1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 May 28, 1998 RENTERS CHOICE, INC. (Exact name of registrant as specified in its charter) Commission File Number 0-25370 DELAWARE 48-1024367 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13800 Montfort Drive, Suite 300 Dallas, Texas 75240 (972) 701-0489 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) NONE (Former name, former address and former fiscal year, if changed since last report) 2 Item 2. ACQUISITION OF ASSETS On May 28, 1998, the Registrant purchased substantially all of the assets of Central Rents, Inc. used in or related to the operation of 176 rent-to-own stores (the "Stores") for approximately $100 million pursuant to that certain Asset Purchase Agreement, dated May 1, 1998, by and among the Registrant, Central Rents, Inc. ("Central"), Central Rents Holding, Inc. ("Holdings") and Banner Holdings, Inc. ("Banner"), as amended by that certain Letter Agreement, dated as of May 26, 1998, by and among the Registrant, Central, Holdings and Banner (collectively, the "Asset Purchase Agreement"). Pursuant to the Asset Purchase Agreement, the Registrant paid the purchase price in cash. The Registrant also assumed certain liabilities related to the assets acquired. The total purchase price and structure of the consideration paid was determined by negotiation between the Registrant, Central, Holdings and Banner. The source of the cash consideration was the proceeds from an advance under the Registrant's revolving credit facility with Comerica Bank, N.A., as agent. Prior to commencing negotiation of the Asset Purchase Agreement, there was no material relationship between (i) the Registrant, any of its affiliates, any of its officers or directors, or any associate of such officers and directors, and (ii) Central, Holdings Banner, any affiliates of Central, Holdings or Banner, any of the officers or directors of Central, Holdings or Banner or any associate of such officers and directors. The Registrant intends to continue operating the Stores as rent-to-own stores. The Stores are located in 20 states and generate approximately $100 million in annual revenue. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Incorporated herein by reference to Central Rents, Inc. Annual Report on Form 10-K for the year ended December 31, 1997. Incorporated herein by reference to Central Rents, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. (b) PRO FORMA FINANCIAL INFORMATION 2
Pro Forma financial information of Renters Choice, Inc. and Central Rents, Inc.: Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998 Page 3 Notes to Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998 Page 4 Unaudited Pro Forma Combined Statement of Operations for the Year ended December 31, 1997 Page 6 Notes to Unaudited Pro Forma Combined Statement of Operations For the Year ended December 31, 1997 Page 7 Unaudited Pro Forma Combined Statement of Operations the Three months ended March 31, 1998 Page 9 Notes to Unaudited Pro Forma Combined Statement of Operations For the three months ended March 31, 1998 Page 10 3 RENTERS CHOICE, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET MARCH 31, 1998 See accompanying notes. 3
RCI and RCI and Central Rents Central Rents Pro Forma Pro Forma Historical(1) Adjustments Combined ------------- ------------ ------------ (Dollars in Thousands) Assets Cash and cash equivalents $ 17,422 $ (11,509)(3) $ 5,913 Accounts receivable 4,592 (2,005)(3) 2,587 Rental Merchandise, net 148,860 (3,425)(3) 145,435 Prepaids and other assets 4,175 (1,666)(3) 2,509 Property assets, net 21,939 (1,911)(3) 20,028 Deferred income taxes 17,524 (11,045)(3) 6,479 Intangible assets, net 66,957 64,972 (3) 131,929 ------------ ------------ ------------ Total assets $ 281,469 $ 33,411 $ 314,880 ============ ============ ============ Liabilities Accounts payable $ 19,146 $ (2,964)(3) $ 16,182 Accrued liabilities 30,697 (9,506)(3) 21,191 Debt 73,346 42,943(3) 116,289 ------------ ------------ ------------ Total liabilities 123,189 30,473 153,662 Stockholders' Equity 158,280 2,938(3) 161,218 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 281,469 $ 33,411 $ 314,880 ============ ============ ============ 4 RENTERS CHOICE, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET MARCH 31, 1998 (In thousands, except per share data) (1) The following historical combined balance sheet data of the Company and Central Rents, Inc. as of March 31, 1998 has been derived from the unaudited interim financial statements of the respective entities. (2) The unaudited pro forma combined balance sheet gives effect to the Central Rents, Inc. acquisition as if it occurred on March 31, 1998. The acquisition has been accounted for as a purchase in accordance with the provisions of Accounting Principles Board Opinion No. 16, and accordingly, the purchase price has been allocated to the net assets acquired based on historical information available to management and preliminary estimates of fair market value. The final purchase price allocation is subject to refinement upon completion of a review of rental merchandise, property and equipment, and other assets. 4
RCI and Central Rents Historical RCI Central Rents Combined ------------ ------------- ------------ Assets Cash and cash equivalents $ 5,896 $ 11,526 $ 17,422 Accounts receivable 2,576 2,016 4,592 Rental Merchandise, net 117,137 31,723 148,860 Prepaids and other assets 2,509 1,666 4,175 Property assets, net 18,368 3,571 21,939 Deferred income taxes 6,479 11,045 17,524 Intangible assets, net 60,408 6,549 66,957 ------------ ------------ ------------ $ 213,373 $ 68,096 $ 281,469 ============ ============ ============ Liabilities Accounts payable $ 16,182 $ 2,964 $ 19,146 Accrued liabilities 21,064 9,633 30,697 Debt 14,909 58,437 73,346 ------------ ------------ ------------ 52,155 71,034 123,189 Stockholders' Equity 161,218 (2,938) 158,280 ------------ ------------ ------------ $ 213,373 $ 68,096 $ 281,469 ============ ============ ============ 5 (3) The aggregate purchase price paid by the Company and the related purchase accounting for the acquisition of certain Central Rents, Inc. net assets is as follows:
Aggregate purchase price of Central Rents, Inc. Purchase price $ 99,830 Acquisition costs 1,550 ------ Borrowings under revolving credit agreement required to finance the Central Rents, Inc. acquisition $101,380 ======= 5
Pro Forma Central Central Adjustment Rents Rents Increase Historical Pro Forma (Decrease) ------------ ------------ ------------ Allocation of purchase price: Cash $ 11,526 $ 17 $ (11,509) Accounts receivables 2,016 11 (2,005) Rental merchandise, net 31,723 28,298 (3,425) Prepaids and other assets 1,666 -- (1,666) Property assets, net 3,571 1,660 (1,911) Deferred income taxes 11,045 -- (11,045) Intangible assets 6,549 71,521 64,972 ------------ ------------ ------------ Total assets $ 68,096 $ 101,507 $ 33,411 ============ ============ ============ Accounts payable $ 2,964 $ -- $ (2,964) Accrued liabilities 9,633 127 (9,506) Debt58,437 101,380 42,943 Stockholders' equity (2,938) -- 2,938 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 68,096 $ 101,507 $ 33,411 ============ ============ ============ 6 RENTERS CHOICE, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 See accompanying notes. 6
RCI and RCI and Central Rents Central Rents Pro Forma Pro Forma Historical(1) Adjustments Combined ------------- ------------ ------------ (Dollars in Thousands, except per share data) Revenues Store Rentals and fees $ 373,926 $ -- $ 373,926 Merchandise sales 18,972 -- 18,972 Other 793 -- 793 Franchise Merchandise sales 37,385 -- 37,385 Royalty income and fees 4,008 -- 4,008 ------------ ------------ ------------ Total revenues $ 435,084 -- $ 435,084 Operating Expenses Direct store expenses Depreciation of rental merchandise $ 87,630 -- $ 87,630 Cost of merchandise sold 14,885 -- 14,885 Salaries and other expenses 162,458 57,844 220,342 Franchise cost of merchandise sold 35,841 -- 35,841 General and administrative expenses 77,559 (60,484)(3) 17,075 Amortization of intangibles 6,957 939 7,896 ------------ ------------ ------------ Total Operating Expenses 385,330 (1,661) 383,669 Operating profit 49,754 1,661 51,415 Interest expense 10,043 (752)(5) 9,291 Interest income (304) -- (304) ------------ ------------ ------------ Earnings before income taxes 40,015 2,413 42,428 Income tax expense (benefit) 17,044 965 18,009 ------------ ------------ ------------ Net earnings $ 22,971 $ 1,448 $ 24,419 ============ ============ ============ Basic weighted average common shares outstanding 24,844 Diluted weighted average common shares outstanding 25,194 Basic earnings per common share $ 0.98 ============ Diluted earnings per common share $ 0.97 ============ 7 RENTERS CHOICE, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (In thousands, except per share data) (1) The following historical combined statement of operations of the Company and Central Rents, Inc. for the year ended December 31, 1997 has been derived from the audited financial statements of the respective entities. 7
RCI and Central Rents Historical RCI Central Rents Combined ------------ ------------- ------------ (Dollars in Thousands) Revenues Store Rentals and fees $ 275,344 $ 98,582 $ 373,926 Merchandise sales 14,125 4,847 18,972 Other 679 114 793 Franchise Merchandise sales 37,385 -- 37,385 Royalty income and fees 4,008 -- 4,008 ------------ ------------ ------------ Total revenues $ 331,541 $ 103,543 $ 435,084 Operating Expenses Direct store expenses Depreciation of rental merchandise 57,223 30,407 $ 87,630 Cost of merchandise sold 11,365 3,520 14,885 Salaries and other expenses 162,458 -- 162,458 Franchise cost of merchandise sold 35,841 -- 35,841 General and administrative expenses 13,304 64,255 77,559 Amortization of intangibles 5,412 1,545 6,957 ------------ ------------ ------------ Total Operating Expenses 285,603 99,727 385,330 Operating profit 45,938 3,816 49,754 Interest expense 2,194 7,849 10,043 Interest income (304) -- (304) ------------ ------------ ------------ Earnings before income taxes 44,048 (4,033) 40,015 Income tax expense (benefit) 18,170 (1,126) 17,044 ------------ ------------ ------------ Net earnings $ 25,878 $ (2,907) $ 22,971 ============ ============ ============ Basic weighted average common shares outstanding 24,844 ============ Diluted weighted average common shares outstanding 25,194 ============ Basic earnings per common share $ 1.04 ============ Diluted earnings per common share $ 1.03 ============ 8 (2) The unaudited pro forma combined statement of operations gives effect to the Central Rents, Inc. acquisition as if it occurred on January 1, 1997. The acquisition has been accounted for as a purchase in accordance with the provisions of Accounting Principles Board Opinion No. 16, and accordingly, the purchase price has been allocated to the net assets acquired based on historical information available to management and preliminary estimates of fair market value. The final purchase price allocation is subject to refinement upon completion of a review of rental merchandise, property and equipment, and other assets. (3) (4) Reversal of historical intangible amortization and record the pro forma intangible amortization required as a result of the Central Rents, Inc. acquisition using estimated useful lives of 5 years for the noncompete agreement and 30 years for excess costs over fair market value of net assets acquired:
Increase (decrease) -------------------------- Store Expenses General and Salaries Administrative and Other Expenses ----------- ------------- Reclassification of Central Rents, Inc. other store expenses to conform with the Company's presentation $57,684 $(57,684) Elimination of duplicate corporate overhead and additional field expenses as a result of the Central Rents, Inc. acquisition 200 (2,800) ------- -------- $57,884 $(60,484) ======= ======== (5) Change in interest expense for three months as a result of borrowings on the existing revolving credit agreement used to finance the Central Rents, Inc. acquisition:
Reversal of historical intangible amortization $ (1,545) Pro forma intangible amortization 2,484 --------- $ 939 ========= (6) Income tax expense adjustment related to the effects of the Central Rents, Inc. acquisition pro forma adjustments at a 40% effective tax rate. 8
Borrowings of $101.4 million at 7% on the existing revolving credit agreement used to finance the Central Rents, Inc. acquisition $ 7,097 Elimination of historical interest expense for Central Rents, Inc. (7,849) -------- $ (752) ======== 9 RENTERS CHOICE, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 See accompanying notes. 9
RCI and RCI and Central Rents Central Rents Pro Forma Pro Forma Historical(1) Adjustments Combined ------------ ------------ ------------ (Dollars in Thousands, except per share data) Revenues Store Rentals and fees $ 99,143 $ -- $ 99,143 Merchandise sales 7,446 -- 7,446 Other 118 -- 118 Franchise Merchandise sales 7,621 -- 7,621 Royalty income and fees 1,106 -- 1,106 ------------ ------------ ------------ Total revenues 115,434 -- 115,434 Operating Expenses Direct store expenses Depreciation of rental merchandise 23,169 -- 23,169 Cost of merchandise sold 5,612 -- 5,612 Salaries and other expenses 44,497 14,171(3) 58,668 Franchise cost of merchandise sold 7,343 -- 7,343 General and administrative expenses 18,938 (14,821)(3) 4,117 Amortization of intangibles 1,453 556(4) 2,009 ------------ ------------ ------------ Total Operating Expenses 101,012 (94) 100,918 Operating profit 14,422 94 14,516 Interest expense 2,429 (205)(5) 2,224 Interest income (114) -- (114) ------------ ------------ ------------ Earnings before income taxes 12,107 299 12,406 Income tax expense (benefit) 5,079 120(6) 5,199 ------------ ------------ ------------ Net earnings $ 7,028 $ 179 $ 7,207 ============ ============ ============ Basic weighted average common shares outstanding 24,921 Diluted weighted average common shares outstanding 25,171 Basic earnings per common share $ 0.29 ============ Diluted earnings per common share $ 0.29 ============ 10 RENTERS CHOICE, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 (In Thousands, except per share data) (1) The following historical combined statement of operations of the Company and Central Rents, Inc. for the three months ended March 31, 1998 have been derived from the unaudited interim financial statements of the respective entities. 10
RCI and Central Rents Historical RCI Central Rents Combined ------------ ------------- ------------ Revenues Store Rentals and fees $ 75,426 $ 23,717 $ 99,143 Merchandise sales 5,962 1,484 7,446 Other 118 -- 118 Franchise Merchandise sales 7,621 -- 7,621 Royalty income and fees 1,106 -- 1,106 ------------ ------------ ------------ Total revenues 90,233 25,201 115,434 Operating Expenses Direct store expenses Depreciation of rental merchandise 15,505 7,664 23,169 Cost of merchandise sold 4,554 1,058 5,612 Salaries and other expenses 44,497 -- 44,497 Franchise cost of merchandise sold 7,343 -- 7,343 General and administrative expenses 3,225 15,713 18,938 Amortization of intangibles 1,388 65 1,453 ------------ ------------ ------------ Total Operating Expenses 76,512 24,500 101,012 Operating profit 13,721 701 14,422 Interest expense 450 1,979 2,429 Interest income (114) -- (114) ------------ ------------ ------------ Earnings before income taxes 13,385 (1,278) 12,107 Income tax expense (benefit) 5,529 (450) 5,079 ------------ ------------ ------------ Net earnings $ 7,856 $ (828) $ 7,028 ============ ============ ============ Basic weighted average common shares outstanding 24,921 ============ Diluted weighted average common shares outstanding 25,171 ============ Basic earnings per common share $ 0.32 ============ Diluted earnings per common share $ 0.31 ============ 11 (2) The unaudited pro forma combined statement of operations gives effect to the Central Rents, Inc. acquisition as if it occurred on January 1, 1997. The acquisition has been accounted for as a purchase in accordance with the provisions of Accounting Principles Board Opinion No. 16, and accordingly, the purchase price has been allocated to the net assets acquired based on historical information available to management and preliminary estimates of fair market value. The final purchase price allocation is subject to refinement upon completion of a review of rental merchandise, property and equipment, and other assets. (3) (4) Reversal of historical intangible amortization and record the pro forma intangible amortization required as a result of the Central Rents, Inc. acquisition using estimated useful lives of 5 years for the noncompete agreement and 30 years for excess costs over fair market value of net assets acquired:
Increase (decrease) ------------------------------ Store Expenses General and Salaries Administrative and Other Expenses ------------ ------------- Reclassification of Central Rents, Inc. other store expenses to conform with the Company's presentation $ 14,121 $ (14,121) Elimination of duplicate corporate overhead and additional field expenses as a result of the Central Rents, Inc. acquisition 50 (700) --------- --------- $ 14,171 $ (14,821) ========= ========= (5) Change in interest expense for three months as a result of borrowings on the existing revolving credit agreement used to finance the Central Rents, Inc. acquisition:
Reversal of historical intangible amortization $ (65) Pro forma intangible amortization 621 ------- $ 556 ======= (6) Income tax expense adjustment related to the effects of the Central Rents, Inc. acquisition pro forma adjustments at a 40% effective tax rate. 11
Borrowings of $101.4 million at 7% on the existing revolving credit agreement used to finance the Central Rents, Inc. acquisition $ 1,774 Elimination of historical interest expense for Central Rents, Inc. (1,979) -------- $ (205) ======== 12 (c) EXHIBITS 2.1 Asset Purchase Agreement, dated May 1, 1998, by and among the Registrant, Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc.* 2.2 Letter Agreement, dated as of May 26, 1998, by and among the Registrant, Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc. with respect to Exhibit 2.1* 23.1 Consent of Arthur Anderson, L.L.P. - ---------------------------- *Previously filed 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. RENTERS CHOICE, INC. By: /s/ J. ERNEST TALLEY ------------------------- J. Ernest Talley Chief Executive Officer Date: August 7, 1998 13 14 EXHIBIT INDEX --------------------------- *Previously Filed 14
EXHIBIT NO. DESCRIPTION 2.1 Asset Purchase Agreement, dated May 1, 1998, by and among the Registrant, Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc.* 2.2 Letter Agreement, dated as of May 26, 1998, by and among the Registrant, Central Rents, Inc., Central Rents Holding, Inc. and Banner Holdings, Inc., with respect to Exhibit 2.1* 23.1 Consent of Arthur Anderson, L.L.P.
1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT As independent public accountants, we hereby consent to the incorporation by reference in this Form 8-K/A of our report dated March 19, 1998 relating to Central Rents, Inc. included in Commission File Number 0-25370 for Renters Choice, Inc. It should be noted that we have not audited any financial statements of Central Rents, Inc. subsequent to December 31, 1997 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Los Angeles, CA August 3, 1998 15