,528 | ) | ||||
Skips and stolens | (13,747 | ) | (12,613 | ) | ||||
Other inventory deletions(1) | (3,965 | ) | (2,470 | ) | ||||
Ending merchandise value | $ | 793,178 | $ | 697,902 | ||||
(1) | Other inventory deletions include loss/damage waiver claims and unrepairable and missing merchandise, as well as acquisition write-offs. |
3. | Intangibles. | |||
Amortization of intangibles consists primarily of the amortization of customer relationships and non-compete agreements. | ||||
Intangibles consist of the following (in thousands): |
March 31, 2005 | December 31, 2004 | |||||||||||||||||||
Avg. | Gross | Gross | ||||||||||||||||||
Life | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
(years) | Amount | Amortization | Amount | Amortization | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||||||
Franchise network | 10 | $ | 3,000 | $ | 2,625 | $ | 3,000 | $ | 2,550 | |||||||||||
Non-compete agreements | 3 | 5,872 | 3,503 | 5,902 | 3,197 | |||||||||||||||
Customer relationships | 1.5 | 30,950 | 26,733 | 30,644 | 24,810 | |||||||||||||||
Total | 39,822 | 32,861 | 39,546 | 30,557 | ||||||||||||||||
Intangible assets not subject to amortization | ||||||||||||||||||||
Goodwill | 1,014,788 | 99,162 | 1,012,577 | 99,162 | ||||||||||||||||
Total intangibles | $ | 1,054,610 | $ | 132,023 | $ | 1,052,123 | $ | 129,719 | ||||||||||||
The estimated remaining amortization expense, assuming current intangible balances and no new acquisitions, for each of the years ending December 31, is as follows: |
Estimated | ||||
Amortization Expense | ||||
(In thousands) | ||||
2005 | $ | 5,329 | ||
2006 | 1,531 | |||
2007 | 101 | |||
2008 | — | |||
Total | $ | 6,961 | ||
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Changes in the net carrying amount of goodwill are as follows: |
At March 31, 2005 | At December 31, 2004 | |||||||
(In thousands) | ||||||||
Balance as of January 1, | $ | 913,415 | $ | 788,059 | ||||
Additions from acquisitions | 2,230 | 112,209 | ||||||
Post purchase price allocation adjustments | (19 | ) | 13,147 | |||||
Balance as of the end of the period | $ | 915,626 | $ | 913,415 | ||||
The post purchase price allocation adjustments in 2004 of approximately $13.1 million are primarily attributable to inventory charge-offs for unrentable or missing merchandise acquired in acquisitions, reserves put into place for lease buyouts for acquired stores which were closed post acquisition in compliance with executive management’s pre-acquisition plans, and the severance pay for the employees involved in the planned reduction in workforce inherited from some of the acquired companies. |
4. | Earnings Per Share. |
Basic and diluted earnings per common share is computed based on the following information: |
Three Months Ended March 31, 2005 | ||||||||||||||||||||||||
(In thousands, except per share data) | Three months ended March 31, 2004 | Net earnings | Shares | Per share | ||||||||||||||||||||
Net earnings | Shares | Per share | ||||||||||||||||||||||
Basic earnings per common share | $ | 52,209 | 80,285 | $ | 0.65 | $ | 47,669 | 74,558 | $ | 0.64 | ||||||||||||||
Effect of dilutive stock options | 2,602 | 1,514 | ||||||||||||||||||||||
Diluted earnings per common share | $ | 52,209 | 82,887 | $ | 0.63 | $ | 47,669 | 76,072 | $ | 0.63 | ||||||||||||||
Three months ended March 31, 2003 | Three Months Ended March 31, 2004 | |||||||||||||||||||||||
Net earnings | Shares | Per share | Net earnings | Shares | Per share | |||||||||||||||||||
Basic earnings per common share | $ | 50,959 | 87,240 | $ | 0.58 | $ | 52,209 | 80,285 | $ | 0.65 | ||||||||||||||
Effect of dilutive stock options | — | 2,600 | 2,602 | |||||||||||||||||||||
Diluted earnings per common share | $ | 50,959 | 89,840 | $ | 0.57 | $ | 52,209 | 82,887 | $ | 0.63 | ||||||||||||||
For the three months ended March 31, |
5. | Subsidiary Guarantors. |
7 | ||||
The 2003 indenture contains covenants that limit Rent-A-Center’s ability to: |
• | incur additional debt; | |||
• | sell assets or its subsidiaries; | |||
• | grant liens to third parties; | |||
• | pay dividends or repurchase stock; and | |||
• | engage in a merger or sell substantially all of its assets. |
7
Events of default under the 2003 indenture include customary events, such as a cross-acceleration provision in the event that Rent-A-Center defaults in the payment of other debt due at maturity or upon acceleration for default in an amount exceeding $50.0 million. |
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The | ||||
Rent-A-Center and the Subsidiary Guarantors have fully, jointly and severally, and unconditionally guaranteed the obligations of Rent-A-Center with respect to the | ||||
Condensed Consolidating Statements of Operations – (in thousands)
Parent | Subsidiary | |||||||||||
Company | Guarantors | Total | ||||||||||
Three Months Ended March 31, 2004 (unaudited) | ||||||||||||
Total revenues | $ | — | $ | 585,380 | $ | 585,380 | ||||||
Direct store expenses | — | 460,155 | 460,155 | |||||||||
Other expenses | — | 73,016 | 73,016 | |||||||||
Net earnings | $ | — | $ | 52,209 | $ | 52,209 | ||||||
Parent | Rent-A- | Subsidiary | ||||||||||||||
Company | Center East | Guarantors | Total | |||||||||||||
Three Months Ended March 31, 2003 (unaudited) | ||||||||||||||||
Total revenues | $ | — | $ | 400,263 | $ | 166,143 | $ | 566,406 | ||||||||
Direct store expenses | — | 297,466 | 141,469 | 438,935 | ||||||||||||
Other expenses | — | 50,274 | 26,238 | 76,512 | ||||||||||||
Net earnings (loss) | $ | — | $ | 52,523 | $ | (1,564 | ) | $ | 50,959 | |||||||
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Condensed Consolidating Balance Sheets – (in thousands)
Parent | Subsidiary | Consolidating | ||||||||||||||
Company | Guarantors | Adjustments | Totals | |||||||||||||
March 31, 2004 (unaudited) | ||||||||||||||||
Rental merchandise, net | $ | — | $ | 697,902 | $ | — | $ | 697,902 | ||||||||
Intangible assets, net | — | 804,600 | — | 804,600 | ||||||||||||
Other assets | 878,977 | 307,465 | (734,270 | ) | 452,172 | |||||||||||
Total assets | $ | 878,977 | $ | 1,809,967 | $ | (734,270 | ) | $ | 1,954,674 | |||||||
Senior debt | $ | 397,000 | $ | — | $ | — | $ | 397,000 | ||||||||
Other liabilities | 300,002 | 805,833 | (392,528 | ) | 713,307 | |||||||||||
Stockholders’ equity | 181,975 | 1,004,134 | (341,742 | ) | 844,367 | |||||||||||
Total liabilities and equity | $ | 878,977 | $ | 1,809,967 | $ | (734,270 | ) | $ | 1,954,674 | |||||||
Parent | Subsidiary | Consolidating | ||||||||||||||
Company | Guarantors | Adjustments | Totals | |||||||||||||
December 31, 2003 | ||||||||||||||||
Rental merchandise, net | $ | — | $ | 682,367 | $ | — | $ | 682,367 | ||||||||
Intangible assets, net | — | 797,434 | — | 797,434 | ||||||||||||
Other assets | 882,876 | 231,893 | (763,268 | ) | 351,501 | |||||||||||
Total assets | $ | 882,876 | $ | 1,711,694 | $ | (763,268 | ) | $ | 1,831,302 | |||||||
Senior debt | $ | 398,000 | $ | — | $ | — | $ | 398,000 | ||||||||
Other liabilities | 300,002 | 759,996 | (421,526 | ) | 638,472 | |||||||||||
Stockholders’ equity | 184,874 | 951,698 | (341,742 | ) | 794,830 | |||||||||||
Total liabilities and equity | $ | 882,876 | $ | 1,711,694 | $ | (763,268 | ) | $ | 1,831,302 | |||||||
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Condensed Consolidating Statements of Cash Flows – (in thousands)
Parent | Subsidiary | |||||||||||
Company | Guarantors | Total | ||||||||||
Three months ended March 31, 2004 (unaudited) | ||||||||||||
Net cash provided by operating activities | $ | — | $ | 157,395 | $ | 157,395 | ||||||
Cash flows from investing activities | ||||||||||||
Purchase of property assets | — | (13,418 | ) | (13,418 | ) | |||||||
Acquisitions of businesses, net of cash acquired | — | (14,101 | ) | (14,101 | ) | |||||||
Proceeds from sale of property assets | — | 3,246 | 3,246 | |||||||||
Net cash used in investing activities | — | (24,273 | ) | (24,273 | ) | |||||||
Cash flows from financing activities | ||||||||||||
Purchase of treasury stock | (8,366 | ) | — | (8,366 | ) | |||||||
Exercise of stock options | 5,694 | — | 5,694 | |||||||||
Repayments of debt | (1,000 | ) | — | (1,000 | ) | |||||||
Intercompany advances | 139,585 | (139,585 | ) | — | ||||||||
Net cash provided by (used in) financing activities | 135,913 | (139,585 | ) | (3,672 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 135,913 | (6,463 | ) | 129,450 | ||||||||
Cash and cash equivalents at beginning of period | 61,006 | 82,935 | 143,941 | |||||||||
Cash and cash equivalents at end of period | $ | 196,919 | $ | 76,472 | $ | 273,391 | ||||||
Parent | Rent-A- | Subsidiary | ||||||||||||||
Company | Center East | Guarantors | Total | |||||||||||||
Three months ended March 31, 2003 (unaudited) | ||||||||||||||||
Net cash provided by operating activities | $ | — | $ | 89,864 | $ | 34,926 | $ | 124,790 | ||||||||
Cash flows from investing activities | ||||||||||||||||
Purchase of property assets | — | (6,730 | ) | (2,515 | ) | (9,245 | ) | |||||||||
Acquisitions of businesses, net of cash acquired | — | (60,504 | ) | (30,561 | ) | (91,065 | ) | |||||||||
Other | — | 163 | 60 | 223 | ||||||||||||
Net cash used in investing activities | — | (67,071 | ) | (33,016 | ) | (100,087 | ) | |||||||||
Cash flows from financing activities | ||||||||||||||||
Purchase of treasury stock | (13,438 | ) | — | — | (13,438 | ) | ||||||||||
Exercise of stock options | 6,163 | — | — | 6,163 | ||||||||||||
Intercompany advances | 7,275 | (5,365 | ) | (1,910 | ) | — | ||||||||||
Net cash used in financing activities | — | (5,365 | ) | (1,910 | ) | (7,275 | ) | |||||||||
Net increase in cash and cash equivalents | — | 17,428 | — | 17,428 | ||||||||||||
Cash and cash equivalents at beginning of period | — | 85,723 | — | 85,723 | ||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 103,151 | $ | — | $ | 103,151 | ||||||||
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Three months ended March 31, | ||||||||
(in thousands) | ||||||||
2004 | 2003 | |||||||
Net earnings | $ | 52,209 | $ | 50,959 | ||||
Other comprehensive (loss) income: | ||||||||
Unrealized gain on derivatives held as cash flow hedges: | ||||||||
Change in unrealized gain during period | — | 3,986 | ||||||
Reclassification adjustment for loss included in net earnings | — | (2,611 | ) | |||||
Other comprehensive income | — | 1,375 | ||||||
Comprehensive income | $ | 52,209 | $ | 52,334 | ||||
6. | Common and Preferred Stock Transactions. | |||
7. | Acquisitions. | |||
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Fair Values | ||||
(in thousands) | ||||
Inventory | $ | 50,100 | ||
Property assets | 4,300 | |||
Customer relationships | 7,900 | |||
Non-compete agreement | 4,300 | |||
Goodwill | 33,800 | |||
Total assets acquired | $ | 100,400 | ||
8. | Guarantees. | |||
ColorTyme Guarantee.ColorTyme is a party to an agreement with Wells Fargo Foothill, Inc., who provides $50.0 million in aggregate financing to qualifying franchisees of ColorTyme generally of up to five times their average monthly revenues. Under the Wells Fargo agreement, upon an event of default by the franchisee under agreements governing this financing and upon the occurrence of certain other events, Wells Fargo can assign the loans and the collateral securing such loans to ColorTyme, with ColorTyme paying the outstanding debt to Wells Fargo and then succeeding to the rights of Wells Fargo under the debt agreements, including the right to foreclose on the collateral. An additional $15.0 million of financing is provided by Texas Capital Bank, National Association under an agreement similar to the Wells Fargo financing. Rent-A-Center East, Inc., a subsidiary of Rent-A-Center, guarantees the obligations of ColorTyme under each of these agreements, excluding the effects of any amounts that could be recovered under collateralization provisions, up to a maximum amount of $65.0 million, of which | ||||
Other guarantees.We also provide assurance to our insurance providers that if they are not able to draw funds from us for claims paid, they have the ability to draw against our letters of credit. |
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RENT-A-CENTER, INC. AND SUBSIDIARIES
9. | ||||
10. | Subsequent Events. | |||
On April |
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The statements, other than statements of historical facts, included in this report are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate” or “believe.” We believe that the expectations reflected in such forward-looking statements are accurate. However, we cannot assure you that these expectations will occur. Our actual future performance could differ materially from such statements. Factors that could cause or contribute to these differences include, but are not limited to:
• | uncertainties regarding the ability to open new rent-to-own stores; |
• | our ability to acquire additional rent-to-own stores on favorable terms; |
• | our ability to enhance the performance of these acquired stores; |
• | our ability to control store level costs; |
• | our ability to identify and successfully market products and services that appeal to our customer demographic; |
• | our ability to identify and successfully enter new lines of business offering products and services that appeal to our customer demographic; |
• | the results of our litigation; |
• | the passage of legislation adversely affecting the rent-to-own industry; |
• | interest rates; |
• | our ability to collect on our rental purchase agreements; |
• | our ability to enter into new rental purchase agreements; |
• | economic pressures affecting the disposable income available to our targeted consumers, such as high fuel and utility costs; |
• | changes in our effective tax rate; |
• | changes in our stock price and the number of shares of common stock that we may or may not repurchase; and |
• | the other risks detailed from time to time in our SEC reports. |
Additional important factors that could cause our actual results to differ materially from our expectations are discussed under Risk Factors in our Annual Report on Form 10-K/A10-K for our fiscal year ended December 31, 2003.2004. You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.
Our Business
We are the largest rent-to-own operator in the United States with an approximate 32%35% market share based on store count. At March 31, 2004,2005, we operated 2,6712,863 company-owned stores nationwide and in Canada and Puerto Rico, including 2221 stores located in Wisconsin and operated by our subsidiary Get It Now, LLC under the name “Get It Now” and five stores located in Canada and operated by our subsidiary Rent-A-Centre Canada, Ltd., under the name “Rent-A-Centre.” Another of our subsidiaries, ColorTyme, is a national franchisor of rent-to-own stores. At March 31, 2004,2005, ColorTyme had 323307 franchised stores in 40 states, 311295 of which operated under the ColorTyme name and 12 stores of which operated under the Rent-A-Center name.
Our stores generally offer high quality durable products such as homemajor consumer electronics, appliances, computers, and furniture and accessories under flexible rental purchase agreements that generally allow the customer to obtain ownership of the merchandise at the conclusion of an agreed-upon rental period. These rental purchase agreements are designed to appeal to a wide variety of customers by allowing them to obtain merchandise that they might otherwise be unable to obtain due to
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RENT-A-CENTER, INC. AND SUBSIDIARIES
insufficient cash resources or a lack of access to credit. These agreements also cater to customers who only have a temporary need or who simply desire to rent rather than purchase the merchandise.
Rental payments are made generally on a weekly basis and, together with applicable fees, constitute our primary revenue source. Our expenses primarily relate to merchandise costs and the operations of our stores, including salaries and benefits for our employees, occupancy expense for our leased real estate, advertising expenses, lost, damaged, or stolen merchandise, fixed asset depreciation, and corporate and other expenses.
We have pursued an aggressive growth strategy since 1989.1993. We have sought to acquire underperforming rent-to-own stores to which we could apply our operating model as well as open new stores. As a result, acquired stores have generally experienced more significant revenue growth during the initial periods following their acquisition than in subsequent periods. Because of significant growth since our formation, our historical results of operations and period-to-period comparisons of such results and other financial data, including the rate of earnings growth, may not be meaningful or indicative of future results.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
We plan to accomplish our future growth through selective and opportunistic acquisitions with an emphasis onof existing rent-to-own stores, and development of new store development.rent-to-own stores. Typically, a newly opened rent-to-own store is profitable on a monthly basis in the ninth to twelfth month after its initial opening. Historically, a typical store has achieved cumulative break-even profitability in 18 to 24 months after its initial opening. Total financing requirements of a typical new store approximate $450,000,$500,000, with roughly 70%75% of that amount relating to the purchase of rental merchandise inventory. A newly opened store historically has achieved results consistent with other stores that have been operating within the system for greater than two years by the end of its third year of operation. As a result, our quarterly earnings are impacted by how many new stores we opened during a particular quarter and the quarters preceding it. In addition, we strategically open or acquire stores near market areas served by existing stores (“cannibalize”) to enhance service levels, gain incremental sales and increase market penetration. This planned cannibalization may negatively impact our same store revenue. There can be no assurance that we will open any new rent-to-own stores in the future, or as to the number, location or profitability thereof.
In addition, to provide any additional funds necessary for the continued pursuit of our operating andFurthermore, we are evaluating other growth strategies, we may incur, from timeincluding offering additional products and services designed 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 relateappeal to our financial conditioncustomer demographic, both through our new and performance, and someexisting rent-to-own stores as well as the entry into additional lines of which are beyond our control, such as prevailing interest rates and general economic conditions.business. There can be no assurance additional financingthat we will be available,successful in our efforts to expand our operations to include such complementary financial products or if available,services, or that such operations, should they be added, will prove to be on terms acceptable to us.profitable.
Recent Developments
Rent Rite Acquisition.On April 28, 2004, we announced that we had entered into a definitive agreement to acquire Rent Rite,12, 2005, the settlement of theBenjamin Griego, et al. v. Rent-A-Center, Inc., a Tennessee corporation, which currently operates approximately 90 storeset al/Arthur Carrillo, et al. v. Rent-A-Center, Inc., et allitigation pending in 11 states. The agreement provides forCalifornia received final approval from the merger of Rent Rite with and into a newly-formed subsidiary of ours. Pursuant to the agreement, we have agreed to acquire Rent Rite for 12.75 times Rent Rite’s average three month recurring revenue, or approximately $58.4 million based on Rent Rite’s recurring revenue for the three month period ended March 31, 2004.court. Under the terms of the agreement,settlement approved by the court, we have agreed to assumepay the debt and other liabilitiesplaintiffs’ attorneys’ fees, as well as an aggregate of Rent Rite. Approximately one halfup to $37.5 million in cash. This settlement amount is to be distributed to the purchase price will beclass of eligible customers who entered into rental-purchase agreements with us anytime from February 1, 1999 through October 31, 2004, with Rent-A-Center being entitled to any undistributed monies in the settlement fund up to an aggregate of $8.0 million, with any additional undistributed funds being paid in our common stock, withto non-profit organizations. As a result of the remaining portion consistingresponse rate to the notice of cash, the assumptionsettlement mailed to class members on February 7, 2005, the parties agreed that we could retain the $8.0 million reversion, rather than deposit it as part of Rent Rite’s stock options and retirement of Rent Rite’s outstanding debt. We intendthe settlement fund. Accordingly, on April 22, 2005, we paid $29.5 million to fund the acquisition primarily with cash on handsettlement, as well as $9.0 million in attorneys’ fees, for a total of $38.5 million in cash. To account for the portionretention of the purchase price$8.0 million reversion and resulting reduction in our settlement liability, we recorded an $8.0 million pre-tax credit during the first quarter of 2005. Please refer to be paid“Legal Proceedings” later in cash. The acquisition, which is expected to be completed in early May 2004, is conditioned upon customary closing conditions for a transaction of the nature, including the receipt of approval of Rent Rite’s shareholders.this report.
As of April 30, 2004,27, 2005, we have acquired one additional storetwo stores and accounts from threeone additional locations,location, opened foursix new stores and merged twoclosed six stores into existing locations during the second quarter of 2004.2005. Of the closed stores, five were merged with existing locations, and one was sold. It is our intention to increase the number of rent-to-own stores we operate by an average of approximately 5 to 10% per year over the next several years.
Critical Accounting Policies Involving Critical Estimates, Uncertainties or Assessments in Our Financial Statements
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In applying accounting principles, we must often make individual estimates and assumptions regarding expected outcomes or uncertainties. As you might expect, the actual results or outcomes are generally different than the estimated or assumed amounts. These differences are usually minor and are included in our consolidated financial statements as soon as they are known. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual
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RENT-A-CENTER, INC. AND SUBSIDIARIES
results could differ from those estimates.
Actual results related to We believe the estimatesfollowing are areas where the degree of judgment and assumptions made by uscomplexity in preparingdetermining amounts recorded in our consolidated financial statements will emerge over periods of time, such as estimatesmake the accounting policies critical.
Self-Insurance Liabilities.We have self-insured retentions with respect to losses under our workers’ compensation, general liability, auto liability and employee health insurance policies. We establish reserves for our liabilities associated with these losses by obtaining forecasts for the ultimate expected losses and estimating amounts needed to pay losses within our self-insured retentions.
We make assumptions underlying the determination ofon our self-insurance liabilities. These estimates and assumptions are closely monitored by us and periodically adjusted as circumstances warrant. For instance, our liability forliabilities within our self-insured retentions using actuarial loss forecasts, which are prepared using methods and assumptions in accordance with standard actuarial practice, and third party claim administrator loss estimates which are based on known facts surrounding individual claims. Each quarter, we reevaluate our estimate of liability within our self-insured retentions, including our assumptions related to our workers compensation, general liability, medicalloss forecasts and auto liability may be adjusted basedestimates, using actuarial loss forecasts updated during the quarter and currently valued third party claim administrator loss estimates. We evaluate the adequacy of our accruals by comparing amounts accrued on higher or lower actualour balance sheet for anticipated losses to our updated actuarial loss experience. Although there is greater risk with respect to the accuracy of theseforecasts and third party claim administrator loss estimates, and assumptions becausemake adjustments to our accruals as needed based upon such review.
Over the previous 10 years, our loss exposure has increased, primarily as a result of our growth. We instituted procedures to manage our loss exposure through a greater focus on the risk management function, a transitional duty program for injured workers, ongoing safety and accident prevention training, and various programs designed to minimize losses and improve our loss experience in our store locations.
As of the period over which actual results may emerge, such risk is mitigated by our ability to make changes to these estimates and assumptions overquarter ended March 31, 2005, the same period.
In preparing our financial statements at any point in time, we are also periodically faced with uncertainties, the outcomes of which are notnet amount accrued for losses within our control and will not be knownself-insured retentions was $90.3 million, as compared to $77.5 million at March 31, 2004. The increase in the net amount accrued for prolonged periodsthe 2005 period is a result of time. As discussedstore growth, increased number of employees, increases in Part II, Item 1 “Legal Proceedings”health care costs, new claims made during the period, and the notes tonet effect of prior period claims which have closed or for which additional development or changes in estimates have occurred.
Litigation Reserves.We are the subject of litigation in the ordinary course of our consolidated financial statements included in our Annual Report on Form 10-K/A, we are involved inbusiness. Our litigation involves, among other things, actions relating to claims that our rental purchase agreements constitute installment sales contracts, violate state
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RENT-A-CENTER, INC. AND SUBSIDIARIES
usury laws or violate other state laws enacted to protect consumers, claims asserting violations of wage and hour laws in our employment practices, as well as claims we violated the federal securities laws. We, together withIn preparing our counsel,financial statements at a given point in time, we account for these contingencies pursuant to the provisions of FASB No. 5, which requires that we accrue for losses that are both probable and reasonably estimable.
Each quarter, we make estimates of our probable liabilities, if determinable or reasonably estimatable,estimable, and record such amounts in our consolidated financial statements. These estimatesamounts represent our best estimate, or may be the minimum range of probable loss when no single best estimate is determinable. We, together with our counsel, monitor developments related to these legal matters and, when appropriate, adjustments are made to liabilities to reflect current facts and circumstances. For the quarter ended March 31, 2005, we had accrued $39.0 million in connection with the settlement of theGriego/Carrillomatter, and an additional $1.8 million for probable litigation costs with respect to our other outstanding litigation (other than theGriego/Carrillomatter) as compared to $2.8 million for the quarter ended March 31, 2004. The amounts accrued, relating to the settlement in theGriego/Carrillomatter, and anticipated legal fees and expenses with respect to our remaining outstanding litigation (other thanGriego/Carrillo), represent our estimate of the probable liabilities with respect to such litigation. The ultimate outcome of our litigation is uncertain, and the amount of loss we may incur, if any, cannot in our judgment be reasonably estimated. Additional developments in our litigation or other adverse or positive developments or rulings in our litigation, could effect our assumptions and thus, our accrual.
If we make changes to our accruals in any of these areas in accordance with the policies described above, these changes would impact our earnings. Increases to our accruals would reduce earnings and similarly, reductions to our accruals would increase our earnings. A pre-tax change of $1.2 million in our estimates would result in a corresponding $.01 change in our earnings per share.
Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective of our company. However, we do not suggest that other general risk factors, such as those discussed in our Annual Report on Form 10-K/A10-K as well as changes in our growth objectives or performance of new or acquired stores, could not adversely impact our consolidated financial position, results of operations and cash flows in future periods.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
Significant Accounting Policies
Our significant accounting policies are summarized below and in Note A to our consolidated financial statements included in our Annual Report on Form 10-K/A.10-K.
Revenue. Merchandise is rented to customers pursuant to rental-purchase agreements which provide for weekly, semi-monthly or monthly rental terms with non-refundable rental payments. Generally, the customer has the right to acquire title either through a purchase option or through payment of all required rentals. Rental revenue and fees are recognized over the rental term. Noterm as payments are received and merchandise sales revenue is recognized when the customer exercises their purchase option and pays the cash price due. Revenue for the total amount of the rental purchase agreement is not accrued because the customer can cancel the rental contract at any time and we cannot enforce collection for non-payment of rents. Because Get It Now makes retail sales on an installment credit basis, Get It Now’s revenue from the sale of merchandise through an installment credit sale is recognized at the time of thesuch retail sale, as is the cost of the merchandise sold, net of a provision for uncollectableuncollectible accounts.
Franchise Revenue.Revenue from the sale of rental merchandise is recognized upon shipment of the merchandise to the franchisee. Franchise fee revenue is recognized upon completion of substantially all services and satisfaction of all material conditions required under the terms of the franchise agreement.
Depreciation of Rental Merchandise. Depreciation of rental merchandise is included in the cost of rentals and fees on our statement of earnings. We depreciate our rental merchandise using the income forecasting method. The income forecasting method of depreciation we use does not consider salvage value and does not allow the depreciation of rental merchandise during periods when it is not generating rental revenue. The objective of this method of depreciation is to provide for consistent depreciation expense while the merchandise is on rent. We accelerate the depreciation on computers that are 2124 months old or older and which have become idle using the straight-line method for a period of at least six months, generally not to exceed an aggregate depreciation period of 30 months. The purpose is to better reflect the depreciable life of a computer in our stores and to encourage the sale of older computers.
Cost of Merchandise Sold. Cost of merchandise sold represents the book value net of accumulated depreciation of rental merchandise at time of sale.
Salaries and Other Expenses. Salaries and other expenses include all salaries and wages paid to store level employees, together with market managers’ salaries, travel and occupancy, including any related benefits and taxes, as well as all store level general and administrative expenses and selling, advertising, insurance, occupancy, delivery, fixed asset depreciation and other operating expenses.
General and Administrative Expenses. General and administrative expenses include all corporate overhead expenses related to our headquarters such as salaries, taxes and benefits, occupancy, administrative and other operating expenses, as well as regional directors’ salaries, travel and office expenses.
Amortization of Intangibles. Amortization of intangibles consists primarily of the amortization of customer relationships and non-compete agreements resulting from acquisitions.
Results of Operations
Three Months Ended March 31, 20042005 compared to Three Months Ended March 31, 20032004
Store Revenue. Total store revenue increased by $18.7$17.6 million, or 3.4%3.1%, to $589.1 million for the three months ended March 31, 2005 as compared to $571.5 million for the three months ended March 31, 2004 as compared to $552.8 million for the three months ended March 31, 2003.2004. The increase in total store revenue is primarily attributable to an increaseapproximately $43.1 million in cash sales and early purchase options,incremental revenue from new stores and incremental revenues relatedacquisitions, net of stores sold and the effects of merged stores, during the first three months of 2005 as compared to acquisitions,2004, offset by a decrease in same store sales of 1.3%5.0%.
Same store revenues represent those revenues earned in stores that were operated by us for each of the entire three month periods ending March 31, 20042005 and 2003,2004, excluding store locations that received accounts through an acquisition or merger of an existing store location. Same store revenues decreased by $6.1$25.5 million, or 1.3%5.0%, to $455.2$486.5 million for the three months ended March 31, 20042005 as compared to $461.3$512.0 million in 2003. The2004. This decrease in same store revenues was primarily attributable to a decrease in the average number of customers on a per store basis during the first quarter of 2004 versus the first quarter of 2003 offset by an increase in the average revenue per customer. Merchandise sales for all stores increased $6.7 million, or 12.8%, to $59.4 million for the three months ended March 31, 2004of 2005 as compared to $52.7 million in 2003. The increase in merchandise sales was primarily attributable to an increase in the number of items sold in the first quarterthree months of 2004.
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2004 (approximately 348,000) from the number of items sold in 2003 (approximately 318,000). This increase in the number of items sold in 2004 versus the same period in 2003 was primarily the result of an increase in the number of stores operating during the first quarter of 2004 as compared to 2003.
Franchise Revenue. Total franchise revenue increaseddecreased by $326,000,$1.1 million, or 2.4%8.2%, to $13.9$12.8 million for the three months ended March 31, 20042005 as compared to $13.6$13.9 million in 2003.2004. This increasedecrease was primarily attributable to an increasea decrease in merchandise sales to franchise locations as a result of more19 fewer franchised locations, on a weighted average basis, operating in the first quarter of 20042005 as compared to the first quarter of 2003.2004. The number of locations has declined as a result of fewer new franchise stores, together with the purchase of 27 franchise locations by other Rent-A-Center subsidiaries since March 31, 2004.
DepreciationCost of Rental MerchandiseRentals and Fees. Cost of rentals and fees consists of depreciation of rental merchandise and the costs associated with our membership programs, which began in 2004. Depreciation of rental merchandise, which accounts for 98.5% of the cost of rentals and fees for the three months ended March 31, 2005, increased by $1.6$2.4 million, or 1.6%2.2%, to $108.3$110.7 million for the three months ended March 31, 20042005 as compared to $106.7$108.3 million in 2003.2004. This increase is a result of an increase in rental revenue for the first three months of 2005 compared to the first three months of 2004. Depreciation of rental merchandise expressed as a percentage of store rentals and fees revenue decreased slightly to 21.5%21.4% in 20042005 from 21.6%21.5% for the same period in 2003. The slight decrease was primarily attributable to a more normalized depreciation rate in the first quarter of 2004 as compared to 2003, which included the effect of the Rent-Way acquisition and the terms of their product.2004.
Cost of Merchandise Sold. Cost of merchandise sold increased by $3.1$2.7 million, or 8.4%6.8%, to $39.6$42.1 million for the three months ended March 31, 20042005 as compared to $36.5$39.4 million in 2003.2004. This increase was primarily a result of an increase in the number of items sold during the first quarter of 20042005 as compared to the first quarter 2003.2004. The gross margin percent of merchandise sales increaseddecreased slightly to 33.3%33.0% in 20042005 from 30.6%33.7% in 2003. This percentage increase was primarily attributable to the sale of merchandise acquired from Rent-Way in February 2003, which caused a lower gross margin to occur in 2003 versus 2004.
Salaries and Other Expenses. Salaries and other expenses increased by $24.9 million, or 8.1%, to $334.0 million for the three months ended March 31, 2005 as compared to $309.1 million in 2004. The increase was primarily the result of an increase in salaries and wages and occupancy costs due to an increased number of stores in the 2005 period. For the three months ended March 31, 2005, there were 216 more stores, on a weighted average basis, operating during the period as compared to 2004. Salaries and other expenses expressed as a percentage of total store revenue increased to 54.1%56.7% for the three months ended March 31, 20042005 from 52.9% for the three months ended March 31, 2003.54.1% in 2004. This percentage increase was primarily attributable to the decrease in same store sales coupled with an increase in the average salary and other expenses induring the first quarterthree months of 2004 compared to the first quarter of 2003. In the first quarter of 2004, there were 31 more new stores and 77 more acquired stores open2005 as compared to 2003, which are not yet performing at the level of a mature store.2004.
Franchise Cost of Merchandise Sold. Franchise cost of merchandise sold increaseddecreased by $341,000$1.0 million, or 3.0%8.6%, to $11.9$10.9 million for the three months ended March 31, 20042005 as compared to $11.6$11.9 million in 2003.2004. This increasedecrease was primarily attributable to an increasea decrease in merchandise sales to franchise locations as a result of more19 fewer franchised locations, on a weighted average basis, operating in the first quarter of 20042005 as compared to the first quarter of 2003.2004. The number of locations has declined as a result of fewer new franchise stores, together with the purchase of 27 franchise locations by other Rent-A-Center subsidiaries since March 31, 2004.
General and Administrative Expenses. General and administrative expenses increased by $1.0 million, or 5.7%, to $19.2 million for the three months ended March 31, 2005, as compared to $18.2 million for the first three months of 2004. General and administrative expenses expressed as a percentage of total revenue increased to 3.2% for the three months ending March 31, 2005 as compared to 3.1% for the three months ending March 31, 2004 as compared to 3.0% for the three months ending March 31, 2003.
Amortization of Intangibles. Amortization of intangibles decreased by $385,000, or 13.4%, to $2.5 million for the three months ended March 31, 2004 as compared to $2.9 million for the three months ended March 31, 2003. This decrease was primarily attributable to the completed amortization of some intangibles.2004.
Operating Profit. Operating profit decreased by $3.6$6.7 million, or 3.8%7.2%, to $92.7$86.0 million for the three months ended March 31, 20042005 as compared to $96.3$92.7 million in 2003.2004. Excluding the pre-tax litigation reversion of $8.0 million recorded in the first quarter of 2005, operating profit decreased by $14.7 million, or 16.0%, to $78.0 million for the three months ended March 31, 2005 as compared to $92.7 million in 2004. Operating profit as a percentage of total revenue decreased to 15.8%13.0% for the three months ended March 31, 2004,2005 before the pre-tax litigation reversion, from 17.0%15.8% in 2003.the first quarter of 2004. These decreases were primarily attributable to the increase in salaries and other expenses and the decrease in same store sales during the first quarter of 20042005 versus 20032004 as discussed above. In the first quarter of 2004, there were 31 more new stores and 77 more acquired stores open as compared to 2003, which are not yet performing at the level of a mature store.
Net Earnings. Net earnings increaseddecreased by $1.2$4.5 million, or 2.5%8.7%, to $52.2$47.7 million for the three months ended March 31, 20042005 as compared to $51.0$52.2 million in 2003.2004. Excluding the pre-tax litigation reversion of $8.0 million recorded in the first quarter of 2005, net earnings decreased by $9.5 million, or 18.3%, to $42.7 million for the three months ended March 31, 2005 as compared to $52.2 million in 2004. This increase isdecrease was primarily attributable to growththe increase in total revenues, asalaries and other expenses and the decrease in interest expense, and a lower effective tax ratesame store sales during the first quarter of 2005 versus 2004 as compared to 2003.discussed above.
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Liquidity and Capital Resources
Cash provided by operating activities increaseddecreased by $32.6$69.8 million to $157.4$87.6 million for the three months ending March 31, 20042005 as compared to $124.8$157.4 million in 2003.2004. This increasedecrease resulted primarily from the decrease in net earnings, a greaterdecrease in our deferred income taxes related to the reversal of the cash benefit related to the Jobs and Growth Tax Relief Reconciliation Act of 2003 discussed later in this report, an increase in accruedinventory purchases related to our increased store base and a decrease in the change in our outstanding liabilities during the first quarterthree months of 20042005 as compared to 2003, consisting primarilythe first three months of income taxes accrued for but not yet paid.2004.
Cash used in investing activities decreased by $75.8$10.0 million to $24.3$14.3 million during the three month period ending March 31, 20042005 as compared to $100.1$24.3 million in 2003.2004. This decrease is primarily attributable to a decrease in acquisitions during the acquisitionfirst quarter of 295 stores from Rent-Way in February 2003.2005 as compared to 2004.
Cash used in financing activities decreasedincreased by $3.6$53.2 million to $3.7$56.9 million during the three month period ending March 31, 20042005 as compared to $7.3$3.7 million in 2003.2004. This decreaseincrease is a result of fewer stock repurchases effectedthe repayment of $60.9 million in debt during the first quarter of 20042005 offset by the absence of stock repurchases during the first three months of 2005 as compared to 2003, offset by$8.4 million repurchased in the $1.0 million repayment on our term loans infirst quarter of 2004.
Liquidity Requirements.Our primary liquidity requirements are for debt service, rental merchandise purchases, capital expenditures and our store expansion program. Our primary sources of liquidity have been cash provided by operations, borrowings and sales of debt and equity securities. In the future, we may incur additional debt, or may issue debt or equity securities to finance our operating and growth strategies. The availability and attractiveness of any outside sources of financing will depend on a number of factors, some of which relate to our financial condition and performance, and some of which are beyond our control, such as prevailing interest rates and general economic conditions. There can be no assurance that additional financing will be available, or if available, that it will be on terms we find acceptable.
We believe that the cash flow generated from operations, together with amounts available under our senior credit facilities, will be sufficient to fund our debt service requirements, rental merchandise purchases, capital expenditures and our store expansion programs into 2005.2006. Our revolving credit facilities, including our $10.0 million line of credit at Intrust Bank, provide us with revolving loans in an aggregate principal amount not exceeding $130.0$260.0 million, of which $90.3$155.4 million was available at April 30, 2004.27, 2005. At April 30, 2004,27, 2005, we had approximately $184.6$26.2 million in cash, of which approximately $130.0 million we expect to be utilized to fund the Rainbow and Rent Rite acquisitions anticipated in May 2004.cash. To the extent we have available cash that is not necessary for store openings or acquisitions, we intend to repurchase additional shares of our common stock as well as make payments to service our existing debt. While our operating cash flow has been strong and we expect this strength to continue, our liquidity could be negatively impacted if we do not remain as profitable as we expect.
Our senior credit facilities and the indenture governing our 7½%7 1/2% notes contain certain change in control provisions. A change in control would result in an event of default under our senior credit facilities, and, pursuant to the underlying indenture would also require us to offer to repurchase all of our 7½%7 1/2% notes at 101% of their principal amount, plus accrued interest, if any, to the date of repurchase. Provisions of our senior credit facilities restrict the repurchase of all of our 7½%7 1/2% notes. In the event a change in control occurs, we cannot be sure that we would have enough funds to immediately pay our accelerated senior credit facility obligations and all of the 7½%7 1/2% notes, or that we would be able to obtain financing to do so on favorable terms, if at all.
DeferredLitigation.On April 12, 2005, the settlement of theBenjamin Griego, et al. v. Rent-A-Center, Inc., et al/Arthur Carrillo, et al. v. Rent-A-Center, Inc., et allitigation received final approval from the court. Under the terms of the settlement approved by the court, we agreed to pay the plaintiffs’ attorneys’ fees, as well as an aggregate of up to $37.5 million in cash. The settlement amount is to be distributed to the class of eligible customers who entered into rental-purchase agreements with us anytime from February 1, 1999 through October 31, 2004, with Rent-A-Center being entitled to any undistributed monies in the settlement fund up to an aggregate of $8.0 million, with any additional undistributed funds being paid to non-profit organizations. As a result of the response rate to the notice of the settlement mailed to class members on February 7, 2005, the parties agreed that we could retain the $8.0 million reversion, rather than deposit it as part of the settlement fund. Accordingly, on April 22, 2005, we paid $29.5 million to fund the settlement, as well as $9.0 million in attorneys’ fees, for a total of $38.5 million in cash. To account for the retention of the $8.0 million reversion and resulting reduction in our settlement liability, we recorded an $8.0 million pre-tax credit during the first quarter of 2005.
Additional settlements or judgments against us on our existing litigation could affect our liquidity. Please refer to “Legal Proceedings” later in this report.
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Income Taxes.On March 9, 2002, President Bush signed into law the Job Creation and Worker Assistance Act of 2002, which provides for accelerated tax depreciation deductions for qualifying assets placed in service between September 11, 2001 and September 10, 2004. Under these provisions, 30 percent of the basis of qualifying property is deductible in the year the property is placed in service, with the remaining 70 percent of the basis depreciated under the normal tax depreciation rules. For assets placed in service between May 6, 2003 and December 31, 2004, the Jobs and Growth Tax Relief Reconciliation Act of 2003 increased the percent of the basis of qualifying property deductible in the year the property is placed in service from 30% to 50%. Accordingly, our cash flow will benefitbenefited from having a lower current cash tax obligation, which in turn will provideprovided additional cash flows from operations until the deferred tax liabilities begin to reverse.operations. We estimate that our operating cash flow will have increased by approximately $103.4$106.3 million through 2004 beforefrom the accelerated tax depreciation deductions and the associated deferred tax liabilities beginhave begun to reverse over a three year period beginning in 2005, of which approximately 75% will reverse in 2005, 20% will reverse in 2006 and the remainder will reverse in 2007. We expect to pay approximately $115.0 million in taxes during the remainder of 2005.
Rental Merchandise Purchases. We purchased $177.3$204.9 million and $172.5$177.3 million of rental merchandise during the three month periods ending March 31, 20042005 and 2003,2004, respectively.
Capital Expenditures. We make capital expenditures in order to maintain our existing operations as well as for new capital assets in new and acquired stores. We spent $13.4$10.9 million and $9.2$13.4 million on capital expenditures during the three month periods ending March 31, 20042005 and 2003,2004, respectively, and expect to spend approximately $40.0$49.1 million for the remainder of 2004.
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RENT-A-CENTER, INC. AND SUBSIDIARIES2005.
Acquisitions and New Store Openings.ForDuring the first quarter of 2005, we acquired three months of 2004, we spent approximately $14.1 million on acquiringstores, accounts from 10 additional locations, opened 10 new stores, and accounts.closed 25 stores. Of the closed stores, 22 were merged with existing store locations, and three stores were sold. The acquired stores and accounts were the result of nine separate transactions for an aggregate price of approximately $3.8 million in cash. As of April 27, 2005, we have acquired two stores and accounts from one additional location, opened six new stores and closed six stores during the second quarter of 2005. Of the closed stores, five were merged with existing locations, and one was sold. For the entire year ending December 31, 2004,2005, we intend to add approximately 5-10% to our store base by opening approximately 80-12070-80 new store locations as well as pursuing opportunistic acquisitions.
On February 4, 2004, we announced that we entered into a definitive agreement to acquire Rainbow Rentals, Inc., a rent-to-own operator, for $16.00 in cash per share of Rainbow common stock. The acquisition consists of 124 rent-to-own stores in 15 states. The agreement also provides that each holder of options of Rainbow will receive an amount equal to the difference between $16.00 and the exercise price of the option. We intend to fund the acquisition primarily with cash on hand. The acquisition, which is expected to be completed in mid to late May 2004, is conditioned upon customary closing conditions for a transaction of this nature, including the receipt of requisite regulatory approval and approval of Rainbow’s shareholders.
On March 5, 2004, we completed the purchase of five Canadian rent-to-own stores for approximately $3.2 million Canadian dollars ($2.4 million U.S dollars). The five stores are located in the cities of Edmonton and Calgary in the province of Alberta. This acquisition marked the commencement of our business operations in Canada.
Furthermore, during the first quarter of 2004, we acquired 18 additional stores, accounts from 19 additional locations, opened 22 new stores, and closed 22 stores. Of the closed stores, 16 were merged with existing store locations, and six stores were sold. The additional stores and acquired accounts were the result of 14 separate transactions for an aggregate price of approximately $11.7 million in cash. As of April 30, 2004, we have acquired one additional store and accounts from three additional locations, opened four new stores and merged two stores into existing locations during the second quarter of 2004. It is our intention to increase the number of stores we operate by an average of approximately 5 to 10% per year over the next several years.
On April 28, 2004, we announced that we had entered into a definitive agreement to acquire Rent Rite, Inc., a Tennessee corporation, which currently operates approximately 90 stores in 11 states. The agreement provides for the merger of Rent Rite with and into a newly-formed subsidiary of ours. Pursuant to the agreement, we have agreed to acquire Rent Rite for 12.75 times Rent Rite’s average three month recurring revenue, or approximately $58.4 million based on Rent Rite’s recurring revenue for the three month period ended March 31, 2004. Under the terms of the agreement, we have agreed to assume the debt and other liabilities of Rent Rite. Approximately one half the purchase price will be paid in our common stock, with the remaining portion consisting of cash, the assumption of Rent Rite’s stock options and retirement of Rent Rite’s outstanding debt. We intend to fund the acquisition primarily with cash on hand for the portion of the purchase price to be paid in cash. The acquisition, which is expected to be completed in early May 2004, is conditioned upon customary closing conditions for a transaction of the nature, including the receipt of approval of Rent Rite’s shareholders.
The profitability of our stores tends to grow at a slower rate approximately five years from the time we open or acquire them. As a result, in order for us to show improvements in our profitability, it is important for us to continue to open stores in new locations or acquire under-performing stores on favorable terms. There can be no assurance that we will be able to acquire or open new stores at the rates we expect, or at all. Additionally, we cannot assure that the stores we do acquire or open will be profitable at the same levels that our current stores are, or at all.
BorrowingsSenior Credit Facilities.. On July 14, 2004, we announced the completion of the refinancing of our senior secured debt. Our new $600.0 million senior credit facilities consist of a $350.0 million term loan and a $250.0 million revolving credit facility. On that day, we drew down the $350.0 million term loan and $50.0 million of the revolving facility and utilized the proceeds to repay our old senior term debt. The full amount of the revolving credit facility may be used for the issuance of letters of credit, of which $104.6 million had been utilized as of April 27, 2005. During the first quarter of 2005, we repaid all amounts drawn under our revolving facility and as of April 27, 2005, $145.4 million was available under our revolving facility. The revolving credit facility expires in July 2009 and the term loan expires in 2010.
The table below shows the scheduled maturity dates of our senior debt outstanding at March 31, 2004.2005.
YEAR ENDING | ||||||||
DECEMBER 31, | (IN THOUSANDS) | (IN THOUSANDS) | ||||||
2004 | $ | 3,000 | ||||||
2005 | 4,000 | $ | 2,625 | |||||
2006 | 4,000 | 3,500 | ||||||
2007 | 4,000 | 3,500 | ||||||
2008 | 192,000 | 3,500 | ||||||
2009 | 168,000 | |||||||
Thereafter | 190,000 | 166,250 | ||||||
$ | 397,000 | $ | 347,375 | |||||
Senior Credit Facilities.On May 28, 2003, we entered into a new senior credit facility provided by a syndicate of banks and other financial institutions led by Lehman Commercial Paper, Inc., as administrative agent. At March 31, 2004, we had a total of $397.0 million outstanding under our senior credit facilities related to our term loans and $90.3 million of availability under the revolving credit line portion of our senior credit facilities.
The senior credit facility also includes an $80.0 million additional term loan facility. This facility is currently held to support our outstanding letters of credit. In the event that a letter of credit is drawn upon, we have the right to either repay the additional term loan facility lenders the amount withdrawn or request a loan in that amount. Interest on any requested
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additional term loan facility loan accrues at an adjusted prime rate plus 1.25% or, at our option, at the Eurodollar base rate plus 2.25%, with the entire amount of the additional term loan facility due on May 28, 2009.
Borrowings under our senior credit facilities bear interest at varying rates equal to 2.25% over the Eurodollar rate whichplus 1.75%. The Eurodollar rate was 1.09%3.04% at March 31, 2004.April 27, 2005. We also have a prime rate option under the facilities, but have not exercised it to date. We have not entered into any interest rate protection agreements with respect to the term loans under our senior credit facilities.
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Our senior credit facilities are secured by a security interest in substantially all of our tangible and intangible assets, including intellectual property. Our senior credit facilities are also secured by a pledge of the capital stock of our U.S. subsidiaries, and a portion of the capital stock of our international subsidiaries.
TheOur senior credit facilities contain, covenants, including without limitation, covenants that generally limit our ability to:
• | incur additional debt (including subordinated debt) in excess of $50 million at any one time outstanding; | |||
• | repurchase our capital stock and 7 1/2% notes; | |||
• | incur liens or other encumbrances; | |||
• | merge, consolidate or sell substantially all our property or business; | |||
• | sell assets, other than inventory in the ordinary course of business; | |||
• | make investments or acquisitions unless we meet financial tests and other requirements; | |||
• | make capital expenditures; or | |||
• | enter into a new line of business. |
Our senior credit facilities require us to comply with several financial covenants, including a maximum consolidated leverage ratio, a minimum consolidated interest coverage ratio and a minimum fixed charge coverage ratio. AtThe table below shows the required and actual ratios under our credit facilities calculated as at March 31, 2004, the maximum consolidated leverage ratio was 2.75:1, the minimum consolidated interest coverage ratio was 4.0:1, and the minimum fixed charge coverage ratio was 1.50:1. On that date, our actual ratios were 1.53:1, 6.73:1 and 2.51:1, respectively. In addition, we are generally required to use 25% of the net proceeds from equity offerings to repay our term loans.2005:
Required ratio | Actual ratio | |||||||
Maximum consolidated leverage ratio | No greater than | 2.75:1 | 1.54:1 | |||||
Minimum consolidated interest coverage ratio | No less than | 4.00:1 | 9.83:1 | |||||
Minimum fixed charge coverage ratio | No less than | 1.50:1 | 2.40:1 |
Events of default under our senior credit facilities include customary events, such as a cross-acceleration provision in the event that we default on other debt. In addition, an event of default under the senior credit facilities would occur if there is a change of control. This is defined to include the case where a third party becomes the beneficial owner of 35% or more of our voting stock or certain changes in our Board of Directors occurs. An event of default would also occur if one or more judgments were entered against us of $20.0 million or more and such judgments were not satisfied or bonded pending appeal within 30 days after entry.
7½%7 1/2% Senior Subordinated Notes.On May 6, 2003, we issued $300.0 million in senior subordinated notes due 2010, bearing interest at 7½%7 1/2%, pursuant to an indenture dated May 6, 2003, among Rent-A-Center, Inc., its subsidiary guarantors and The Bank of New York, as trustee. The proceeds of this offering were used to fund the repurchase and redemption of the 11% senior subordinatedcertain outstanding notes.
The 2003 indenture contains covenants that limit Rent-A-Center’s ability to:
• | incur additional debt; |
• | sell assets or our subsidiaries; |
• | grant liens to third parties; |
• | pay dividends or repurchase stock; and |
• | engage in a merger or sell substantially all of its assets. |
Events of default under the 2003 indenture include customary events, such as a cross-acceleration provision in the event that we default in the payment of other debt due at maturity or upon acceleration for default in an amount exceeding $50.0 million.million, as well as in the event a judgment is entered against us in excess of $50.0 million that is not discharged, bonded or insured.
The 7½% Notes7 1/2% notes may be redeemed on or after May 1, 2006, at our option, in whole or in part, at a premium declining from 103.75%. The 7½% Notes7 1/2% notes also require that upon the occurrence of a change of control (as defined in the 2003 indenture), the holders of the notes have the right to require us to repurchase the notes at a price equal to 101% of the original aggregate
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principal amount, together with accrued and unpaid interest, if any, to the date of repurchase. If we do not comply with this repurchase obligation, thisThis would trigger an event of default under our new senior credit facilities. We are not required to maintain any financial ratios under the 2003 indenture.
Store Leases. We lease space for all of our stores and service center locations, as well as our corporate and regional offices under operating leases expiring at various times through 2011.2016. Most of our store leases are five year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed-upon formulas.
ColorTyme Guarantee.ColorTyme is a party to an agreement with Wells Fargo Foothill, Inc., who provides $50.0 million in aggregate financing to qualifying franchisees of ColorTyme generally of up to five times their average monthly revenues. Under the Wells Fargo agreement, upon an event of default by the franchisee under agreements governing this financing and upon the occurrence of certain other events, Wells Fargo can assign the loans and the collateral securing such loans to ColorTyme, with ColorTyme paying the outstanding debt to Wells Fargo and then succeeding to the rights of Wells Fargo under the debt agreements, including the right to foreclose on the collateral. An additional $15.0 million of financing is provided by Texas Capital Bank, National Association under an agreement similar to the Wells Fargo financing. Rent-A-Center East guarantees the obligations of ColorTyme under each of these agreements, not considering the effects of any amounts that could be recovered under collateralization provisions, up to a maximum amount of $65.0 million, of which $30.1$26.6 million was outstanding as of March 31, 2004.2005. Mark E. Speese, Rent-A-Center’s Chairman of the Board and Chief Executive Officer, is a passive investor in Texas Capital Bank, owning less than 1% of its outstanding equity.
Litigation.In 1998, we recorded an accrual of approximately $125.0 million for estimated probable losses on litigation assumed in connection with the Thorn Americas acquisition. As of March 31, 2004, we have paid approximately $125.0 million of this accrual in settlement of most of these matters and legal fees. These settlements were funded primarily from amounts available under our senior credit facilities, as well as from cash flow from operations.
Additional settlements or judgments against us on our existing litigation could affect our liquidity. Please refer to Note L of our consolidated financial statements included in our Annual Report on Form 10-K/A.
Sales of Equity Securities.During 1998, we issued 260,000 shares of our preferred stock at $1,000 per share, resulting in aggregate proceeds of $260.0 million. Dividends on our preferred stock accrue on a quarterly basis at the rate of 3.75%, or $37.50 per annum. Prior to the conversion of all but two shares of our preferred stock in August 2002, we paid these dividends in additional shares of preferred stock because of restrictive provisions in our senior credit facilities. We have the ability to pay the dividends in cash and may do so under our senior credit facilities so long as we are not in default.
In connection with the repurchase of 774,547 shares of our common stock (on a pre-split basis) from Apollo in July 2003, Apollo exchanged their shares of Series A preferred stock for shares of Series C preferred stock. As a result, no shares of Series A preferred stock remain outstanding. The terms of the Series A preferred stock and Series C preferred stock are substantially similar, except the Series C preferred stock does not have the right to directly elect any members of our Board of Directors.
Repurchases of Outstanding Securities.On April 25, 2003, we announced that we entered into an agreement with Apollo which provided for the repurchase of a number of shares of our common stock sufficient to reduce Apollo’s aggregate record ownership to 19.00% after consummation of our planned tender offer at the price per share paid in the tender offer. On April 28, 2003, we commenced a tender offer to purchase up to 2.2 million shares of our common stock (on a pre-split basis) pursuant to a modified “Dutch Auction.” On June 25, 2003, we closed the tender offer and purchased 1,769,960 shares of our common stock (on a pre-split basis) at $73 per share (on a pre-split basis) for approximately $129.2 million. On July 11, 2003, we closed the Apollo transaction and purchased 774,547 shares of our common stock (on a pre-split basis) at $73 per share (on a pre-split basis) for approximately $56.5 million. As contemplated by the Apollo agreement, Apollo also exchanged their shares of Series A preferred stock for shares of Series C preferred stock.
In April 2000, we announced that our Board of Directors had authorized a program to repurchase, from time to time, in the open market and in privately negotiated transactions up to an aggregate of $25.0 million of our common stock. In October 2002, our Board of Directors increased the amount of repurchases authorized under our common stock repurchase program from $25.0 million to $50.0 million. In March 2003, our Board of Directors again increased such amount from $50.0 million to $100.0 million. On August 1, 2003, we agreed to purchase an aggregate of 440,000 shares of our common stock (on a pre-split basis) at $73 per share (on a pre-split basis), 200,000 of which were repurchased from Mark E. Speese, our Chairman of the Board and Chief Executive Officer, 200,000 of which were repurchased from Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P., and 40,000 of which were repurchased from Mitchell E. Fadel, our President and Chief Operating Officer. On October 24, 2003, we announced that our Board of Directors had rescinded our old common stock repurchase program and authorized a new $100 million common stock repurchase program. Through that date, we repurchased a totalprogram, permitting us to purchase, from time to time, in the open market and privately negotiated transactions, up to an aggregate of 1.6$100.0 million shares (on a pre-split basis) of our common stock. Over a period of time, our Board of Directors increased the authorization for stock for an aggregate of $91.5 millionrepurchases under
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the old common stock repurchase program. Under our new common stock repurchase program we have the ability to repurchase up to $100 million in aggregate purchase price of our common stock, from time to time, in open market and privately negotiated transactions.$300.0 million. As of March 31, 2004,2005, we had purchased a total of 1,101,9008,525,300 shares of our common stock for an aggregate of $35.2$237.6 million under our newthis common stock repurchase program. Please see “Changesprogram, none of which were repurchased in Securities, Usethe first quarter of Proceeds and Issuer Purchase of Equity Securities” later in this report.2005.
Economic Conditions.Although our performance has not suffered in previous economic downturns, we cannot assure you that demand for our products, particularly in higher price ranges, will not significantly decrease in the event of a prolonged recession. Temporary fluctuations in our targeted customers’ monthly disposable income, such as those we believe may have been caused by the recent nationwide increases in fuel and energy costs, could adversely impact our results of operations.
Seasonality. Our revenue mix is moderately seasonal, with the first quarter of each fiscal year generally providing higher merchandise sales than any other quarter during a fiscal year, primarily related to federal income tax refunds. Generally, our customers will more frequently exercise their early purchase option on their existing rental purchase agreements or purchase pre-leased merchandise off the showroom floor during the first quarter of each fiscal year. We expect this trend to continue in future periods. Furthermore, we tend to experience slower growth in the number of rental purchase agreements on rent in the third quarter of each fiscal year when compared to other quarters throughout the year. As a result, we would expect revenues for the third quarter of each fiscal year to remain relatively flat or slightly below the prior quarter. We expect this trend to continue in future periods unless we add significantly to our store base during the third quarter of future fiscal years as a result of new store openings or opportunistic acquisitions.
Effect of New Accounting Pronouncements.In December 2004, the Financial Accounting Standards Board (“FASB”) enacted SFAS 123R, which replaces SFAS 123, and supersedes APB 25.SFAS 123R requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statement of earnings. The accounting provisions of SFAS 123R are effective for fiscal years beginning after June 15, 2005.
We are required to adopt SFAS 123R in the first quarter of 2006. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. See theStock-Based Compensationsection shown earlier in Note 1 to our consolidated financial statements for the pro forma net earnings and earnings per share amounts for the first quarter of 2005 and 2004 as if we had used a fair-value-based method similar to the methods required under SFAS 123 to measure compensation expense for employee stock incentive awards. Although we have not yet determined whether the adoption of SFAS 123R will result in amounts that are different from the current pro forma disclosures under SFAS 123, we are evaluating the requirements under SFAS 123R and expect the adoption to have a significant impact on our consolidated statement of earnings and earnings per share, but no impact on our financial condition or cash flows.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
As of March 31, 2004,2005, we had $300.0 million in subordinated notes outstanding at a fixed interest rate of 7½%7 1/2% and $397.0$347.4 million in term loans outstanding at interest rates indexed to the Eurodollar rate. The fair value of the subordinated notes is estimated based on discounted cash flow analysis using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The fair value of the 7½%7 1/2% subordinated notes at March 31, 20042005 was $318.5 million which is $18.5 million above their carrying value.$300.0 million. Unlike the subordinated notes, the $397.0$347.4 million in term loans have variable interest rates indexed to current Eurodollar rates. As of March 31, 2004,2005, we have not entered into any interest rate swap agreements with respect to term loans under our senior credit facilities.
Market Risk
Market risk is the potential change in an instrument’s value caused by fluctuations in interest rates. Our primary market risk exposure is fluctuations in interest rates. Monitoring and managing this risk is a continual process carried out by our Board of Directors and senior management. We manage our market risk based on an ongoing assessment of trends in interest rates and economic developments, giving consideration to possible effects on both total return and reported earnings.
Interest Rate Risk
We hold long-term debt with variable interest rates indexed to prime or the Eurodollar rate that exposes us to the risk of increased interest costs if interest rates rise.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures were effective. There
Changes in internal controls.For the quarter ended March 31, 2005, there have been no significant changes in our internal controls orcontrol over financial reporting (as defined in other factorsRule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, our internal controls.control over financial reporting.
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PART II – Other Information
Item 1. Legal Proceedings
From time to time, we, along with our subsidiaries, are party to various legal proceedings arising in the ordinary course of business. Except as described below, we are not currently a party to any material litigation. The ultimate outcome of our litigation is uncertain and the amount of any loss we may incur, if any, cannot in our judgment be reasonably estimated. Accordingly, other than with respect to the settlement of theGriego/Carrillomatter discussed below and anticipated legal fees and expenses for these matters, no provision has been made in our consolidated financial statements for any such loss.
Colon v. Thorn Americas, IncInc.. The plaintiff filed this class action in November 1997 in New York state court. This matter was assumed by us in connection with the Thorn Americas acquisition, and appropriate purchase accounting adjustments were made for such contingent liabilities. The plaintiff acknowledges that rent-to-own transactions in New York are subject to the provisions of New York’s Rental Purchase Statute but contends the Rental Purchase Statute does not provide Thorn Americas immunity from suit for other statutory violations. The plaintiff alleges Thorn Americas has a duty to disclose effective interest under New York consumer protection laws, and seeks damages and injunctive relief for Thorn Americas’ failure to do so. This suit also alleges violations relating to excessive and unconscionable pricing, late fees, harassment, undisclosed charges, and the ease of use and accuracy of its payment records. In the prayer for relief, the plaintiff requested class certification, injunctive relief requiring Thorn Americas to cease certain marketing practices and price their rental purchase contracts in certain ways, unspecified compensatory and punitive damages, rescission of the class members contracts, an order placing in trust all moneys received by Thorn Americas in connection with the rental of merchandise during the class period, treble damages, attorney’s fees, filing fees and costs of suit, pre- and post-judgment interest, and any further relief granted by the court. The plaintiff has not alleged a specific monetary amount with respect to the request for damages.
The proposed class includes all New York residents who were party to our rent-to-own contracts from November 26, 1994. In November 2000, following interlocutory appeal by both parties from the denial of cross-motions for summary judgment, we obtained a favorable ruling from the Appellate Division of the State of New York, dismissing the plaintiff’s claims based on the alleged failure to disclose an effective interest rate. The plaintiff’s other claims were not dismissed. The plaintiff moved to certify a state-wide class in December 2000. The plaintiff’s class certification motion was heard by the court on November 7, 2001 and, on September 12, 2002, the court issued an opinion denying in part and granting in part the plaintiff’s requested certification. The opinion grants certification as to all of the plaintiff’s claims except the plaintiff’s pricing claims pursuant to the Rental Purchase Statute, as to which certification was denied. The parties have differing views as to the effect of the court’s opinion, and accordingly, the court granted the parties permission to submit competing orders as to the effect of the opinion on the plaintiff’s specific claims. Both proposed orders were submitted to the court on March 27, 2003, and on May 30, 2003, the court held a hearing regarding such orders. No order has yet been entered by the court. Regardless ofThere has been no activity in this case since May 2003, and the determination ofcase is currently dormant. In the event the court does enter a final certification order byand regardless of the court,court’s determination of that final certification order, we intend to pursue an interlocutory appeal of the court’ssuch certification order.
We believe these claims are without merit and will continue to vigorously defend ourselves in this case. However, we cannot assure you that we will be found to have no liability in this matter.
Terry Walker, et. al. v. Rent-A-Center, Inc., et. al.On January 4, 2002, a putative class action was filed against us and certain of our current and former officers and directors by Terry Walker in federal court in Texarkana, Texas. The complaint alleged that the defendants violated Sections 10(b) and/or Section 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder by issuing false and misleading statements and omitting material facts regarding our financial performance and prospects for the third and fourth quarters of 2001. The complaint purported to be brought on behalf of all purchasers of our common stock from April 25, 2001 through October 8, 2001 and sought damages in unspecified amounts. Similar complaints were consolidated by the court with theWalkermatter in October 2002.
On November 25, 2002, the lead plaintiffs in theWalkermatter filed an amended consolidated complaint which added certain of our outside directors as defendants to the Exchange Act claims. The amended complaint also added additional claims that we, and certain of our current and former officers and directors, violated various provisions of the Securities Act as a result of alleged misrepresentations and omissions in connection with an offering in May 2001 and also added the managing underwriters in that offering as defendants.
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On February 7, 2003, we, along with certain officer and director defendants, filed a motion to dismiss the matter as well as a motion to transfer venue. In addition, our outside directors named in the matter separately filed a motion to dismiss the Securities Act claims on statute of limitations grounds. On February 19, 2003, the underwriter defendants also filed a motion to dismiss the matter. The plaintiffs filed response briefs to these motions, to which we replied on May 21, 2003. A hearing was held by the court on June 26, 2003 to hear each of these motions.
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On September 30, 2003, the court granted our motion to dismiss without prejudice, dismissed without prejudice the outside directors’ and underwriters’ separate motions to dismiss and denied our motion to transfer venue. In its order on the motions to dismiss, the court granted the lead plaintiffs leave to replead the case within certain parameters. However, onOn October 9, 2003, the lead plaintiffs filed a motion for reconsideration with the court with respect to the Securities Act claims. In that motion, they indicated they intendclaims, which the court subsequently denied.
On July 7, 2004, the plaintiffs again repled their claims by filing a third amended consolidated complaint, raising allegations of similar violations against the same parties generally based upon alleged facts not previously asserted. We, along with certain officer and director defendants and the underwriter defendants, filed motions to replead their claims. Wedismiss the third amended consolidated complaint on August 23, 2004. The plaintiffs filed our response briefs to this motionthese motions on October 24, 2003. No decision6, 2004, to which we filed a reply brief on November 18, 2004, and the other defendants filed reply briefs on November 17, 2004. A hearing on the lead plaintiffs’ motion has been entered by the court.pending motions was held on April 14, 2005.
We continue to believe the plaintiff’splaintiffs’ claims in this matter are without merit and intend to vigorously defend ourselves. However, we cannot assure you that we will be found to have no liability in this matter.
Gregory Griffin, et. al. v. Rent-A-Center, Inc.On June 25, 2002, a suit originally filed by Gregory Griffin in state court in Philadelphia, Pennsylvania was amended to seek relief both individually and on behalf of a class of customers in Pennsylvania, alleging that we violated the Pennsylvania Goods and Services Installment Sales Act and the Pennsylvania Unfair Trade Practices and Consumer Protection Law. The amended complaint asserted that our rental purchase transactions are, in fact, retail installment sales transactions, and as such, are not governed by the Pennsylvania Rental-Purchase Agreement Act, which was enacted after the adoption of the Pennsylvania Goods and Services Installment Sales Act and the Pennsylvania Unfair Trade Practices Act. Griffin’s suit sought class-wide remedies, including injunctive relief, unspecified statutory, actual and treble damages, as well as attorney’s fees and costs.
On December 13, 2002, the trial court dismissed the plaintiffs’ claims in this matter. The plaintiffs subsequently appealed. On December 2, 2003, the appellate court issued an opinion finding that the trial court properly ruled that our rental purchase agreements are governed by the Pennsylvania Rental-Purchase Agreement Act and not the Pennsylvania Goods and Services Installment Sales Act. In doing so, the appellate court reversed the trial court’s dismissal of the plaintiffs’ amended complaint and remanded the case back to the trial court to allow the plantiffs an opportunity to file an amended complaint under the Pennsylvania Rental-Purchase Agreement Act. In April 2004, we settled this matter in principle with the plaintiffs for a nominal amount.
Benjamin Griego, et al. v. Rent-A-Center, Inc., et al.This matter is a state-wide class action originally filed in San Diego, California on January 21, 2002 by Benjamin Griego. A similar matter, entitledArthur Carrillo, et al. v. Rent-A-Center, Inc., et al, filed on April 12, 2002 in Los Angeles, California, was coordinated withGriegoin the Superior Court for the County of San Diego on September 10, 2002.
On February 28, 2003, the plaintiffs filed a consolidated amended complaint alleging The matter involves claims under various claims, including that our cash sales prices exceed the pricing permitted under the California Rental Purchase Act, that the guaranteed merchandise replacement benefit in the third-party membership program offered by us to our customersconsumer protection laws in California violates the prohibitions in the Rental Purchase Act relating to the sale of loss damage waiver and property insurance, that the membership program prematurely offers service contracts to our customers, and that the fee for the membership program is excessive. In addition, the plaintiffs allege that portionschallenging certain of our form of rental purchase agreementbusiness practices in California do not strictly comply with the type-size requirements under the Rental Purchase Act.that state. The plaintiffs furtherdid not allege that our rental purchase documentation improperly references certain merchandise as “previously rented” rather than “used,” does not contain all of the required disclosures and terms of the transaction, and includes language that the plaintiffs interpret as affording us rights not permitted under the applicable California statutes.
In accordance with a previously issued opinion from the California Legislative Counsel, we believe that the pricing formula utilized by us in California complies with the Rental Purchase Act. In addition, we believe that under California case law, courts have found that arrangements similar to the guaranteed merchandise replacement benefit offered to our customers do not constitute insurance.
Upon notification of the alleged violations, we promptly modified our rental purchase documentation in California, including increasing the type-size in the relevant portion of our rental purchase agreements from 9-point type to 10-point type and modifying the language in our rental purchase documentation to, among other things, refer to “previously rented” merchandise as “used.” In addition, we dispute plaintiffs’ interpretation of the language in our rental purchase agreement and note that the rights the plaintiffs contend were granted to us were never asserted by us. In connection with the revisions described above, we also modified our rental purchase documentation to clarify our disclosures and the disputed language. As part of that process, we promptly communicated to our California customers that their statutory rights remained intact. Accordingly, we believe that no harm to our customers could have occurred as a result of these claims.
The plaintiffs have not alleged specific damages, in the amended complaint, but contendcontended that no proof of actual harm or damage on the part of the individual consumer iswas necessary to establish recovery for these claims, which we vigorously dispute.disputed. The court entered a class certification order on March 16, 2004.
On October 25, 2004, before the court ruled on various pending matters, we announced that we had reached a prospective settlement with the plaintiffs to resolve these matters. Under the Rental Purchase Act, a consumer damaged by a violationterms of the Rental Purchase Act issettlement, we agreed to pay an aggregate of up to $37.5 million in cash, to be distributed to an agreed-upon class of our customers from February 1999 through October 2004, as well as the plaintiffs’ attorneys’ fees up to $9.0 million and costs to administer the settlement in amounts to be determined. In addition, we agreed to issue vouchers to qualified class members for two weeks free rent on a new rental agreement for merchandise of their choice. Under the terms of the settlement, we are entitled to recover actual damages, statutory damages equalany undistributed monies up to twenty-five percentan aggregate of an amount equal$8.0 million, with any additional undistributed funds paid to non-profit organizations to be determined. In connection with the settlement, we are not admitting liability for our past business practices in California. To account for the aforementioned costs, as well as our own attorneys’ fees, we recorded a pre-tax charge of $47.0 million in the third quarter of 2004.
On April 12, 2005, the settlement received final approval from the court. As a result of the response rate to the notice of the settlement mailed to class members on February 7, 2005, the parties agreed that we could retain the $8.0 million reversion, rather than deposit it as part of the settlement fund. Accordingly, on April 22, 2005, we paid $29.5 million to fund the settlement, as well as $9.0 million in attorneys’ fees, for a total amount of payments$38.5 million in cash. To account for the retention of the $8.0 million reversion and resulting reduction in our settlement liability, we recorded an $8.0 million pre-tax credit during the first quarter of 2005.
During the second quarter of 2004, we received an inquiry from the California Attorney General regarding our business practices in California with respect to obtain ownership if all payments were made underour cash prices and our membership program. We met with representatives of the rental purchase agreement (but not less than $100 nor more than $1,000),Attorney General’s office during the first quarter of 2005 and provided additional information with respect to our membership program as requested. We are continuing to discuss these issues with the Attorney General’s office.
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reasonable attorney’s fees and court costs, exemplary damages for intentional or willful violations, and equitable relief. The Rental Purchase Act also provides that with respect to certain violations, a rental purchase agreement is voidable by the consumer. Furthermore, the statute provides that if a lessor willfully discloses a cash price that exceeds the price permitted under the statute, the contract is void and the consumer is entitled to keep the merchandise and recover a full refund of all payments. A consumer who suffers any damage from a violation of the Consumer Legal Remedies Act is entitled to recover actual damages, injunctive relief, restitution, punitive damages, certain civil penalties and attorneys’ fees and costs.
On October 17, 2003, the plaintiffs filed their motion for class certification. On October 24, 2003, we filed a motion to dismiss certain of the plaintiffs’ claims and on October 31, 2003, filed our opposition to the plaintiffs’ motion for class certification. The hearing on our motion to dismiss and plaintiffs’ motion for class certification was held on November 14, 2003. On December 4, 2003, the court denied our motion to dismiss and granted the plaintiffs’ motion for class certification. The class definition includes our customers in California from February 1, 1999 through January 31, 2002, and encompasses customers who entered into approximately 400,000 rental purchase agreements. Such customers also purchased approximately 167,000 memberships. With respect to such rental purchase agreements, we believe that twenty-five percent of the total amount of payments to obtain ownership (the maximum percentage applicable to statutory damages) was approximately $600 per agreement on average. On February 20, 2004, the court ruled that it would enter an order certifying the class described above and, with respect to the cash price claims, a sub-class of our customers during the same time period who rented electronic appliances and entertainment equipment. We believe this sub-class encompasses customers who entered into approximately 245,000 of the 400,000 rental purchase agreements, with an average revenue of approximately $500 per agreement. On March 16, 2004, the court entered the certification order.
On February 13, 2004, we filed motions seeking rulings by the court on a series of legal questions applicable to plaintiffs’ claims. The plaintiffs subsequently filed a cross-motion with respect to one of the legal questions. On April 2, 2004, the court ruled with respect to these motions. These rulings include that there is no requirement that class members prove actual damages resulting from violations of the Rental Purchase Act, and that the pricing formula referenced in the Rental Purchase Act is merely evidence of permissible “cash prices” under the Rental Purchase Act as opposed to a statutory determination of permissible “cash prices.” The court also ruled, without prejudice, that our service contracts made available under our membership program are offered and sold in violation of the Rental Purchase Act but agreed to allow us to present evidence to the contrary later in the proceeding. The court also concurred with our position that the contract terms for the membership program need not be contained in the rental purchase agreement.
A mediation with the plaintiffs’ counsel was held on April 23, 2004, and discovery in the case is continuing. At the hearing on April 2, the court, at the request of the parties, indicated a willingness to postpone the currently scheduled June 18, 2004 trial date to a later date.
In light of the recent decisions by the court, we are reviewing various options, including the prospect of seeking a writ of review from the California Court of Appeal on certain of the trial court’s recent rulings, reviewing the extent to which the trial court rulings, such as that regarding permissible “cash prices,” indicate a predominance of individualized claims justifying decertification of the class and exploring opportunities for a reasonable settlement of the case. In addition, we anticipate seeking a ruling from the trial court that any allowable statutory damages are limited to rental purchase agreements entered into within the one-year period prior to the plaintiffs’ January 31, 2002 filing date, rather than the three-year period contended by plaintiffs due to California law provisions so limiting the imposition of mandatory civil penalties.
We continue to believe the claims in the plaintiffs’ complaint are unfounded, that we have meritorious defenses to the allegations made and that a class should not have been certified by the court. We will continue to vigorously defend ourselves in this case, while seeking reasonable opportunities to resolve this matter. Nevertheless, we cannot assure you that we will be found to have no liability in this matter.
Carey Duron, et. al. v. Rent-A-Center, Inc.This matter is a putative class action filed on August 29, 2003 in the District Court of Jefferson County, Texas by Carey Duron, who alleges we violated certain provisions of the Texas Business and Commerce Code relating to late fees charged by us under our rental purchase agreements in Texas. In the complaint, Duron alleges that her contract provided for a percentage late fee greater than that permitted by Texas law, that she was charged and paid a late fee in excess of the amount permitted by Texas law and that we had a policy and practice of assessing and collecting late fees in excess of that allowed by Texas law. Duron has not alleged specific damages in the complaint, but seeks to recover actual damages, statutory damages, interest, reasonable attorney’s fees and costs of court.
When this matter was filed, we promptly investigated Duron’s allegations, including the formula we use to calculate late fees in Texas. While we do not believe the formula utilized by us during this time period violated Texas law, in late 2003, we sent written notice to approximately 29,500 of our Texas customers for whom we had records and who were potentially adversely impacted by our calculation. We also refunded approximately $37,000 in the aggregate to the customers we could
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locate. In taking these measures, we believe we complied with the curative measures provided for under the Texas statute. We also reprogrammed our computer system in Texas to modify the formula by which late fees are calculated.
On November 26, 2003, we filed a motion for summary judgment in this matter. On December 4, 2003, Duron filed her motion for class certification. On March 11, 2004, we were notified that the court denied our summary judgment motion and granted Duron’s motion for class certification. The certified class includes our customers in Texas from August 29, 1999 through March 5, 2004 who were charged and paid a late fee in excess of the amount permitted by Texas law.
Under the Texas statute, a consumer damaged by a violation is entitled to recover actual damages, statutory damages equal to twenty-five percent of an amount equal to the total amount of payments required to obtain ownership of the merchandise involved (but not less than $250 nor more than $1,000), reasonable attorney’s fees and court costs. With respect to the approximately 29,500 Texas customers for whom we have records (representing approximately two years of the recently certified class), we believe that twenty-five percent of the total amount of payments to obtain ownership (the maximum percentage applicable to statutory damages) under those rental purchase agreements was approximately $600 per agreement on average.
On November 26, 2003, we filed a motion for summary judgment in this matter. On December 4, 2003, Duron filed her motion for class certification. On March 11, 2004, we were notified that the court denied our summary judgment motion and granted Duron’s motion for class certification. The certified class includes our customers in Texas from August 29, 1999 through March 5, 2004 who were charged and paid a late fee in excess of the amount permitted by Texas law. We appealed the certification order to the Court of Appeals, which we were entitled to do as a matter of right under applicable Texas law. On October 28, 2004, the Court of Appeals reversed the trial court’s certification order and remanded the case back to the trial court. Duron did not perfect an appeal to the Texas Supreme Court, as she was entitled to do, and she has not taken any further action in the case since the decision by the Court of Appeals.
We believe the claims in Duron’s complaint are unfounded and that we have meritorious defenses to the allegations made. We further believe that a class should not have been certified by the court, and have appealed the court’s certification order, which we are entitled to do as a matter of right under applicable Texas law. This matter has been stayed pending the decision on appeal. Although we intend to vigorously defend ourselves in this case, we cannot assure you that we will be found to have no liability in this matter.
State Wage and Hour Class Actions.
We are subject to various actions filed against us in the states of Oregon, California and Washington alleging we violated the wage and hour laws of such states. As of March 31, 2004,2005, we operated 2427 stores in Oregon, 161160 stores in California and 4143 stores in Washington.
Rob Pucci, et. al. v. Rent-A-Center, Inc.On August 20, 2001, this putative class action was filed against us in state court in Multnomah County, Oregon alleging we violated various provisions of Oregon state law regarding overtime, lunch and work breaks, that we failed to pay all wages due to our Oregon employees, and various contract claims that we promised but failed to pay overtime. Pucci seeks to represent a class of all present and former executive assistants, inside/outside managers and account managers employed by us within the six year period prior to the filing of the complaint as to the contract claims, and three years as to the statutory claims, and seeks class certification, payments for all unpaid wages under Oregon law, statutory and civil penalties, costs and disbursements, pre- and post-judgment interest in the amount of 9% per annum and attorneys fees. On July 25, 2002, the plaintiffs filed a motion for class certification and on July 31, 2002, we filed our motion for summary judgment. On January 15, 2003, the court orally granted our motion for summary judgment in part, ruling that the plaintiffs were prevented from recovering overtime payments at the rate of “time and a half,” but stated that the plaintiffs may recover “straight-time” to the extent plaintiffs could prove purported class members worked in excess of forty hours in a work week but were not paid for such time worked. The court denied our motion for summary judgment on the remaining claims. We strongly disagree with the court’s rulings against our positions and requested that the court grant us interlocutory appeal on those matters. The plaintiffs filed a motion for summary judgment seeking to resolve certain factual issues related to the
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purported class, which was denied on July 1, 2003. On October 10, 2003, the court issued an opinion letter stating that it would certify a class and not permit an interlocutory appeal, and issued its written order to that effect on December 9, 2003. We subsequently filed a petition for a writ of mandamus with the Oregon Supreme Court, which was denied on January 24, 2004. On June 15, 2004, notice to the class was distributed advising them of their right to opt out of the class. We have not been advised that any class member has opted out of the class. We intend to continue to challenge the appropriateness of the court’s class certification. AlthoughOn January 31, 2005, the plaintiffs filed a partial motion for summary judgment regarding their allegation that we believefailed to timely pay wages on termination. Our response to this motion is currently due on May 27, 2005. On February 25, 2005, the court’s certification rulingcourt denied our motion to compel arbitration with respect to class members that signed agreements to arbitrate claims against us. In addition, the court rejected our proposal to enter an order permitting interlocutory appeal. No appeal of right is inappropriatepermitted under Oregon state law and thatwe do not intend to seek a writ of mandamus directing the court to permit an interlocutory appeal.
On March 17, 2005,Pucciclass members Jeremy Chess and Chad Clemmons filed an amended class action complaint entitledJeremy Chess et al. v. Rent-A-Center, Inc. et al, alleging similar claims remainingas the plaintiffs inPucciand seeking unspecified statutory and contractual damages and penalties, as well as injunctive relief. TheChessplaintiffs seek to represent a class of all present and former executive assistants, inside/outside managers and account managers employed by us within the six year period prior to the filing of the complaint as to the contract claims, and three years as to the statutory claims. On April 15, 2005, we filed pleadings removing the case to the federal court for the District of Oregon under the newly enacted Class Action Fairness Act of 2005. TheChessplaintiffs are represented by the same attorneys as thePucciplaintiffs. We intend to vigorously oppose this case are without merit, we cannot assure you we will be foundlawsuit, including any attempts by the plaintiffs to have no liability in this matter.seek class certification.
Jeremy Burdusis, et al. v. Rent-A-Center, Inc., et al./Israel French, et al. v. Rent-A-Center, Inc.Inc. These matters pending in Los Angeles, California were filed on October 23, 2001, and October 30, 2001, respectively, and allege similar violations of the wage and hour laws of California as those inPucci. The same law firm seeking to represent the purported class inPucciis seeking to represent the purported class inBurdusis. TheBurdusisandFrenchproceedings are pending before the same judge in California. On March 24, 2003, theBurdusiscourt denied the plaintiffs’ motion for class certification in that case, which we view as a favorable development in that proceeding. On April 25, 2003, the plaintiffs inBurdusisfiled a notice of appeal of that ruling, and on May 8, 2003, theBurdusiscourt, at our request, stayed further proceedings inBurdusisandFrenchpending the resolution on appeal of the court’s denial of class certification inBurdusis. In June 2004, theBurdusisplaintiffs filed their appellate brief. Our response brief was filed in September 2004, and theBurdusisplaintiffs filed their reply in October 2004. On February 9, 2005, the California Court of Appeals reversed and remanded the trial court’s denial of class certification inBurdusisand directed the trial court to reconsider its ruling in light of two other recent appellate court decisions, including the opinions of the California Supreme Court inSav-On Drugs Stores, Inc. v. Superior Court, and of the California appeals court inBell v. Farmers Insurance Exchange. No hearing has been scheduled with the trial court with respect to this matter.
On October 30, 2003, the plaintiffs’ counsel inBurdusisandFrenchfiled a new non-class lawsuit in Orange County, California entitledKris Corso, et al. v. Rent-A-Center, Inc.Inc. The plaintiffs’ counsel later amended this complaint to add additional plaintiffs, totaling approximately 339 individuals. The claims made are substantially the same as those inBurdusis. On January 16, 2004, we
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filed a demurrer to the complaint, arguing, among other things, that the plaintiffs inCorsowere misjoined. On February 19, 2004, the court granted our demurrer on the misjoinder argument, with leave for the plaintiffs to replead. On March 8, 2004, the plaintiffs filed an amended complaint inCorso, increasing the number of plaintiffs to approximately 540.400. The claims in the amended complaint are substantially the same as those inBurdusis. We filed a demurrer with respect to the amended complaint on April 12, 2004, which the court granted on May 6, 2004. However, the court allowed the plaintiffs to again replead the action on a representative basis, which they did on May 26, 2004. We subsequently filed a demurrer with respect to the newly repled action, which the court granted on August 12, 2004. The court subsequently stayed theCorsomatter pending the outcome of theBurdusismatter. On March 16, 2005, the court lifted the stay and on April 12, 2005, we answered the amended complaint. No discovery has occurred to date, and no deadlines are pending.
Kevin Rose, et al. v. Rent-A-Center, Inc. et al.This matter pending in Clark County, Washington was filed on June 26, 2001, and alleges similar violations of the wage and hour laws of Washington as those inPucci. The same law firm seeking to represent the purported class inPucciis seeking to represent the purported class in this matter. On May 14, 2003, theRosecourt denied the plaintiffs’ motion for class certification in that case, which we view as a favorable development in that proceeding. On June 3, 2003, the plaintiffs inRosefiled a notice of appeal. On September 8, 2003, the Commissioner appointed by the Court of Appeals denied review of theRosecourt decision. On October 10, 2003, theRoseplaintiffs filed a
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motion seeking to modify the Commissioner’s ruling, to which we responded on October 30, 2003. The Court of Appeals denied the plaintiffs’ motion on November 26, 2003. Following the denial by the Court of Appeals, the plaintiffs’ counsel filed 14 county-wide putative class actions in Washington with substantially the same claims as inRose. The purported classes in these county-wide class actions range from approximately 20 individuals to approximately 100 individuals. In December 2003,Subsequently, we filed motions to dismiss and/or stay the class allegations in each of the county-wide actions, arguing thatand we also filed motions for summary judgment in various counties with respect to the plaintiffs were collaterally estopped by virtueindividual claims of some of the previous ruling inRosedenying state-wide class certification. Threeplaintiffs. Following disposition of these motions were subsequently grantedby the applicable courts, approximately 13 individual plaintiffs and one is still pending beforeclass representatives remain with respect to the court. Accordingly, tenclaims made in 11 counties. Nine of thethese county-wide claims are now proceeding as putative county-wide class actions threeand two are proceeding on an individual plaintiff basis and one has not been decided by the court. Thebasis. Certain plaintiffs have notappealed some of the orders granting summary judgment. The plaintiff in one of the 11 counties has filed motionsa motion to certify a class in any of the putative county-wide class actions. In the event they do so, weclass. We intend to vigorously oppose class certification.
We also filed motions to compel arbitration with respect to 20 individual purported plaintiffs and class representatives in 10 counties. Nineteen of these motions to compel arbitration have been granted. One is still pending. Certain plaintiffs have appealed one of these orders compelling arbitration. The 19 arbitration plaintiffs filed separate putative nationwide class arbitration demands. In response, we filed motions to clarify the respective county courts’ orders compelling arbitration. Specifically, we asked each county court that previously struck all class allegations to make clear that the arbitration plaintiffs in those counties could not pursue any class claims, and we asked each county court in those counties that allowed plaintiffs to plead putative county-wide class claims, to make clear that such plaintiffs could only pursue county-wide claims. The three courts that granted our motions to compel arbitration and had previously struck all class allegations granted our motions and ruled that the plaintiffs could not pursue any class arbitration claims. Five courts ruled that the arbitration plaintiffs could only pursue county-wide class arbitration claims, and two of the county courts refused to limit the arbitration plaintiffs’ ability to pursue class arbitration demands. We intend to vigorously oppose these class arbitration demands, including vigorously challenging the ability of the plaintiffs to pursue in arbitration, on a putative nation-wide class basis, claims which were previously premised on purported violations of Washington state law.
Although the wage and hour laws and class certification procedures of Oregon, California and Washington contain certain differences that could cause differences in the outcome of the pending litigation in these states, we believe the claims of the purported classes involved in each are without merit.merit and we intend to vigorously oppose each of these cases. We cannot assure you, however, that we will be found to have no liability in these matters.
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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
In October 2003, we eliminated our then current stock repurchase program and adopted a new stock repurchase program which allows us to repurchase up to $100.0 million in aggregate purchase price of our common stock. As of March 31, 2004, we had repurchased $35.2 million in aggregate purchase price of our common stock under our new stock repurchase program. In the first quarter of 2004, we effected the following repurchases of our common stock:
Total Number of | ||||||||||||||||
Shares Purchased as | Maximum Dollar | |||||||||||||||
Part of Publicly | Value that May Yet | |||||||||||||||
Total Number of | Average Price | Announced Plans or | Be Purchased Under | |||||||||||||
Period | Shares Purchased | Paid per Share | Programs | the Plans or Programs | ||||||||||||
January 1 through January 31 | 0 | $ | 0.0000 | 0 | $ | 73,163,267 | ||||||||||
February 1 through February 29 | 266,300 | $ | 31.4663 | 266,300 | $ | 64,783,791 | ||||||||||
March 1 through March 31 | 0 | $ | 0.0000 | 0 | $ | 64,783,791 | ||||||||||
Total | 266,300 | $ | 31.4663 | 266,300 | $ | 64,783,791 |
Item 6. Exhibits and Reports on Form 8-K.
Current Reports on Form 8-K
None.
Exhibits
The exhibits required to be furnished pursuant to Item 6 are listed in the Exhibit Index filed herewith, which Exhibit Index is incorporated herein by reference.
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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.
RENT-A-CENTER, INC. | ||||
By: | /s/ Robert D. Davis | |||
Robert D. Davis | ||||
Senior Vice President-Finance, | ||||
Chief Financial Officer and Treasurer | ||||
Date: April 29, 2005 |
Date: July 30, 2004
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INDEX TO EXHIBITS
Exhibit | |||||
No. | Description | ||||
2.1 | |||||
Agreement and Plan of Merger, dated as of April | |||||
Certificate of Incorporation of Rent-A-Center, Inc., as amended (Incorporated herein by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K dated as of December 31, 2002.) | |||||
3.2 | Certificate of Amendment to the Certificate of Incorporation of Rent-A-Center, Inc., dated May 19, 2004 (Incorporated herein by reference to Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.) | ||||
3.3 | Amended and Restated Bylaws of Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 3.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.) | ||||
Form of Certificate evidencing Common Stock (Incorporated herein by reference to Exhibit 4.1 to the registrant’s Registration Statement on Form S-4/A filed on January 13, 1999.) | |||||
Certificate of Elimination of Series A Preferred Stock (Incorporated herein by reference to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.) | |||||
Certificate of Designations, Preferences and relative Rights and Limitations of Series C Preferred Stock of Rent-A-Center, Inc. (Incorporated herein by reference to Exhibit 4.4 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.) | |||||
Form of Certificate evidencing Series C Preferred Stock (Incorporated herein by reference to Exhibit 4.5 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.) | |||||
Indenture, dated as of May 6, 2003, by and among Rent-A-Center, Inc., as Issuer, Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center Texas, L.P. and Rent-A-Center Texas, L.L.C., as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.9 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.) | |||||
First Supplemental Indenture, dated as of December 4, 2003, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.6 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003.) | |||||
Second Supplemental Indenture, dated as of April 26, 2004, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.7 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.) | |||||
4.8 | Third Supplemental Indenture, dated as of May 7, 2004, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.8 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.) | ||||
4.9 | Fourth Supplemental Indenture, dated as of May 14, 2004, between Rent-A-Center, Inc., as Issuer, the Guarantors named therein, as Guarantors, and The Bank of New York, as Trustee (Incorporated herein by reference to Exhibit 4.9 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.) | ||||
4.10 | Form of 2003 Exchange Note (Incorporated herein by reference to Exhibit 4.11 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.) | ||||
10.1+ | Amended and Restated Rent-A-Center, Inc. Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.) | ||||
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Exhibit | |||||
No. | Description | ||||
Credit Agreement, dated as of May 28, 2003, among Rent-A-Center, Inc., Morgan Stanley Senior Funding Inc., as Documentation Agent, JPMorgan Chase Bank and Bear, Stearns & Co. Inc., each as Syndication Agent, and Lehman Commercial Paper Inc., as Administrative Agent (Incorporated herein by reference to Exhibit 10.4 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.) | |||||
10.3 | |||||
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First Amendment, dated as of May 28, 2003, to the Credit Agreement and the Guarantee and Collateral Agreement, both dated as of May 28, 2003, among Rent-A-Center, Inc., Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Remco America, Inc., Get It Now LLC, Rent-A-Center Texas, L.P., Rent-A-Center Texas, L.L.C. and Lehman Commercial Paper, Inc., as administrative | |||||
Amended and Restated | |||||
Amended and Restated | |||||
Fourth Amended and Restated Stockholders Agreement, dated as of July 11, 2003, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese, Rent-A-Center, Inc., and certain other persons (Incorporated herein by reference to Exhibit 10.15 to the registrant’s Registration Statement on Form S-4 filed July 11, 2003.) | |||||
10.8 | Fifth Amended and Restated Stockholders Agreement, dated as of August 13, 2004, by and among Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., Mark E. Speese, Rent-A-Center, Inc., and certain other persons (Incorporated herein by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form S-3/A filed on September 21, 2004.) | ||||
10.9 | 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. (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.) | ||||
10.10 | |||||
Registration Rights Agreement, dated as of May 6, 2003, by and among Rent-A-Center, Inc., as Issuer, Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center Texas, L.P. and Rent-A-Center Texas, L.L.C., as Guarantors, and Lehman Commercial Paper Inc., J.P. Morgan Securities, Inc., Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., UBS Warburg LLC and Wachovia Securities, Inc., as Initial Purchasers (Incorporated herein by reference to Exhibit 10.19 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.) | |||||
10.12 | |||||
10.13 | |||||
Amended and Restated Franchise Financing Agreement, dated October 1, 2003, by and among Wells Fargo Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc. (Incorporated herein by reference to Exhibit 10.22 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.) | |||||
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Exhibit | |||||
No. | Description | ||||
10.15 | First Amendment to Amended and Restated Franchisee Financing Agreement, dated December 15, 2003, by and among Wells Fargo Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc. (Incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2003.) | ||||
Second Amendment to Amended and Restated Franchisee Financing Agreement, dated as of March 1, 2004, by and among Wells Fargo Foothill, Inc., ColorTyme, Inc. and Rent-A-Center East, Inc. (Incorporated herein by reference to Exhibit 10.24 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.) | |||||
Purchase Agreement, dated May 1, 2003, among Rent-A-Center, Inc., Rent-A-Center East, Inc., ColorTyme, Inc., Rent-A-Center West, Inc., Get It Now, LLC, Rent-A-Center Texas, L.P., |
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10.18+ | Form of Stock Option Agreement issuable to Directors pursuant to the Amended and Restated Rent-A-Center, Inc. Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.20 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.) | ||||
10.19+ | Form of Stock | ||||
10.20+ | Summary of Director Compensation (Incorporated herein by reference to Exhibit 10.22 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.) | ||||
10.21+ | Summary of Named Executive Officer Compensation (Incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.) | ||||
21.1 | Subsidiaries of Rent-A-Center, Inc. (Incorporated herein by reference to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.) | ||||
31.1* | Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Mark E. Speese | ||||
31.2* | |||||
32.1* | |||||
32.2* | |||||
+ | Management contract or compensatory plan or arrangement |
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