In an effort to better understand our Industry, RTO Online will profile Rental Purchase companies around the globe. We  begin the series with an in depth look at the history and current state of 'RTO Enterprises' of Canada

History:
In 1980 Gordon Reykdal started "Rentown" and quickly expanded to 50 stores. In 1990, the bank called his loan, sending Rentown into bankruptcy. In 1991, with the help of private investors, Reykdal started over with Edmonton-based RTO Enterprises. With his newfound capital, a never-say-die attitude, and a solid business plan, Mr. Reykdal began acquiring stores (including the ones he originally lost!) and became the largest operator in Canada with over 140 stores (70% market share by store count). RTO Enterprises is publicly traded on the Toronto Exchange under the symbol (RTO)

RTO Enterprises Factoids
RTO Enterprises operates 130 stores under 6 brands in all 10 Canadian Provinces
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Listed only on the Toronto Stock Exchange under the symbol (RTO)
Trivia
Gordon Reykdal was appointed Honorary Consul of the Republic of Iceland in March 2002
Mr. Reykdal was quoted in Today's Entrepreneur..."The big attraction from investors was that I had a very solid investment plan. When I started the first store, I basically used that as my model for investors because I knew I could produce results in that store,"..."I made that store very profitable in short order, so I had something to substantiate the plan I showed investors."
Other RTO Online stories on RTO Enterprises...

In early 2000, Mr. Reykdal and other members of management attempted a takeover of RTO Enterprises. There intention was to take the company private. The offer was withdrawn in April of 2000 after Mr. Reykdal was unable to secure adequate financing.

After the failed privatization attempt and the continuing poor performance of the company, RTO's board felt compelled to "make a change". Mr. Reykdal was forced to step down as Chairman and CEO and accept a position as Vice Chairman. The board named Bruce Reid (former CEO of Canada's leading furniture, electronics and appliances retailer) President and Chief Executive Officer. Donald K. Johnson was appointed Chairman of the Board.

In July of 2000 Douglas Anderson and Joseph Rotunda, former CEO and COO of Thorn Americas, were appointed directors of RTO. 

New CEO Reid immediately ordered what was called "an internal review of operations". On July 21st, 2000, RTO Enterprises announced that, a result of this 'review', they would be forced to re-state earnings for the previous quarter. They had reported pre-tax income of $328,000. In reality, their had been a loss of nearly $500,000. It is important to note that there was significant disagreement among board members and auditors as to whether or not the re-statement was necessary. The decision by Bruce Reid to rush the outcome of the internal review (completed in a matter of days) was the cause of significant confusion. It was determined later that the re-statement was, in fact, unnecessary and the original figures were accurate.

Brief Intermission...
Chief among the many reforms Bruce Reid introduced is the companies depreciation policy. More than any other method in use today, it accurately reflects the reality of Rent to Own life. RTO initiated a policy of automatically amortizing rental merchandise which has not been rented for a period of 90 consecutive days. This "idle" merchandise is amortized on a straight line basis over 18 months whether or not it is subsequently rented.
David Ingram CEO
"While this conservative accounting policy reduces our reported profits in the short term in comparison with our U.S. publicly traded peer group, it has been very helpful in improving our operating performance. The amortization of '90 days plus idle' merchandise has proven to be an excellent discipline for our store managers. It provides them with a positive incentive to generate rental revenue from '90 day plus idle' because it impacts the profitability of their stores and hence their incentive bonus potential. Our '90 days plus idle' rental assets have been reduced over 40% from 15,718 units as of June 30, 2000 to 9,363 units as of June 30, 2001".
   

Back to our story
On August 10, 2000, Gordon Reykdal submitted his resignation to the board.

By the end of August the company concluded that there would be a significant 'corporate restructuring charge' needed. This charge would be more than $3.3 million and caused RTO to be in breach of its loan covenants.

By October, RTO had re-negotiated its loans and announced its intention to issue $9 million in new stock in a bid to raise capital. In a press release dated Nov 6, 2000 CEO Donald Johnson stated  "...the Company's ability to maintain and expand its current business is...dependant upon successful completion of this offering". At a projected sale price of only $0.30 per share, the issue would double the number of shares outstanding, diluting existing stockholders investment by more than 50%.

On December 4th 2000, the company announced the appointment of David Ingram, formerly of Thorn Canada (and the future CEO of RTO), Executive Vice President and Chief Operating Officer.

In an effort to reduce the dilution of existing shareholders stock, RTO reduced the stock offering to $6.5 million and structured the deal so that existing shareholders could participate at the offering price of $0.30 per share. While reducing the dilution, RTO had to take on debt to raise the additional revenue needed. Interest rates on this debt ranged from 15% to 22% placing a heavy burden on cash flow. (NOTE: As of the time of this article, RTO Enterprises is in negotiations to re-finance all existing debt into a single package. They hope for a rate of 10-12%.)

$4.1 million of the $6.5 million in stock issued was purchased by company chairman Donald Johnson. As a result Mr. Johnson controlled over 30.% of all outstanding shares.

In March of 2001, Bruce Reid stepped down and the Board unanimously appointed David Ingram as President & CEO effective May 24. A position he still holds today. This move is viewed by company insiders as the turnaround point for RTO Enterprises. David Ingram brought with him the absolute faith in the fundamentals of Rent to Own..."Rent and Collect". Employees will tell you that it was David Ingram's back-to-basics approach that showed everyone the light at the end of the tunnel'.

Putting 2000 behind them, the company set to work on 2001. By the end of March 2001, although earnings were nil, the company reported positive net income for the first time since December 1999.

By the end of May 2001, Donald Johnson had increased his ownership of the company to 35% of all outstanding shares.

Second quarter 2001 results were even better. Net income before taxes was $80,000 compared with a net loss before taxes of $5.9 million for the comparable period in 2000. The company also added more ex Rent A Center talent with the addition of David Maries as Vice President, and the promotion of Randy Robertson to  Senior Vice President.

Third quarter 2001 followed suit with net income before tax compared with a net loss before taxes the previous year.

For the year ending December 31st 2001, the company reported Net...Net...Net! With an increase in revenue of 8.4%. RTO Enterprises began a more disciplined approach to new store openings....from internally generated cash flow rather than adding debt. The company is committed to expanding at a pace that will ensure long term health and not overrun their ability to control it. As a wise man within the company said "Financing is not the limiting factor in Rent to Own expansion... people are."

RTO Enterprises website is here

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