<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the quarterly period ended: MARCH 31, 1996
--------------
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 0-22026
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RENT-WAY, INC.
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(Exact name of small business issuer as specified in its charter)
PENNSYLVANIA 25-1407782
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(State of Incorporation) (IRS Employer Identification No.)
3230 WEST LAKE ROAD, ERIE, PENNSYLVANIA 16505
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(Address of principal executive offices)
(814) 836-0618
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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
---- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
Class Outstanding at April 10, 1996
----- -----------------------------
Common Stock 6,596,968
Transitional Small Business Disclosure Format (check one):
Yes No X
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RENT-WAY, INC. FORM 10-QSB
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INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet -
March 31, 1996 3
Condensed Statements of Income -
Three Months and Six Months
Ended March 31, 1996 and 1995 4
Condensed Statements of Cash Flows -
Six Months Ended March 31,
1996 and 1995 5
Notes to Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis
or Plan of Operation 9-12
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
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RENT-WAY, INC. FORM 10-QSB
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CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,1996
(UNAUDITED)
-------------
<S> <C>
ASSETS
Cash $ 1,808,019
Prepaid expenses 915,334
Rental merchandise, net 14,278,431
Deferred income taxes 1,430,204
Property and equipment, net 3,391,269
Land and building lots 554,968
Goodwill, net of accumulated amortization of $864,649 14,638,547
Deferred financing costs, net of accumulated amortization of $62,684 434,951
Prepaid consulting fee 1,130,952
Other assets 975,103
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$39,557,778
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,601,032
Other liabilities 1,202,698
Income taxes payable 806,768
Debt 7,198,286
Capital lease obligation 165,681
-----------
10,974,465
Commitments and Contingencies -
Redeemable preferred stock, Series A, without par value; 30,000 shares
authorized; 22,529 shares issued and outstanding 2,252,900
SHAREHOLDERS' EQUITY:
Common stock, without par value; 10,000,000 shares
authorized; 6,261,156 shares issued and outstanding 25,372,191
Preferred stock, without par value; 970,000 shares authorized; none issued
-
Contributed capital 114,000
Retained earnings 1,152,250
Loan to related party (308,028)
-----------
Total shareholders' equity 26,330,413
-----------
$39,557,778
===========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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RENT-WAY, INC. FORM 10-QSB
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CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenue $10,631,533 $5,031,266 $20,816,750 $ 9,861,625
Other revenue 1,715,236 901,095 3,344,063 1,672,659
----------- ---------- ----------- -----------
Total revenues 12,346,769 5,932,361 24,160,813 11,534,284
COSTS AND OPERATING EXPENSES:
Depreciation and amortization:
Rental merchandise 3,381,083 1,946,823 6,460,615 3,626,541
Property and equipment 187,795 121,600 354,985 232,889
Amortization of goodwill 225,872 63,327 419,405 124,445
Salaries and wages 3,038,864 1,400,660 5,970,950 2,789,007
Advertising 492,264 234,717 1,101,397 669,904
Occupancy 761,055 396,577 1,558,397 788,070
Other operating expenses 2,698,349 1,319,714 5,202,629 2,494,959
----------- ---------- ----------- -----------
Total costs and operating expenses 10,785,282 5,483,418 21,068,378 10,725,815
----------- ---------- ----------- -----------
Operating income 1,561,487 448,943 3,092,435 808,469
OTHER INCOME (EXPENSE):
Interest expense (520,997) (241,409) (1,067,109) (454,653)
Interest income 16,879 16,507 33,649 33,014
Other income (expense), net 35,615 482 34,053 (6,655)
----------- ---------- ----------- -----------
Income before income taxes 1,092,984 224,523 2,093,028 380,175
Income tax expense (503,935) - (963,956) -
----------- ---------- ----------- -----------
Net income 589,049 224,523 1,129,072 380,175
Preferred stock dividend requirements (39,426) - (90,108) -
----------- ---------- ----------- -----------
Earnings applicable to common
shares $ 549,623 $ 224,523 $ 1,038,964 $ 380,175
=========== ========== =========== ===========
EARNINGS PER COMMON SHARE (NOTE 3):
Primary $ 0.11 $ 0.05 $ 0.21 $ 0.09
=========== ========== =========== ===========
Fully diluted $ 0.11 $ 0.05 $ 0.21 $ 0.09
=========== ========== =========== ===========
Weighted average common
shares outstanding:
Primary 4,868,325 4,135,217 4,852,200 4,097,766
========= ========= ========= =========
Fully diluted 5,004,273 4,144,085 4,942,690 4,135,973
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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RENT-WAY, INC. FORM 10-QSB
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CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
MARCH 31,
1996 1995
---- ----
(unaudited)
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,129,072 $ 380,175
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,281,675 3,983,875
Deferred income taxes (20,000) (24,850)
Changes in assets and liabilities:
Prepaid expenses (363,231) (12,078)
Rental merchandise (8,146,284) (3,436,339)
Prepaid consulting fees 89,071 -
Other assets (199,823) (276,767)
Accounts payable (14,757) (163,553)
Income taxes payable 712,465 (4,776)
Other liabilities (301,775) (32,211)
Closing and development fees (75,000)
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Net cash (used in) provided by operating activities 166,413 338,476
----------- ----------
INVESTING ACTIVITIES:
Purchase of Magic and Best - (564,811)
Purchase of McKenzie Leasing Corporation (180,937) -
Purchases of property and equipment (1,015,089) (481,221)
----------- -----------
Net cash used in investing activities (1,196,026) (1,046,032)
------------ -----------
FINANCING ACTIVITIES:
Principal payments on capital lease obligation (12,919) (3,765)
Proceeds from borrowings 12,214,516 9,867,197
Payments on borrowings (24,167,586) (8,792,371)
Preferred stock dividend (88,112) -
Preferred stock redemption (497,100) -
Common stock issued 14,440,562 -
Loan to related party (11,450) (14,634)
----------- ----------
Net cash provided by financing activities 1,877,911 1,056,427
----------- ----------
Increase in cash 848,298 348,871
Cash at beginning of year 959,721 252,675
---------- ----------
Cash at end of period $ 1,808,019 $ 601,546
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 845,476 $ 454,653
Income taxes $ 270,175 $ 25,000
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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RENT-WAY, INC. FORM 10-QSB
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NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION:
Rent-Way, Inc., (the "Company" or "Rent-Way") is a corporation organized
under the laws of the Commonwealth of Pennsylvania. The Company operates a
chain of stores that rent durable household products such as home
entertainment equipment, furniture, and major appliances and jewelry to
consumers on a weekly or monthly basis. The accompanying unaudited
condensed financial statements have been prepared in accordance with the
instructions to Form 10-QSB, and therefore, do not include all information
and notes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted
accounting principles. In the opinion of management, all adjustments
(consisting solely of normal recurring adjustments), which are necessary
for a fair statement of the financial position, results of operations and
cash flows of the Company have been made. The results of operations for
the interim periods are not necessarily indicative of the results for the
full year.
Certain amounts in the 1995 condensed financial statements have been
reclassified to conform to the 1996 presentation.
These financial statements and the notes thereto should be read in
conjunction with the Company's audited financial statements included in its
Annual Report on Form 10-KSB for the fiscal year ended September 30, 1995.
2. PUBLIC STOCK OFFERING:
On March 26, 1996, the Company completed a public offering consisting of
1,850,000 shares of Common Stock offered by the Company and 388,750 shares
of Common Stock offered by certain shareholders. In addition, the Company
granted the underwriters a 30 day option to purchase up to 335,812 shares
of Common Stock, solely to cover over-allotments.
The shares were offered at a price of $8.50 per share. The Company
received net proceeds (less underwriters discount and selling expenses) of
$14.3 million. The Company used these proceeds to repay outstanding
borrowings of $13.2 million under the Company's secured credit agreement
with First Source Financial LLP, to redeem a portion of its outstanding
Series A Preferred Stock and for general corporate purposes.
3. EARNINGS PER COMMON SHARE:
Primary and fully diluted earnings per common share are computed based on
net income after preferred stock dividend requirements. The weighted
average number of common shares outstanding during each period is adjusted
to give effect to stock options and warrants considered to be dilutive
common stock equivalents. Additionally, fully diluted weighted average
number of shares outstanding is adjusted to give effect to convertible debt
deemed to be another potentially dilutive security.
The 1995 earnings per common share amounts have been restated to reflect a
three-for-two stock split in the form of a 50% stock dividend to
shareholders of record on August 4, 1995.
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RENT-WAY, INC. FORM 10-QSB
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NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED (Unaudited)
4. ACQUISITION:
On July 21, 1995 the Company acquired McKenzie Leasing Corporation ("MLC"),
a privately owned 45 store rental-purchase chain with annual revenues of
approximately $22.0 million. The Company acquired all of the common stock
of MLC in exchange for 581,688 shares (unregistered shares subject to the
provisions of Rule 144 of the Securities and Exchange Act and a shareholder
agreement) of the Company's common stock, stock options to purchase 115,812
shares of the Company's common stock at $9.28 per share and $2,750,000 of
its Series A Preferred Stock. The 115,812 stock options are 100%
exercisable and expire five years from the date of grant. Of the common
shares issued, 356,688 shares were delivered to the former shareholders of
MLC and 225,000 were placed in escrow.
The 225,000 shares of common stock placed in escrow will be released on
October 1, 1996 as follows:
(i) If the average market price of Rent-Way's common stock on the twenty
trading days preceding October 1, 1996 is greater than $18.57 per
share, all of the escrowed shares will be released to Rent-Way.
(ii) If the average market price of Rent-Way's common stock on the
twenty trading days preceding October 1, 1996 is less than $11.60 per
share, all of the escrowed shares will be released to the former
shareholders of MLC.
(iii) If the average market price of Rent-Way's common stock on the
twenty trading days preceding October 1, 1996 is greater than $11.60
per share, but less than $18.57 per share, the number of shares of
escrowed stock to be released shall be determined by dividing
$6,747,581 by the average market price of Rent-Way common stock on
October 1, 1996 and subtracting the quotient from 581,688 shares.
This amount shall be released to Rent-Way and the balance shall be
released to the former shareholders of MLC.
The acquisition was accounted for using the purchase method of accounting.
MLC's assets and liabilities were recorded at their estimated fair values
as of the acquisition date. The excess of the acquisition cost over the
fair value of the net liabilities assumed ("goodwill") of $10,588,273 is
being amortized on a straight-line basis over 20 years. The total cost of
the net assets acquired was $6,434,024 ($3,684,024 in common stock and
$2,750,000 in redeemable preferred stock) and consisted of assets of
$16,213,438 less liabilities assumed of $8,449,594 and acquisition expenses
of $1,329,820. The estimate of the total cost of the acquisition may be
adjusted based on the resolution of certain contingencies.
Following are pro forma results of operations for the three months and six
months ended March 31, 1995 assuming the acquisition had occurred on
October 1, 1994. The results are not necessarily indicative of future
operations or what would have occurred had the acquisition been consummated
as of October 1, 1994.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA OPERATIONS
MARCH 31, 1995
--------------
Three Months Ended Six Months Ended
------------------ ----------------
<S> <C> <C>
Revenues $11,655,729 $23,196,696
Net income $ 443,505 $ 574,772
Earnings per common share $ 0.08 $ 0.10
</TABLE>
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RENT-WAY, INC. FORM 10-QSB
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NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED (Unaudited)
5. CONTINGENCIES:
The Company is subject to legal proceedings and claims in the ordinary
course of its business that have not been finally adjudicated. These
actions when ultimately concluded will either be indemnified or will not,
in the opinion of management, have a material adverse effect on the results
of operations or financial condition of the Company.
6. SUBSEQUENT EVENTS:
On April 1, 1996 the Company received notification from Rauscher Pierce
Refsnes, Inc., (lead underwriter on the public stock offering), of their
intention to exercise the over-allotment option associated with the public
offering. As a result of such exercise, on April 4, 1996 the Company sold
335,812 shares of Common Stock and received net proceeds (less underwriters
discount) of $2.7 million. These proceeds will be used for general
corporate purposes.
On April 3, 1996, the Company redeemed a portion of its Series A Preferred
Stock from the net proceeds of the offering pursuant to an agreement with
the holders thereof. Of the 22,529 shares issued and outstanding, 11,269
were redeemed at a cost of $1.1 million. The Series A Preferred Stock was
issued in connection with the acquisition of McKenzie Leasing Corporation,
has a 7% dividend preference, payable quarterly when declared, and is
subject to redemption at the option of (i) the holder in accordance with a
schedule or (ii) the Company, in whole or in part, at any time.
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RENT-WAY, INC. FORM 10-QSB
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
During the three and six months ended March 31, 1996, the Company generated
record revenues, operating income and net income. For the three and six
months ending March 31, 1996 the Company's total revenues increased by
108.1% and 109.5%, respectively. In addition operating income increased by
247.8% and 282.5% while net income increased by 162.4% and 197.0% compared to
the three and six month periods last year. The Company's improved
performance is primarily attributable to the acquisition of McKenzie Leasing
Corporation ("MLC"), certain economies of scale and increased same-store
revenues. Same-store revenues increased by 5.7% and 6.4% as compared to the
three and six month periods ended last year.
In March 1996, the Company completed a public offering of 2,238,750 shares of
its Common Stock at $8.50 per share. Of the 2,238,750 shares, 1,850,000 shares
were offered by the Company and 388,750 shares were offered by selling
shareholders. In April 1996, the Company's underwriters exercised their
option to purchase 335,812 additional shares to cover over-allotments.
Proceeds from the stock offering were used to repay all outstanding
borrowings with First Source Financial LLP, to redeem a portion of the
Company's outstanding Series A Preferred Stock and for general corporate
purposes.
During the three months ended March 31, 1996, management completed the
remodeling, conversion and installation of its point of sale software in
substantially all of the former MLC stores. In addition, the Company
strengthened its management team by adding in-house counsel, a director of
marketing and four operations managers, all with a minimum of five years
experience with a major industry competitor. Currently, management is
actively seeking merger and acquisition candidates whose financial and
geographic profiles are consistent with the Company's growth objectives.
The rental-purchase industry is highly fragmented, and management believes
the Company is well positioned to take advantage of consolidation
opportunities that exist.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's Condensed Statements of Income, expressed as a percentage of
revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental revenue 86.1 84.8 86.2 85.5
Other revenue 13.9 15.2 13.8 14.5
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 27.4 32.8 26.7 31.4
Property and equipment 1.5 2.0 1.5 2.0
Amortization of goodwill 1.8 1.1 1.7 1.1
----- ----- ----- -----
Total depreciation and amortization 30.7 35.9 29.9 34.5
Salaries and wages 24.6 23.6 24.7 24.2
Advertising 4.0 4.0 4.6 5.8
Occupancy 6.2 6.7 6.5 6.8
Other operating expenses 21.8 22.2 21.5 21.7
----- ----- ----- -----
Total costs and operating expenses 87.3 92.4 87.2 93.0
----- ----- ----- -----
Operating income 12.7 7.6 12.8 7.0
Interest expense (4.2) (4.1) (4.4) (3.9)
Other income 0.4 0.3 0.3 0.2
----- ----- ----- -----
Income before income taxes 8.9 3.8 8.7 3.3
Income tax expense (4.1) - (4.0) -
----- ----- ----- -----
Net income 4.8% 3.8% 4.7% 3.3%
===== ===== ===== =====
</TABLE>
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RENT-WAY, INC. FORM 10-QSB
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COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND 1995
For the three months ended March 31, 1996 compared to the three months ended
March 31, 1995, total revenues increased by $6.4 million (108.1%) to $12.3
million from $5.9 million. The increase was principally due to the
inclusion of three months results for the stores acquired in the
acquisition of MLC, ("McKenzie Acquisition"). The stores acquired in the
McKenzie Acquisition, which was consummated on July 21, 1995, accounted for
$6.1 million (95.0%) of the increase, while the Company's same-stores
accounted for $323,000 (5.0%) of the increase. Other revenue increased by
$814,000 (90.3%) to $1.7 million from $901,000 principally due to the
McKenzie Acquisition.
For the three months ended March 31, 1996 compared to the three months ended
March 31, 1995, total costs and operating expenses increased to $10.8 million
from $5.5 million primarily as a result of the costs and operating expenses
associated with the McKenzie Acquisition, but decreased to 87.3% from 92.4% of
total revenues. This percentage decrease of 5.1% resulted primarily from a
decrease in depreciation expense as a percentage of total revenue. Depreciation
expense related to rental merchandise increased by $1.5 million to $3.4 million
from $1.9 million, but decreased by 5.4% as a percentage of total revenues
primarily due to certain increases in weekly rental rates, lower purchase costs
of rental merchandise due to increased volume, improved realization and a lower
cost basis of merchandise relative to revenues in the stores acquired in the
McKenzie Acquisition. Amortization of goodwill increased by $162,000 or 0.7% of
total revenues primarily because of the increase in goodwill related to the
McKenzie Acquisition. Salaries and wages increased by $ 1.6 million to $3.0
million from $1.4 million principally due to the addition of the stores
associated with the McKenzie Acquisition and the addition of several key
management personnel in the operations, legal, human resource, accounting and
information systems departments. Salaries and wages were 24.6% and 23.6% of
total revenues for the three month periods ended March 31, 1996 and 1995,
respectively. Advertising expense increased $258,000 to $492,000 from $234,000
principally due to the addition of the stores associated with the McKenzie
Acquisition. Occupancy expense increased $364,000 to $761,000 from $397,000
principally due to the addition of the stores associated with the McKenzie
Acquisition, but decreased to 6.2% from 6.7% of total revenues. Other operating
expenses increased $1.4 million to $2.7 million from $1.3 million principally
due to the addition of the stores associated with the McKenzie Acquisition, but
decreased to 21.8% from 22.2% of total revenues. This 0.4% decrease occurred
because of the Company's ability to allocate corporate costs and certain
overhead costs over a greater number of stores and increased revenues.
For the three months ended March 31, 1996 compared to the three months ended
March 31, 1995, operating income increased by $1.1 million (247.8%) to $1.6
million from $500,000, and increased to 12.7% from 7.6% of total revenues.
The improvement in operating income was principally due to the McKenzie
Acquisition and the factors discussed above.
For the three months ended March 31, 1996 compared to the three months ended
March 31, 1995, interest expense increased by $280,000 to $521,000 from
$241,000 and increased to 4.2% from 4.1% of total revenues principally due to
the debt incurred in connection with the McKenzie Acquisition.
For the three months ended March 31, 1996 compared to the three months ended
March 31, 1995, income tax expense increased to $504,000 from $0 because the
Company generated greater taxable income and because income tax expense was
offset by an increase in the Company's net deferred tax asset in the three
months ended March 31, 1995. The Company is accruing income tax expense
based on an effective tax rate of 46%, which is higher than the statutory
tax rates, because amortization expense related to goodwill incurred in
connection with its acquisitions is not deductible for purposes of computing
income tax.
For the three months ended March 31, 1996 compared to the three months ended
March 31, 1995, net income increased by $365,000 (162.4%) to $589,000 from
$224,000. The increase, which resulted in net income increasing to 4.8%
from 3.8% of total revenues, was due to the factors discussed above.
COMPARISON OF SIX MONTHS ENDED MARCH 31, 1996 AND 1995
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, total revenues increased by $12.6 million (109.5%) to $24.2
million from $11.5 million. The increase was principally due to the
inclusion of six months of results for the stores acquired in the McKenzie
Acquisition. The stores acquired in the McKenzie Acquisition, which was
onsummated on July 21, 1995, accounted for $11.9 million (94.0%) of the
increase, while the Company's same-stores accounted for $700,000 (6.0%) of
the increase. Other revenue increased by $1.7 million (99.9%) to $3.3
million from $1.6 million principally due to the McKenzie Acquisition.
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, total costs and operating expenses increased to $21.1
million from $10.7 million primarily as a result of the costs and operating
expenses associated with the McKenzie Acquisition, but decreased to 87.2%
from 93.0% of total revenues. This decrease of 5.8% resulted primarily from a
decrease in depreciation expense. Depreciation expense related to rental
merchandise increased by $2.9
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RENT-WAY, INC. FORM 10-QSB
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million to $6.5 million from $3.6 million, but decreased by 4.7% as a percentage
of total revenues primarily due to certain increases in weekly rental rates,
lower purchase costs of rental merchandise due to increased volume, improved
realization and a lower cost basis of merchandise relative to revenues in the
stores acquired in the McKenzie Acquisition. Amortization of goodwill increased
by $295,000 or 0.6% of total revenues primarily because of the increase in
goodwill related to the McKenzie Acquisition. Salaries and wages increased by
$3.2 million to $6.0 million from $2.8 million principally due to the addition
of the store personnel associated with the McKenzie Acquisition and the addition
of several key management personnel in the operations, legal, human resource,
accounting and information systems departments. Salaries and wages were 24.7%
and 24.2% of total revenues for the six month periods ended March 31, 1996 and
1995, respectively. Advertising expense increased $431,000 to $1.1 million from
$670,000 principally due to the addition of the stores associated with the
McKenzie Acquisition. Advertising expense decreased by 1.2% of total revenues to
4.6% from 5.8%. Occupancy expense increased $770,000 to $1.6 million from
$788,000 principally due to the addition of the stores associated with the
McKenzie Acquisition, but decreased to 6.5% from 6.8% of total revenues. Other
operating expenses increased $2.7 million to $5.2 million from $2.5 million
principally due to the addition of the stores associated with the McKenzie
Acquisition, but decreased to 21.5% from 21.7% of total revenues. This 0.2%
decrease occurred because of the Company's ability to allocate corporate costs
and certain overhead costs over a greater number of stores and increased
revenues.
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, operating income increased by $2.3 million (282.5%) to $3.1
million from $808,000, and increased to 12.8% from 7.0% of total revenues.
The improvement in operating income was principally due to the McKenzie
Acquisition and the factors discussed above.
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, interest expense increased by $612,000 to $1.1 million from
$455,000 and increased to 4.4% from 3.9% of total revenues principally due to
the debt incurred in connection with the McKenzie Acquisition.
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, income tax expense increased to $1.0 million from $0 because
the Company generated greater taxable income and because income tax expense
was offset by an increase in the Company's net deferred tax asset in the six
months ended March 31, 1995. The Company is accruing income tax expense
based on an effective tax rate of 46%, which is higher than the statutory
tax rates, because amortization expense related to goodwill incurred in
connection with its acquisitions is not deductible for purposes of computing
income tax.
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, net income increased by $749,000 (197.0%) to $1.1 million
from $380,000. The increase, which resulted in net income increasing to
4.7% from 3.3% of total revenues, was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On March 26, 1996, the Company completed a public offering consisting of
1,850,000 shares of Common Stock offered by the Company and 388,750 shares of
Common Stock offered by certain selling shareholders, at a price of $8.50 per
share, and received net proceeds (less underwriters discount and selling
expenses) of $14.3 million. In addition, the Company's underwriter
exercised their over-allotment option for 335,812 shares of Common Stock on
April 4, 1996, which resulted in additional net proceeds (less underwriters
discount) of $2.7 million. The Company used these proceeds to pay down
$13.2 million of its senior indebtedness with First Source Financial LLP
($8.4 million of revolving loan commitment and $4.8 million working capital
commitment) and to redeem $1.1 million of the Company's outstanding Series A
Preferred Stock pursuant to an agreement with the holders thereof. The
Series A Preferred Stock was issued in connection with the McKenzie
Acquisition, has a 7% dividend preference, payable quarterly when declared,
and is subject to redemption at the option of (i) the holder in accordance
with a schedule or (ii) the Company, in whole or in part, at any time. As of
March 31, 1996, the Company had approximately $5.8 million of
availability under its working capital loan commitment and $1.3 million of
availability under its revolving loan commitment. Certain provisions of the
Company's credit agreement with First Source Financial LLP restrict the
Company's ability to make acquisitions. The Company is involved in
discussions with First Source to amend the credit agreement and obtain a new
acquisition credit facility. There can be no assurances that such
discussions will be successful.
-11-
<PAGE> 12
RENT-WAY, INC. FORM 10-QSB
- -------------------------------------------------------------------------------
For the six months ended March 31, 1996 compared to the six months ended March
31, 1995, the Company's net cash provided by (used in) operating activities
increased to $166,000 from $338,000. This decline was principally due to a $4.6
million increase in rental merchandise purchases offset by a $749,000 increase
in net income and a $3.3 million increase in non-cash depreciation and
amortization. The increase in depreciation, amortization, and rental merchandise
purchases resulted primarily from the McKenzie Acquisition, which significantly
increased the size of the Company.
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, the Company's net cash used in investing activities
increased to ($1.2 million) from ($1.0 million). The increase in net cash
used in investing activities was principally due to remodeling and computer
conversion costs incurred in certain stores associated with the McKenzie
Acquisition.
For the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, the Company's net cash provided by financing activities
increased to $2.2 million from $1.1 million. The increase in net cash
provided by financing activities was principally due to cash receipts from
the Company's public offering in excess of debt repayment.
In accordance with the recognition criteria of Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes", the Company has
recognized a net deferred tax asset of $1.4 million. The Company's net
deferred tax asset increased by $20,000 during the six months ended March
31, 1996. Recognition of the Company's net deferred tax asset is based on
management's estimate of taxable income in future years.
INFLATION
During the six months ended March 31, 1996, the cost of rental merchandise,
lease rental expense and salaries and wages have increased modestly. These
increases have not had a significant effect on the results of operations
because the Company has been able to charge commensurably higher rental for
its merchandise. This trend is expected to continue in the foreseeable
future.
-12-
<PAGE> 13
RENT-WAY, INC. FORM 10-QSB
- -------------------------------------------------------------------------------
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on March 6, 1996 at the offices of
the Bel Aire Hotel, 2800 West Eighth Street, Erie, Pennsylvania at 10:00 a.m.
All proposals as described in the Company's Proxy Statement dated February 2,
1996 were approved. Below are details of the voting:
PROPOSAL 1 - ELECTION OF DIRECTORS
Elections were held for two (2) Class I directors to serve until the 1999
annual meeting of shareholders, one (1) Class II director to serve until the
1997 annual meeting of shareholders and one (1) Class III director to serve
until the 1998 annual meeting of shareholders. The results of the votes are as
follows:
<TABLE>
<CAPTION>
VOTES
NAME CLASS VOTES FOR WITHHELD ABSTAIN AGAINST NON-VOTE
---- ----- --------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerald A. Ryan I 2,897,172 25,465 0 0 1,488,519
Robert Fagenson I 2,897,172 25,465 0 0 1,488,519
Marc W. Joseffer II 2,749,877 172,760 0 0 1,488,519
Vincent A. Carrino III 2,897,172 25,465 0 0 1,488,519
</TABLE>
PROPOSAL 2 - ADOPTION OF THE COMPANY'S 1995 STOCK OPTION PLAN
The 1995 Stock Option Plan which terminates in the year 2005, authorizes the
granting of options to acquire an aggregate of 400,000 shares of the Common
Stock of the Company. The purpose of the 1995 Plan is to provide additional
incentives to current employees, officers, directors and consultants, and to
attract and retain personnel of ability and initiative for the Company. On
October 18, 1995 the Board of Directors unanimously adopted the 1995 Plan
subject to approval of the Company's shareholders at the 1996 Annual Meeting of
Shareholders. The result of the vote on the adoption of the 1995 Stock Option
Plan was 2,630,694 votes for, 289,643 votes against, 2,300 abstensions
and 1,488,519 non-votes.
-13-
<PAGE> 14
RENT-WAY, INC. FORM 10-QSB
- -------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, SIGNATURES
A. EXHIBITS
The Exhibits filed as part of this report are listed below.
EXHIBIT NO. DESCRIPTION
----------- -----------
11 Computation of Net Income per Common Share.
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
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 thereunto duly authorized.
4/16/96 /s/ JEFFREY A. CONWAY
- ---------- ---------------------
Date Jeffrey A. Conway
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer and Duly
Authorized Officer)
-14-
<PAGE> 1
RENT-WAY, INC. FORM 10-QSB
- ----------------------------------------------------------------------------
EXHIBIT 11
Computation of Net Income Per Common Share
- ------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31 MARCH 31
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
PRIMARY
Net income $ 589,049 $ 224,523 $1,129,072 $ 380,175
Less preferred stock dividend requirements (39,426) 0 (90,108) 0
---------- ---------- ---------- ----------
Net income for primary earnings per common share $ 549,623 $ 224,523 $1,038,964 $ 380,175
Weighted average number of common shares
outstanding during the period 4,307,902 3,774,108 4,246,322 3,765,996
Add - common equivalent shares (determined
using the "treasury stock" method) representing
shares issuable upon exercise of stock options
stock warrants and escrowed shares 560,729 361,109 606,227 331,770
---------- ---------- ---------- ----------
Weighted average number of shares used in
calculation of primary income per share 4,868,325 4,135,217 4,852,220 4,097,766
========== ========== ========== ==========
Primary income per common share $ 0.11 $ 0.05 $ 0.21 $ 0.09
========== ========== ========== ==========
FULLY DILUTED
Net income $ 549,623 $ 224,523 $1,038,964 $ 380,175
========== ========== ========== ==========
Weighted average number of common shares
outstanding during the period 4,307,902 3,774,108 4,246,322 3,765,996
Add - incremental shares representing:
Shares issuable upon exercise of stock options,
stock warrants and escrowed shares included in
primary calculation above 560,729 361,109 606,227 331,770
Shares issuable upon exercise of stock options,
stock warrants and escrowed shares based on
year end market prices 136,109 8,868 90,611 38,207
---------- ---------- ---------- ----------
Weighted average number of shares used in
calculation of fully diluted income
per share 5,004,273 4,144,085 4,942,690 4,135,973
========== ========== ========== ==========
Fully diluted income per common share $ 0.11 $ 0.05 $ 0.21 $ 0.09
========== ========== ========== ==========
</TABLE>
Note: Share amounts for the three and six months ended March 31, 1995
have been restated to reflect a three-for-two stock split in the form
of a 50% stock dividend to shareholders of record on August 4, 1995 and
the shares released from escrow related to the D.A.M.S.L. Corp.
acquisition.
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000893046
<NAME> RENT-WAY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,808,019
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,407,091
<PP&E> 5,123,961
<DEPRECIATION> 1,732,692
<TOTAL-ASSETS> 39,557,778
<CURRENT-LIABILITIES> 3,610,498
<BONDS> 0
<COMMON> 25,372,191
2,252,900
0
<OTHER-SE> 958,222
<TOTAL-LIABILITY-AND-EQUITY> 39,557,778
<SALES> 12,346,769
<TOTAL-REVENUES> 12,346,769
<CGS> 10,785,282
<TOTAL-COSTS> 11,757,720
<OTHER-EXPENSES> 35,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 520,997
<INCOME-PRETAX> 1,092,984
<INCOME-TAX> 503,935
<INCOME-CONTINUING> 589,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589,049
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
