EX-99.2 4 d43004exv99w2.htm UNAUDITED PRO FORMA exv99w2
 

Exhibit 99.2
RENT-A-CENTER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
As of September 30, 2006
                                 
                    Pro Forma   Pro Forma
    Rent-A-Center   Rent-Way   Adjustments   Consolidated
(In thousands)                     
ASSETS
                               
Cash and cash equivalents
  $ 53,706     $ 10,739     $ (19,192 )(a)   $ 45,253  
Accounts receivable, net
    21,332       48             21,380  
Prepaid expenses and other assets
    47,303       14,763       (3,712 )(b)     58,354  
Rental merchandise, net
                       
On rent
    638,091       162,349             800,440  
Held for rent
    195,086       46,655             241,741  
Merchandise held for installment sale
    1,928       10             1,938  
Property assets, net
    158,520       45,847             204,367  
Goodwill, net
    945,278       187,500       326,092  (c)     1,458,870  
 
                (187,500 )(d)     (187,500 )
Intangible assets, net
    3,481       1,831       23,850  (e)     29,162  
 
                       
 
                               
 
  $ 2,064,725     $ 469,742     $ 139,538     $ 2,674,005  
 
                       
 
                               
LIABILITIES
                               
Accounts payable — trade
  $ 116,091     $ 15,100     $     $ 131,191  
Accrued liabilities
    215,764       70,841       35,008  (f)     321,613  
Deferred income taxes
    126,822       20,742       (124,057 )(g)     23,507  
Senior debt
    358,468       26,000       600,000  (a)     958,468  
 
                (26,000 )(h)      
Subordinated notes payable
    300,000       202,741       (202,741 )(h)     300,000  
Convertible preferred stock
          23,721       (23,721 )(h)      
 
                       
 
                               
 
    1,117,145       359,145       258,489       1,734,779  
 
                               
STOCKHOLDERS’ EQUITY
                               
Common stock
    1,039       305,073       (305,073 )(i)     1,039
Additional paid-in capital
    653,833       1,895       (1,895 )(i)     653,833  
Retained earnings
    1,006,798       (196,180 )     187,826  (i)(j)     998,444  
Treasury stock
    (714,090 )     (191 )     191 (i)     (714,090 )
 
                       
 
                               
 
    947,580       110,597       (118,951 )     939,226  
 
                       
 
                               
 
  $ 2,064,725     $ 469,742     $ 139,538     $ 2,674,005  
 
                       

 


 

RENT-A-CENTER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF EARNINGS
For the Nine Months Ended September 30, 2006
                                 
                    Pro Forma     Pro Forma  
    Rent-A-Center     Rent-Way     Adjustments     Consolidated  
(In thousands, except per share data)                
Revenues
                               
Store
                               
Rentals and fees
  $ 1,579,719     $ 365,030     $ 43 (p)   $ 1,944,792  
Merchandise sales
    138,934       31,895             170,829  
Installment sales
    18,377                   18,377  
Other
    10,263       12,180             22,443  
Franchise
                               
Merchandise sales
    26,752                   26,752  
Royalty income and fees
    3,737                   3,737  
 
                       
 
    1,777,782       409,105       43       2,186,930  
 
                               
Operating expenses
                               
Direct store expenses
                               
Cost of rentals and fees
    344,518       89,148             433,666  
Cost of merchandise sold
    100,955       30,636             131,591  
Cost of installment sales
    7,677                   7,677  
Salaries and other expenses
    1,012,263       212,113       (323 )(p)     1,224,053  
Franchise cost of merchandise sold
    25,659                   25,659  
 
                       
 
    1,491,072       331,897       (323 )     1,822,646  
 
                               
General and administrative expenses
    66,017       48,529             114,546  
Amortization of intangibles
    2,845       613       8,906 (k)     12,364  
Litigation settlement/(reversion)
    15,300                   15,300  
 
                       
 
                               
Total operating expenses
    1,575,234       381,039       8,583       1,964,856  
 
                               
Operating profit
    202,548       28,066       (8,540 )     222,074  
 
                               
Finance charges from refinancing
    2,165                   2,165  
Interest expense
    39,646       29,670       2,606 (l)     71,922  
Interest income
    (4,194 )     (435 )           (4,629 )
 
                       
 
                               
Earnings before income taxes
    164,931       (1,169 )     (11,146 )     152,616  
 
                               
Income tax expense
    59,519       6,310       (10,754 )(m)     55,075  
 
                       
 
                               
NET EARNINGS
    105,412       (7,479 )     (392 )     97,541  
 
                               
Preferred stock dividend
          1,816       (1,816 )(n)      
 
                       
 
                               
Net earnings allocable to common stockholders
  $ 105,412     $ (9,295 )   $ 1,424     $ 97,541  
 
                       
 
                               
Net income per common share:
                               
Basic
  $ 1.52                     $ 1.40  
Diluted
  $ 1.49                     $ 1.38  
 
                               
Weighted average shares outstanding:
                               
Basic
    69,536                       69,536  
Diluted
    70,581                       70,581  

 


 

RENT-A-CENTER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF EARNINGS
For the Twelve Months Ended December 31, 2005
                                 
                    Pro Forma     Pro Forma  
    Rent-A-Center     Rent-Way     Adjustments     Consolidated  
(In thousands, except per share data)                
Revenues
                               
Store
                               
Rentals and fees
  $ 2,084,757     $ 463,094     $ (857 )(p)   $ 2,546,994  
Merchandise sales
    177,292       38,531             215,823  
Installment sales
    26,139                   26,139  
Other
    7,903       16,394             24,297  
Franchise
                               
Merchandise sales
    37,794                   37,794  
Royalty income and fees
    5,222                   5,222  
 
                       
 
    2,339,107       518,019       (857 )     2,856,269  
 
                               
Operating expenses
                               
Direct store expenses
                               
Cost of rentals and fees
    452,583       111,279             563,862  
Cost of merchandise sold
    129,624       36,448             166,072  
Cost of installment sales
    10,889                   10,889  
Salaries and other expenses
    1,358,760       273,161       101  (p)     1,632,022  
Franchise cost of merchandise sold
    36,319                   36,319  
 
                       
 
    1,988,175       420,888       101       2,409,164  
 
                               
General and administrative expenses
    82,290       56,203             138,493  
Amortization of intangibles
    11,705       380       11,874  (k)     23,959  
Litigation settlement/(reversion)
    15,166                   15,166  
Restructuring charge
    (8,000 )                 (8,000 )
 
                       
 
                               
Total operating expenses
    2,089,336       477,471       11,975       2,578,782  
 
                               
Operating profit
    249,771       40,548       (12,832 )     277,487  
                                 
Interest expense
    46,195       21,815       29,091  (o)     97,101  
Interest income
    (5,492 )     (126 )           (5,618 )
 
                       
 
                               
Earnings before income taxes
    209,068       18,859       (41,923 )     186,004  
 
                               
Income tax expense
    73,330       8,584       (16,674 )(m)     65,240  
 
                       
                                 
NET EARNINGS
    135,738       10,275       (25,249 )     120,764  
 
                               
Preferred stock dividend
          2,230       (2,230 )(n)      
 
                       
 
                               
Net earnings allocable to common stockholders
  $ 135,738     $ 8,045     $ (23,019 )   $ 120,764  
 
                       
 
                               
Net income per common share:
                               
Basic
  $ 1.86                     $ 1.65  
Diluted
  $ 1.83                     $ 1.63  
 
                               
Weighted average shares outstanding:
                               
Basic
    73,018                       73,018  
Diluted
    74,108                       74,108  


 

Notes to Unaudited Pro Forma Financial Statements
Basis of Presentation. On November 15, 2006, Rent-A-Center, Inc., completed its acquisition of Rent-Way, Inc., and its subsidiaries, whereby Rent-Way became a wholly owned subsidiary of Rent-A-Center, Inc., in a transaction accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations”. The total purchase price of approximately $619.2 million includes cash payments and borrowings under our senior credit facilities and direct transaction costs of approximately $11.0 million. The maturity date of the senior credit facilities is June 30, 2012. A variance of 1/8 percent in the interest rate would affect income by $358,000 and $484,000 at September 30, 2006 and December 31, 2005, respectively.
The total purchase price of the merger is as follows (in thousands):
         
Cash
  $ 608,192  
Direct transaction costs
    11,000  
 
     
Total purchase price
  $ 619,192  
 
     
The allocation of the purchase price is preliminary pending the completion of various analyses and finalization of estimates. The allocation of the purchase price and estimated useful lives and first year amortization associated with certain assets is as follows (in thousands):
                         
            First Year     Estimated  
    Amount     Amortization     Useful Life  
Net tangible assets
  $ 110,597                  
Customer contracts and relationships and non-compete agreements
    23,850     $ 11,874     2-5 years
Financing costs
    4,049       230       6 years    
Debt payment
    252,463                  
Deferred tax assets
    124,057                  
Accrued restructuring charges
    (34,416 )                
Goodwill, net
    138,592                  
 
                     
Total purchase price
  $ 619,192                  
 
                     
Reclassifications. Certain reclassification adjustments have been made to conform Rent-Way’s historical reported balances to the pro forma combined condensed financial statement basis of presentation. The balance sheet reclassifications are as follows:
                         
                    Rent-Way
(In thousands)   Rent-Way   Reclassifications   Reclassified
ASSETS
                       
Cash and cash equivalents
  $ 10,782     $ (43 )   $ 10,739  
Accounts receivable, net
          48       48  
Prepaid expenses and other assets
    17,304       (2,541 )     14,763  
Rental merchandise, net
                       
On rent
    208,404       (46,055 )     162,349  
Held for rent
          46,655       46,655  
Merchandise held for installment sale
          10       10  
Property assets, net
    45,709       138       45,847  
Goodwill, net
    187,500             187,500  
Intangible assets, net
    1,831             1,831  
 
                 
 
 
  $ 471,530     $ (1,788 )   $ 469,742  
 
                 
 
                       
LIABILITIES
                       
Accounts payable — trade
  $ 20,677     $ (5,577 )   $ 15,100  
Accrued liabilities
    67,049       3,792       70,841  
Deferred income taxes
    20,742             20,742  
Senior debt
    228,744       (202,744 )     26,000  
Subordinated notes
          202,741       202,741  
Convertible preferred stock
    23,721             23,721  
 
                 
 
 
    360,933       (1,788 )     359,145  
 
                       
STOCKHOLDERS’ EQUITY
                       
Common stock
    305,073             305,073  
Additional paid-in capital
    1,895             1,895  
Retained earnings
    (196,180 )           (196,180 )
Treasury stock
    (191 )           (191 )
 
                 
 
                       
 
    110,597             110,597  
 
                 
 
                       
 
  $ 471,530     $ (1,788 )   $ 469,742  
 
                 

 


 

The income statement reclassifications for the nine months ended September 30, 2006, are as follows:
                         
                    Rent-Way
    Rent-Way   Reclassifications   Reclassified
(In thousands)      
Revenues
                       
Store
                       
Rentals and fees
  $ 343,455     $ 21,575     $ 365,030  
Merchandise sales
          31,895       31,895  
Installment sales
                 
Other revenue
    65,274       (53,094 )     12,180  
Franchise
                       
Merchandise sales
                 
Royalty income and fees
                 
 
                 
 
    408,729       376       409,105  
 
                       
Operating expenses
                       
Direct store expenses
                       
Cost of rentals and fees
    119,981       (30,833 )     89,148  
Cost of merchandise sold
    7,361       23,275       30,636  
Cost of installment sales
                 
Salaries and other expenses
    255,356       (43,243 )     212,113  
Franchise cost of merchandise sold
                 
 
                 
 
    382,698       (50,801 )     331,897  
 
                       
General and administrative expenses
    90       48,439       48,529  
Amortization of intangibles
    613             613  
 
                 
 
                       
Total operating expenses
    383,401       (2,362 )     381,039  
 
                       
Operating profit
    25,328       2,738       28,066  
 
                       
Interest expense
    29,564       106       29,670  
Interest income
    (435 )           (435 )
 
                 
 
                       
Earnings before income taxes
    (3,801 )     2,632       (1,169 )
 
                       
Income tax expense
    3,678       2,632       6,310  
 
                 
 
                       
Net loss before discontinued operations
    (7,479 )           (7,479 )
 
                       
Preferred stock dividend
    1,816             1,816  
 
                 
 
                       
Net loss before discontinued operations
  $ (9,295 )   $     $ (9,295 )
 
                 

 


 

The income statement reclassifications for the twelve months ended December 31, 2005, are as follows:
                         
                    Rent-Way
    Rent-Way   Reclassifications   Reclassified
(In thousands)      
Revenues
                       
Store
                       
Rentals and fees
  $ 434,480     $ 28,614     $ 463,094  
Merchandise sales
          38,531       38,531  
Installment sales
                 
Other revenue
    83,738       (67,344 )     16,394  
Franchise
                       
Merchandise sales
                 
Royalty income and fees
                 
 
                 
 
    518,218       (199 )     518,019  
 
                       
Operating expenses
                       
Direct store expenses
                       
Cost of rentals and fees
    148,979       (37,700 )     111,279  
Cost of merchandise sold
    10,403       26,045       36,448  
Cost of installment sales
                 
Salaries and other expenses
    321,558       (48,397 )     273,161  
Franchise cost of merchandise sold
                 
 
                 
 
    480,940       (60,052 )     420,888  
 
                       
General and administrative expenses
    120       56,083       56,203  
Amortization of intangibles
    380             380  
 
                 
 
                       
Total operating expenses
    481,440       (3,969 )     477,471  
 
                       
Operating profit
    36,778       3,770       40,548  
 
                       
Interest expense
    21,275       540       21,815  
Interest income
    (126 )           (126 )
 
                 
 
                       
Earnings before income taxes
    15,629       3,230       18,859  
 
                       
Income tax expense
    5,354       3,230       8,584  
 
                 
 
                       
Net loss before discontinued operations
    10,275             10,275  
 
                       
Preferred stock dividend
    2,230             2,230  
 
                 
 
                       
Net loss before discontinued operations
  $ 8,045     $     $ 8,045  
 
                 
Pro Forma Adjustments. Pro forma adjustments are necessary to reflect the purchase price and to conform accounting of deferred revenue from Rent-Way’s policy to be in accordance with Rent-A-Center’s policy.
The following pro forma adjustments are reflected in the financial statements:
  (a)   Includes $19.2 million in cash and a $600.0 million increase to our senior credit facility for the purchase price of Rent-Way.
 
  (b)   Consists of $4.0 in financing fees for the new senior credit facility, net of a write-off of $2.6 million in financing costs for our previous senior credit facility and a write-off of $5.1 million in financing costs for Rent-Way’s credit facilities.
 
  (c)   Reflects the addition of goodwill.
 
  (d)   Consists of the elimination of Rent-Way goodwill.
 
  (e)   Consists of customer contracts of $23.6 million and non-compete agreements of $250,000 resulting from the acquisition.
 
  (f)   Accrued liabilities include an increase of approximately $600,000 related to the conformity of accounting policies for deferred revenue and $34.4 million related to accrued restructuring charges.
 
  (g)   Consists of previously unrecognized deferred tax assets that are considered more likely than not to be realized as a result of the acquisition.
 
  (h)   Consists of the elimination of Rent-Way’s debt and convertible preferred stock.
 
  (i)   Consists of the elimination of Rent-Way’s equity.
 
  (j)   Includes adjustment of approximately $600,000 for conformity of accounting policies for deferred revenue, write-off of $2.6 million in our financing costs and $5.1 million in Rent-Way’s financing costs.
 
  (k)   Consists of amortization expense for customer contracts and non-compete agreements.
 
  (l)   Reflects interest expense of $31.7 million related to $600 million in additional credit facility, an elimination of $29.3 million of Rent-Way’s interest expense related to their debt and approximately $195,000 in amortization of accrued financing costs.
 
  (m)   Previously expensed items for income tax expense would not have been recognized if the acquisition had occurred on January 1st of the respective periods.
 
  (n)   Consists of the elimination of the preferred stock dividend.
 
  (o)   Reflects interest expense of $42.8 million related to $600 million in additional credit facility, an elimination of $21.7 million of Rent-Way’s interest expense related to their debt, write-off of Rent-A-Center’s accrued financing costs of $2.6 million, write-off of Rent-Way’s accrued financing costs of $5.1 million and approximately $230,000 in amortization of accrued financing costs.
 
  (p)   Consists of adjustment for conformity of accounting policies for deferred revenue.