##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission
File Number 0-22026
 RENT-WAY, INC.
  
 PENNSYLVANIA
    

25-1407782(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification No.)
 ONE RENTWAY PLACE, ERIE, PENNSYLVANIA 16505
 (814) 455-5378
 þ o
 þ o
  Class
    
    Outstanding as of August 5 2005Common Stock
    
    26,266,676




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RENT-WAY, INC.
 PAGEPART I FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
(unaudited):Consolidated Balance Sheets as of June 30, 2005 and September 30, 2004
    
    
    3Consolidated
Statements of Operations, three and nine-months ended June 30, 2005 and 2004
    
    
    4Consolidated
Statements of Cash Flows, nine-months ended June 30, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4.
    
    Controls and Procedures
    
    
    43PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    45Item 5.
    
    Other Information
    
    
    45Item 6.
    
    Exhibits
    
    
    45Signatures
    
    
    46Ex-3.3Ex-12.1Ex-31.1Ex-31.2Ex-32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  RENT-WAY, INC.
 
 
 June 30
    
    September 30,2005
    
    2004(restated)ASSETSCash and cash equivalents
    
    $
    3,887
    
    
    $
    3,412Prepaid expenses
    
    
    9,774
    
    
    
    8,496Rental merchandise, net
    
    
    197,967
    
    
    
    173,929Rental merchandise credits due from vendors
    
    
    2,692
    
    
    
    3,242Property and equipment, net
    
    
    46,665
    
    
    
    39,542Goodwill
    
    
    189,022
    
    
    
    188,849Deferred financing costs, net
    
    
    6,565
    
    
    
    7,420Intangible assets, net
    
    
    211
    
    
    
    112Other assets
    
    
    6,940
    
    
    
    6,126Total assets
    
    $
    463,723
    
    
    $
    431,128LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Accounts payable
    
    $
    17,309
    
    
    $
    26,187Other liabilities
    
    
    56,853
    
    
    
    61,484Deferred tax liability
    
    
    14,681
    
    
    
    10,496Debt
    
    
    234,211
    
    
    
    203,934Total liabilities
    
    
    323,054
    
    
    
    302,101Contingencies
    
    
    
    
    
    
    Convertible redeemable preferred stock
    
    
    26,761
    
    
    
    19,790Shareholders equity:Preferred stock, without par value; 1,000,000 shares
authorized; 2,000 shares issued and outstanding
as Series A convertible preferred shares
    
    
    
    
    
    
    Common stock, without par value; 50,000,000 shares
authorized; 26,263,476 and 26,243,676 shares issued and
outstanding, respectively
    
    
    304,472
    
    
    
    304,395Accumulated other comprehensive loss
    
    
    (9
    )
    
    
    (93
    )Accumulated deficit
    
    
    (190,555
    )
    
    
    (195,065
    )Total shareholders equity
    
    
    113,908
    
    
    
    109,237Total liabilities and shareholders equity
    
    $
    463,723
    
    
    $
    431,128
 The accompanying notes are an integral part of these financial statements.
 3




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##### Table of Contents



RENT-WAY, INC.
 
 
 Three-Months Ended
    
    Nine-months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Restated)
    
    (Restated)
    
    (Restated)REVENUES:Rental revenue
    
    $
    108,455
    
    
    $
    103,211
    
    
    $
    328,596
    
    
    $
    316,514Prepaid phone service revenue
    
    
    4,313
    
    
    
    6,602
    
    
    
    13,617
    
    
    
    19,676Other revenues
    
    
    15,529
    
    
    
    15,069
    
    
    
    48,579
    
    
    
    47,198Total revenues
    
    
    128,297
    
    
    
    124,882
    
    
    
    390,792
    
    
    
    383,388COSTS AND OPERATING EXPENSES:Depreciation and amortization:Rental merchandise
    
    
    31,949
    
    
    
    31,429
    
    
    
    100,471
    
    
    
    101,349Property and equipment
    
    
    3,732
    
    
    
    3,836
    
    
    
    12,145
    
    
    
    12,240Amortization of intangibles
    
    
    195
    
    
    
    86
    
    
    
    251
    
    
    
    310Cost of prepaid phone service
    
    
    2,684
    
    
    
    4,075
    
    
    
    8,460
    
    
    
    13,007Salaries and wages
    
    
    35,580
    
    
    
    33,192
    
    
    
    105,164
    
    
    
    100,552Advertising, net
    
    
    5,438
    
    
    
    4,986
    
    
    
    15,524
    
    
    
    15,387Occupancy
    
    
    9,526
    
    
    
    8,560
    
    
    
    27,874
    
    
    
    25,426Restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Other operating expenses
    
    
    26,886
    
    
    
    26,392
    
    
    
    83,133
    
    
    
    79,511Total costs and operating expenses
    
    
    115,990
    
    
    
    112,556
    
    
    
    353,022
    
    
    
    347,830Operating income
    
    
    12,307
    
    
    
    12,326
    
    
    
    37,770
    
    
    
    35,558OTHER INCOME (EXPENSE):Interest expense
    
    
    (7,304
    )
    
    
    (7,398
    )
    
    
    (21,662
    )
    
    
    (22,919
    )Interest income
    
    
    9
    
    
    
    9
    
    
    
    22
    
    
    
    792Amortization of deferred financing costs
    
    
    (289
    )
    
    
    (227
    )
    
    
    (854
    )
    
    
    (748
    )Other income (expense)
    
    
    (4,362
    )
    
    
    1,600
    
    
    
    (4,601
    )
    
    
    (1,493
    )Income before income taxes and discontinued operations
    
    
    361
    
    
    
    6,310
    
    
    
    10,675
    
    
    
    11,190Income tax expense
    
    
    1,395
    
    
    
    1,395
    
    
    
    4,185
    
    
    
    4,185Income (loss) before discontinued operations
    
    
    (1,034
    )
    
    
    4,915
    
    
    
    6,490
    
    
    
    7,005Loss from discontinued operations
    
    
    (181
    )
    
    
    (12
    )
    
    
    (361
    )
    
    
    (1,722
    )Net income (loss)
    
    
    (1,215
    )
    
    
    4,903
    
    
    
    6,129
    
    
    
    5,283Dividend and accretion of preferred stock
    
    
    (549
    )
    
    
    (487
    )
    
    
    (1,619
    )
    
    
    (1,286
    )Net income (loss) allocable to common shareholders
    
    $
    (1,764
    )
    
    $
    4,416
    
    
    $
    4,510
    
    
    $
    3,997EARNINGS (LOSS) PER COMMON SHARE (NOTE 5):Basic earnings (loss) per common share:Income (loss) before discontinued operations
    
    $
    (0.04
    )
    
    $
    0.19
    
    
    $
    0.24
    
    
    $
    0.27Net income (loss) allocable to common shareholders
    
    $
    (0.07
    )
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.15Diluted earnings (loss) per common share:Income (loss) before discontinued operations
    
    $
    (0.04
    )
    
    $
    0.16
    
    
    $
    0.24
    
    
    $
    0.26Net income (loss) allocable to common shareholders
    
    $
    (0.07
    )
    
    $
    0.16
    
    
    $
    0.17
    
    
    $
    0.15Weighted average common shares outstanding:Basic
    
    
    26,250
    
    
    
    26,216
    
    
    
    26,246
    
    
    
    26,155Diluted
    
    
    26,250
    
    
    
    30,125
    
    
    
    26,778
    
    
    
    26,700
 The accompanying notes are an integral part of these financial statements.
 4




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RENT-WAY, INC.
 
 
 Nine-months EndedJune 30,2005
    
    2004(Restated)
    
    (Restated)OPERATING ACTIVITIES:Net income
    
    $
    6,129
    
    
    $
    5,283Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Loss from discontinued operations
    
    
    361
    
    
    
    1,722Depreciation and amortization
    
    
    114,104
    
    
    
    114,852Deferred income taxes
    
    
    4,185
    
    
    
    4,185Market adjustment for interest rate swap derivative
    
    
    (1,408
    )
    
    
    (3,009
    )Market adjustment for preferred stock conversion option derivative
    
    
    6,551
    
    
    
    5,469Write-off of property and equipment
    
    
    254
    
    
    
    303Changes in assets and liabilities:Restricted cash
    
    
    
    
    
    
    10,000Prepaid expenses
    
    
    (1,280
    )
    
    
    (2,643
    )Rental merchandise
    
    
    (124,328
    )
    
    
    (94,677
    )Rental merchandise deposits and credits due from vendors
    
    
    550
    
    
    
    802Income tax receivable
    
    
    
    
    
    
    4,227Other assets
    
    
    (838
    )
    
    
    (2,055
    )Accounts payable
    
    
    (3,979
    )
    
    
    (14,966
    )Other liabilities
    
    
    (6,031
    )
    
    
    (23,491
    )Net cash (used in) provided by continuing operations
    
    
    (5,730
    )
    
    
    6,002Net cash used in discontinued operations
    
    
    (361
    )
    
    
    (695
    )Net cash (used in) provided by operating activities
    
    
    (6,091
    )
    
    
    5,307INVESTING ACTIVITIES:Purchase of business, net of cash acquired
    
    
    (754
    )
    
    
    (230
    )Purchases of property and equipment
    
    
    (11,008
    )
    
    
    (5,697
    )Net cash used in investing activities
    
    
    (11,762
    )
    
    
    (5,927
    )FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    100,000
    
    
    
    93,000Payments on borrowings
    
    
    (68,022
    )
    
    
    (88,014
    )Payments on note for settlement of class action lawsuit
    
    
    (2,000
    )
    
    
    (2,000
    )Payments on capital leases
    
    
    (5,629
    )
    
    
    (5,971
    )Cash overdraft
    
    
    (4,901
    )
    
    
    (1,226
    )Issuance of common stock
    
    
    77
    
    
    
    938Proceeds from convertible preferred stock
    
    
    
    
    
    
    5,000Dividends paid on convertible redeemable preferred stock
    
    
    (1,197
    )
    
    
    (909
    )Deferred financing costs
    
    
    
    
    
    
    (35
    )Net cash provided by financing activities
    
    
    18,328
    
    
    
    783Increase in cash and cash equivalents
    
    
    475
    
    
    
    163Cash and cash equivalents at beginning of period
    
    
    3,412
    
    
    
    3,303Cash and cash equivalents at end of period
    
    $
    3,887
    
    
    $
    3,466
 The accompanying notes are an integral part of these financial statements.
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##### Table of Contents



Nine-months ended June 30,2005
    
    2004CASH PAID DURING THE PERIOD FOR:Interest
    
    $
    27,760
    
    
    $
    30,081Income taxes (refunds)
    
    
    
    
    
    
    (4,228
    )NONCASH INVESTING ACTIVITIES:Assets acquired under capital lease
    
    
    8,513
    
    
    
    8,452Assets acquired from exchange
    
    
    180
    
    
    
    
 6




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Consolidated Balance Sheet  Fiscal Year Ended September 30, 2004
 BeforeRestatement
    
    Adjustments
    
    As RestatedRental merchandise, net
    
    $
    173,164
    
    
    $
    765
    
    
    $
    173,929Property and equipment, net
    
    
    42,063
    
    
    
    (2,521
    )
    
    
    39,542Other Assets
    
    
    3,896
    
    
    
    2,230
    
    
    
    6,126Total Assets
    
    
    430,655
    
    
    
    473
    
    
    
    431,128Other Liabilities
    
    
    55,163
    
    
    
    6,321
    
    
    
    61,484Accumulated Deficit
    
    
    (189,217
    )
    
    
    (5,848
    )
    
    
    (195,065
    )Total shareholders equity
    
    
    115,085
    
    
    
    (5,848
    )
    
    
    109,237Total liabilities and shareholders equity
    
    $
    430,655
    
    
    $
    473
    
    
    $
    431,128
 Consolidated Statements of Operations
 Three Month Period Ended June 30, 2004
 BeforeRestatement
    
    Adjustments
    
    As RestatedRental Revenue
    
    $
    102,574
    
    
    $
    637
    
    
    $
    103,211Other Revenue
    
    
    14,959
    
    
    
    110
    
    
    
    15,069Total Revenue
    
    
    124,135
    
    
    
    747
    
    
    
    124,882Rental merchandise depreciation
    
    
    31,295
    
    
    
    134
    
    
    
    31,429Property and equipment depreciation
    
    
    3,846
    
    
    
    (10
    )
    
    
    3,836Salaries and wages
    
    
    33,101
    
    
    
    91
    
    
    
    33,192Occupancy
    
    
    8,589
    
    
    
    (29
    )
    
    
    8,560Other operating expenses
    
    
    26,370
    
    
    
    22
    
    
    
    26,392Operating income
    
    
    11,787
    
    
    
    539
    
    
    
    12,326Net income
    
    
    4,364
    
    
    
    539
    
    
    
    4,903Basic net income allocable to common shareholders per common share
    
    $
    0.15
    
    
    $
    0.02
    
    
    $
    0.17Diluted net income allocable to common shareholders per common share
    
    $
    0.14
    
    
    $
    0.02
    
    
    $
    0.16
 8




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Nine-Month Period Ended June 30, 2004  Consolidated Statements of Operations
 BeforeRestatement
    
    Adjustments
    
    As RestatedRental Revenue
    
    $
    316,128
    
    
    $
    386
    
    
    $
    316,514Other Revenue
    
    
    46,985
    
    
    
    213
    
    
    
    47,198Total Revenue
    
    
    382,789
    
    
    
    599
    
    
    
    383,388Rental merchandise depreciation
    
    
    101,298
    
    
    
    51
    
    
    
    101,349Property and equipment depreciation
    
    
    11,569
    
    
    
    671
    
    
    
    12,240Salaries and wages
    
    
    100,341
    
    
    
    211
    
    
    
    100,552Occupancy
    
    
    25,784
    
    
    
    (358
    )
    
    
    25,426Other operating expenses
    
    
    79,498
    
    
    
    13
    
    
    
    79,511Operating income
    
    
    35,547
    
    
    
    11
    
    
    
    35,558Net income
    
    
    5,272
    
    
    
    11
    
    
    
    5,283Basic net income allocable to common shareholders per common share
    
    $
    0.15
    
    
    $
    0.00
    
    
    $
    0.15Diluted net income allocable to common shareholders per common share
    
    $
    0.15
    
    
    $
    0.00
    
    
    $
    0.15
     9




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Three-months Ended June 30,
    
    Nine-months Ended June 30,2005
    
    2004
    
    2005
    
    2004Operating expenses from discontinued
operations (including exit costs)(1)
    
    $
    (181
    )
    
    $
    (12
    )
    
    $
    (361
    )
    
    $
    (1,722
    )Net loss from discontinued operations
    
    $
    (181
    )
    
    $
    (12
    )
    
    $
    (361
    )
    
    $
    (1,722
    )
 
 (1)
    
    The Company recorded exit costs associated with the operation and transition of the
stores to Rent-A-Center, Inc. for 30 days after closing, and monthly rent and common area
maintenance charges until leases are terminated or expired, in accordance with SFAS 146.
This includes a $1,027 write-off of leasehold improvements for the nine-months ended June
30, 2004.    Fixed
    
    LeaseAsset
    
    ObligationWrite Offs
    
    Costs
    
    TotalBalance at September 30, 2004
    
    $
    3⁄4
    
    
    $
    209
    
    
    $
    209Fiscal 2005 Provision
    
    
    35
    
    
    
    29
    
    
    
    64Amount Utilized in 2005
    
    
    (35
    )
    
    
    (206
    )
    
    
    (241
    )Balance at June 30, 2005
    
    $
    3⁄4
    
    
    $
    32
    
    
    $
    32
     10




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Three-months Ended June 30,
    
    Nine-months Ended June 30,2005
    
    2004
    
    2005
    
    2004(Restated)
    
    (Restated)
    
    (Restated)COMPUTATION OF EARNINGS (LOSS) PER SHARE:BASICIncome (loss) before discontinued operations
    
    $
    (1,034
    )
    
    $
    4,915
    
    
    $
    6,490
    
    
    $
    7,005Loss from discontinued operations
    
    
    (181
    )
    
    
    (12
    )
    
    
    (361
    )
    
    
    (1,722
    )Net income (loss)
    
    
    (1,215
    )
    
    
    4,903
    
    
    
    6,129
    
    
    
    5,283Dividend and accretion of preferred stock
    
    
    (549
    )
    
    
    (487
    )
    
    
    (1,619
    )
    
    
    (1,286
    )Net income (loss) allocable to common shareholders
    
    $
    (1,764
    )
    
    $
    4,416
    
    
    $
    4,510
    
    
    $
    3,997Weighted average common shares outstanding
    
    
    26,250
    
    
    
    26,216
    
    
    
    26,246
    
    
    
    26,155Earnings (loss) per share:Income (loss) before discontinued operations
    
    $
    (0.04
    )
    
    $
    0.19
    
    
    $
    0.24
    
    
    $
    0.27Loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.07
    )Dividend and accretion of preferred stock
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.06
    )
    
    
    (0.05
    )Net income (loss) allocable to common shareholders
    
    $
    (0.07
    )
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.15DILUTEDNet income (loss) allocable to common shareholders for basic earnings
(loss) per share
    
    $
    (1,764
    )
    
    $
    4,416
    
    
    $
    4,510
    
    
    $
    3,997Plus: Impact of assumed conversion:Conversion derivative market value adjustment (1)
    
    
    
    
    
    
    (233
    )
    
    
    
    
    
    
    Dividends on 8% convertible preferred stock (1)
    
    
    
    
    
    
    377
    
    
    
    
    
    
    
    Accretion to preferred stock redemption amount (1)
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    Net income (loss) allocable to common shareholders for diluted
earnings (loss) per share and assumed conversion
    
    
    (1,764
    )
    
    $
    4,670
    
    
    $
    4,510
    
    
    $
    3,997Weighted average common shares used in calculating basic earnings
(loss) per share
    
    
    26,250
    
    
    
    26,216
    
    
    
    26,246
    
    
    
    26,155Add incremental shares representing:Shares issuable upon exercise of stock options and warrants (2)
    
    
    
    
    
    
    657
    
    
    
    532
    
    
    
    545Shares issuable upon conversion of 8% convertible preferred stock (1).
    
    
    
    
    
    
    3,252
    
    
    
    
    
    
    
    Weighted average number of shares used in calculation of diluted
earnings (loss) per share
    
    
    26,250
    
    
    
    30,125
    

    
    
    26,778
    
    
    
    26,700Earnings (loss) per share:Income (loss) before discontinued operations
    
    $
    (0.04
    )
    
    $
    0.16
    
    
    $
    0.24
    
    
    $
    0.26Loss from discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.06
    )Dividend and accretion of preferred stock
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.05
    )Net income (loss) allocable to common shareholders
    
    $
    (0.07
    )
    
    $
    0.16
    
    
    $
    0.17
    
    
    $
    0.15
 
 (1)
    
    Including the effects of these items for the three-month period ended June 30,
2005 would be anti-dilutive. Therefore, 3,252 shares issuable upon conversion of 8%
convertible preferred stock are excluded from consideration in the calculation of
diluted loss per share for the three-months ended June 30, 2005. There were conversion
derivative market value adjustments of $4,969, dividends on convertible preferred stock
of $399, and accretion to preferred stock redemption in the amount of $151, which were
not added back to net loss allocable to common shareholders for basic loss per share on
the diluted loss per share because including the effects of these items would be
anti-dilutive for the three-months ended June 30, 2005.Including the effects of these items for the nine-month period ended June 30, 2005
would be anti-dilutive. Therefore, 3,252 shares issuable upon conversion of 8%
convertible preferred stock are excluded from consideration in the calculation of
diluted earnings per share for the nine-months ended June 30, 2005. There were
conversion derivative market value adjustments of $6,551, dividends on convertible
preferred stock of $1,198, and accretion to preferred stock redemption in the amount of
$421, which were not added back to net income allocable to common shareholders for
basic earnings per share on the diluted earnings per share because including the
effects of these items would be anti-dilutive for the nine-months ended June 30, 2005.Including the effects of these items for the nine-month period ended June 30, 2004
would be anti-dilutive. Therefore, 3,252 shares issuable upon conversion of 8%
convertible preferred stock are excluded from consideration in the calculation of
diluted earnings per share for the nine-months ended June 30, 2004. There were
conversion derivative market value adjustments of $5,468, dividends on convertible
preferred stock of $908 and accretion to preferred stock redemption in the amount of
$303 which were not added back to net income allocable to common shareholders for basic
earnings per share on the diluted earnings per share because including the effects of
these items would be anti-dilutive for the nine-months ended June 30, 2004. 11




---



##### Table of Contents



(2)
    
    Including the effects of this item for the three-months ended June 30, 2005,
would be anti-dilutive. For the three-months ended June 30, 2005, the number of stock
options that were outstanding but not included in the computation of diluted loss per
common share in which the exercise price was greater that the average market price was
649.    Household
    
    Prepaid TelephoneRental Segment
    
    Service Segment
    
    TotalBalance at September 30, 2004
    
    $
    181,905
    
    
    $
    6,944
    
    
    $
    188,849Additions
    
    
    173
    
    
    
    
    
    
    
    173Disposals
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2005
    
    $
    182,078
    
    
    $
    6,944
    
    
    $
    189,022
  Purchase
    
    Cumulative
    
    Net CarryingBalance at June 30, 2005:
    
    Amount
    
    Amortization
    
    AmountAmortizable intangible assets:Non-compete agreements
    
    $
    2,701
    
    
    $
    (2,602
    )
    
    $
    99Customer list
    
    
    93
    
    
    
    (32
    )
    
    
    61Customer contracts
    
    
    162
    
    
    
    (111
    )
    
    
    51$
    2,956
    
    
    $
    (2,745
    )
    
    $
    211
 Purchase
    
    Cumulative
    
    Net CarryingBalance at September 30, 2004:
    
    Amount
    
    Amortization
    
    AmountAmortizable intangible assets:Non-compete agreements
    
    $
    2,630
    
    
    $
    (2,518
    )
    
    $
    112Customer contracts
    
    
    1,164
    
    
    
    (1,164
    )
    
    
    3⁄4$
    3,794
    
    
    $
    (3,682
    )
    
    $
    112
  Fiscal Year
    
    AmountRemaining 2005
    
    $
    1422006
    
    
    312007
    
    
    242008
    
    
    14$
    211
 Amortization expense was $251 and $310 for the nine-months ended June 30, 2005 and 2004,
respectively. There were no changes to the amortization methods and lives of the amortizable
intangible assets.
 12




---



##### Table of Contents



June 30,
    
    September 30,2005
    
    2004(Restated)Other receivables
    
    $
    4,168
    
    
    $
    3,124Other inventory
    
    
    569
    
    
    
    537Deposits
    
    
    788
    
    
    
    832Other
    
    
    1,415
    
    
    
    1,633$
    6,940
    
    
    $
    6,126
   June 30,
    
    September 30,2005
    
    2004(Restated)Accrued salaries, wages, taxes and benefits
    
    $
    12,812
    
    
    $
    13,049Capital lease obligations
    
    
    18,667
    
    
    
    14,970Deferred revenue
    
    
    6,855
    
    
    
    5,564Accrued dividends and interest
    
    
    1,881
    
    
    
    8,026Vacant facility lease obligations
    
    
    2,738
    
    
    
    3,390Swap liability
    
    
    164
    
    
    
    1,572Accrued property taxes
    
    
    3,401
    
    
    
    4,098Other
    
    
    10,335
    
    
    
    10,815$
    56,853
    
    
    $
    61,484
   June 30,
    
    September 30,2005
    
    2004Senior secured notes
    
    $
    202,176
    
    
    $
    201,877Revolving credit facility
    
    
    32,000
    
    
    
    Notes payable lawsuit settlement
    
    
    
    
    
    
    2,000Note payable
    
    
    35
    
    
    
    57$
    234,211
    
    
    $
    203,934
  a)
    
    100% of the principal amount of the notes to be redeemed; andb)
    
    the sum of the present values of (i) 100% of the principal amount of the notes to
be redeemed at June 15, 2010, and (ii) the remaining scheduled payments of interest from
the redemption date through June 15, 2010, but excluding accrued and unpaid interest to
the redemption date, discounted to the redemption date at the treasury rate plus 175
basis points;
   13




---



##### Table of Contents



14




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##### Table of Contents



For the Nine-Month Period Ended June 30,2005
    
    2004(Restated)Income before discontinued operations:As reported
    
    $
    6,490
    
    
    $
    7,005Plus: Compensation expense
    
    
    
    
    
    
    Less: Stock-based employee compensation
under fair-value based method for all awards,
net of related tax effects
    
    
    (861
    )
    
    
    (100
    )Pro-forma
    
    $
    5,629
    
    
    $
    6,905Net income allocable to common shareholders:As reported
    
    $
    4,510
    
    
    $
    3,997Plus: Compensation expense
    
    
    
    
    
    
    Less: Stock-based employee compensation
under fair-value based method for all awards,
net of related tax effects
    
    
    (861
    )
    
    
    (100
    )Pro-forma
    
    $
    3,649
    
    
    $
    3,897Basic earnings per common share:Net income before discontinued operations:As reported
    
    $
    0.24
    
    
    $
    0.27Pro-forma
    
    $
    0.21
    
    
    $
    0.26Net income allocable to common shareholders:As reported
    
    $
    0.17
    
    
    $
    0.15Pro-forma
    
    $
    0.14
    
    
    $
    0.15Diluted earnings per common share:Net income before discontinued operations:As reported
    
    $
    0.24
    
    
    $
    0.26Pro-forma
    
    $
    0.21
    
    
    $
    0.26Net income allocable to common shareholders:As reported
    
    $
    0.17
    
    
    $
    0.15Pro-forma
    
    $
    0.14
    
    
    $
    0.15
   15




---



##### Table of Contents



Other Comprehensive
    
    Other ComprehensiveIncome
    
    IncomeFor Nine-months Ended
    
    For Nine-months EndedJune 30, 2005
    
    June 30, 2004(Restated)Net income
    
    $
    6,129
    
    
    $
    5,283Amortization of SFAS 133
Transition amount
    
    
    84
    
    
    
    (57
    )Other comprehensive income.
    
    $
    6,213
    
    
    $
    5,226
 Accumulated Other
    
    Accumulated OtherComprehensive
    
    ComprehensiveLoss
    
    LossAt June 30, 2005
    
    At September 30, 2004Balance at October 1
    
    $
    (93
    )
    
    $
    (69
    )Amortization
of SFAS 133Transition amount
    
    
    84
    
    
    
    (24
    )Accumulated other comprehensive loss
    
    $
    (9
    )
    
    $
    (93
    )
   16




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##### Table of Contents



Household
    
    Prepaid Telephone
    
    Inter-segmentRental Segment
    
    Service Segment
    
    Activity
    
    Total SegmentsFor the three-months ended June 30, 2005Total revenue
    
    $
    124,150
    
    
    $
    4,313
    
    
    $
    (166
    )
    
    $
    128,297Operating income (loss)
    
    $
    12,437
    
    
    $
    (160
    )
    
    $
    30
    
    
    $
    12,307Net loss
    
    $
    (995
    )
    
    $
    (220
    )
    
    $
    3⁄4
    
    
    $
    (1,215
    )Total Assets
    
    $
    466,278
    
    
    $
    2,910
    
    
    $
    (5,465
    )
    
    $
    463,723
 Household Rental
    
    Prepaid Telephone
    
    Inter-segmentService
    
    Service
    
    Activity
    
    TotalFor the nine-months ended
June 30, 2005 (Restated)Total revenue
    
    $
    377,681
    
    
    $
    13,616
    
    
    $
    (505
    )
    
    $
    390,792Operating income (loss)
    
    $
    37,832
    
    
    $
    (152
    )
    
    $
    90
    
    
    $
    37,770Net income (loss)
    
    $
    6,460
    
    
    $
    (331
    )
    
    $
    3⁄4
    
    
    $
    6,129Total Assets
    
    $
    466,278
    
    
    $
    2,910
    
    
    $
    (5,465
    )
    
    $
    463,723
 17




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##### Table of Contents



Household
    
    Prepaid Telephone
    
    Inter-segmentRental Segment
    
    Service Segment
    
    Activity
    
    Total SegmentsFor the three months ended
June 30, 2004 (Restated)Total revenue
    
    $
    118,481
    
    
    $
    6,602
    
    
    $
    (201
    )
    
    $
    124,882Operating income (loss)
    
    $
    12,413
    
    
    $
    (117
    )
    
    $
    30
    
    
    $
    12,326Net income (loss)
    
    $
    5,048
    
    
    $
    (145
    )
    
    $
    3⁄4
    
    
    $
    4,903Total Assets
    
    $
    432,414
    
    
    $
    3,428
    
    
    $
    (4,210
    )
    
    $
    431,632
 Household
    
    Prepaid Telephone
    
    Inter-segmentRental Segment
    
    Service Segment
    
    Activity
    
    Total SegmentsFor the nine-months ended June
30, 2004 (Restated)Total revenue
    
    $
    364,318
    
    
    $
    19,676
    
    
    $
    (606
    )
    
    $
    383,388Operating income (loss)
    
    $
    37,758
    
    
    $
    (2,290
    )
    
    $
    90
    
    
    $
    35,558Net income (loss)
    
    $
    7,653
    
    
    $
    (2,370
    )
    
    $
    3⁄4
    
    
    $
    5,283Total Assets
    
    $
    432,414
    
    
    $
    3,428
    
    
    $
    (4,210
    )
    
    $
    431,632
    18




---



##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedASSETSCash and cash equivalents
    
    $
    2,746
    
    
    $
    600
    
    
    $
    541
    
    
    $
    
    
    
    $
    3,887Prepaid expenses
    
    
    7,768
    
    
    
    1,572
    
    
    
    434
    
    
    
    
    
    
    
    9,774Rental merchandise, net
    
    
    160,439
    
    
    
    37,528
    
    
    
    
    
    
    
    
    
    
    
    197,967Rental merchandise credits due from vendors
    
    
    2,057
    
    
    
    635
    
    
    
    
    
    
    
    
    
    
    
    2,692Property and equipment, net
    
    
    38,981
    
    
    
    6,706
    
    
    
    978
    
    
    
    
    
    
    
    46,665Goodwill
    
    
    124,630
    
    
    
    57,448
    
    
    
    6,944
    
    
    
    
    
    
    
    189,022Deferred financing costs, net
    
    
    6,565
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,565Intangible assets, net
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211Other assets
    
    
    5,315
    
    
    
    717
    
    
    
    908
    
    
    
    
    
    
    
    6,940Investment in subsidiaries
    
    
    78,485
    
    
    
    
    
    
    
    
    
    
    
    (78,485
    )
    
    
    Total assets
    
    $
    427,197
    
    
    $
    105,206
    
    
    $
    9,805
    
    
    $
    (78,485
    )
    
    $
    463,723LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Accounts payable
    
    $
    14,156
    
    
    $
    1,396
    
    
    $
    1,757
    
    
    $
    
    
    
    $
    17,309Other liabilities
    
    
    44,655
    
    
    
    10,334
    
    
    
    1,864
    
    
    
    
    
    
    
    56,853Inter-company
    
    
    (21,175
    )
    
    
    19,062
    
    
    
    2,113
    
    
    
    
    
    
    
    Deferred tax liability
    
    
    14,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,681Debt
    
    
    234,211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234,211Total liabilities
    
    
    286,528
    
    
    
    30,792
    
    
    
    5,734
    
    
    
    
    
    
    
    323,054Convertible redeemable preferred stock
    
    
    26,761
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,761SHAREHOLDERS EQUITY:Common stock
    
    
    304,472
    
    
    
    75,248
    
    
    
    1,600
    
    
    
    (76,848
    )
    
    
    304,472Accumulated other comprehensive loss
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Retained earnings (accumulated deficit)
    
    
    (190,555
    )
    
    
    (834
    )
    
    
    2,471
    
    
    
    (1,637
    )
    
    
    (190,555
    )Total shareholders equity
    
    
    113,908
    
    
    
    74,414
    
    
    
    4,071
    
    
    
    (78,485
    )
    
    
    113,908Total liabilities and shareholders equity
    
    $
    427,197
    
    
    $
    105,206
    
    
    $
    9,805
    
    
    $
    (78,485
    )
    
    $
    463,723
 19




---



##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedREVENUES:Rental revenues
    
    $
    87,583
    
    
    $
    20,872
    
    
    $
    
    
    
    $
    
    
    
    $
    108,455Prepaid phone service
    
    
    
    
    
    
    
    
    
    
    4,313
    
    
    
    
    
    
    
    4,313Other revenues
    
    
    12,800
    
    
    
    2,729
    
    
    
    
    
    
    
    
    
    
    
    15,529Total revenues
    
    
    100,383
    
    
    
    23,601
    
    
    
    4,313
    
    
    
    
    
    
    
    128,297COSTS AND OPERATING EXPENSES:Depreciation and amortization:Rental merchandise
    
    
    25,765
    
    
    
    6,184
    
    
    
    
    
    
    
    
    
    
    
    31,949Property and equipment
    
    
    2,913
    
    
    
    687
    
    
    
    132
    
    
    
    
    
    
    
    3,732Amortization of goodwill and other intangibles
    
    
    141
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    195Cost of prepaid phone service
    
    
    
    
    
    
    
    
    
    
    2,684
    
    
    
    
    
    
    
    2,684Salaries and wages
    
    
    28,702
    
    
    
    6,181
    
    
    
    697
    
    
    
    
    
    
    
    35,580Advertising, net
    
    
    5,195
    
    
    
    223
    
    
    
    20
    
    
    
    
    
    
    
    5,438Occupancy
    
    
    7,611
    
    
    
    1,866
    
    
    
    49
    
    
    
    
    
    
    
    9,526Other operating expenses
    
    
    21,165
    
    
    
    5,025
    
    
    
    696
    
    
    
    
    
    
    
    26,886Total costs and operating expenses
    
    
    91,492
    
    
    
    20,220
    
    
    
    4,278
    
    
    
    
    
    
    
    115,990Operating income (loss)
    
    
    8,891
    
    
    
    3,381
    
    
    
    35
    
    
    
    
    
    
    
    12,307OTHER INCOME (EXPENSE):Interest expense
    
    
    (7,305
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (7,304
    )Interest income
    
    
    5
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    9Amortization of deferred financing costs
    
    
    (289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (289
    )Other income (expense), net
    
    
    (4,416
    )
    
    
    67
    
    
    
    (13
    )
    
    
    
    
    
    
    (4,362
    )Equity in net income of subsidiaries
    
    
    3,468
    
    
    
    
    
    
    
    
    
    
    
    (3,468
    )
    
    
    Income (loss) before income taxes and discontinued operations
    
    
    354
    
    
    
    3,448
    
    
    
    27
    
    
    
    (3,468
    )
    
    
    361Income tax expense
    
    
    1,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,395Income (loss) before discontinued operations
    
    
    (1,041
    )
    
    
    3,448
    
    
    
    27
    
    
    
    (3,468
    )
    
    
    (1,034
    )Loss from discontinued operations
    
    
    (174
    )
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    (181
    )Net income (loss)
    
    $
    (1,215
    )
    
    $
    3,441
    
    
    $
    27
    
    
    $
    (3,468
    )
    
    $
    (1,215
    )
 20




---



##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedREVENUES:Rental revenues
    
    $
    264,528
    
    
    $
    64,068
    
    
    $
    
    
    
    $
    
    
    
    $
    328,596Prepaid phone service
    
    
    
    
    
    
    
    
    
    
    13,617
    
    
    
    
    
    
    
    13,617Other revenues
    
    
    39,899
    
    
    
    8,680
    
    
    
    
    
    
    
    
    
    
    
    48,579Total revenues
    
    
    304,427
    
    
    
    72,748
    
    
    
    13,617
    
    
    
    
    
    
    
    390,792COSTS AND OPERATING EXPENSES:Depreciation and amortization:Rental merchandise
    
    
    80,811
    
    
    
    19,660
    
    
    
    
    
    
    
    
    
    
    
    100,471Property and equipment
    
    
    9,459
    
    
    
    2,258
    
    
    
    428
    
    
    
    
    
    
    
    12,145Amortization of goodwill and other intangibles
    
    
    183
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    251Cost of prepaid phone service
    
    
    
    
    
    
    
    
    
    
    8,460
    
    
    
    
    
    
    
    8,460Salaries and wages
    
    
    85,036
    
    
    
    18,188
    
    
    
    1,940
    
    
    
    
    
    
    
    105,164Advertising, net
    
    
    13,831
    
    
    
    1,582
    
    
    
    111
    
    
    
    
    
    
    
    15,524Occupancy
    
    
    22,330
    
    
    
    5,396
    
    
    
    148
    
    
    
    
    
    
    
    27,874Other operating expenses
    
    
    66,388
    
    
    
    14,661
    
    
    
    2,084
    
    
    
    
    
    
    
    83,133Total costs and operating expenses
    
    
    278,038
    
    
    
    61,813
    
    
    
    13,171
    
    
    
    
    
    
    
    353,022Operating income (loss)
    
    
    26,389
    
    
    
    10,935
    
    
    
    446
    
    
    
    
    
    
    
    37,770OTHER INCOME (EXPENSE):Interest expense
    
    
    (21,669
    )
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    (21,662
    )Interest income
    
    
    15
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    22Amortization of deferred financing costs
    
    
    (854
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (854
    )Other income (expense), net
    
    
    (4,712
    )
    
    
    161
    
    
    
    (50
    )
    
    
    
    
    
    
    (4,601
    )Equity in net income of subsidiaries
    
    
    11,566
    
    
    
    
    
    
    
    
    
    
    
    (11,566
    )
    
    
    Income (loss) before income taxes and discontinued operations
    
    
    10,735
    
    
    
    11,096
    
    
    
    410
    
    
    
    (11,566
    )
    
    
    10,675Income tax expense
    
    
    4,185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,185Income (loss) before discontinued operations
    
    
    6,550
    
    
    
    11,096
    
    
    
    410
    
    
    
    (11,566
    )
    
    
    6,490Loss from discontinued operations
    
    
    (421
    )
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    (361
    )Net income (loss)
    
    $
    6,129
    
    
    $
    11,156
    
    
    $
    410
    
    
    $
    (11,566
    )
    
    $
    6,129
 21




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##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIES:Net cash provided by (used in) operating activities
    
    $
    (9,293
    )
    
    $
    2,549
    
    
    $
    653
    
    
    $
    
    
    
    $
    (6,091
    )INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (9,295
    )
    
    
    (1,431
    )
    
    
    (282
    )
    
    
    
    
    
    
    (11,008
    )Investment in subsidiary
    
    
    (754
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (754
    )Net cash used in investing activities
    
    
    (10,049
    )
    
    
    (1,431
    )
    
    
    (282
    )
    
    
    
    
    
    
    (11,762
    )FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Payments on borrowings
    
    
    (68,017
    )
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (68,022
    )Payments on note for settlement of class action lawsuit
    
    
    (2,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,000
    )Payments on capital leases
    
    
    (4,477
    )
    
    
    (1,152
    )
    
    
    
    
    
    
    
    
    
    
    (5,629
    )Cash overdraft
    
    
    (4,901
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,901
    )Issuance of common stock
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77Dividends paid
    
    
    (1,197
    )
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    (1,197
    )Net cash provided by (used in) financing activities
    
    
    19,485
    
    
    
    (1,152
    )
    
    
    (5
    )
    
    
    
    
    
    
    18,328Increase (decrease) in cash and cash equivalents
    
    
    143
    
    
    
    (34
    )
    
    
    366
    
    
    
    
    
    
    
    475Cash and cash equivalents at beginning of year
    
    
    2,603
    
    
    
    634
    
    
    
    175
    
    
    
    
    
    
    
    3,412Cash and cash equivalents at end of year
    
    $
    2,746
    
    
    $
    600
    
    
    $
    541
    
    
    $
    
    
    
    $
    3,887
 22




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##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedASSETSCash and cash equivalents
    
    $
    2,603
    
    
    $
    634
    
    
    $
    175
    
    
    $
    
    
    
    $
    3,412Prepaid expenses
    
    
    6,916
    
    
    
    1,182
    
    
    
    398
    
    
    
    
    
    
    
    8,496Rental merchandise, net
    
    
    138,888
    
    
    
    35,041
    
    
    
    
    
    
    
    
    
    
    
    173,929Rental merchandise credits due from vendors
    
    
    2,592
    
    
    
    650
    
    
    
    
    
    
    
    
    
    
    
    3,242Property and equipment, net
    
    
    32,933
    
    
    
    5,573
    
    
    
    1,036
    
    
    
    
    
    
    
    39,542Goodwill
    
    
    124,807
    
    
    
    57,448
    
    
    
    6,594
    
    
    
    
    
    
    
    188,849Deferred financing costs, net
    
    
    7,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,420Intangible assets, net
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112Other assets
    
    
    4,124
    
    
    
    771
    
    
    
    1,231
    
    
    
    
    
    
    
    6,126Investment in subsidiaries
    
    
    66,187
    
    
    
    
    
    
    
    
    
    
    
    (66,187
    )
    
    
    Total assets
    
    $
    386,582
    
    
    $
    101,299
    
    
    $
    9,434
    
    
    $
    (66,187
    )
    
    $
    431,128LIABILITES AND SHAREHOLDERS EQUITYLiabilities:Accounts payable
    
    $
    20,298
    
    
    $
    4,325
    
    
    $
    1,564
    
    
    
    
    
    
    $
    26,187Other liabilities
    
    
    48,964
    
    
    
    10,390
    
    
    
    2,130
    
    
    
    
    
    
    
    61,484Inter-company
    
    
    (26,132
    )
    
    
    24,060
    
    
    
    2,072
    
    
    
    
    
    
    
    Deferred tax liability
    
    
    10,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,496Debt
    
    
    203,929
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    203,934Total liabilities
    
    
    257,555
    
    
    
    38,775
    
    
    
    5,771
    
    
    
    
    
    
    
    302,101Convertible redeemable preferred stock
    
    
    19,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,790SHAREHOLDERS EQUITY:Common stock
    
    
    304,395
    
    
    
    75,248
    
    
    
    1,600
    
    
    
    (76,848
    )
    
    
    304,395Accumulated other comprehensive income
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )Retained earnings (accumulated deficit)
    
    
    (195,065
    )
    
    
    (12,724
    )
    
    
    2,063
    
    
    
    10,661
    
    
    
    (195,065
    )Total shareholders equity
    
    
    109,237
    
    
    
    62,524
    
    
    
    3,663
    
    
    
    (66,187
    )
    
    
    109,237Total liabilities and shareholders equity
    
    $
    386,582
    
    
    $
    101,299
    
    
    $
    9,434
    
    
    $
    (66,187
    )
    
    $
    431,128
 23




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##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedREVENUES:Rental revenues
    
    $
    82,582
    
    
    $
    20,629
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    103,211Prepaid phone service
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    6,602
    
    
    
    3⁄4
    
    
    
    6,602Other revenues
    
    
    12,319
    
    
    
    2,750
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    15,069Total revenues
    
    
    94,901
    
    
    
    23,379
    
    
    
    6,602
    
    
    
    3⁄4
    
    
    
    124,882COSTS AND OPERATING EXPENSES:Depreciation and amortization:Rental merchandise
    
    
    25,088
    
    
    
    6,341
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    31,429Property and equipment
    
    
    3,013
    
    
    
    682
    
    
    
    141
    
    
    
    3⁄4
    
    
    
    3,836Amortization of goodwill and other intangibles
    
    
    65
    
    
    
    21
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    86Cost of prepaid phone service
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    4,075
    
    
    
    3⁄4
    
    
    
    4,075Salaries and wages
    
    
    26,424
    
    
    
    5,841
    
    
    
    927
    
    
    
    3⁄4
    
    
    
    33,192Advertising, net
    
    
    4,635
    
    
    
    60
    
    
    
    291
    
    
    
    3⁄4
    
    
    
    4,986Occupancy
    
    
    6,750
    
    
    
    1,726
    
    
    
    84
    
    
    
    3⁄4
    
    
    
    8,560Other operating expenses
    
    
    20,363
    
    
    
    5,059
    
    
    
    970
    
    
    
    3⁄4
    
    
    
    26,392Total costs and operating expenses
    
    
    86,338
    
    
    
    19,730
    
    
    
    6,488
    
    
    
    3⁄4
    
    
    
    112,556Operating income (loss)
    
    
    8,563
    
    
    
    3,649
    
    
    
    114
    
    
    
    3⁄4
    
    
    
    12,326OTHER INCOME (EXPENSE):Interest expense
    
    
    (7,805
    )
    
    
    407
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (7,398
    )Interest income
    
    
    8
    
    
    
    3⁄4
    
    
    
    1
    
    
    
    3⁄4
    
    
    
    9Amortization  deferred financial costs
    
    
    (227
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (227
    )Other income (expense), net
    
    
    1,554
    
    
    
    46
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,600Equity in net income of subsidiaries
    
    
    4,288
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (4,288
    )
    
    
    3⁄4Income (loss) before income taxes and
discontinued operations
    
    
    6,381
    
    
    
    4,102
    
    
    
    115
    
    
    
    (4,288
    )
    
    
    6,310Income tax expense
    
    
    1,395
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1,395Income (loss) before discontinued operations
    
    
    4,986
    
    
    
    4,102
    
    
    
    115
    
    
    
    (4,288
    )
    
    
    4,915Loss from discontinued operations
    
    
    (83
    )
    
    
    71
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (12
    )Net income (loss)
    
    $
    4,903
    
    
    $
    4,173
    
    
    $
    115
    
    
    $
    (4,288
    )
    
    $
    4,903
 24




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##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedREVENUES:Rental revenues
    
    $
    253,277
    
    
    $
    63,237
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    316,514Prepaid phone service
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    19,676
    
    
    
    3⁄4
    
    
    
    19,676Other revenues
    
    
    38,623
    
    
    
    8,575
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    47,198Total revenues
    
    
    291,900
    
    
    
    71,812
    
    
    
    19,676
    
    
    
    3⁄4
    
    
    
    383,388COSTS AND OPERATING EXPENSES:Depreciation and amortization:Rental merchandise
    
    
    80,848
    
    
    
    20,501
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    101,349Property and equipment
    
    
    9,428
    
    
    
    2,374
    
    
    
    438
    
    
    
    3⁄4
    
    
    
    12,240Amortization of goodwill and other intangibles
    
    
    233
    
    
    
    77
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    310Cost of prepaid phone service
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    13,007
    
    
    
    3⁄4
    
    
    
    13,007Salaries and wages
    
    
    79,359
    
    
    
    17,935
    
    
    
    3,258
    
    
    
    3⁄4
    
    
    
    100,552Advertising, net
    
    
    14,023
    
    
    
    156
    
    
    
    1,208
    
    
    
    3⁄4
    
    
    
    15,387Occupancy
    
    
    19,573
    
    
    
    5,575
    
    
    
    278
    
    
    
    3⁄4
    
    
    
    25,426Restructuring costs
    
    
    36
    
    
    
    12
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    48Other operating expenses
    
    
    61,814
    
    
    
    14,614
    
    
    
    3,083
    
    
    
    3⁄4
    
    
    
    79,511Total costs and operating expenses
    
    
    265,315
    
    
    
    61,244
    
    
    
    21,271
    
    
    
    3⁄4
    
    
    
    347,830Operating income (loss)
    
    
    26,585
    
    
    
    10,568
    
    
    
    (1,595
    )
    
    
    3⁄4
    
    
    
    35,558OTHER INCOME (EXPENSE):Interest expense
    
    
    (24,008
    )
    
    
    1,089
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (22,919
    )Interest income
    
    
    789
    
    
    
    3⁄4
    
    
    
    3
    
    
    
    3⁄4
    
    
    
    792Amortization  deferred financial costs
    
    
    (748
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (748
    )Other income (expense), net
    
    
    (1,633
    )
    
    
    140
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (1,493
    )Equity in net income of subsidiaries
    
    
    9,556
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (9,556
    )
    
    
    3⁄4Income (loss) before income taxes and
discontinued operations
    
    
    10,541
    
    
    
    11,797
    
    
    
    (1,592
    )
    
    
    (9,556
    )
    
    
    11,190Income tax expense
    
    
    4,185
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    4,185Income (loss) before discontinued operations
    
    
    6,356
    
    
    
    11,797
    
    
    
    (1,592
    )
    
    
    (9,556
    )
    
    
    7,005Loss from discontinued operations
    
    
    (1,073
    )
    
    
    (649
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (1,722
    )Net income (loss)
    
    $
    5,283
    
    
    $
    11,148
    
    
    $
    (1,592
    )
    
    $
    (9,556
    )
    
    $
    5,283
 25




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##### Table of Contents



Parent
    
    Guarantor
    
    Non-Guarantor
    
    
    
    
    
    Rent-WayIssuer
    
    Subsidiaries
    
    Subsidiary
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIES:Net cash provided by (used in) operating activities
    
    $
    4,148
    
    
    $
    1,227
    
    
    $
    (68
    )
    
    $
    3⁄4
    
    
    $
    5,307INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (4,675
    )
    
    
    (855
    )
    
    
    (167
    )
    
    
    3⁄4
    
    
    
    (5,697
    )Investment in subsidiary
    
    
    230
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    230Net cash used in investing activities
    
    
    (4,905
    )
    
    
    (855
    )
    
    
    (167
    )
    
    
    3⁄4
    
    
    
    (5,927
    )FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    93,000
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    93,000Payments on borrowings
    
    
    (88,014
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (88,014
    )Payments on note for settlement of class action lawsuit
    
    
    (2,000
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (2,000
    )Payments on capital leases
    
    
    (4,717
    )
    
    
    (1,254
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (5,971
    )Book overdraft
    
    
    (1,226
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (1,226
    )Deferred financing costs
    
    
    (35
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (35
    )Issuance of common stock
    
    
    938
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    938Proceeds from convertible preferred stock
    
    
    5,000
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    5,000Dividends paid
    
    
    (909
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (909
    )Net cash provided by (used in) financing activities
    
    
    2,037
    
    
    
    (1,254
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    783Increase (decrease) in cash and cash equivalents
    
    
    1,280
    
    
    
    (882
    )
    
    
    (235
    )
    
    
    3⁄4
    
    
    
    163Cash and cash equivalents at beginning of year
    
    
    1,803
    
    
    
    882
    
    
    
    618
    
    
    
    3⁄4
    
    
    
    3,303Cash and cash equivalents at end of year
    
    $
    3,083
    
    
    $
    3⁄4
    
    
    $
    383
    
    
    $
    3⁄4
    
    
    $
    3,466
    26




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##### Table of Contents



153 eliminates the exception to fair value for exchanges of similar productive assets and
replaces it with a general exception for exchange transactions that do not have commercial
substance  that is, transactions that are not expected to result in significant changes in cash
flows of the reporting entity. This statement is effective for non-monetary exchanges occurring in
fiscal periods beginning after June 15, 2005.
 27




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
       YEARS ENDED SEPTEMBER 30,
    
    PERIOD ENDEDSTORES
    
    2003
    
    2004
    
    JUNE 30, 2005Open at Beginning of Period
    
    
    1,062
    
    
    
    753
    
    
    
    754Opened
    
    
    1
    
    
    
    2
    
    
    
    32Locations Acquired
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    1Locations Sold
    
    
    (298
    )
    
    
    0
    
    
    
    (1
    )Closed or Combined
    
    
    (12
    )
    
    
    (1
    )
    
    
    (2
    )Open at End of Period
    
    
    753
    
    
    
    754
    
    
    
    784
   28




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##### Table of Contents



Consolidated Balance Sheet  Fiscal Year Ended September 30, 2003
 BeforeRestatement
    
    
    Adjustments
    
    
    As RestatedRental merchandise, net
    
    $
    171,982
    
    
    $
    909
    
    
    $
    172,891Property and equipment, net
    
    
    38,765
    
    
    
    (1,464
    )
    
    
    37,301Other Assets
    
    
    19,946
    
    
    
    2,305
    
    
    
    22,251Total Assets
    
    
    457,859
    
    
    
    1,750
    
    
    
    459,609Other Liabilities
    
    
    85,328
    
    
    
    7,497
    
    
    
    92,825Accumulated Deficit
    
    
    (196,660
    )
    
    
    (5,747
    )
    
    
    (202,407
    )Total shareholders equity
    
    
    106,789
    
    
    
    (5,747
    )
    
    
    101,042Total liabilities and shareholders equity
    
    $
    457,859
    
    
    $
    1,750
    
    
    $
    459,609
 Consolidated Statements of Operations  Fiscal Year Ended September 30, 2004
 BeforeRestatement
    
    
    Adjustments
    
    
    As RestatedTotal Revenue
    
    $
    503,777
    
    
    $
    933
    
    
    $
    504,710Operating income
    
    
    41,192
    
    
    
    (102
    )
    
    
    41,090Net income
    
    
    9,248
    
    
    
    (102
    )
    
    
    9,146Net income
(loss) allocable to common shareholders
    
    
    7,444
    
    
    
    (102
    )
    
    
    7,342Basic net income allocable to common shareholders per common share
    
    $
    0.28
    
    
    $
    _
    
    
    $
    0.28Diluted net income allocable to common shareholders per common share
    
    $
    0.25
    
    
    $
    (0.01
    )
    
    $
    0.24
 Consolidated Statements of Operations  Fiscal Year Ended September 30, 2003
 BeforeRestatement
    
    
    Adjustments
    
    
    As RestatedTotal Revenue
    
    $
    491,310
    
    
    $
    (622
    )
    
    $
    490,688
 29




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##### Table of Contents



BeforeRestatement
    
    
    Adjustments
    
    
    As RestatedOperating income
    
    $
    36,493
    
    
    $
    410
    
    
    $
    36,903Net income
    
    
    (29,377
    )
    
    
    1,941
    
    
    
    (27,436
    )Net income
(loss) allocable to common shareholders
    
    
    (29,890
    )
    
    
    1,941
    
    
    
    (27,949
    )Basic net income (loss) allocable
to common shareholders per common
share
    
    $
    (1.16
    )
    
    $
    0.08
    
    
    $
    (1.08
    )Diluted net income (loss)
allocable to common shareholders
per common share
    
    $
    (1.16
    )
    
    $
    0.08
    
    
    $
    (1.08
    )
 Consolidated Statements of Operations  Fiscal Year Ended September 30, 2002
 BeforeRestatement
    
    
    Adjustments
    
    
    As RestatedTotal Revenue
    
    $
    493,370
    
    
    $
    50
    
    
    $
    493,420Operating income
    
    
    23,369
    
    
    
    76
    
    
    
    23,445Net income
    
    
    (76,472
    )
    
    
    248
    
    
    
    (76,224
    )Net income
(loss) allocable to common shareholders
    
    
    (76,472
    )
    
    
    248
    
    
    
    (76.224
    )Basic net income (loss) allocable
to common shareholders per common
share
    
    $
    (3.06
    )
    
    $
    0.01
    
    
    $
    (3.05
    )Diluted net income (loss)
allocable to common shareholders
per common share
    
    $
    (3.06
    )
    
    $
    0.01
    
    
    $
    (3.05
    )
 Consolidated Statements of Cash Flows  Fiscal Year Ended September 30, 2004
 BeforeRestatement
    
    
    Adjustments
    
    
    As RestatedNet cash provided by operating activities
    
    $
    26,686
    
    
    $
    (19
    )
    
    $
    26,667Net cash used for investing activities
    
    $
    (9,583
    )
    
    $
    19
    
    
    $
    (9,564
    )
 Consolidated Statements of Cash Flows  Fiscal Year Ended September 30, 2003
 BeforeRestatement
    
    Adjustments
    
    As RestatedNet cash used in operating activities
    
    $
    (28,842
    )
    
    $
    (21
    )
    
    $
    (28,863
    )Net cash provided by investing activities
    
    $
    87,218
    
    
    
    21
    
    
    $
    87,239
 Consolidated Statements of Cash Flows  Fiscal Year Ended September 30, 2002
 30




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##### Table of Contents



BeforeRestatement
    
    Adjustments
    
    As RestatedNet cash used in operating activities
    
    $
    48,702
    
    
    $
    (10
    )
    
    $
    48,692Net cash provided by investing activities
    
    $
    (10,342
    )
    
    
    10
    
    
    $
    (10,332
    )
  Consolidated Balance Sheet  December 31, 2004
 BeforeRestatement
    
    Adjustments
    
    As RestatedRental merchandise, net
    
    $
    194,564
    
    
    $
    3⁄4
    
    
    $
    194,564Property and equipment, net
    
    
    46,051
    
    
    
    (3,265
    )
    
    
    42,786Other Assets
    
    
    5,761
    
    
    
    3⁄4
    
    
    
    5,761Total Assets
    
    
    460,529
    
    
    
    (3,265
    )
    
    
    457,264Other Liabilities
    
    
    54,321
    
    
    
    821
    
    
    
    55,142Accumulated Deficit
    
    
    (190,479
    )
    
    
    (4,086
    )
    
    
    (194,565
    )Total shareholders equity
    
    
    113,851
    
    
    
    (4,086
    )
    
    
    109,765Total liabilities and shareholders equity
    
    $
    460,529
    
    
    $
    (3,265
    )
    
    $
    457,264
 Consolidated Statements of Operations  Three Month Period Ended December 31, 2004
 BeforeRestatement
    
    Adjustments
    
    As RestatedTotal Revenue
    
    $
    126,297
    
    
    $
    3⁄4
    
    
    $
    126,297Operating income
    
    
    11,970
    
    
    

    (808
    )
    
    
    11,162Net income (loss)
    
    
    (726
    )
    
    
    1,760
    
    
    
    1,034Net income
(loss) allocable to common shareholders
    
    
    (1,261
    )
    
    
    1,760
    
    
    
    499Basic net income (loss) allocable
to common shareholders per common
share
    
    $
    (0.05
    )
    
    $
    0.07
    
    
    $
    0.02Diluted net income (loss)
allocable to common shareholders
per common share
    
    $
    (0.05
    )
    
    $
    0.07
    
    
    $
    0.02
 Consolidated Statements of Operations  Three Month Period Ended December 31, 2003
 BeforeRestatement
    
    Adjustments
    
    As RestatedTotal Revenue
    
    $
    123,609
    
    $
    
    (426
    )
    
    $
    123,183
 31




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##### Table of Contents



BeforeRestatement
    
    Adjustments
    
    As RestatedOperating income
    
    $
    8,519
    
    $
    
    (364
    )
    
    $
    8,155Net income
    
    
    (5,817
    )
    
    
    (364
    )
    
    
    (6,181
    )Net income
(loss) allocable to common shareholders
    
    
    (6,212
    )
    
    
    (364
    )
    
    
    (6,576
    )Basic net income (loss) allocable
to common shareholders per common
share
    
    $
    (0.24
    )
    
    $
    (0.01
    )
    
    $
    (0.25
    )Diluted net income (loss)
allocable to common shareholders
per common share
    
    $
    (0.24
    )
    
    $
    (0.01
    )
    
    $
    (0.25
    )
        32




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##### Table of Contents




    
    Same store revenue is a measure that indicates whether the Companys existing stores
continue to grow. Same store revenues consists of revenues from stores in the household
rental segment that have been operating for more than fifteen months and have had no
changes affecting operations during that time, i.e. mergers, dispositions or acquisitions.
Stores that experienced mergers, dispositions or acquisitions during that period are not
included in the calculation of same store revenues. Same store revenues increased 2.6%
quarter over quarter. This is attributable to the continuation of offering higher-end
merchandise to customers and increasing rental rates on certain products.
    
    Gross weekly rental revenue, or GWRR, is a key measure of the Companys growth. GWRR is
the total potential rental revenue that could be collected from all active rental
agreements based on a weekly payment cycle. This is monitored at the individual store
level and Company level. Total GWRR was $8.8 million based on active agreements at June
30, 2005, versus $8.4 million for active agreements at June 30, 2004. This increase is
attributable to the continuation of offering higher end merchandise to stores, increasing
rental rates on certain products and the addition of new stores.
    
    Performance percentage is one metric the Company uses to measures overall operating
performance. The Company defines performance percentage as total rental revenue collected
as a percentage of total GWRR or, potential revenue. Performance
percentage was 89.3% for
the three-month period ended June 30, 2005 and 89.3% for the three-month period ended June
30, 2004. The performance percentage reflects the results of 784 stores and 753 stores for
the three-month periods ended June 30, 2005 and 2004, respectively. Senior management, as
well as store managers, use the Companys computerized management information system to
monitor cash collection on a daily basis. There are daily cash collections expectations
conveyed to the field and closely monitored by senior management.
    
    Rental merchandise depreciation as a percentage of rental revenue plus other revenue has
long been an indicator of gross profit margins on rental contracts. The Company uses the
units of activity depreciation method for all rental merchandise except computers and
electronic game systems, which are depreciated on the straight-line method. Under the
units of activity method, rental merchandise is depreciated as revenue is earned. Thus,
rental merchandise is not depreciated during periods when it is not on rent and therefore
not generating rental revenue. Rental merchandise depreciation as a percentage of rental
revenue plus other revenue was 25.8% for the three-month period ended June 30, 2005 versus
26.6% for the three-month period ended June 30, 2004. The improvement in rental
merchandise depreciation is attributable to the Companys achieved purchasing efficiencies
and improvement to management of previously rented merchandise.
    
    Operating income of the household rental segment is a key measure that management uses
to monitor how revenue growth and cost control measures impact profitability. Operating
income of the household rental segment was 10.0% of total revenue for the three-month
period ended June 30, 2005 versus 10.5% of total revenues for the three-month period ended
June 30, 2004. This is attributable to the expenses associated with opening new stores.
  33




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##### Table of Contents



Three-Months EndedJune 30,
    
    Percent ChangeIn thousands
    
    2005
    
    2004(Restated)REVENUES:Rental revenue
    
    $
    108,455
    
    
    $
    103,211
    
    
    
    5Prepaid phone service revenue
    
    
    4,313
    
    
    
    6,602
    
    
    
    (35
    )Other revenue
    
    
    15,529
    
    
    
    15,069
    
    
    
    3Total revenues
    
    
    128,297
    
    
    
    124,882
    
    
    
    3COSTS AND OPERATING EXPENSES:Depreciation and amortizationRental merchandise
    
    
    31,949
    
    
    
    31,429
    
    
    
    2Property and equipment
    
    
    3,732
    
    
    
    3,836
    
    
    
    (3
    )Amortization of intangibles
    
    
    195
    
    
    
    86
    
    
    
    127Cost of prepaid phone service
    
    
    2,684
    
    
    
    4,075
    
    
    
    (34
    )Salaries and wages
    
    
    35,580
    
    
    
    33,192
    
    
    
    7Advertising
    
    
    5,438
    
    
    
    4,986
    
    
    
    9Occupancy
    
    
    9,526
    
    
    
    8,560
    
    
    
    11Other operating expenses
    
    
    26,886
    
    
    
    26,392
    
    
    
    2Total costs and operating expenses
    
    
    115,990
    
    
    
    112,556
    
    
    
    3Operating income
    
    
    12,307
    
    
    
    12,326
    
    
    
    3⁄4OTHER INCOME (EXPENSE):Interest expense
    
    
    (7,304
    )
    
    
    (7,398
    )
    
    
    (1
    )Interest income
    
    
    9
    
    
    
    9
    
    
    
    3⁄4Amortization and write-off of deferred financing costs
    
    
    (289
    )
    
    
    (227
    )
    
    
    27Other income (expense)
    
    
    (4,362
    )
    
    
    1,600
    
    
    
    (373
    )Income before income taxes and discontinued operations
    
    
    361
    
    
    
    6,310
    
    
    
    (94
    )Income tax expense
    
    
    1,395
    
    
    
    1,395
    
    
    
    3⁄4Income
(loss) before discontinued operations
    
    
    (1,034
    )
    
    
    4,915
    
    
    
    (121
    )Loss from discontinued operations
    
    
    (181
    )
    
    
    (12
    )
    
    
    1,408Net income
(loss)
    
    
    (1,215
    )
    
    
    4,903
    
    
    
    (125
    )Dividend and accretion of preferred stock
    
    
    (549
    )
    
    
    (487
    )
    
    
    13Net income
(loss) allocable to common shareholders
    
    $
    (1,764
    )
    
    $
    4,416
    
    
    
    (140
    )
 Total revenues
 Rental Merchandise Depreciation
 Cost of Prepaid Phone Service
 Salaries and Wages
 Advertising
 Occupancy
 34




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##### Table of Contents



Other Operating Expense
 Interest Expense
 Other Income (Expense), Net
 Income Tax Expense
 Loss From Discontinued Operations
 Net Income (Loss)
 Net Income (Loss) Allocable To Common Shareholders
  Nine-Months EndedJune 30,
    
    Percent ChangeIn thousands
    
    2005
    
    2004(Restated)
    
    (Restated)REVENUES:Rental revenue
    
    $
    328,596
    
    
    $
    316,514
    
    
    
    4Prepaid phone service revenue
    
    
    13,617
    
    
    
    19,676
    
    
    
    (31
    )Other revenue
    
    
    48,579
    
    
    

    47,198
    
    
    
    3Total revenues
    
    
    390,792
    
    
    
    383,388
    
    
    
    2COSTS AND OPERATING EXPENSES:Depreciation and amortizationRental merchandise
    
    
    100,471
    
    
    
    101,349
    
    
    
    (1
    )Property and equipment
    
    
    12,145
    
    
    
    12,240
    
    
    
    (1
    )Amortization of intangibles
    
    
    251
    
    
    
    310
    
    
    
    (19
    )Cost of prepaid phone service
    
    
    8,460
    
    
    
    13,007
    
    
    
    (35
    )Salaries and wages
    
    
    105,164
    
    
    
    100,552
    
    
    
    5Advertising
    
    
    15,524
    
    
    
    15,387
    
    
    
    1Occupancy
    
    
    27,874
    
    
    
    25,426
    
    
    
    10Restructuring Costs
    
    
    3⁄4
    
    
    
    48
    
    
    
    (100
    )Other operating expenses
    
    
    83,133
    
    
    
    79,511
    
    
    
    5
 35




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##### Table of Contents



Nine-Months EndedJune 30,
    
    Percent ChangeIn thousands
    
    2005
    
    2004(Restated)
    
    (Restated)Total costs and operating expenses
    
    
    353,022
    
    
    
    347,830
    
    
    
    1Operating income
    
    
    37,770
    
    
    
    35,558
    
    
    
    6OTHER INCOME (EXPENSE):Interest expense
    
    
    (21,622
    )
    
    
    (22,919
    )
    
    
    (5
    )Interest income
    
    
    22
    
    
    
    792
    
    
    
    (97
    )Amortization and write-off of deferred financing costs
    
    
    (854
    )
    
    
    (748
    )
    
    
    14Other income (expense)
    
    
    (4,601
    )
    
    
    (1,493
    )
    
    
    208Income before income taxes and discontinued operations
    
    
    10,675
    
    
    
    11,190
    
    
    
    (7
    )Income tax expense
    
    
    4,185
    
    
    
    4,185
    
    
    
    3⁄4Income before discontinued operations
    
    
    6,490
    
    
    
    7,005
    
    
    
    (7
    )Loss from discontinued operations
    
    
    (361
    )
    
    
    (1,722
    )
    
    
    (79
    )Net income
    
    
    6,129
    
    
    
    5,283
    
    
    
    16Dividend and accretion of preferred stock
    
    
    (1,619
    )
    
    
    (1,286
    )
    
    
    26Net income allocable to common shareholders
    
    $
    4,510
    
    
    $
    3,997
    
    
    
    13
 Total revenues
 Rental Merchandise Depreciation
 Cost of Prepaid Phone Service
 Salaries and Wages
 Advertising
 Occupancy
 Other Operating Expense
 Interest Expense
 Other Income (Expense), Net
 36




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##### Table of Contents



Income Tax Expense
 Loss From Discontinued Operations
 Net Income
 Net Income Allocable To Common Shareholders
   Cash flows from operating activities
 In thousands
    
    For the Nine-Months Ended June 302005
    
    2004(Restated)
    
    (Restated)Net cash provided by (used in) operating activities
    
    $
    (6,091
    )
    
    $
    5,307
  Cash flows from investing activities
 In thousands
    
    For the Nine-Months Ended June 30,2005
    
    2004(Restated)
    
    (Restated)Purchase of businesses, net of cash acquired
    
    $
    (754
    )
    
    $
    (230
    )Purchases of property and equipment
    
    
    (11,008
    )
    
    
    (5,697
    )Net cash used in investing activities
    
    $
    (11,762
    )
    
    $
    (5,927
    )
  Financing Activities
 In thousands
    
    For the Nine-Months Ended June 30,2005
    
    2004(Restated)
    
    (Restated)Proceeds from borrowings
    
    $
    100,000
    
    
    $
    93,000Payments on borrowings
    
    
    (68,022
    )
    
    
    (88,014
    )Payments on class action lawsuit note payable
    
    
    (2,000
    )
    
    
    (2,000
    )Payments on capital leases
    
    
    (5,629
    )
    
    
    (5,971
    )Cash overdraft
    
    
    (4,901
    )
    
    
    (1,226
    )Deferred financing costs
    
    
    3⁄4
    
    
    
    (35
    )Issuance of common stock
    
    
    77
    
    
    
    938Proceeds from convertible preferred stock
    
    
    3⁄4
    
    
    
    5,000
 37




---



##### Table of Contents



In thousands
    
    For the Nine-Months Ended June 30,2005
    
    2004(Restated)
    
    (Restated)Dividends paid
    
    
    (1,197
    )
    
    
    (909
    )Net cash provided by financing activities
    
    $
    18,328
    
    
    $
    783
       Financial Condition.
 Off Balance Sheet Arrangements
 Contractual Obligations
 Due in less
    
    Due in
    
    Due in
    
    Due afterContractual Cash Obligations (In thousands)
    
    Total
    
    than one year
    
    1-3 years
    
    4-5 years
    
    5 yearsDebt (1)
    
    $
    234,176
    
    
    $
    32,000
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    202,176Capital lease obligations
    
    
    18,667
    
    
    
    5,822
    
    
    
    12,143
    
    
    
    702
    
    
    
    3⁄4Operating leases
    
    
    91,109
    
    
    
    27,416
    
    
    
    53,617
    
    
    
    9,510
    
    
    
    566Notes payable
    
    
    35
    
    
    
    11
    
    
    
    24
    
    
    
    3⁄4
    
    
    
    3⁄4Total cash obligations
    
    $
    343,987
    
    
    $
    65,249
    
    
    $
    65,784
    
    
    $
    10,212
    
    
    $
    202,742
 
 (1)
    
    Consists of senior secured notes, net of discount. The Companys $60.0 million revolving
bank credit facility was at $32,000 at June 30, 2005. The short-term loans from the
revolving bank credit facility are renewable throughout the term of the bank facility which
expires June 2, 2008. Amount of Commitment Expiration Per PeriodOther Commercial
    
    Total Amounts
    
    Less than
    
    
    
    
    
    
    
    
    
    OverCommitments (In thousands)
    
    Committed
    
    one year
    
    1-3 years
    
    4-5 years
    
    5 yearsLines of credit
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    3⁄4Standby letters of credit
    
    
    3,210
    
    
    
    3,210
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Guarantees
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Total commercial commitments
    
    $
    3,210
    
    
    $
    3,210
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    3⁄4
  38




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##### Table of Contents



Seasonality and Inflation
 Recent Accounting Pronouncements
     The Companys significant indebtedness and dividend payment obligations limit cash flow
availability for operations.
 39




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##### Table of Contents




    
    The Company must dedicate a substantial portion of its cash flow from operations to the
payment of principal and interest on debt and dividends on the Series A preferred stock, and, under
the indenture for the Companys $205 million of senior notes, must make an offer to purchase senior
notes on an annual basis from excess cash flow, reducing the funds available for operations;
    
    The Companys ability to obtain additional financing is limited;
    
    The Companys flexibility in planning for, or reacting to, changes in the markets in which the
Company competes is limited;
    
    The Company is at a competitive disadvantage relative to competitors with less indebtedness;
and
    
    The Company is rendered more vulnerable to general adverse economic and industry conditions.
 The Companys revolving credit facility imposes restrictions that limit operating and financial
flexibility.
 Covenants in the Companys revolving credit facility will restrict the Companys ability to:
    
    incur liens and debt,
    
    pay dividends;
    
    make redemptions and repurchases of capital stock;
    
    make loans, investments and capital expenditures;
    
    prepay, redeem or repurchase debt;
    
    engage in mergers, consolidations, asset dispositions,
sale-leaseback transactions and affiliate transactions; and
    
    change the business.
  Restrictive covenants in the indenture for the Companys senior notes may also limit operating and
financial flexibility.
  
    
    incur additional debt;
    
    pay dividends or make other restricted payments;
    
    create or permit certain liens;
    
    sell assets;
    
    create or permit restrictions on the ability of restricted subsidiaries to pay dividends or make other
distributions to the Company or grant liens to secure debt under the indenture;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    consolidate or merge with or into other companies or sell all or substantially all of the Companys
assets.
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The Company may still be able to incur additional debt, which could increase
the risks described above.
 The Company depends, to a certain extent, on its subsidiaries for cash needed to service
obligations, and these subsidiaries may not be able to distribute cash to the Company.
 If the Company does not have sufficient capital, the Company may not be able to operate the
business successfully.
 
    
    to purchase new rental merchandise for
stores;
    
    to service debt; and
    
    to open or acquire new stores.
  Since a substantial portion of the Companys assets consists of intangible assets, the value
of some of these intangible assets may not be realized.
 If the Company is unable to offer new products or services or to continue strategic
relationships with suppliers, the Company may be unable to attract new customers and to maintain
existing customers.
 
    
    The Company may have overestimated customers demand for these products;
    
    The Company may have mispriced these products given limited experience with them;
    
    The Company may have underestimated the costs required to support new product
offerings;
    
    The Company may have underestimated the difficulty in training store personnel to sell
and service these products;
    
    The Company may incur disruptions in relationships with suppliers of these new
products;
    
    The Company may experience a decrease in demand due to technological obsolescence of
some of new products; and
    
    The Company may face competition from current rental-purchase competitors and other
retailers who offer similar products to their customers.
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If the Company is unable to open new stores and operate them profitably, sales growth and
profits may be reduced.
  
    
    continued customer demand for the Companys products at levels that can support acceptable profit margins;
    
    the hiring, training and retaining of skilled personnel;
    
    the availability of adequate management and financial resources;
    
    the ability and willingness of suppliers to supply merchandise on a timely basis at competitive prices
    
    the identification and acquisition of suitable sites and the negotiation of acceptable leases for such sites;
and
    
    non-compete provisions of Company agreements to sell stores under which the Company agrees not to open new
stores within specified radius of the store sold.
  The Company needs to continue to improve operations in order to improve its financial
condition, but operations will not improve if the Company cannot continue to effectively implement
its business strategy or if general economic conditions are unfavorable.
 The Company is dependent on its management team, and the loss of their services may result in
poor business performance including lower revenues and operating income.
 If the Company fails to comply with extensive laws and governmental regulations relating to
the rental-purchase industry or other operations, it could suffer penalties or be required to make
significant changes to its operations.
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The Company faces intense competition in the rental-purchase industry, which could reduce its
market share in existing markets and affect its entry into new markets
  
     
  A.
    
    Disclosure Controls and Procedures. The Company carried out an evaluation, under the
supervision and with the participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to Rule 13a-15. Based
upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that, as of June 30, 2005, the Companys disclosure controls and procedures were
effective to ensure that information required to be disclosed in Company reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified by the SECs rules and forms.During the period covered by this report, the Companys management and Audit Committee of the
Board of Directors determined the need to correct the Companys accounting for leases in order
to conform with generally accepted accounting principles, as discussed in further detail in Note
2 to the consolidated financial statements included in this report. The Company also determined
to give effect to its previously announced change in recognizing rental business revenues in
periods prior to September 30, 2004. Accordingly, the Company intends to file an amendment to
its Annual Report on Form 10-K for the year ended September 30, 2004 and an amendment to its
Quarterly Report on Form 10-Q for the quarter ended December 31, 2004 to restate the financial
results contained in the financial statements provided with those reports.
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B.
    
    Changes in Internal Control Over Financial Reporting. Other than as described in the next
paragraph, there has not been any change in the Companys internal control over financial
reporting that occurred during the last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial
reporting.As discussed above, during the period covered by this report, the Company conducted a review of
its accounting related to leases, corrected its method of accounting for leases and changed its
internal controls to specifically identify the procedures to follow to ensure that its lease
accounting complies with generally accepted accounting principles.
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PART II OTHER INFORMATION
 
   
   
   
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Rent-Way, Inc.(Registrant)August 8, 2005
    
    By: /s/ William A. McDonnellDate
    
    (Signature)William A. McDonnellVice President and Chief Financial OfficerAugust 8, 2005
    
    By: /s/ John A. LombardiDate
    
    (Signature)John A. LombardiChief Accounting Officer and Controller
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EXHIBIT INDEX
 No.
    
    Exhibit Name3.1
    
    Articles of Incorporation of Rent-Way, Inc., as amended (incorporated by reference to Exhibit
3.1 to the Companys Annual Report on Form 10-K for the year ended September 30, 1997, filed
November 6, 1997.)3.2
    
    Statement with Respect to Shares of Series A Convertible Preferred Stock of the Company dated
May 30, 2003 (incorporated by reference to exhibit 3.1 to Amendment No. 5 to the Companys
registration statement on Form S-3, No. 333-102525 filed on June 25, 2003).3.3*
    
    Bylaws of Rent-Way, Inc., as amended.12.1*
    
    Ratio of Earnings to Fixed Charges Calculation31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 200231.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 200232.1*
    
    Certification pursuant to Section 906 of Sarbanes-Oxley Action of 2002
 
 *
    
    Filed herewith. 47