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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File Number 0-25370
RENT-A-CENTER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-1024367
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 Tennyson Parkway, Third Floor
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 NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 2, 1999:
Class Outstanding
-------------------------------------------- ------------------
Common stock, $.01 par value per share 24,291,384
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Consolidated Statements of Earnings for the six months ended 4
June 30, 1999 and 1998
Consolidated Statements of Earnings for the three months ended 5
June 30, 1999 and 1998
Consolidated Statements of Cash Flows for the six months ended 6
June 30, 1999 and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES
Exhibit 27.1
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RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars) June 30, December 31,
1999 1998
----------- ------------
Unaudited
ASSETS
Cash and cash equivalents $ 14,544 $ 33,797
Rental merchandise, net
On rent 354,724 311,650
Held for rent 101,998 97,156
Accounts receivable - trade 3,008 3,296
Prepaid expenses and other assets 29,859 65,689
Property assets, net 80,257 85,018
Deferred income taxes 178,407 178,407
Intangible assets, net 715,801 727,976
----------- ------------
$ 1,478,598 $ 1,502,989
=========== ============
LIABILITIES
Senior debt $ 625,205 $ 630,700
Subordinated notes payable 175,000 175,000
Accounts payable - trade 49,378 43,868
Accrued liabilities 185,606 239,032
----------- ------------
1,035,189 1,088,600
COMMITMENTS AND CONTINGENCIES -- --
PREFERRED STOCK
Redeemable convertible voting preferred stock, net of
placement costs, $.01 par value; 5,000,000 shares
authorized; 266,395 and 260,000 shares issued and
outstanding in 1999 and 1998, respectively 265,870 259,476
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares authorized;
25,276,088 and 25,073,583 shares issued in 1999 and 1998,
respectively 253 251
Additional paid-in capital 104,888 101,781
Retained earnings 97,398 77,881
----------- ------------
202,539 179,913
Treasury stock, 990,099 shares at cost in 1999 and 1998 (25,000) (25,000)
----------- ------------
177,539 154,913
----------- ------------
$ 1,478,598 $ 1,502,989
=========== ============
The accompanying notes are an integral part of these statements.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per share data) Six months ended June 30,
---------------------------
1999 1998
--------- ---------
Revenues Unaudited
Store
Rentals and fees $ 617,866 $ 163,443
Merchandise sales 52,179 10,513
Other 1,320 281
Franchise
Merchandise sales 21,821 17,061
Royalty income and fees 2,932 2,248
--------- ---------
696,118 193,546
Operating expenses
Direct store expenses
Depreciation of rental merchandise 130,904 33,839
Cost of merchandise sold 43,338 8,301
Salaries and other expenses 378,112 95,287
Franchise cost of merchandise sold 21,177 16,386
--------- ---------
573,531 153,813
General and administrative expenses 21,851 7,194
Amortization of intangibles 13,246 3,271
--------- ---------
Total operating expenses 608,628 164,278
Operating profit 87,490 29,268
Interest expense 37,507 1,555
Interest income (336) (238)
--------- ---------
Earnings before income taxes 50,319 27,951
Income tax expense 24,401 11,566
--------- ---------
NET EARNINGS 25,918 16,385
Preferred dividends 4,931 --
--------- ---------
Net earnings allocable to common stockholders $ 20,987 $ 16,385
========= =========
Basic earnings per share $ 0.87 $ 0.66
========= =========
Diluted earnings per share $ 0.76 $ 0.65
========= =========
The accompanying notes are an integral part of these statements.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands of Dollars, except per share data) Three months ended June 30,
-----------------------------
1999 1998
--------- ---------
Revenues Unaudited
Store
Rentals and fees $ 316,159 $ 88,017
Merchandise sales 20,293 4,551
Other 462 163
Franchise
Merchandise sales 13,000 9,440
Royalty income and fees 1,507 1,142
--------- ---------
351,421 103,313
Operating expenses
Direct store expenses
Depreciation of rental merchandise 66,438 18,333
Cost of merchandise sold 17,422 3,748
Salaries and other expenses 191,682 50,790
Franchise cost of merchandise sold 12,635 9,043
--------- ---------
288,177 81,914
General and administrative expenses 10,600 3,969
Amortization of intangibles 6,856 1,883
--------- ---------
Total operating expenses 305,633 87,766
Operating profit 45,788 15,547
Interest expense 18,865 1,105
Interest income (50) (124)
--------- ---------
Earnings before income taxes 26,973 14,566
Income tax expense 13,082 6,037
--------- ---------
NET EARNINGS 13,891 8,529
Preferred dividends 2,490 --
--------- ---------
Net earnings allocable to common stockholders $ 11,401 $ 8,529
========= =========
Basic earnings per share $ 0.47 $ 0.34
========= =========
Diluted earnings per share $ 0.41 $ 0.34
========= =========
The accompanying notes are an integral part of these statements.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
---------------------------
(In Thousands of Dollars) 1999 1998
---------- ---------
Unaudited
Cash flows from operating activities
Net earnings $ 25,918 $ 16,385
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities
Depreciation of rental merchandise 130,904 33,839
Depreciation of property assets 15,412 3,276
Amortization of intangibles 13,246 3,271
Amortization of financing fees 1,304 --
Changes in operating assets and liabilities, net of effects of
acquisitions
Rental merchandise (178,820) (43,549)
Accounts receivable - trade 288 1,040
Prepaid expenses and other assets 1,312 728
Accounts payable - trade 5,510 2,258
Accrued liabilities (17,026) 6,059
--------- ---------
Net cash provided by (used in) operating activities (1,952) 23,307
--------- ---------
Cash flows from investing activities
Purchase of property assets (15,586) (5,758)
Proceeds from sale of property assets 1,219 408
Acquisitions of businesses, net of cash acquired -- (101,616)
--------- ---------
Net cash used in investing activities (14,367) (106,966)
--------- ---------
Cash flows from financing activities
Exercise of stock options 3,109 1,205
Proceeds from debt 100,412 162,222
Repayments of debt (106,455) (61,165)
--------- ---------
Net cash provided by (used in) financing activities (2,934) 102,262
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (19,253) 18,603
Cash and cash equivalents at beginning of period 33,797 4,744
--------- ---------
Cash and cash equivalents at end of period $ 14,544 $ 23,347
========= =========
The accompanying notes are an integral part of these statements.
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RENT-A-CENTER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 generally accepted accounting principles 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. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
included in our Annual Report on Form 10-K, as amended by Form 10-K/A, for
the year ended December 31, 1998, and our Quarterly Report on Form 10-Q for
the three months ended March 31, 1999. In our opinion, the accompanying
unaudited interim financial statements contain all adjustments, consisting
only of those of a normal recurring nature, necessary to present fairly our
results of operations and cash flows for the periods presented. The results
of operations for the periods presented are not necessarily indicative of
the results to be expected for the full year.
2. On May 28, 1998, we acquired substantially all of the assets of Central
Rents, Inc. for approximately $100 million in cash. Central Rents operated
176 stores located primarily in California, the Southwest, Midwest, and
South. On August 5, 1998, we acquired Thorn Americas, Inc. for
approximately $900 million in cash, including the repayment of certain debt
of Thorn Americas. Prior to this acquisition, Thorn Americas was our
largest competitor with 1,409 company-owned stores and 65 franchised stores
in 49 states and the District of Columbia. During 1998, we also acquired
the assets of 51 rent-to-own stores in 13 separate transactions for
approximately $26.4 million in cash. The following pro-forma information
combines the results of operations as if the acquisitions of Central Rents
and Thorn Americas had been consummated as of the beginning of the periods
presented, after including the impact of adjustments for amortization of
intangibles, and the impact of interest expense and preferred dividends as
a result of acquisition financing. The results of operations of the other
stores acquired in 1998 were not material in relation to our consolidated
results of operations. No stores have been acquired during the six months
ended June 30, 1999, and as a result the pro-forma information equates to
actual results as disclosed in this report.
(In Thousands of Dollars, except
per share data) Six Months ended June 30, Three Months ended June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Unaudited Unaudited
Revenue $ 696,118 $ 587,718 $ 351,421 $ 296,342
Net earnings allocable to common $ 20,987 $ 8,203 $ 11,401 $ 4,719
stockholders
Basic earnings per common share $ 0.87 $ 0.34 $ 0.47 $ 0.19
Diluted earnings per common share $ 0.76 $ 0.24 $ 0.41 $ 0.14
The pro-forma financial information is presented for informational purposes only
and is not necessarily indicative of operating results that would have occurred
had the acquisitions been consummated as of the above dates, nor are they
necessarily indicative of future operating results.
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3. EARNINGS PER SHARE
Basic and diluted earnings per common share is computed based on the
following information:
(In Thousands, except per share data) Three months ended June 30, 1999
-------------------------------------------------------
Net earnings Shares Per share
-------------- ---------------- -----------------
Basic earnings per common share $ 11,401 24,200 $ 0.47
Effect of dilutive stock options -- 404
Effect of preferred dividend 2,490 9,536
-------------- ----------------
Diluted earnings per common share $ 13,891 34,140 $ 0.41
============== ================ =================
(In Thousands, except for per share data) Three months ended June 30, 1998
-------------------------------------------------------
Net earnings Shares Per share
-------------- ---------------- -----------------
Basic earnings per common share $ 8,529 24,987 $ 0.34
Effect of dilutive stock options -- 247
-------------- ----------------
Diluted earnings per common share $ 8,529 25,234 $ 0.34
============== ================ =================
(In Thousands, except for per share data) Six months ended June 30, 1999
-------------------------------------------------------
Net earnings Shares Per share
-------------- ---------------- -----------------
Basic earnings per common share $ 20,987 24,158 $ 0.87
Effect of dilutive stock options -- 463
Effect of preferred dividend 4,931 9,493
-------------- ----------------
Diluted earnings per common share $ 25,918 34,114 $ 0.76
============== ================ =================
(In Thousands, except for per share data) Six months ended June 30, 1998
-------------------------------------------------------
Net earnings Shares Per share
-------------- ---------------- -----------------
Basic earnings per common share $ 16,385 24,954 $ 0.66
Effect of dilutive stock options -- 248
-------------- ----------------
Diluted earnings per common share $ 16,385 25,202 $ 0.65
============== ================ =================
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4. ACQUISITION ACCRUED LIABILITIES.
In conjunction with the acquisition of Thorn Americas, accrued
liabilities were recorded associated with (A) estimated probable losses
on assumed litigation, (B) severance costs relating to the termination
of substantially all of Thorn Americas' home office employees, and (C)
costs relating to the early termination of leases, incurred as a result
of the discontinued use of distribution facilities, and the relocation
of stores identified at the time of acquisition as being of
insufficient size or inappropriate geographic location. The following
table summarizes the composition of these liabilities.
(Dollars In Thousands) June 30, December 31,
1999 1998
------------ ------------
Litigation costs $ 66,600 $ 83,600
Severance costs -- 2,500
Lease termination costs 6,800 13,700
------------ ------------
$ 73,400 $ 99,800
============ ============
All reductions in the accrued liabilities shown above are attributable
to payments against liabilities identified at the time of acquisition.
The most significant payment was approximately $17 million in May 1999,
relating to the settlement of Burney v. Thorn Americas, Inc., and
associated legal costs.
During the quarterly period ended September 30, 1999, the adequacy of
these accrued liabilities will be evaluated and changes, if any, will
be recorded against goodwill at this time.
5. PREFERRED STOCK DIVIDENDS
On May 18, 1999, we declared a 3.75% dividend on our redeemable
convertible preferred stock, which was paid through the issuance of
6,395 shares of in-kind preferred stock to holders of record on March
31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This report contains forward-looking statements that involve risk and
uncertainties. Forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate" or "believe". We believe that the expectations
reflected in these 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:
o our ability to enhance the performance of the stores we acquired in
the Central Rents and Thorn Americas acquisitions,
o our ability to acquire additional rent-to-own stores on favorable
terms and our ability to integrate those stores into our operations,
o uncertainties regarding the ability to open new stores,
o the passage of legislation adversely affecting the rent-to-own
industry,
o interest rates,
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o our ability to collect on our rental purchase agreements at the
current rate, and
o other risks detailed from time to time in our SEC reports.
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. 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, as amended by our Form 10-K/A,
for our fiscal year ended December 31, 1998, in our Registration Statement on
Form S-3 filed on May 7, 1999, in our Quarterly Report on Form 10-Q for the
three months ended March 31, 1999, and elsewhere in this report. All subsequent
written and oral forward-looking statements attributable to us, or persons
acting on our behalf, are expressly qualified in their entirety by the
statements in those sections.
OUR BUSINESS
We are the largest operator in the United States rent-to-own industry with an
approximate 26% market share (based on store count). At June 30, 1999, we
operated 2,085 company-owned stores and 346 franchised stores, providing high
quality durable goods in 50 states, the District of Columbia and Puerto Rico.
We have pursued an aggressive growth strategy since we were acquired in 1989 by
J. Ernest Talley, our Chairman of the Board and Chief Executive Officer. We have
sought to acquire under-performing stores to which we could apply our operating
strategies. The acquired stores benefit from our administrative network,
improved product mix, sophisticated management information system and the
greater purchasing power of a larger organization while strengthening their
local position. Since May 1993, our store base has grown from 27 to 2,085
primarily through acquisitions. During this period we have acquired over 2,000
company-owned stores and over 300 franchised stores in more than 60 separate
transactions, including six transactions where we acquired in excess of 70
stores. As a result, we have gained significant experience in the acquisition
and integration of other rent-to-own operators and believe that the fragmented
nature of the industry will result in ongoing growth opportunities.
In May 1998, we acquired substantially all of the assets of Central Rents, Inc.,
which operated 176 stores, for approximately $100 million in cash. In August
1998, we acquired Thorn Americas, Inc. for approximately $900 million in cash,
including the repayment of certain debt of Thorn Americas. Prior to this
acquisition, Thorn Americas was our largest competitor, operating 1,409
company-owned stores and 65 franchised stores in 49 states and the District of
Columbia. During 1998, we also acquired the assets of 51 stores in 13 separate
transactions for approximately $26.4 million in cash. As a result of these
acquisitions, a total of 1,636 stores were added to our store base.
All of the aforementioned acquisitions were accounted for as purchases and,
accordingly, the operating results of the acquired stores have been included in
our operating results since their respective dates of acquisition. Because of
the significant growth since our formation, our historical results of
operations, our period-to-period comparisons of such results, and certain
financial data may not be comparable, meaningful or indicative of future
results.
RECENT DEVELOPMENTS
During 1998 we developed a comprehensive program for the integration of Central
Rents and Thorn Americas. By December 31, 1998, we had completed the major steps
of this integration plan, which resulted in the elimination of most of the
duplicative costs temporarily incurred, namely:
o replacing Thorn Americas' nationwide distribution network with our
vendor drop shipment system;
o implementing a common management information system;
o consolidating advertising, purchasing and human resource functions;
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o integrating middle and senior management; and
o all stores, including former Renters Choice locations, adopting and
beginning to operate under the "Rent-A-Center" brand name.
In December 1998, we integrated Thorn Americas' corporate headquarters
(previously in Wichita, Kansas), with the Renters Choice corporate headquarters
in Plano, Texas. In February 1999, approximately six months following the date
of acquisition, we completed the closure of the Wichita facility.
The rapid completion of the integration process has enabled us to be in a
position to realize most of the synergies identified at the time of the
acquisition, and has enabled us to make progress on improving the performance of
the acquired stores ahead of schedule.
During the six months ended June 30, 1999, we focused our efforts on enhancing
the operational performance and strengthening the depth of management in the
stores acquired from Central Rents and Thorn Americas. We sought to improve
store performance through strategies intended to produce gains in operating
efficiency and profitability. For instance, in conjunction with the closure of
the distribution centers and the change to our vendor drop shipment system, we
have managed to significantly reduce the number of stock-keeping units held,
either through normal rental channels or through outright sales. These
stock-keeping units have been replaced with our current product offerings, and
with the support of our marketing and advertising programs, we have been able to
increase revenues and operating margins. In addition, as a result of our
strategy of rationalizing the product mix, the average monthly revenue per unit
for the acquired stores is trending positively, contributing to an increase in
store rental and fee revenue of $14.5 million when compared to the first quarter
of 1999. This rationalization, as well as management's focus on improving other
processes that are essential to our operating model, is enhancing the margins of
the acquired stores, and management believes that we are now beginning to
realize the benefits of these acquisitions. Our focus for the remainder of the
year is to continue improving operations and to continue to build strength in
store management personnel. We have strengthened the depth of management by
continuing to recruit and train high quality personnel.
Under the terms of our senior credit facility, we are obligated to repay $2
million in 1999. However, our stronger than anticipated financial performance
and cash flow position has enabled us to repay approximately $95 million as of
June 30, 1999. It is our intention to make further principal repayments on our
senior credit facility whenever our cash flow position is sufficiently strong.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Total revenue increased by $502.6 million, or 259.7%, to $696.1 million for 1999
from $193.5 million for 1998. The increase in total revenue was primarily
attributable to the inclusion of the 1,429 stores acquired in the twelve months
ended June 30, 1999, net of store consolidations and closures. Same store
revenues increased by $11.9 million, or 7.6% to $169.5 million for 1999 from
$157.6 million in 1998. Same store revenues represent those revenues earned in
stores that were operated by us for the entire six-month periods ending June 30,
1999 and 1998. This improvement was primarily attributable to an increase in
both the number of items on rent and in revenue earned per item on rent.
Depreciation of rental merchandise increased by $97.1 million, or 286.8%, to
$130.9 million for 1999 from $33.8 million for 1998. Depreciation of rental
merchandise expressed as a percent of store rentals and fee revenue increased
from 20.7% in 1998 to 21.2% in 1999. The increase was primarily attributable to
lower rental rates on rental merchandise acquired in the aforementioned
acquisitions.
Salaries and other expenses expressed as a percentage of total store revenue
increased to 56.3% for 1999 from 54.7% for 1998. This increase is attributable
to the increase in salaries for employees and other expenses of the acquired
stores immediately following the acquisitions. Occupancy costs also increased as
a percentage of total store revenue due to the relocation of certain stores
acquired in 1998 to locations that are larger in square footage. Generally,
revenue from these stores increased gradually while the additional payroll and
occupancy costs were incurred immediately. General and administrative expenses
expressed as a percent of total revenue decreased from 3.7% in 1998 to 3.1% in
1999. This decrease was the result of increased revenues from the stores
acquired from
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Central Rents and Thorn Americas, allowing us to leverage our fixed and
semi-fixed costs over the larger revenue base.
Operating profit increased by $58.2 million, or 198.9%, to $87.5 million for
1999 from $29.3 million for 1998. Operating profit as a percentage of total
revenue decreased to 12.6% in 1999 from 15.1% in 1998. This decrease is
attributable to the lower margins achieved at the acquired Central Rents and
Thorn Americas stores. Our efforts to improve the efficiency and profitability
of these acquired stores, as discussed elsewhere in this report, have resulted
in operating profit as a percentage of total revenue increasing from 10.7% for
the three months ended December 31, 1998 (calculated before the effect of the
$11.5 million non-recurring legal charge) to 12.1% for the three months ended
March 31, 1999, and to 13.0% for the three months ended June 30, 1999.
Net earnings increased by $9.5 million, or 58.2%, to $25.9 million in 1999 from
$16.4 million in 1998. The improvement was a result of the increase in operating
profit described above.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Between July 1, 1998, and June 30, 1999, we acquired 1,454 stores, 26 of which
were subsequently consolidated with existing locations. In addition, 17 of the
acquired Central Rents stores were consolidated with existing locations, and of
the stores owned before the acquisition of Central Rents and Thorn Americas,
eight locations were consolidated and one was sold. These acquisitions were
accounted for as purchases, and accordingly, the operating results of the
acquired operations have been included in the results of operations since the
respective dates of acquisition. Primarily as a result of the effects of these
acquisitions, consolidations and closures on our results of operations,
comparisons of operating results for 1999 and 1998 may not be meaningful or
indicative of future results.
Total revenue increased by $248.1 million, or 240.2%, to $351.4 million for 1999
from $103.3 million for 1998. The increase in total revenue was primarily
attributable to the inclusion of the 1,402 stores purchased in the twelve months
ended June 30, 1999, net of store consolidations and closures. Same store
revenues increased by $5.2 million, or 6.5%, to $85.6 million for 1999 from
$80.4 million in 1998. Same store revenues represent those revenues earned in
stores that were operated by us for the entire three-month period ending June
30, 1999 and 1998. This improvement was primarily attributable to an increase in
both the number of items on rent and in revenue earned per unit on rent.
Depreciation of rental merchandise increased by $48.1 million, or 262.4%, to
$66.4 million for 1999 from $18.3 million for 1998. Depreciation of rental
merchandise as a percent of store rentals and fee revenue increased to 21.0% for
1999 from 20.8% for 1998. The increase in depreciation of rental merchandise as
a percent of total store revenue was primarily attributable to lower rental
rates on rental merchandise acquired in the aforementioned acquisitions.
Salaries and other expenses as a percentage of total store revenue increased to
56.9% for 1999 from 54.8% for 1998. This increase is attributable to the
increase in salaries for employees and other expenses of the acquired stores
immediately following the acquisitions. Occupancy costs also increased as a
percentage of total store revenue due to the relocation of certain stores
acquired in 1998 to locations that are larger in square footage. Generally,
revenue from these stores increased gradually while the additional payroll and
occupancy costs were incurred immediately.
General and administrative expenses expressed as a percentage of total revenue
decreased from 3.8% in 1998 to 3.0% in 1999. This decrease was the result of
increased revenues from the stores acquired from Central Rents and Thorn
Americas, allowing us to leverage our fixed and semi-fixed costs over a larger
revenue base.
Operating profit increased by $30.2 million, or 194.5%, to $45.8 million for
1999 from $15.5 million for 1998. Operating profit as a percentage of total
revenue decreased to 13.0% in 1999 from 15.0% in 1998. This decrease is
attributable to the lower margins achieved at the acquired Central Rents and
Thorn Americas stores. Our success in improving the efficiency and profitability
of these acquired stores is discussed earlier in this report.
Net earnings increased by $5.4 million, or 62.9%, to $13.9 million in 1999 from
$8.5 million in 1998.
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LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity requirements are for debt service under our senior credit
facilities, the subordinated notes, other indebtedness outstanding, working
capital and capital expenditures. At June 30, 1999, we had in place a $962.3
million senior credit facility. The amount outstanding under our senior credit
facility and subordinated notes as of this date was approximately $800.2
million, consisting primarily of $625.2 million of the senior credit facilities,
and $175.0 million of the notes.
We purchased $251.7 million of rental merchandise during the six months ended
June 30, 1999.
For the six months ended June 30, 1999, cash provided by operating activities
decreased by $25.3 million, from $23.3 million in 1998 to $(2.0) million in
1999, primarily due to payments on liabilities assumed in the acquisition of
Thorn Americas. Cash used in investing activities decreased by $92.6 million
from $107.0 million in 1998 to $14.4 million in 1999, primarily due to the
purchase of Central Rents occurring in 1998. Cash used in financing activities
was $2.9 million for the six months ended June 30, 1999, compared to an inflow
of $102.3 million in 1998, representing the source of funds for the purchase of
Central Rents.
Borrowings under the senior credit facility bore interest at a rate equal to
0.25% to 1.75% over the designated prime rate, which was 7.75% per annum at June
30, 1999, or 1.25% to 2.75% over LIBOR, which was 5.21% at June 30, 1999, at our
option. At June 30, 1999, the average rate on outstanding borrowings was 7.90%.
During 1998, we entered into certain interest rate protection agreements with
two banks. Under the terms of the interest rate agreements, the LIBOR rate used
to calculate the interest rate charged on $500 million of the outstanding senior
term debt has been fixed at an average rate of 5.59%. These interest rate
agreements have terms of three and five years. Borrowings were collateralized by
a lien on substantially all of our assets. A commitment fee equal to 0.25% to
0.50% of the unused portion of the term loan facility is payable quarterly. The
senior credit facility includes certain net worth and fixed charge coverage
requirements, as well as covenants which restrict additional indebtedness and
the disposition of assets not in the ordinary course of business.
Principal and interest payments under the senior credit facilities and the notes
represent significant liquidity requirements for us. Under the term loans, we
will be required to make principal payments totaling approximately $2.0 million
in 1999, $14.0 million in 2000, $22.0 million in 2001, $26.0 million in 2002,
and $30.0 million in 2003. Loans under the senior credit facilities not covered
by interest rate swap agreements bear interest at floating rates based upon the
interest rate option selected by us. As discussed above, we have repaid
approximately $95 million of these amounts as of June 30, 1999.
Capital expenditures are made generally to maintain existing operations and for
the acquisition and opening of stores. We spent $15.6 million in the six months
ended June 30, 1999, and expect to spend a total of approximately $25-$30
million in the year ended December 31, 1999 on capital expenditures, all of
which are to maintain existing operations.
With the major steps of the integration plan relating to Central Rents and Thorn
Americas behind us, we are currently focusing our efforts on enhancing the
operations and the depth of management in the acquired stores. Eventually we
intend to resume our strategy of increasing our store base and annual revenues
and profits through the opening of new stores, as well as opportunistic
acquisitions. It is our goal to increase the number of stores in which we
operate by between 100-150 in the year 2000.
We plan to accomplish our future growth through selective and opportunistic
acquisitions, with an increasing emphasis on new store development. Typically, a
newly opened rental store is profitable on a monthly basis in the sixth to
seventh month after its initial opening. Historically, a typical store has
achieved break-even profitability in twelve to fifteen months after its initial
opening. Total financing requirements of a typical new store approximates $0.4
million, with roughly 80% to 85% 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. There can
be no assurance that we will open any new stores in the future, or as to the
number, location or profitability thereof.
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We believe that cash flow from operations together with amounts available under
the senior credit facilities, including the revolving credit facility and letter
of credit/multidraw facility therein, will be sufficient to fund our debt
service requirements, working capital needs, capital expenditures and litigation
exposure during 1999. The revolving credit facility provides us with revolving
loans in an aggregate principal amount not exceeding $120.0 million and the
$122.3 million letter of credit/multidraw facility is currently being used to
support certain litigation assumed in connection with the Thorn Americas
acquisition via a letter of credit. Once the letter of credit is terminated, the
letter of credit/multidraw facility will convert to a $85 million term loan
facility. Based upon our extensive review and analysis of this litigation and
our potential exposure thereon, we believe that we will have sufficient funds
available to pay any litigation expenses related to this litigation.
In addition, to provide any additional funds necessary for the continued pursuit
of our operating and growth strategies, we may incur from time to time
additional short or long-term bank indebtedness and may issue, in public or
private transactions, equity and debt securities. The availability and
attractiveness of any outside sources of financing will depend on a number of
factors, some of which will relate to our financial condition and performance,
and some of which will be beyond our control, such as prevailing interest rates
and general economic conditions. There can be no assurance additional financing
will be available, or if available, will be on terms acceptable to us.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
During the second quarter of 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which will be effective for the fiscal year 2001. This statement
establishes accounting and reporting standards requiring that derivative
instruments, including certain derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. We are currently evaluating the impact that this
statement will have on our financial statements.
YEAR 2000 OVERVIEW
Year 2000 issues exist when dates are recorded on computers using two digits,
rather than four, and are then used for arithmetic operations, comparisons or
sorting. A two digit recording may recognize a date using "00" as 1900, rather
than 2000, which could cause computer systems to perform inaccurate computations
or shut down. Many of the world's computer systems currently record years in
this two-digit format and will be unable to properly interpret dates beyond the
year 1999 if not remedied.
Management Information Systems. Our primary information technology system
controls all of our computer operations in our rent-to-own stores and home
office. This system has also been integrated into the retail outlets and
operations acquired from Thorn Americas. We have received written assurance from
our software vendor that the system is Year 2000 compliant, which means that it
is equipped to interpret dates beyond the year 1999. We have engaged external
resources to complete an independent review of our information systems. Based in
part upon the results of this review, we believe that our management information
systems are prepared for the Year 2000.
As of June 30, 1999, we have incurred costs of approximately $290,000 in
assuring Year 2000 compliance through testing and upgrades. Additionally, as
part of our recent expansion, we purchased new hardware and software for our
home office that is warranted to be Year 2000 compliant. All upgrades in both
our headquarters and ColorTyme's offices have been completed.
Major Suppliers. We have received written assurances from approximately 90% of
our vendors, confirming that these vendors are Year 2000 compliant. We utilize
many suppliers and no single supplier is material to our operations. As a
result, we believe that we have the ability to obtain merchandise for our stores
from many different vendors. In the event any of our vendors are not Year 2000
compliant, we anticipate having sufficient alternate supply sources available to
serve our needs.
Other Systems. We are in the process of identifying certain on-site
non-information technology systems that may be Year 2000 sensitive. Once these
systems have been fully identified, we will determine, with the help of outside
vendors, whether these systems are vulnerable to Year 2000 problems. Potential
non-information technology systems include alarms, elevators, irrigation
systems, thermostats, utility meters and switches.
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We plan to complete the identification, testing, and replacing of these systems
for Year 2000 compliance during 1999. We do not believe that the cost to repair
or replace any vulnerable non-information technology systems will be material.
However, there can be no guarantee that the systems of other companies on which
we rely will be timely converted and will not have an adverse effect on our
operations.
In the event of a complete failure of our information technology systems, our
contingency plan is to continue the affected functions either manually or
through the use of systems that are not Year 2000 compliant. The primary costs
associated with such a necessity would be (A) increased time delays in the
posting of information, and (B) increased personnel to manually process the
information. We believe that the increased costs associated with any additional
personnel would not have a material adverse affect on our operations or
financial conditions.
The cost of Year 2000 compliance and the estimated date of completion of
necessary modifications are based on our best estimates, which were derived from
various assumptions of future events, including the continued availability of
resources, third party modification plans and other factors. However, we cannot
guarantee these estimates are accurate and actual results could differ
materially from those anticipated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
As of June 30, 1999 we had $175.0 million in subordinated notes at a fixed
interest rate of 11.0% and $625.2 million in term loans indexed to the LIBOR
rate. The subordinated notes mature on August 15, 2008 and have a fixed interest
rate of 11.0%. 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
subordinated notes is $175.9 million, which is $0.9 million in excess of their
carrying value of $175 million. Unlike the subordinated notes, the $625.2
million in term loans have variable interest rates indexed to current LIBOR
rates. Because the variable rate structure exposes us to the risk of increased
interest cost if interest rates rise, we have entered into interest rate swap
agreements to hedge this risk. In 1998, we entered into $500 million in interest
rate swap agreements that lock in a LIBOR rate of 5.59%. These contracts have an
average life of four years. Given the current capital structure, including our
interest rate swap agreements, we have $125.2 million, or 15.6% of our total
debt, in variable rate debt. A hypothetical 1.0% change in the LIBOR rate would
affect pre-tax earnings by approximately $0.3 million for the three month
period.
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 the 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 LIBOR
which exposes us to the risk of increased interest costs if interest rates rise.
To reduce the risk related to unfavorable interest rate movements, we have
entered into certain interest rate swap contracts on $500 million of debt to pay
a fixed rate of 5.59%.
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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. The majority of the
material proceedings involve claims that may be generally characterized into one
of two categories, recharacterization claims and statutory compliance claims.
Recharacterization claims generally involve claims:
o in states that do not have rent-to-own legislation,
o that rent-to-own transactions are disguised installment sales in
violation of applicable state installment statutes, and
o that allege greater damages.
Statutory compliance claims generally involve claims:
o in states that have rent-to-own legislation,
o that the operator failed to comply with applicable state rental
purchase statutes, such as notices and late fees, and
o that allege lesser damages.
Except as described below, we are not currently a party to any material
litigation.
The following litigation matters were assumed with Thorn Americas pursuant to
the Thorn Americas acquisition. In connection with accounting for the Thorn
Americas acquisition, we made appropriate purchase accounting adjustments for
contingent liabilities associated with outstanding litigation.
Robinson v. Thorn Americas, Inc. The plaintiffs filed this class action on April
19, 1994 in state court in New Jersey. The class consists of all residents of
New Jersey who are or have been parties to Thorn Americas' rent-to-own contracts
since April 19, 1988. During this period, Thorn Americas operated approximately
23 stores in New Jersey. The plaintiffs' claims are for alleged violations of
the New Jersey Retail Installment Sales Act and the New Jersey Consumer Fraud
Act, usury, unlawful contractual penalty and conversion. On January 5, 1998, the
court entered a judgment against Thorn Americas and ordered Thorn Americas to
pay the plaintiffs the amount equal to (A) all reinstatement fees collected by
Thorn Americas since April 29, 1988, and (B) 40% of all rental revenue collected
by Thorn Americas from the plaintiffs from April 29, 1988, trebled. Later, the
court added an incentive award to the class representative, the inclusion of
attorneys' fees, and granted plaintiff's counsel 25% of the amount to be
distributed to the class. The judgment is secured by a supersedeas bond posted
by Thorn Americas in the amount of $163 million, which amount was derived from
an accounting by plaintiffs of the projected amount of the judgment liability
through April 1999. In December 1998, we settled this matter in principle for
approximately $48.5 million, subject to preliminary and final approval of the
court. The final settlement documents were signed on April 23, 1999 and
preliminarily approved by the court. We anticipate that the final approval of
the court will occur in the fall of 1999.
Burney v. Thorn Americas, Inc. The plaintiffs originally filed a class action in
federal court in Wisconsin alleging Thorn Americas' rent-to-own contracts
violated the Wisconsin Consumer Act and federal RICO and truth-in-lending
statutes. Plaintiffs' motion for class certification was granted in July, 1998.
The class is comprised of the persons who were party to rent-to-own contracts
with Thorn Americas in Wisconsin after October 19, 1988 and who have paid Thorn
Americas an amount equal to or greater than the value of the merchandise. During
this period, Thorn Americas operated approximately 23 stores in Wisconsin. The
plaintiffs asserted that the value of the merchandise for class certification
purposes is 60% of the amount required to obtain ownership. This limitation on
the members of the class distinguishes Burney from Robinson. We settled this
matter for $16.25 million, subject to final approval by the court. The court
gave final approval of the settlement on March 19, 1999, and the settlement was
paid in May, 1999.
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Colon v. Thorn Americas, Inc. The plaintiffs filed this class action in November
1997 in New York state court. Thorn Americas removed the case to the U.S.
District Court for the Southern District of New York. Plaintiffs filed a motion
to remand, which was granted. The plaintiffs acknowledge that rent-to-own
transactions in New York are subject to the provisions of New York's Rental
Purchase Statute but contend the Rental Purchase Statute does not provide Thorn
Americas immunity from suit for other statutory violations. Plaintiffs allege
Thorn Americas has a duty to disclose "effective interest" under New York
consumer protection laws, and seek damages and injunctive relief for Thorn
Americas' failure to do so. In their prayers for relief, the plaintiffs have
requested the following:
o class certification,
o injunctive relief requiring Thorn Americas to (A) cease certain
marketing practices, (B) price their rental purchase contracts in
certain ways, and (C) disclose effective interest,
o unspecified compensatory and punitive damages,
o rescission of the class members contracts,
o an order placing in trust all moneys received by Thorn Americas in
connection with the rental of merchandise during the class period,
o treble damages, attorney's fees, filing fees and costs of suit,
o pre- and post-judgment interest, and
o any further relief granted by the court.
This suit also alleges violations relating to late fees, harassment, undisclosed
charges, and the ease of use and accuracy of its payment records. The plaintiffs
did not specify a specific amount on their damages request.
The proposed class includes all New York residents who were party to Thorn
Americas' rent-to-own contracts from November 26, 1991 through November 26,
1997. We are vigorously defending this action and on September 24, 1998, filed
motions to deny class certification and dismiss the complaint. Plaintiff
responded and filed a motion for summary judgment asking the court to declare
that the transaction includes an undisclosed interest component. The motions are
fully briefed and are awaiting a ruling by the court. There can be no assurance
that these motions will be granted or that we will be found not to have any
liability.
Anslono v. Thorn Americas, Inc. This is a putative class action filed in
Massachusetts state court on January 6, 1998. Plaintiffs acknowledge that
rent-to-own contracts constitute "consumer leases" under Massachusetts'
rent-to-own statute, but contend that Thorn Americas failed to comply with
certain statutory provisions and Thorn Americas failed to provide certain
disclosures. Plaintiffs seek actual and statutory damages and an injunction to
prohibit Thorn Americas from engaging in the acts complained of. Specifically,
the plaintiffs have requested in their prayers for relief, the following:
o class certification,
o unspecified damages, together with an award of treble damages under
Massachusetts law,
o costs and expenses, including reasonable attorneys' fees,
o injunctive relief, enjoining Thorn Americas from engaging in unfair or
deceptive practices relating to certain advertising practices,
o an order eliminating the plaintiffs' obligation to pay their final
periodic rent-to-own installment payment, and
o any other further relief that the plaintiffs may be entitled to.
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The proposed class includes all Massachusetts residents who were parties to
Thorn Americas' rent-to-own contracts in the four-year period prior to the
January 6, 1998 filing. We settled this matter in principle in April 1999 for
$10.00 coupons to Thorn Americas' customers from January 6, 1994 to December 31,
1998, and less than $50,000 in Plaintiff's attorney's fees and expenses. We
anticipate that the final approval by the court will occur by the end of the
third quarter of 1999.
Cooks v. Thorn Americas, Inc. The plaintiff filed a putative class action in
Texas state court in 1993, alleging violations of Texas' usury statute,
Deceptive Trade Practices Act and Insurance Code. In their prayers for relief,
the plaintiffs have requested:
o class certification,
o unspecified compensatory damages in an amount less than $50,000 per
class member,
o reasonable attorneys' fees,
o costs of the suit,
o pre- and post-judgment interest, and
o other further relief, as the court may deem necessary or appropriate.
This case had been dormant since 1995, and was dismissed in May, 1999.
Abels v. Rent-A-Center, Inc. In April 1999, the plaintiff filed suit in state
court in Michigan alleging violations of the Michigan Consumer Protection Act
pertaining to our basis for setting the cash purchase price on goods rented by
plaintiff pursuant to two rental purchase agreements with us. Plaintiff's
complaint seeks individual declaratory, injunctive and monetary damages relief,
as well as monetary damages on behalf of a putative class of our past, current
and future customers in Michigan. We have filed an answer in the matter denying
plaintiff's claims and intend to vigorously defend this action. Discovery in the
case has only recently commenced. Given the early stage of this proceeding,
there can be no assurance that we will be found to have no liability in this
matter.
Murray v. Rent-A-Center, Inc. The plaintiffs filed a putative nationwide class
action suit in federal court in Missouri on May 20, 1999, alleging that we have
discriminated against African Americans in our hiring, compensation, promotion
and termination policies. Plaintiffs' alleged no specific amount of damages in
their complaint. We have filed an answer in the matter denying plaintiffs'
allegations and intend to vigorously defend this action. No discovery in this
litigation has occurred to date. Members of the regional class defined in our
completed settlement of the Allen v. Thorn Americas, Inc. litigation would not
be included in the Murray case. We believe plaintiffs' claims in this suit are
without merit. However, given the early stage of this proceeding, there can be
no assurance that we will be found to have no liability.
In connection with the Thorn Americas acquisition, Thorn plc agreed to indemnify
and hold us harmless from the following two lawsuits and deposited $40 million
in escrow in respect of these two lawsuits and other indemnification claims that
we may have against Thorn plc.
Fogie v. Thorn Americas, Inc. The plaintiffs filed this class action on December
4, 1991 in Minnesota. The class consists of residents of Minnesota who entered
rental purchase contracts with Thorn Americas from August 1, 1990 through
November 30, 1996. The plaintiffs alleged that Thorn Americas' rent-to-own
contracts violated Minnesota's Consumer Credit Sales Act and the Minnesota
General Usury Statute. On April 15, 1998, the court entered a final judgment
against Thorn Americas and ordered it to pay approximately $30 million to the
plaintiffs. Under certain provisions of the judgment, Thorn Americas may receive
certain credits against the judgment. On May 15, 1998, Thorn Americas filed a
notice of appeal from the damages finding only. Oral argument in the appeal
occurred on May 10, 1999. A decision is expected in the near future.
The following litigation matters pending against us have been settled in
principle in connection with the settlement of the Robinson matter:
Gallagher v. Crown Leasing Corporation. On January 3, 1996, we were served with
a class action complaint adding us as a defendant in this action originally
filed in April 1994 against Crown and certain of its affiliates in state court
in New Jersey. The class consists of all New Jersey residents who entered into
rent-to-own contracts with Crown between April 25, 1988 and April 20, 1995.
During this period, Crown operated approximately five stores in New Jersey. The
lawsuit alleges, among other things, that under certain rent-to-own contracts
entered into between the plaintiff class and Crown, some of which were
purportedly acquired by us pursuant to the acquisition of Crown and certain of
its affiliates, the defendants failed to make the necessary disclosures and
charged the plaintiffs fees and expenses that violated the New Jersey Consumer
Fraud Act and the New Jersey Retail Installment Sales Act. The plaintiffs seek
damages including, among other things, a refund of all excessive fees and/or
interest charged or collected by the defendants in violation of such acts, state
usury laws and other related statutes and treble damages, as applicable.
Pursuant to the Asset Purchase Agreement entered into between Crown, its
controlling shareholder and us in connection with the Crown acquisition, we did
not contractually assume any liabilities pertaining to Crown's rent-to-own
contracts for the period prior to the acquisition of Crown. The plaintiffs have
obtained class certification and a summary judgment against Crown on the
liability issues. Subsequent to these decisions by the New Jersey state court,
Crown filed for protection from its creditors under Chapter 11 of the federal
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bankruptcy laws. The bankruptcy court allowed the lawsuit to proceed in New
Jersey, where the state court granted summary judgment on the plaintiff's
damages formula against Crown. The plaintiffs calculated actual damages for
purposes of their summary judgment motion at approximately $7.6 million. The
court ruled that the plaintiffs are entitled to three times actual damages.
However, the state court's ruling requires certain minor adjustments pursuant to
an accounting. Together with the Boykin matter, we settled this matter in
principle for approximately $11.5 million, subject to preliminary and final
approval of the court. The final settlement documents were signed on April 23,
1999 and preliminarily approved by the court. We anticipate that the final
approval of the court will occur in the fall of 1999.
Michelle Newhouse v. Rent-A-Center, Inc./Handy Boykin v. Rent-A-Center, Inc. On
November 26, 1997 a class action complaint was filed against us by Michelle
Newhouse in New Jersey state court alleging, among other things, that under
certain rent-to-own contracts entered into between the plaintiffs and us, we
failed to make the necessary disclosures and charged the plaintiffs fees and
expenses that violated the New Jersey Consumer Fraud Act and the New Jersey
Installment Sales Act. The claims arising from this action are similar to the
claims made in Robinson v. Thorn Americas, Inc. and Gallagher v. Crown Leasing
Corporation. The proposed class consists of all residents of New Jersey who are
or have been parties to contracts to rent-to-own merchandise from us within the
past six years. During this period, we operated approximately 17 stores in New
Jersey.
We removed the case to federal court on January 21, 1998, and were then advised
by the plaintiffs' attorney that Michelle Newhouse no longer wished to serve as
class representative. A motion to voluntarily dismiss the Newhouse case filed by
the plaintiffs' attorney was granted shortly thereafter. However, on May 1,
1998, a new class action complaint against us made by Handy Boykin was filed by
the plaintiffs' attorney in the Newhouse matter in New Jersey state court
alleging the same causes of action with the same proposed class as that of the
Newhouse matter. This new filing essentially constitutes a replacement of the
named plaintiff in the Newhouse matter with a new named plaintiff, Handy Boykin.
We anticipated this replacement. We removed the Boykin case to federal court,
where Boykin's motion to remand to New Jersey state court is now pending.
Together with the Gallagher matter, we settled this matter in principle for
approximately $11.5 million, subject to preliminary and final approval by the
court. The final settlement documents were signed on April 23, 1999 and
preliminarily approved by the court. We anticipate that the final approval of
the court will occur in the fall of 1999.
The settlements in Robinson, Gallagher and Boykin are contingent on one another.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders held on May 18, 1999, the nominees for
Class II directors were elected. Two of the Class II directors were elected by
all of the stockholders and one director was elected by the holders of the
Series A Convertible Preferred Stock.
The voting was as follows for the directors elected by all of the stockholders:
NOMINEE FOR WITHHELD
Mark E. Speese 29,224,824 134,540
L. Dowell Arnette 29,224,824 134,540
The voting was as follows for the director elected by the holders of the Series
A Convertible Preferred Stock:
NOMINEE FOR WITHHELD
Laurence M. Berg 250,000 10,000
The following are directors whose terms of office as a director continued after
the Annual Meeting of Stockholders:
Peter P. Copses J. Ernest Talley
J.V. Lentell Joseph V. Mariner, Jr.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
CURRENT REPORTS ON FORM 8-K.
None.
EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
2.1(1) -- Asset Purchase Agreement, dated May 1, 1998, by and among Renters
Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc. and
Banner Holdings, Inc. (Pursuant to the rules of the Commission,
the schedules and exhibits have been omitted. Upon the request of
the Commission, Renters Choice will supplementally supply such
schedules and exhibits to the Commission.)
2.2(2) -- Letter Agreement, dated as of May 26, 1998, by and among Renters
Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc. and
Banner Holdings, Inc. (Pursuant to the rules of the Commission,
the schedules and exhibits have been omitted. Upon the request of
the Commission, Renters Choice will supplementally supply such
schedules and exhibits to the Commission.)
2.3(3) -- Stock Purchase Agreement, dated as of June 16, 1998, among Renters
Choice, Inc., Thorn International BV and Thorn plc (Pursuant to
the rules of the Commission, the schedules and exhibits have been
omitted. Upon the request of the Commission, the Company will
supplementally supply such schedules and exhibits to the
Commission.)
3.1(4) -- Amended and Restated Certificate of Incorporation of Renters
Choice
3.2(5) -- Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Renters Choice
3.3(6) -- Amended and Restated Bylaws of Rent-A-Center
4.1(7) -- Form of Certificate evidencing Common Stock
4.2(8) -- Certificate of Designations, Preferences and Relative Rights and
Limitations of Series A Preferred Stock of Renters Choice, Inc.
4.3(9) -- Certificate of Designations, Preferences and Relative Rights
and Limitations of Series B Preferred Stock of Renters Choice,
Inc.
4.4(10) -- Indenture, dated as of August 18, 1998, by and among Renters
Choice, Inc., as Issuer, ColorTyme, Inc. and Rent-A-Center, Inc.,
as Subsidiary Guarantors, and IBJ Schroder Bank & Trust Company,
as Trustee
4.5(11) -- Form of Certificate evidencing Series A Preferred Stock
4.6(12) -- Form of Exchange Note
4.7(13) -- First Supplemental Indenture, dated as of December 31, 1998, by
and among Renters Choice Inc., Rent-A-Center, Inc., ColorTyme,
Inc., Advantage Companies, Inc. and IBJ Schroder Bank & Trust
Company, as Trustee
10.1(14) -- Amended and Restated 1994 Renters Choice, Inc. Long-Term Incentive
Plan
10.3(15) -- Credit Agreement, dated August 5, 1998, among Renters Choice,
Inc., Comerica Bank, as Documentation Agent, NationsBank N.A., as
Syndication Agent, and The Chase Manhattan Bank, as Administrative
Agent, and certain other lenders
10.4(16) -- Guarantee and Collateral Agreement, dated August 5, 1998, made
by Renters Choice, Inc., and certain of its Subsidiaries in favor
of the Chase Manhattan Bank, as Administrative Agent
10.5(17) -- $175,000,000 Senior Subordinated Credit Agreement, dated as of
August 5, 1998, among Renters Choice, Inc., certain other lenders
and the Chase Manhattan Bank
10.6(18) -- Stockholders Agreement, dated as of August 5, 1998, by and among
Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV,
L.P., J. Ernest Talley, Mark E. Speese, Renters Choice, Inc., and
certain other persons
10.7(19) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and
Apollo Overseas Partners IV, L.P., related to the Series A
Convertible Preferred Stock
10.8(20) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P., and
Apollo Overseas Partners IV, L.P., related to the Series B
Convertible Preferred Stock
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EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.9(21) -- Stock Purchase Agreement, dated August 5, 1998, among Renters
Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P.
10.10(22) -- Exchange and Registration Rights Agreement, dated August 18,
1998, by and among Renters Choice, Inc. and Chase Securities Inc.,
Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities LLC
and Credit Suisse First Boston Corporation
10.11(23) -- Employment Agreement, dated October 1, 1998, by and between
Rent-A-Center, Inc. and Bradley W.
Denison
27.1* -- Financial Data Schedule
- ----------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated May 28, 1998
(2) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current
Report on Form 8-K dated May 28, 1998
(3) Incorporated herein by reference to Exhibit 2.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(4) Incorporated herein by reference to Exhibit 3.2 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
(5) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
(6) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(7) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 19, 1999.
(8) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(9) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(10) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(11) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(12) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(14) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Registration Statement on Form S-8 (File No. 333-53471)
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(15) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(16) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(17) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(18) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(19) 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
(20) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(21) Incorporated herein by reference to Exhibit 2.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(22) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(23) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1998
- ----------
* Filed herewith.
22
23
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
Vice President-Finance
and Chief Financial Officer
Date: August 4, 1999
Rent-A-Center, Inc.
23
24
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
2.1(1) -- Asset Purchase Agreement, dated May 1, 1998, by and among Renters
Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc.
and Banner Holdings, Inc. (Pursuant to the rules of the
Commission, the schedules and exhibits have been omitted. Upon
the request of the Commission, Renters Choice will supplementally
supply such schedules and exhibits to the Commission.)
2.2(2) -- Letter Agreement, dated as of May 26, 1998, by and among Renters
Choice, Inc., Central Rents, Inc., Central Rents Holding, Inc.
and Banner Holdings, Inc. (Pursuant to the rules of the
Commission, the schedules and exhibits have been omitted. Upon
the request of the Commission, Renters Choice will supplementally
supply such schedules and exhibits to the Commission.)
2.3(3) -- Stock Purchase Agreement, dated as of June 16, 1998, among
Renters Choice, Inc., Thorn International BV and Thorn plc
(Pursuant to the rules of the Commission, the schedules and
exhibits have been omitted. Upon the request of the Commission,
the Company will supplementally supply such schedules and
exhibits to the Commission.)
3.1(4) -- Amended and Restated Certificate of Incorporation of Renters
Choice
3.2(5) -- Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Renters Choice
3.3(6) -- Amended and Restated Bylaws of Rent-A-Center
4.1(7) -- Form of Certificate evidencing Common Stock
4.2(8) -- Certificate of Designations, Preferences and Relative Rights and
Limitations of Series A Preferred Stock of Renters Choice, Inc.
4.3(9) -- Certificate of Designations, Preferences and Relative Rights and
Limitations of Series B Preferred Stock of Renters Choice, Inc.
4.4(10) -- Indenture, dated as of August 18, 1998, by and among Renters
Choice, Inc., as Issuer, ColorTyme, Inc. and Rent-A-Center, Inc.,
as Subsidiary Guarantors, and IBJ Schroder Bank & Trust Company,
as Trustee
4.5(11) -- Form of Certificate evidencing Series A Preferred Stock
4.6(12) -- Form of Exchange Note
4.7(13) -- First Supplemental Indenture, dated as of December 31, 1998, by
and among Renters Choice Inc., Rent-A-Center, Inc., ColorTyme,
Inc., Advantage Companies, Inc. and IBJ Schroder Bank & Trust
Company, as Trustee
10.1(14) -- Amended and Restated 1994 Renters Choice, Inc. Long-Term
Incentive Plan
10.3(15) -- Credit Agreement, dated August 5, 1998, among Renters Choice,
Inc., Comerica Bank, as Documentation Agent, NationsBank N.A., as
Syndication Agent, and The Chase Manhattan Bank, as
Administrative Agent, and certain other lenders
10.4(16) -- Guarantee and Collateral Agreement, dated August 5, 1998, made by
Renters Choice, Inc., and certain of its Subsidiaries in favor of
the Chase Manhattan Bank, as Administrative Agent
10.5(17) -- $175,000,000 Senior Subordinated Credit Agreement, dated as of
August 5, 1998, among Renters Choice, Inc., certain other lenders
and the Chase Manhattan Bank
10.6(18) -- Stockholders Agreement, dated as of August 5, 1998, by and among
Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV,
L.P., J. Ernest Talley, Mark E. Speese, Renters Choice, Inc., and
certain other persons
10.7(19) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P.,
and Apollo Overseas Partners IV, L.P., related to the Series A
Convertible Preferred Stock
10.8(20) -- Registration Rights Agreement, dated August 5, 1998, by and
between Renters Choice, Inc., Apollo Investment Fund IV, L.P.,
and Apollo Overseas Partners IV, L.P., related to the Series B
Convertible Preferred Stock
10.9(21) -- Stock Purchase Agreement, dated August 5, 1998, among Renters
Choice, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P.
10.10(22) -- Exchange and Registration Rights Agreement, dated August 18,
1998, by and among Renters Choice, Inc. and Chase Securities Inc.,
Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities
25
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
LLC and Credit Suisse First Boston Corporation
10.11(23) -- Employment Agreement, dated October 1, 1998, by and between
Rent-A-Center, Inc. and Bradley W.
Denison
27.1* -- Financial Data Schedule
- ----------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's Current
Report on Form 8-K dated May 28, 1998
(2) Incorporated herein by reference to Exhibit 2.2 to the registrant's Current
Report on Form 8-K dated May 28, 1998
(3) Incorporated herein by reference to Exhibit 2.9 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(4) Incorporated herein by reference to Exhibit 3.2 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
(5) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
(6) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(7) Incorporated herein by reference to Exhibit 4.1 to the registrant's Form
S-4 filed on January 19, 1999.
(8) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(9) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(10) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(11) Incorporated herein by reference to Exhibit 4.5 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(12) Incorporated herein by reference to Exhibit 4.6 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(13) Incorporated herein by reference to Exhibit 4.7 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(14) Incorporated herein by reference to Exhibit 99.1 to the registrant's
Registration Statement on Form S-8 (File No. 333-53471)
(15) Incorporated herein by reference to Exhibit 10.18 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
26
(16) Incorporated herein by reference to Exhibit 10.19 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(17) Incorporated herein by reference to Exhibit 10.20 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(18) Incorporated herein by reference to Exhibit 10.21 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(19) 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
(20) Incorporated herein by reference to Exhibit 10.23 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(21) Incorporated herein by reference to Exhibit 2.10 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
(22) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement Form S-4 filed on January 19, 1999
(23) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Annual Report on Form 10-K for the year ended December 31, 1998
- ----------
* Filed herewith.