<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: JUNE 30, 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
---------------------------------------------
(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 JULY 12, 1996
----- ----------------------------
Common Stock 6,593,981
Transitional Small Business Disclosure Format (check one):
Yes X No
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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 -
June 30, 1996 3
Condensed Statements of Income -
Three and Nine Months
Ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows -
Nine Months Ended June 30,
1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
or Plan of Operation 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
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RENT-WAY, INC. FORM 10-QSB
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CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,1996
(UNAUDITED)
------------
<S> <C>
ASSETS
Cash $ 1,288,224
Prepaid expenses 881,680
Rental merchandise, net 15,845,884
Deferred income taxes 1,430,204
Property and equipment, net 3,918,403
Goodwill, net of accumulated amortization of $1,007,408 16,294,461
Deferred financing costs, net of accumulated amortization of $78,353 411,445
Prepaid consulting fee 1,086,309
Other assets 728,558
-----------
$41,885,168
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,989,941
Other liabilities 1,186,170
Income taxes payable 1,377,287
Debt 7,145,603
-----------
11,699,001
Commitments and Contingencies -
Redeemable preferred stock, Series A, without par value; 30,000 shares
authorized; 11,207 shares issued and outstanding 1,120,700
SHAREHOLDERS' EQUITY:
Common stock, without par value; 10,000,000 shares 27,150,043
authorized; 6,593,981 shares issued and outstanding
Preferred stock, without par value; 970,000 shares authorized; none issued -
Retained earnings 1,915,424
-----------
Total shareholders' equity 29,065,467
-----------
$41,885,168
===========
</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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenue $ 10,785,619 $ 5,295,015 $31,602,369 $15,156,640
Other revenue 1,790,087 963,026 5,134,150 2,635,685
------------ ----------- ----------- -----------
Total revenues 12,575,706 6,258,041 36,736,519 17,792,325
COSTS AND OPERATING EXPENSES:
Depreciation and amortization:
Rental merchandise 3,303,285 2,072,558 9,763,900 5,699,099
Property and equipment 202,471 128,061 557,456 360,950
Amortization of goodwill 213,403 69,331 632,808 193,776
Salaries and wages 3,189,620 1,524,053 9,160,570 4,313,060
Advertising 380,255 255,855 1,481,652 793,735
Occupancy 827,167 423,058 2,385,564 1,211,128
Other operating expenses 2,828,736 1,260,631 8,031,365 3,887,614
------------ ----------- ----------- -----------
Total costs and operating expenses 10,944,937 5,733,547 32,013,315 16,459,362
------------ ----------- ----------- -----------
Operating income 1,630,769 524,494 4,723,204 1,332,963
OTHER INCOME (EXPENSE):
Interest expense (212,805) (255,653) (1,279,914) (710,306)
Interest income 26,618 16,560 60,267 49,574
Other income (expense), net 39,624 (16,087) 73,677 (22,742)
------------ ----------- ----------- -----------
Income before income taxes 1,484,206 269,314 3,577,234 649,489
Income tax expense 681,606 - 1,645,562 -
------------ ----------- ----------- -----------
Net income 802,600 269,314 1,931,672 649,489
Preferred stock dividend requirements 19,250 - 109,357 -
------------ ----------- ----------- -----------
Earnings applicable to common
shares $ 783,350 $ 269,314 $ 1,822,315 649,489
============ =========== =========== ===========
EARNINGS PER COMMON SHARE (NOTE 3):
Primary $ 0.11 $ 0.06 $ 0.33 $ 0.16
============ =========== =========== ===========
Fully diluted $ 0.11 $ 0.06 $ 0.32 $ 0.16
============ =========== =========== ===========
Weighted average common shares outstanding:
Primary 7,121,717 4,194,170 5,531,767 4,074,377
============ =========== =========== ===========
Fully diluted 7,153,534 4,209,626 5,743,960 4,187,732
============ =========== =========== ===========
</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 NINE MONTHS ENDED
JUNE 30,
1996 1995
---- ----
(UNAUDITED)
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,931,672 $ 649,489
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 10,954,164 6,253,825
Deferred income taxes (20,000) (270,515)
Changes in assets and liabilities:
Prepaid expenses (329,577) (138,245)
Rental merchandise (12,838,822) (6,397,143)
Prepaid consulting fees 133,929 -
Other assets (209,584) (406,193)
Accounts payable 374,152 866,034
Income taxes payable 1,282,984 141,363
Other liabilities (318,303) (92,565)
Closing and development fees - (80,208)
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Net cash provided by operating activities 960,615 525,842
------------ ------------
INVESTING ACTIVITIES:
Purchase of businesses (2,159,207) (598,978)
Purchases of property and equipment (1,659,646) (679,806)
Net proceeds from sale of land 3,464 7,543
------------ ------------
Net cash used in investing activities (3,815,389) (1,271,241)
------------ ------------
FINANCING ACTIVITIES:
Principal payments on capital lease obligation (6,638) (5,066)
Proceeds from borrowings 12,131,388 16,082,764
Payments on borrowings (24,220,269) (15,022,196)
Preferred stock dividend (127,538) -
Preferred stock redemption (1,629,300) -
Common stock issued 16,899,039 -
Loan to related party 136,595 (20,413)
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Net cash provided by financing activities 3,183,277 1,035,089
------------ ------------
Increase in cash 328,503 289,690
Cash at beginning of period 959,721 252,675
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Cash at end of period $ 1,288,224 $ 542,365
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 871,266 $ 710,306
Income taxes $ 281,412 $ 125,000
</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.
On April 1, 1996 the Company received notification from Rauscher Pierce
Refsnes, Inc., (lead underwriter on the public offering), of its
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 were 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 public offering pursuant to
an agreement with the holders thereof. Of the 22,529 shares of Series A
Preferred Stock 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.
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 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 common
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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<PAGE> 7
RENT-WAY, INC. FORM 10-QSB
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NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED (Unaudited)
4. ACQUISITIONS:
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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 (restricted 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 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 Stock 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 $10,598,406 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 nine
months ended June 30, 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
JUNE 30, 1995
-------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
<S> <C> <C>
Revenues $11,971,437 $35,168,132
Net income $ 430,041 $ 1,093,045
Earnings per common share $ .08 $ 0.20
</TABLE>
In May and June 1996, the Company purchased the rental merchandise and
contracts of 16 stores in New York, Pennsylvania, and Virginia with combined
annual revenues of $3.5 million. The total purchase price of the transactions
was approximately $2.5 million paid in cash. The acquisitions were accounted
for using the purchase method of accounting. The excess of the acquisition cost
over the fair market value of the assets acquired ("goodwill") of approximately
$2.0 million is being amortized on a straight line basis over 20 years.
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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. RELATED PARTY TRANSACTIONS:
---------------------------
On May 21, 1996, the Company was paid in full for a loan made to a
principal shareholder. The loan carried an annual interest rate of 7.6%
and the balance including accrued interest as of May 21, 1996 was
$311,309.58. The loan was satisfied by the surrender to the Company of
10,800 shares of Common Stock valued at $15.00 per share, with the
balance paid in cash.
The Company was in possession of land and building lots acquired from
Erie Business Management Corporation ("EBMC"), a corporation controlled
by a principal shareholder of the Company. The land and building lots
were acquired on March 31, 1992 as satisfaction for outstanding loans
made over a period of years to two corporations owned at least 90% by
this principal shareholder. As part of the transaction the Company
obtained the right to require that EBMC purchase any or all of the
remaining land and building lots for a period of 30 days commencing May
31, 1996. Upon exercise of this "put" right EBMC would have the option of
paying the purchase price in cash, marketable securities (including
Common Stock of the Company) or a combination of both. On June 4, 1996,
the Company exercised its right to "put" the land and building lots to
EBMC. The purchase price payable by EBMC on exercise of the put was
$946,450 and was satisfied in full by a combination of cash, Common Stock
of the Company, the surrender for cancellation of 52,500 stock options
held by the principal shareholder and the conveyance to the Company of a
building owned by the principal shareholder, in which the Company had a
15 year capital lease.
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<PAGE> 9
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 nine month periods ended June 30, 1996, the Company
generated record revenues, operating income and net income. For the three and
nine month periods ended June 30, 1996, the Company's total revenues increased
by 101.0% and 106.5%, respectively, compared to the same three and nine months
periods last year. In addition, operating income increased by 210.9% and
254.3%, respectively, while net income increased by 198.0% and 197.4%,
respectively, compared to the same three and nine month periods last year. The
increase in total revenues and the improvement in operating income and net
income are primarily attributable to the acquisition of McKenzie Leasing
Corporation ("MLC"), improved same store operating profits and reduced expenses
due to certain economies of scale.
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 lead underwriter exercised its
option to purchase 335,812 additional shares to cover over-allotments. Proceeds
from the public offering were used to repay all outstanding borrowings from
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 June 30, 1996, the Company acquired 16 stores in
New York, Pennsylvania and Virginia, with combined annual revenues of
approximately $3.5 million. The Company purchased the rental merchandise and
contracts of the 16 stores for approximately $2.5 million. Twelve of the stores
are in the process of being remodeled and converted to Rent-Way stores and four
of the acquired stores were merged into existing stores. Eight of the acquired
stores are located in Virginia, which gives the Company presence in a new
market. Management believes the acquired stores were under performing primarily
due to a lack of capital and that revenues and operating profit of the acquired
stores can be increased with an infusion of merchandise and improved corporate
support.
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.
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RENT-WAY, INC. FORM 10-QSB
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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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental revenue 85.8 84.6 86.0 85.2
Other revenue 14.2 15.4 14.0 14.8
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 26.3 33.1 26.6 32.0
Property and equipment 1.6 2.1 1.5 2.0
Amortization of goodwill 1.7 1.1 1.7 1.1
----- ----- ----- -----
Total depreciation and amortization 29.6 36.3 29.8 35.1
Salaries and wages 25.3 24.3 24.9 24.2
Advertising 3.0 4.1 4.0 4.5
Occupancy 6.6 6.8 6.5 6.8
Other operating expenses 22.5 20.1 21.9 21.9
----- ----- ----- -----
Total costs and operating expenses 87.0 91.6 87.1 92.5
----- ----- ----- -----
Operating income 13.0 8.4 12.9 7.5
Interest expense (1.7) (4.1) (3.5) (4.0)
Other income .5 - .4 .2
----- ----- ----- -----
Income before income taxes 11.8 4.3 9.8 3.7
Income tax expense 5.4 - 4.5 -
----- ----- ----- -----
Net income 6.4 4.3 5.3 3.7
===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
For the three months ended June 30, 1996 compared to the three months ended
June 30, 1995, total revenues increased by $6.3 million (101.0%) to $12.6
million from $6.3 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 $6.2 million of the
increase, while the Company's same and newly acquired stores accounted for $.1
million of the increase . Other revenue increased by $.8 million to $1.8
million from $1.0 million principally due to the McKenzie Acquisition.
For the three months ended June 30, 1996 compared to the three months ended
June 30, 1995, total costs and operating expenses increased to $10.9 million
from $5.7 million primarily as a result of the costs and operating expenses
associated with the McKenzie Acquisition, but decreased to 87.0% from 91.6% of
total revenues. This percentage decrease of 4.6% resulted primarily from a
decrease in depreciation expense as a percentage of total revenue. Depreciation
expense related to rental merchandise increased by $1.2 million to $3.3 million
from $2.1 million, but decreased by 6.8% as a percentage of total revenues
principally due to increases in weekly rental rates, lower purchase costs of
rental merchandise due to increased volume and improved realization of
potential collectible rent. Amortization of goodwill increased by $144,072 or
.6% of total revenues primarily because of the increase in goodwill related to
the McKenzie Acquisition. Salaries and wages increased by $1.7 million to $3.2
million from $1.5 million principally due to the addition of the stores
acquired in 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 25.3% and 24.3% of total revenues
for the three month periods ended June 30, 1996 and 1995, respectively.
Advertising expense increased $124,400 to $380,255 from $255,855 principally
due to the addition of the stores acquired in the McKenzie Acquisition.
Advertising expense decreased to 3.0% from 4.1% of total revenues principally
due to improved local advertising. The Company believes strategic local
advertising efforts are more effective than general company wide advertising
programs. Occupancy expense increased $404,109 to $827,167 from $423,058
principally due
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<PAGE> 11
RENT-WAY, INC. FORM 10-QSB
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to the addition of the stores acquired in the McKenzie Acquisition, but
decreased to 6.6% from 6.8% of total revenues. Other operating expenses
increased $1.6 million to $2.8 million from $1.2 million principally due to the
addition of service costs, consulting expenses, non-compete fees and stores
associated with the McKenzie Acquisition. Other operating expenses were 22.5%
and 20.1% of total revenues for the three month periods ended June 30, 1996 and
1995, respectively.
For the three months ended June 30, 1996 compared to the three months ended
June 30, 1995, operating income increased by $1.1 million (210.9%) to $1.6
million from $524,494, and increased to 13.0% from 8.4% 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 June 30, 1996 compared to the three months ended
June 30, 1995, interest expense decreased by $42,848 to $212,805 from $255,653,
and decreased to 1.7% from 4.1% of total revenues principally due to the
repayment of approximately $13.2 of outstanding borrowings from First Source
Financial LLP in March 1996.
For the three months ended June 30, 1996 compared to the three months ended
June 30, 1995, income tax expense increased to $681,606 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 June 30, 1995. The Company is accruing income tax expense based on
an effective tax rate of 46.0%, 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 June 30, 1996 compared to the three months ended
June 30, 1995, net income increased by $533,286 to $802,600 from $269,314. The
increase, which resulted in net income increasing to 6.4% from 4.3% of total
revenues, was due to the factors discussed above.
COMPARISON OF NINE MONTHS ENDED JUNE 30, 1996 AND 1995
For the nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, total revenues increased by $18.9 million (106.5%) to $36.7 million
from $17.8 million. The increase was principally due to the inclusion of nine
months of results for the stores acquired in the McKenzie Acquisition. The
stores acquired in the McKenzie Acquisition, which was consummated on July 21,
1995, accounted for $18.2 million of the increase, while the Company's same and
newly acquired stores accounted for $.7 million of the increase . Other revenue
increased by $ 2.5 million to $5.1 million from $2.6 million principally due to
the McKenzie Acquisition.
For the nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, total costs and operating expenses increased to $32.0 million from
$16.5 million primarily as a result of the costs and operating expenses
associated with the McKenzie Acquisition, but decreased to 87.1% from 92.5% of
total revenues. This decrease of 5.4% resulted primarily from a decrease in
depreciation expense. Depreciation expense related to rental merchandise
increased by $4.1 million to $9.8 million from $5.7 million, but decreased by
5.4% as a percentage of total revenues principally due to increases in weekly
rental rates, lower purchase costs of rental merchandise due to increased
volume, improved realization of potential collectible rent and a lower cost
basis of merchandise relative to revenues in the stores acquired in the
McKenzie Acquisition. Amortization of goodwill increased by $439,032 or .6% of
total revenues primarily because of the increase in goodwill related to the
McKenzie Acquisition. Salaries and wages increased by $4.8 million to $9.2
million from $4.3 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 24.9% and 24.2% of
total revenues for the nine month periods ended June 30, 1996 and 1995,
respectively. Advertising expense increased $687,917 to $1.5 million from
$793,735 principally due to the addition of the stores associated with the
McKenzie Acquisition. Advertising expense decreased by .5% of total revenues
to 4.0% from 4.5%. Occupancy expense increased $1.2 million to $2.4 million
from $1.2 million 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 $4.1 million to $8.0 million from $3.9
million principally due to the addition of the stores acquired in the McKenzie
Acquisition, but remained 21.9% of total revenues.
For the nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, operating income increased by $3.4 million (254%) to $4.7 million
from $1.3 million, and increased to 12.9% from 7.5% of total revenues. The
improvement in operating income was principally due to the McKenzie Acquisition
and the factors discussed above.
For the nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, interest expense increased by $569,608 to $1.3 million from $710,306
and decreased to 3.5% from 4.0% of total revenues principally due to the
repayment of approximately $13.2 of outstanding borrowings from First Source
Financial LLP in March 1996.
-11-
<PAGE> 12
RENT-WAY, INC. FORM 10-QSB
- -------------------------------------------------------------------------------
For the nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, income tax expense increased to $1.6 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 nine
months ended June 30, 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 nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, net income increased by $1.3 million (197.4%) to $1.9 million from
$649,489. The increase, which resulted in net income increasing to 5.3% from
3.7% 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. On April 4, 1996, the Company's underwriter
exercised its over-allotment option for 335,812 additional shares of Common
Stock, 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 June 30, 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.
For the nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, the Company's net cash provided by operating activities increased to
$960,615 from $525,842. The increase was principally due to a $1.3 million
increase in net income, a $4.7 million increase in non-cash depreciation and
amortization and a $1.1 million increase in income taxes payable offset by a
$6.4 million increase in rental merchandise purchases. 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 nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, the Company's net cash used in investing activities increased to $3.8
million from $1.3 million. The increase in net cash used in investing
activities was principally due to the acquisition of 16 stores in May and June
of 1996 and remodeling and computer conversion costs incurred in connection
with the McKenzie Acquisition.
For the nine months ended June 30, 1996 compared to the nine months ended June
30, 1995, the Company's net cash provided by financing activities increased to
$3.2 million from $1.0 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 nine months ended June 30, 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 nine months ended June 30, 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 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.
B. REPORTS ON FORM 8-K
On June 3, 1996, the Company filed a report on Form 8-K disclosing that it had
signed definitive agreements to acquire the rental merchandise and rental
contracts of 13 rental-purchase stores in New York, Pennsylvania and Virginia.
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.
7/16/96 /s/ JEFFREY A. CONWAY
----------- -----------------------
Date Jeffrey A. Conway
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
-13-
<PAGE> 1
RENT-WAY, INC. FORM 10-QSB
- -------------------------------------------------------------------------------
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
PRIMARY
Net income $ 802,600 $ 269,314 $1,931,672 $ 649,489
Less preferred stock dividend requirements (19,250) - (109,357) -
---------- ---------- ---------- ----------
Net income for primary earnings per common share $ 783,350 $ 269,314 $1,822,315 $ 649,489
Weighted average number of common shares 6,356,624 3,798,834 4,947,191 3,776,942
outstanding during the period
Add - common equivalent shares (determined using the
"treasury stock" method) representing shares issuable
upon exercise of stock options stock warrants and
escrowed shares 765,094 395,336 584,576 297,435
---------- ---------- ---------- ----------
Weighted average number of shares used in
calculation of primary income per share 7,121,717 4,194,170 5,531,767 4,074,377
========== ========== ========== ==========
Primary income per common share $ 0.11 $ 0.06 $ 0.33 $ 0.16
========== ========== ========== ==========
FULLY DILUTED
Net income $ 783,350 $ 269,314 $1,822,315 $ 649,489
========== ========== ========== ==========
Weighted average number of common shares
outstanding during the period 6,356,624 3,798,834 4,947,191 3,776,942
Add - incremental shares representing:
Shares issuable upon exercise of stock options, stock warrants
and escrowed shares included in primary calculation above 765,094 395,336 584,576 297,435
Shares issuable upon exercise of stock options, stock warrants
and escrowed shares based on year end market prices 31,817 15,456 212,193 113,355
---------- ---------- ---------- ----------
Weighted average number of shares used in
calculation of fully diluted income
per share 7,153,534 4,209,626 5,743,960 4,187,732
========== ========== ========== ==========
Fully diluted income per common share $ 0.11 $ 0.06 $ 0.32 $ 0.16
========== ========== ========== ==========
</TABLE>
Note: Share amounts for the three and nine months ended June 30, 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.
-14-
<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> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,288,224
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,174,550
<PP&E> 5,817,825
<DEPRECIATION> 1,899,422
<TOTAL-ASSETS> 41,885,168
<CURRENT-LIABILITIES> 4,553,398
<BONDS> 0
<COMMON> 27,150,043
1,120,700
0
<OTHER-SE> 1,915,424
<TOTAL-LIABILITY-AND-EQUITY> 41,885,168
<SALES> 12,575,706
<TOTAL-REVENUES> 12,575,706
<CGS> 10,944,937
<TOTAL-COSTS> 11,773,106
<OTHER-EXPENSES> 39,624
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,805
<INCOME-PRETAX> 1,484,206
<INCOME-TAX> 681,606
<INCOME-CONTINUING> 802,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802,600
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
