<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 0-27490
ALRENCO, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1480655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1736 East Main Street
New Albany, Indiana 47150
(812) 949-3370
(Address, including zip code, and telephone
number, including area code of registrant's
principal executive offices)
NONE
(Former name, former address and former
fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the issuer's common stock, as of the close
of business August 9, 1996: 4,424,200.
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ALRENCO, INC.
INDEX
PART I. Financial Information
Page No.
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1996
and December 31, 1995. 3
Condensed Statements of Earnings for
the six months ended June 30, 1996 and 1995. 4
Condensed Statements of Earnings for
the quarter ended June 30, 1996 and 1995. 5
Condensed Statements of Cash Flows for the six
months ended June 30, 1996 and 1995. 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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ALRENCO, INC.
Balance Sheets
June 30, December 31,
1996 1995
(Unaudited)
------------- -------------
ASSETS
Cash $ 970,449 $ 27,041
Rental merchandise, net 20,688,630 13,115,368
Prepaid expenses and other assets 707,622 1,480,759
Deferred income taxes 18,699 18,699
Property assets, net 3,116,893 1,402,409
Loan to stockholder 71,636 64,384
Intangible assets, net 10,985,946 4,868,590
------------ ------------
$ 36,559,875 $ 20,977,250
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade $ 4,052,323 $ 1,763,272
Accrued liabilities 347,977 1,542,621
Taxes other than income 310,382 330,530
Debt 9,252,335 12,865,239
------------ ------------
13,963,017 16,501,662
Stockholders' equity
Preferred stock, no par; 1,000,000
shares authorized; none issued
or outstanding -- --
Common stock, no par; 20,000,000
shares authorized, 4,424,200 shares
issued and outstanding at June 30, 1996
and 3,000,000 shares issued and
outstanding at December 31, 1995 17,759,297 1,500
Unamortized value of stock award (1,279,302) --
Retained earnings 6,116,863 4,474,088
------------ ------------
22,596,858 4,475,588
------------ ------------
$ 36,559,875 $ 20,977,250
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements
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ALRENCO, INC.
Statements Of Earnings
For the Six Months Ended
June 30,
-------------------------------
1996 1995
(Unaudited) (Unaudited)
------------ -------------
REVENUE
Rentals and fees $ 26,436,187 $ 16,482,390
Sales 531,958 316,630
Other 35,831 35,130
------------ ------------
Total Revenue 27,003,976 16,834,150
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 5,936,257 4,347,934
Cost of sales 336,142 207,024
Salaries and other expenses 14,934,712 8,877,435
------------ ------------
21,207,111 13,432,393
General and administrative expenses 2,440,443 1,993,329
Amortization of intangibles 387,067 96,720
------------ ------------
Total operating expenses 24,034,621 15,522,442
------------ ------------
Operating Profit 2,969,355 1,311,708
Interest expense 182,034 361,154
------------ ------------
Earnings before income taxes 2,787,321 950,554
Income tax expense 1,144,546 447,181
------------ ------------
NET EARNINGS $ 1,642,775 $ 503,373
------------ ------------
------------ ------------
Weighted average shares outstanding 4,206,653 3,105,000
Earnings per common share $ 0.39 $ 0.16
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements
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ALRENCO, INC.
Statements Of Earnings
For the Quarter Ended
June 30,
-------------------------------
1996 1995
(Unaudited) (Unaudited)
------------ -------------
REVENUE
Rentals and fees $ 14,328,297 $ 8,311,203
Sales 256,176 169,445
Other 21,593 23,370
------------ ------------
Total Revenue 14,606,066 8,504,018
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 3,234,234 2,146,469
Cost of sales 189,982 105,038
Salaries and other expenses 7,979,267 4,302,644
------------ ------------
11,403,483 6,554,151
General and administrative expenses 1,225,419 1,029,767
Amortization of intangibles 231,606 48,360
------------ ------------
Total operating expenses 12,860,508 7,632,278
------------ ------------
Operating Profit 1,745,558 871,740
Interest expense 149,112 175,205
------------ ------------
Earnings before income taxes 1,596,446 696,535
Income tax expense 654,545 332,040
------------ ------------
NET EARNINGS $ 941,901 $ 364,495
------------ ------------
------------ ------------
Weighted average shares outstanding 4,434,312 3,105,000
Earnings per common share $ 0.21 $ 0.12
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements
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ALRENCO, INC.
Statements of Cash Flows
For the Six Months Ended
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1995
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 1,642,775 $ 503,373
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation of rental merchandise 5,936,257 4,347,934
Depreciation of property assets 314,322 174,992
Amortization of intangibles 387,067 96,720
Other (96,168) --
Other changes in operating assets and liabilities
net of effects of acquisitions
Rental merchandise (9,523,765) (4,006,533)
Prepaid expenses and other 784,108 272,415
Accounts payable - trade 2,289,051 384,456
Accrued liabilities (624,946) (253,196)
Income taxes payable (525,975) 301,340
Taxes other than income 126,834 23,127
------------ ------------
Net cash provided by (used in)
operating activities (709,560) 1,844,628
Cash flows from investing activities
Purchases of property assets (1,014,806) (150,167)
Proceeds from sale of property assets -- 228,000
Purchases of investments -- 39,054
Increase in loan to shareholder (7,252) (7,466)
Acquisition of businesses (9,999,867) --
------------ ------------
Net cash provided by (used in)
investing activities (11,021,925) 109,421
Cash flows from financing activities
Proceeds from initial public offering - net 16,287,797 --
Decrease in line of credit (3,612,904) (1,594,693)
------------ ------------
Net cash provided by (used in)
financing activities 12,674,893 (1,594,693)
------------ ------------
NET INCREASE IN CASH 943,408 359,356
Cash at beginning of year 27,041 23,927
------------ ------------
Cash at end of period $ 970,449 $ 383,283
------------ ------------
------------ ------------
Supplemental cash flow information
Cash paid during the period for
Interest $ 182,034 $ 361,154
Income taxes $ 1,744,479 $ 130,619
</TABLE>
The accompanying notes are an integral part of these statements
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ALRENCO, INC.
Notes to Condensed Financial Statements
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company as of June 30, 1996, the results of operations for the three and six
month periods ended June 30, 1996 and 1995, and the statements of cash flows
for the six month periods ended June 30, 1996 and 1995. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of the operating results for the full year.
2. On February 29, 1996, the Company entered into a formal agreement with a
bank for a $16,150,000 line of credit facility. This agreement replaces a
similar, smaller facility with the same bank and carries a three-year term with
interest rates ranging from prime plus 1/2% to prime plus 1-3/4% depending upon
level of indebtedness. Under the terms of the agreement, the Company is
required to pay 1/2 of 1% per annum on the unused portion of the facility. As
of June 30, 1996 the Company had outstanding loans under the agreement of
$9,252,335.
3. The Company purchased 14 rental-purchase stores from a company doing
business as Easy Rentals on March 1, 1996 for cash of approximately $6.5
million. During the three month period ended June 30, 1996, the Company
acquired 25 rental-purchase stores in twelve unrelated transactions for an
aggregate purchase price of $4.7 million including cash of $3.5 million and
amounts held in escrow of $1.2 million. All of the acquisitions have been
accounted for as purchases and accordingly the operating results of the acquired
stores have been included in the operating results of the company since their
acquisition dates.
On August 31,1995, the Company purchased 15 rental-purchase stores for
$5.95 million which was accounted for as a purchase. The operating results
of these acquired stores are included in the operating results of the Company
since August 31, 1995.
The following summary, prepared on a pro forma basis, combines the
results of operations as if the stores had been acquired at the beginning of
each of the periods presented after including the effect of adjustments for
amortization of intangibles and interest expense on acquisition debt.
Six Months Ended Three Months Ended
06/30/96 06/30/95 06/30/96 06/30/95
Revenue.................. $32,732,136 $31,645,406 $16,064,489 $15,974,894
Net Earnings............. $ 1,500,104 $ 1,023,330 $ 863,624 $ 627,716
Earnings per common share $ .36 $ .33 $ .19 $ .20
4. Statement of Financial Accounting Standard No. 123 (SFAS 123) "Accounting
for Stock-Based Compensation", is effective for 1996. As permitted by SFAS 123,
the Company has elected to continue to account for stock-based compensation
under pre-existing accounting standards. The pro forma disclosures required
pursuant to this election for the six months ended June 30, 1996 and 1995 have
not been presented because the provisions of SFAS 123 do not apply to interim
financial statements unless a complete set of financial statements is
presented.
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5. On January 23, 1996, the Company completed an initial public offering of its
stock. In conjunction with this offering the Company awarded 105,000 shares of
restricted stock to two key employees. At the date of grant, the fair value of
such shares was $1,470,000. Compensation will be charged to earnings over the
seven year vesting period. Additionally, 101,247 stock options were issued to
directors and employees under a stock option plan.
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ALRENCO, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
In the quarter ended June 30, 1996, the Company acquired 25 rental-purchase
stores in 12 separate transactions. The financial results for the quarter
since the date of each acquisition includes additional revenue of $780,000
and additional operating profit of $90,000.
RESULTS OF OPERATIONS
REVENUE. Revenue increased $6.1 million or 71.8% to $14.6 million for
the quarter ended June 30, 1996 from $8.5 million in the comparable quarter
in 1995. Revenue growth from same store operations accounted for $377,600,
or 6.2% of the increase for the quarter, and revenue from stores acquired
subsequent to June 30, 1995 accounted for $5.7 million or 93.8% of the
increase. For the six months ended June 30, 1996, revenue increased $10.2
million, or 60.4% to $27.0 million from $16.7 million for the 1995 comparable
period. Revenue growth from same store operations for the six month period
ended June 30, 1996 accounted for $1.0 million, or 10.0% of the increase for
the period, and revenue from acquired stores accounted for $9.2 million or
90.0% of the increase. Management believes that the increase in revenue for
the period was primarily attributable to continued improved performance of
the stores acquired during 1994, and the addition of revenue from the stores
acquired during 1995 and 1996.
DEPRECIATION OF RENTAL MERCHANDISE. Depreciation of rental merchandise
increased $1.1 million or 50.7% to $3.2 million for the quarter ended June
30, 1996 from $2.1 million in the comparable quarter in 1995. As a
percentage of revenue, depreciation of rental merchandise decreased to 22.1%
for the three months ended June 30, 1996 from 25.2% for the comparable
period in 1995. For the six months ended June 30, 1996, depreciation of
rental merchandise increased $1.6 million, or 36.5% , to $5.9 million from
$4.3 million for the comparable period in 1995, primarily as a result of the
change in the Company's depreciation method for new rental merchandise and
increased revenue per item on rent.
OTHER DIRECT STORE EXPENSES. Other direct store expenses increased $3.8
million or 85.3% to $8.2 million for the quarter ended June 30, 1996 from $4.4
million for the same period in 1995. For the six months ended June 30, 1996,
other direct store expenses increased $6.2 million or 68.1% to $15.3 million
from $9.1 million for the 1995 comparable period. These increases were
primarily attributable to the additional costs incurred in connection with the
operation of the stores acquired in 1995 and 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $195,600 or 19.0% to $1.2 million for the quarter ended June 30, 1996
from $1.0 million in the comparable quarter in 1995. For the six months ended
June 30, 1996, general and administrative expenses increased $447,000, or 22.4%,
to $2.4 million from $2.0 million for the comparable period in 1995. As a
percentage of revenue, general and administrative expenses decreased to 9.0% for
the six months ended June 30, 1996 from 11.8% for the 1995 comparable period,
primarily as a result of greater operating efficiencies achieved through the
operation of a greater number of stores and increased revenue at existing
stores.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
$183,200 or 378.9% to $231,600 for the quarter ended June 30, 1996 from $48,400
for the 1995 comparable period. For the six months ended June 30, 1996,
amortization of intangibles increased $290,000 or 300.2% to $387,000 from
$97,000 for the 1995 comparable period primarily as a result of intangible
assets created by the 1995 and 1996 acquisitions.
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INTEREST EXPENSE. Interest expense decreased $26,100 or 14.9% to $149,100
for the quarter from $175,200 for the comparable quarter in 1995. For the six
months ended June 30, 1996, interest expense decreased $179,000 or 49.6% to
$182,000 from $361,100 for the comparable period in 1995. The declines are
attributable to the repayment of debt in connection with the initial public
offering in January 1996, partially offset by interest expense on additional
borrowings during the first six months of 1996.
NET EARNINGS. Net earnings increased $577,400 or 58.4% to $700,900 for the
quarter from $364,500 for the comparable quarter in 1995. For the six months
ended June 30, 1996, net earnings increased $1.1 million or 226.4% from $503,000
for the 1995 comparable period. As a percentage of revenue, net earnings
increased to 6.4% for the quarter ended June 30, 1996 from 4.3% for the
comparable period in 1995. For the six months ended June 30, 1996, net earnings
as a percentage of revenue increased to 6.1% from 3.0% for the comparable
period in 1995. These increases are primarily attributable to improvement in
operating margins for the stores acquired in 1994 and generally high operating
margins for the stores acquired in 1995.
LIQUIDITY AND CAPITAL RESOURCES
On January 23, 1996, the Company completed an initial public offering of
stock. In this transaction, 1,100,000 shares were offered by the Company and
700,000 shares were offered by a selling shareholder at the price of $14.00 per
share. Net proceeds to the Company were $13.4 million. On February 26, 1996,
the underwriters of the offering exercised part of their over-allotment option
for 219,200 shares. Net proceeds to the Company from this transaction amounted
to $2.9 million. A portion of the net proceeds was used to repay all
outstanding indebtedness under the loan agreement.
The Company's primary requirements for capital, other than those related
to acquisitions, consist of purchasing additional rental merchandise and
replacing rental merchandise which has been sold or is no longer suitable for
rent. During the six months ended June 30, 1996 and 1995, the Company
purchased rental merchandise for aggregate amounts of approximately $9.5
million and $4.0 million, respectively. In addition, during the six months
ended June 30, 1996, the Company has acquired 39 stores for an aggregate
purchase price of $11.2 million including cash of $10.0 million and amounts
held in escrow of $1.2 million.
On February 29, 1996, the Company entered into a formal agreement with a
bank for a $16.2 million line of credit facility. This agreement replaces a
similar, smaller facility with the same bank and carries a three-year term
with interest rates ranging from prime plus 1/2% to prime plus 1-3/4%
depending upon level of indebtedness. Under the terms of the agreement, the
Company is required to pay 1/2 of 1% per annum on the unused portion of the
facility. As of June 30, 1996, the Company had outstanding loans under the
agreement of $9.3 million.
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ALRENCO, INC.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders was held on May 8, 1996. The matters
voted upon at the meeting were the election of two directors for three year
terms and the ratification of independent auditors for the current fiscal year.
The number of votes cast for, against or withheld with respect to each
nominee for director elected at the meeting were as follows:
Nominee Votes For Votes Against Votes Withheld
- ------- --------- ------------- --------------
W. Barrett Nichols 3,506,590 0 100
Theodore H. Wilson 3,506,590 0 100
The following directors continued in office following the meeting for the
terms indicated:
Term Expiring in 1997 Term Expiring in 1998
--------------------- ---------------------
Donald E. Groot Robert W. Lanum
Michael D. Walts, Jr. Raymond C. Holladay
Michael D. Walts
The number of votes cast for or against and abstentions with respect to the
selection of Grant Thornton LLP as independent auditors were as follows:
Votes For Votes Against Abstentions
--------- ------------ -----------
3,494,140 0 12,550
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is filed as part of this report:
27 - Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: August 13, 1996
ALRENCO, INC.
(Registrant)
/s/ Theodore H. Wilson
------------------------------------------------
Theodore H. Wilson, Executive Vice President and
Chief Financial Officer
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