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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 March 31, 1997
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 May 9, 1997: 6,076,892
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ALRENCO, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 1997
and December 31, 1996. 3
Condensed Statements of Earnings for
the quarter ended March 31, 1997 and 1996. 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and 1996. 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
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ALRENCO, INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED)
------------ -----------
ASSETS
Cash and cash equivalents $ 4,352,202 $ 7,468,539
Rental merchandise, net 34,600,791 27,932,741
Prepaid expenses and other assets 1,216,349 1,436,556
Income tax receivable - 323,327
Deferred income taxes 378,263 377,839
Property assets, net 4,960,803 4,261,951
Loan to stockholder 71,636 71,636
Intangible assets, net 33,188,534 20,323,147
------------ ------------
$ 78,768,578 $ 62,195,736
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade $ 1,663,528 $ 2,567,140
Accrued liabilities 2,510,247 1,542,056
Taxes other than income 469,065 423,274
Debt 15,093,422 -
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19,736,262 4,532,470
Stockholders' equity
Preferred stock, no par; 1,000,000 shares
Authorized; none issued or outstanding - -
Common stock, no par; 20,000,000 shares
Authorized, 6,076,892 shares issued and
Outstanding at March 31, 1997 and
6,074,100 shares issued and outstanding at
December 31, 1996 50,747,026 50,707,938
Unamortized value of stock award (1,133,556) (1,182,138)
Retained Earnings 9,418,846 8,137,466
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59,032,316 57,663,266
$ 78,768,578 $ 62,195,736
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements
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ALRENCO, INC.
STATEMENTS OF EARNINGS
FOR THE QUARTER ENDED
(UNAUDITED)
MARCH 31,
---------------------------
1997 1996
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REVENUE
Rentals and fees $ 23,351,915 $ 12,107,890
Sales 531,353 275,782
Other 25,128 14,238
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Total Revenue 23,908,396 12,397,910
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 5,349,773 2,702,024
Cost of sales 437,540 146,160
Salaries and other expenses 12,735,645 6,683,303
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18,522,958 9,531,487
General and administrative expenses 2,391,642 1,384,237
Amortization of intangibles 677,804 155,462
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Total operating expenses 21,592,404 11,071,186
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Operating profit 2,315,992 1,326,724
Interest income - 5,918
Interest expense (140,762) (141,766)
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Earnings before income taxes 2,175,230 1,190,876
Income tax expense 893,850 490,000
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NET EARNINGS $ 1,281,380 $ 700,876
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-------------- -------------
Weighted average shares outstanding 6,075,713 3,978,995
Earnings per common share $ 0.21 $ 0.18
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The accompanying notes are an integral part of these statements
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ALRENCO, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
MARCH 31
---------------------------
1997 1996
------------ ------------
Cash flows from operating activities
Net earnings $ 1,281,380 $ 700,876
Adjustments to reconcile net earnings to
Net cash provided by operating activities
Depreciation of rental merchandise 5,349,560 2,702,024
Depreciation of property assets 227,380 128,997
Amortization of intangibles 677,804 155,462
Other - (27,234)
Other changes in operating assets and liabilities
net of effects of acquisitions
Rental merchandise (6,399,561) (3,479,031)
Prepaid expenses and other 519,566 568,093
Accounts payable-trade (903,612) 196,259
Accrued liabilities 1,055,861 (14,508)
Taxes other than income 45,791 30,466
----------- -----------
Net cash provided by
operating activities 1,854,169 961,404
Cash flows from investing activities
Purchases of property assets (503,732) (526,315)
Acquisitions of businesses (19,560,196) (6,995,140)
----------- -----------
Net cash used in
investing activities (20,063,928) (7,521,455)
Cash flows from financing activities
Proceeds from public offerings - net - 16,287,798
Increase (Decrease) in line of credit 15,093,422 (8,948,350)
----------- -----------
Net cash provided by
financing activities 15,093,422 7,339,448
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (3,116,337) 779,397
Cash and cash equivalents at beginning of year 7,468,539 27,041
------------ -----------
Cash and cash equivalents at end of period $ 4,352,202 $ 806,438
------------ -----------
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Supplemental cash flow information
Cash paid during the period for
Interest $ 81,683 $ 141,766
Income taxes $ 408,514 $1,291,340
The accompanying notes are an integral part of these statements
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ALRENCO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION. The accompanying condensed financial statements
of Alrenco, Inc. (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Rule 10-01 of Regulation S-K. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. 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 March 31, 1997, the results of operations for the three month periods
ended March 31, 1997 and 1996, and the statements of cash flows for the
three month periods ended March 31, 1997 and 1996. The results of operations
for the three months ended March 31, 1997 are not necessarily indicative of
the operating results for the full year. These interim financial statements
should be read in conjunction with the Form 10-K for the year ended December
31, 1996, including the financial statements and notes contained therein,
filed with the Securities and Exchange Commission.
2. DEBT AGREEMENTS. 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 . On
August 9, 1996 the Company entered into an agreement to amend the February
29, 1996 document. The amendment provides a maximum debt level of
$25,000,000 and carries a three-year term with interest rates ranging from
prime rate to prime plus 1-1/4% depending upon level of indebtedness. Under
the terms of the agreement, the Company is required to pay from 3/8 to 1/2
of 1% per annum on the unused portion of the facility. As of March 31, 1997
the Company owed $15.1 million under the agreement.
3. ACQUISITION ACTIVITY. The company purchased 28 rental-purchase stores
from a company doing business as Fastway Rentals on January 2, 1997 for cash
of approximately $11.9 million. On February 28, 1997, the Company acquired 9
stores from a company doing business as Powerhouse Rentals for cash of
approximately $6.5 million. During the three month period ended March 31,
1997, the Company also acquired 3 rental-purchase stores in two unrelated
transactions for an aggregate purchase price of $762,000. During 1996, the
Company purchased 76 rental-purchase stores in 22 separate transactions for
an aggregate purchase price of $25.0 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.
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.
Three Months Ended
-----------------------------------------
03/31/97 03/31/96
------------------- -----------------
Revenue $ 25,008,396 $ 21,932,542
Net Earnings $ 1,289,380 $ 706,839
Earnings per common share $ 0.21 $ 0.18
4. NEW ACCOUNTING PRONOUNCEMENT. The FASB has issued Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE, which is effective for
financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share together with disclosure of how the per share
amounts were computed. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised and converted into
common stock or resulted in the issuance of common stock that then shared in
the earnings of the entity. The adoption of this new pronouncement is not
expected to have a material impact on the disclosure of earnings per share in
the financial statements.
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ALRENCO, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In the quarter ended March 31, 1997, the Company acquired 40 rental-purchase
stores in 4 separate transactions. The financial results for the quarter
since the date of each acquisition includes additional revenue of $3.8
million and additional operating profit of $1.2 million.
RESULTS OF OPERATIONS
REVENUE. Revenue increased $11.5 million or 92.8% to $23.9 million
for the quarter ended March 31, 1997 from $12.4 million in the comparable
quarter in 1996. Revenue growth from same store operations accounted for
$84,300, or 0.7% of the increase for the quarter, and revenue growth from
stores acquired subsequent to December 31, 1995 accounted for $11.4 million
or 99.3% of the increase. Management believes that the increase in revenue
for the period was primarily attributable to the addition of revenue from the
stores acquired during 1996 and 1997.
DEPRECIATION OF RENTAL MERCHANDISE. Depreciation of rental
merchandise increased $2.6 million or 98.0% to $5.3 million for the quarter
ended March 31, 1997 from $2.7 million in the comparable quarter in 1996.
As a percentage of revenue, depreciation of rental merchandise increased to
22.3% for the three months ended March 31, 1997 from 21.8% for the
comparable period in 1996, primarily as a result of a higher percentage of
new rental merchandise on hand.
OTHER DIRECT STORE EXPENSES. Other direct store expenses increased
$6.2 million or 88.7% to $13.2 million for the quarter ended March 31, 1997
from $7.0 million for the same period in 1996. These increases were primarily
attributable to the additional costs incurred in connection with the
operation of the stores acquired in 1996 and 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $1.0 million or 72.8% to $2.4 million for the quarter
ended March 31, 1997 from $1.4 million in the comparable quarter. As a
percentage of revenue, general and administrative expenses decreased to 10.0%
for the three months ended March 31, 1997 from 11.2% for the 1996 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 partially offset by increased field supervision costs for the
stores acquired in 1996 and 1997
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
$522,300 or 336.0% to $677,800 for the quarter ended March 31, 1997 from
$115,500 for the 1996 comparable period. primarily as a result of intangible
assets created by the 1996 and 1997 acquisitions.
NET EARNINGS. Net earnings increased $580,500 or 82.8% to $1.3
million for the quarter from $700,900 for the comparable quarter in 1996..
As a percentage of revenue, net earnings decreased to 5.4% for the quarter
ended March 31, 1997 from 5.7% for the comparable period in 1996. This
decrease is primarily attributable to higher amortization of intangibles.
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LIQUIDITY AND CAPITAL RESOURCES
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 three months ended March 31, 1997 and 1996, the Company
purchased rental merchandise for aggregate amounts of approximately $6.4
million and $3.5 million respectively. In addition, during the three months
ended March 31, 1997, the Company has acquired 40 stores for an aggregate
purchase price of $19.6 million including cash of $19.2 million and amounts
held in escrow of $353,400. Of the $19.2 million cash, $7.5 million was
provided by the Company's secondary public offering of stock and $11.7
million was provided by borrowings from a bank under its debt facility.
For the quarter ended March 31, 1997, net cash provided by operating
activities increased $892,800 to $1.9 million from $961,400 in the prior year
primarily due to the additional cash generated from the operations of the
stores acquired in the 1995 and 1996 acquisitions partially offset by
increased purchases of rental merchandise for stores acquired in the 1996 and
1997 acquisitions.
The Company has a debt facility with a bank which provides for a maximum debt
level of $25.0 million and carries a three-year term with interest rates
ranging from prime rate to prime plus 1-1/4% depending upon level of
indebtedness. Under the terms of the agreement, the Company is required to
pay from 3/8 to 1/2 of 1% per annum on the unused portion of the facility.
As of March 31, 1997 the Company had $15.1 million in outstanding loans under
the agreement. Management believes that internally generated working capital,
together with borrowings under the debt facility will be adequate to fund
operations and expansion plans for the Company at least through 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB has issued Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The
new standard eliminates primary and fully diluted earnings per share together
with disclosure of how the per share amounts were computed. Basic earnings
per share excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The adoption of
this new pronouncement is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
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ALRENCO, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this report:
27 - Financial Data Schedule
(b) On January 2, 1997, the Registrant filed a report on Form 8-K to
disclose the acquisition, effective as of January 2, 1997, of 28
rental-purchase stores doing business under the name of "Fastway
Rentals". On March 14, 1997 the Registrant filed a report on
Form 8-K(A) to provide additional information on the same
transaction, including audited financial statements for Fastway as
of August 31, 1996 and for the year then ended, and the pro-forma
financial information required by Item 7 of Form 8-K.
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: May 9, 1997
ALRENCO, INC.
-------------
(REGISTRANT)
/s/ Theodore H. Wilson
_________________________________
Theodore H. Wilson, Executive Vice President and
Chief Financial Officer
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