<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, 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 AUGUST 1, 1997: 6,076,892
<PAGE>
ALRENCO, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF JUNE 30, 1997
AND DECEMBER 31, 1996. 3
CONDENSED STATEMENTS OF EARNINGS FOR
THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996. 4
CONDENSED STATEMENTS OF EARNINGS FOR
THE QUARTER ENDED JUNE 30, 1997 AND 1996. 5
CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND 1996. 6
NOTES TO CONDENSED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
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<PAGE>
ALRENCO, INC.
Balance sheets
June 30, December 31,
1997 1996
(Unaudited)
------------ ------------
ASSETS
Cash and cash equivalents $ 2,480,790 $ 7,468,539
Rental merchandise, net 40,363,426 27,932,741
Prepaid expenses and other assets 1,657,661 1,436,556
Income tax receivable 336,546 323,327
Deferred income taxes 378,263 377,839
Property assets, net 5,387,876 4,261,951
Loan to stockholder 78,654 71,636
Intangible assets, net 33,974,922 20,323,147
------------ ------------
$ 84,658,138 $ 62,195,736
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade $ 2,280,661 $ 2,567,140
Accrued liabilities 3,989,293 1,542,056
Taxes other than income 304,908 423,274
Debt 17,556,733 -
------------ ------------
24,131,595 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 June 30, 1997 and
6,074,100 shares issued and outstanding at
December 31, 1996 50,747,026 50,707,938
Unamortized value of stock award (1,084,974) (1,182,138)
Retained Earnings 10,864,491 8,137,466
------------ ------------
60,526,543 57,663,266
$ 84,658,138 $ 62,195,736
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements
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<PAGE>
ALRENCO, INC.
Statements Of Earnings
For the Six Months Ended
(Unaudited)
June 30,
---------------------------------
1997 1996
------------- -------------
REVENUE
Rentals and fees $ 49,306,422 $ 26,436,187
Sales 957,524 531,958
Other 51,171 35,831
------------- -------------
Total Revenue 50,315,117 27,003,976
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 11,802,855 5,936,257
Cost of sales 740,713 336,142
Salaries and other expenses 26,549,122 14,934,712
------------- -------------
39,092,690 21,207,111
General and administrative expenses 4,573,421 2,446,551
Amortization of intangibles 1,567,128 387,067
------------- -------------
Total operating expenses 45,233,239 24,040,729
------------- -------------
Operating profit 5,081,878 2,963,247
Interest income 896 6,108
Interest expense (504,280) (182,034)
------------- -------------
Earnings before income taxes 4,578,494 2,787,321
Income tax expense 1,851,490 1,144,546
------------- -------------
NET EARNINGS $ 2,727,004 $ 1,642,775
------------- -------------
------------- -------------
Weighted average shares outstanding 6,076,303 4,206,653
Earnings per common share $ 0.45 $ 0.39
------------- -------------
------------- -------------
The accompanying notes are an integral part of these statements
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<PAGE>
ALRENCO, INC.
Statements Of Earnings
For the Quarter Ended
(Unaudited)
June 30,
---------------------------------
1997 1996
------------- -------------
REVENUE
Rentals and fees $ 25,952,826 $ 14,306,422
Sales 426,171 256,176
Other 26,043 21,593
------------- -------------
Total Revenue 26,405,040 14,606,066
OPERATING EXPENSES
Direct store expenses
Depreciation of rental merchandise 6,453,082 3,234,234
Cost of sales 303,172 189,982
Salaries and other expenses 13,572,164 7,979,267
------------- -------------
20,328,418 11,403,483
General and administrative expenses 2,421,566 1,225,610
Amortization of intangibles 889,324 231,606
------------- -------------
Total operating expenses 21,592,404 12,860,699
------------- -------------
Operating profit 2,765,732 1,745,367
Interest income 896 191
Interest expense (363,518) (149,112)
------------- -------------
Earnings before income taxes 2,403,110 1,596,446
Income tax expense 957,640 654,545
------------- -------------
NET EARNINGS $ 1,445,470 $ 941,901
------------- -------------
------------- -------------
Weighted average shares outstanding 6,076,892 4,434,312
Earnings per common share $ 0.24 $ 0.21
------------- -------------
------------- -------------
The accompanying notes are an integral part of these statements
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<PAGE>
Statements of Cash Flows
For the Six Months Ended
(Unaudited)
<TABLE>
<CAPTION>
June 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 2,727,004 $ 1,642,775
Adjustments to reconcile net earnings to
Net cash provided by operating activities
Depreciation of rental merchandise 11,802,855 5,936,257
Depreciation of property assets 464,634 314,322
Amortization of intangibles 1,567,128 387,067
Amortization of stock awards 97,164 58,424
Changes in operating assets and liabilities
net of effects of acquisitions
Rental merchandise (17,952,658) (9,683,117)
Prepaid expenses and other 144,368 714,713
Accounts payable-trade (286,479) 1,134,791
Accrued liabilities 2,129,363 (1,782,986)
Taxes other than income 199,529 568,194
------------ ------------
Net cash provided by (used in)
operating activities 892,908 (709,560)
Cash flows from investing activities
Purchases of property assets (1,162,059) (1,014,806)
Increase in loan to shareholder (7,018) (7,252)
Acquisitions of businesses (22,307,401) (6,999,867)
------------ ------------
Net cash used in
Investing activities (23,476,478) (11,021,925)
Cash flows from financing activities
Proceeds from public offerings - net - 16,287,797
Proceeds from exercise of stock options 39,088 -
Increase (Decrease) in line of credit 17,556,733 (3,612,904)
------------ ------------
Net cash provided by
financing activities 17,595,821 12,674,893
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (4,987,749) 943,408
Cash and cash equivalents at beginning of year 7,468,539 27,041
------------ ------------
Cash and cash equivalents at end of period $ 2,480,790 $ 970,449
------------ ------------
------------ ------------
Supplemental cash flow information
Cash paid during the period for
Interest $ 368,491 $ 182,034
Income taxes $ 1,848,550 $ 1,744,479
</TABLE>
The accompanying notes are an integral part of these statements
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<PAGE>
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-X. 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 June 30, 1997, the results of
operations for the three and six month periods ended June 30, 1997 and 1996,
and the statements of cash flows for the six month periods ended June 30, 1997
and 1996. The results of operations for the periods ended June 30, 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 July 31, 1997, the Company entered into a formal
agreement with a bank for a $30,000,000 line of credit facility. This
agreement replaces a similar, smaller facility with another bank. The agreement
carries a three-year term with interest rates of prime minus 1/2%. Under the
terms of the agreement, the Company is required to pay 1/8 of 1% per annum on
the unused portion of the facility. As of July 31, 1997 the Company owed $17.3
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 six month period ended June 30, 1997, the
Company also acquired 4 rental-purchase stores and 9 rental portfolios in twelve
unrelated transactions for an aggregate purchase price of $3.9 million. 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. Weighted average share
outstanding calculations have been adjusted to reflect the impact of public
stock offerings.
Six Months Ended Three Months Ended
---------------------------------------------------------
06/30/97 06/30/96 06/30/97 06/30/96
-------- -------- -------- --------
Revenue $ 52,660,304 $ 49,674,044 $ 26,473,306 $ 25,941,034
Net Earnings $ 2,745,276 $ 2,305,422 $ 1,453,122 $ 1,273,431
Earnings per
common share $ 0.45 $ 0.38 $ 0.24 $ 0.21
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 six months ended June 30, 1997, the Company acquired 41 rental-purchase
stores in 5 separate transactions. The financial results for the six months
since the date of each acquisition includes additional revenue of $9.3 million
and additional operating profit of $2.4 million. . In addition, during the six
month period ended June 30, 1997 the Company acquired nine rental account
portfolios which were merged into existing stores.
RESULTS OF OPERATIONS
REVENUE. Revenue increased $11.8 million or 80.8% to $26.4
million for the quarter ended June 30, 1997 from $14.6 million in the comparable
quarter in 1996. Revenue growth from same store operations accounted for
$462,300, or 3.9% of the increase for the quarter, and revenue growth from
stores acquired subsequent to December 31, 1995 accounted for $11.3 million or
96.1% of the increase. For the six months ended June 30, 1997, revenue increased
$23.3 million or 86.3% to $50.3 million from $27.0 million for the comparable
period in 1996. Revenue growth from same store operations accounted for
$537,000, or 2.3% of the increase for the six months, and revenue growth from
stores acquired subsequent to December 31, 1995 accounted for $22.8 million or
97.7% 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 $3.2 million or 99.5% to $6.5 million for the quarter
ended June 30, 1997 from $3.2 million in the comparable quarter in 1996. As
a percentage of revenue, depreciation of rental merchandise increased to
24.4% for the three months ended June 30, 1997 from 22.1% for the
comparable period in 1996, primarily as a result of discounted terms on
second quarter rentals. For the six months ended June 30, 1997, depreciation
of rental merchandise increased $5.9 million or 98.8% to $11.8 million from
$5.9 million in the comparable period in 1996. As a percentage of revenue,
depreciation of rental merchandise increased to 23.5% for the six months
ended June 30, 1997 from 22.0% for the comparable period in 1996, primarily
as a result of discounted terms on second quarter rentals.
OTHER DIRECT STORE EXPENSES. Other direct store expenses increased
$5.7 million or 69.8% to $13.9 million for the quarter ended June 30, 1997
from $8.2 million for the same period in 1996. As a percentage of revenue,
other direct store expenses decreased to 52.5% for the three months ended
June 30, 1997 from 55.9% for the comparable period in 1996. For the six
months ended June 30, 1997, other direct store expenses increased $12.0
million or 78.7% to $27.3 million from $15.3 million in the comparable period
in 1996. As a percentage of revenue, other direct store expenses decreased
to 54.2% for the six months ended June 30, 1997 from 56.5% for the
comparable period in 1996. These percentage decreases were primarily
attributable to the additional volume being generated by the stores acquired
in 1996 and 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $1.2 million or 97.6% to $2.4 million for the quarter
ended June 30, 1997 from $1.2 million in the comparable quarter. As a
percentage of revenue, general and administrative expenses increased to 9.2%
for the three months ended June 30, 1997 from 8.4% for the 1996 comparable
period, primarily as a result of additional field supervision and corporate
management personnel being added to accommodate past and future growth. For
the six months ended June 30, 1997, general and administrative expenses
increased $2.1 million or 86.9% to $4.6 million from $2.4 million in the
comparable period. As a percentage of revenue, general and administrative
expenses remained constant at 9.1%.
-8-
<PAGE>
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
$657,700 or 284.0% to $889,300 for the quarter ended June 30, 1997 from
$231,600 for the 1996 comparable period. For the six months ended June 30,
1997, amortization of intangibles increased $1.2 million or 304.9% to $1.6
million primarily as a result of intangible assets created by the 1996 and
1997 acquisitions. A portion of intangibles is amortized over a 15 month
period from date of acquisition. As intangibles created by the 1996 and 1997
acquisitions become fully amortized, amortization expense for these
acquisitions will correspondingly decrease.
NET EARNINGS. Net earnings increased $503,600 or 53.5% to $1.4
million for the quarter from $941,900 for the comparable quarter in 1996. As
a percentage of revenue, net earnings decreased to 5.5% for the quarter ended
June 30, 1997 from 6.4% for the comparable period in 1996. For the six
months ended June 30, 1997, net earnings increased $1.1 million or 66.0% to
$2.7 million from $1.6 million in 1996. As a percentage of revenue, net
earnings decreased to 5.4% for the six month period ended June 30, 1997 from
6.1% for the comparable period in 1996. These percentage decreases are
primarily attributable to higher amortization of intangibles.
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 six months ended June 30, 1997 and 1996, the Company
purchased rental merchandise for aggregate amounts of approximately $18.0
million and $9.7 million respectively. In addition, during the six months
ended June 30, 1997, the Company has acquired 41 stores and 9 rental account
portfolios for an aggregate purchase price of $22.3 million cash.
For the six months ended June 30, 1997, net cash provided by operating
activities increased $1.6 million to $892,900 from $709,600 cash used 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 $30.0 million and carries a three-year term with interest rates of
prime rate minus 1/2%. Under the terms of the agreement, the Company is
required to pay 1/8 of 1% per annum on the unused portion of the facility. As
of July 31, 1997 the Company had $17.3 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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<PAGE>
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 14, 1997. The
matters voted upon at the meeting were the election of one director for a
three year term 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
- ------- --------- ------------- --------------
Donald E. Groot 5,409,450 0 9,595
The following directors continued in office following the meeting for
the terms indicated:
TERM EXPIRING IN 1998 TERM EXPIRING IN 1999
--------------------- ---------------------
Robert W. Lanum W. Barrett Nichols
Raymond C. Holladay Theodore H. Wilson
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
--------- ------------- -----------
5,409,827 0 9,218
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) No report on Form 8-K was filed during the quarter ended
June 30, 1997.
-10-
<PAGE>
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 8, 1997
ALRENCO, INC.
(REGISTRANT)
/s/ Theodore H. Wilson
---------------------------------------
Theodore H. Wilson, Executive Vice
President and Chief Financial Officer
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,480,790
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 40,363,426
<CURRENT-ASSETS> 44,501,877
<PP&E> 7,872,689
<DEPRECIATION> 2,484,813
<TOTAL-ASSETS> 84,658,138
<CURRENT-LIABILITIES> 6,574,862
<BONDS> 0
0
0
<COMMON> 50,747,026
<OTHER-SE> 9,779,517
<TOTAL-LIABILITY-AND-EQUITY> 84,658,138
<SALES> 957,524
<TOTAL-REVENUES> 50,315,117
<CGS> 740,713
<TOTAL-COSTS> 12,543,568
<OTHER-EXPENSES> 32,689,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 503,384
<INCOME-PRETAX> 4,578,494
<INCOME-TAX> 1,851,490
<INCOME-CONTINUING> 2,727,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,727,004
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
