<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D)
OF THE SECURITIES EXCHANGE ACT of 1934
Commission File Number 0-22026
RENT-WAY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1407782
State or other jurisdiction of incorporation)(I.R.S.Employer Identification No.)
3230 West Lake Road, Erie, Pennsylvania 16505
(Address of principal executive offices)
(814) 836-0618
(Registrant's telephone number)
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1998
Common Stock 10,884,410
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RENT-WAY, INC.
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<CAPTION>
Page
Part I Financial Information
Item 1. Financial Statements:
Balance Sheets as of March 31, 1998 and
<S> <C> <C>
September 30, 1997 3
Statements of Income, Three and Six Months
Ended March 31, 1998 and 1997 4
Statements of Cash Flows, Six Months Ended
March 31,1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 13
Part II Other Information
Item 4. Submission of Matters to Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures
</TABLE>
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<TABLE>
<CAPTION>
RENT-WAY, INC.
BALANCE SHEETS
For the period ended
March 31, September 30,
1998 1997
--------------- -----------
(unaudited)
ASSETS
<S> <C> <C>
Cash $ 492,925 $ 598,664
Prepaid expenses 4,154,663 1,452,265
Rental merchandise, net 67,946,234 35,132,316
Deferred income taxes 809,651 1,071,927
Property and equipment, net 13,906,559 8,518,222
Goodwill, net 127,623,361 43,446,776
Deferred financing costs, net 1,728,078 1,475,088
Non-compete and prepaid consulting fee, net 3,810,163 1,743,514
Other assets 4,011,308 2,849,166
---------------- ---------------
Total assets $ 224,482,942 $ 96,287,938
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 6,286,775 $ 3,067,294
Other liabilities 5,771,777 3,411,605
Income taxes payable 1,042,681 695,743
Debt 110,855,569 48,156,426
---------------- ---------------
Total liabilities 123,956,802 55,331,068
Contingencies (see note 7) - -
Shareholders' equity:
Preferred stock, without par value; 1,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, without par value; 20,000,000 shares
authorized; 10,884,410 and 7,059,451 shares issued and
outstanding, respectively 87,208,347 32,759,595
Retained earnings 13,317,793 8,197,275
---------------- ---------------
Total shareholders' equity 100,526,140 40,956,870
---------------- ---------------
Total liabilities and shareholders' equity $ 224,482,942 $ 96,287,938
================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RENT-WAY, INC.
STATEMENTS OF INCOME
For the three months ended For the six months ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
Revenues:
<S> <C> <C> <C> <C>
Rental revenue $ 40,879,036 $ 19,836,214 $ 64,394,049 $ 33,526,057
Other revenue 5,023,393 2,709,167 8,174,523 4,683,222
-------------- -------------- -------------- --------------
Total revenues 45,902,429 22,545,381 72,568,572 38,209,279
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 10,175,386 5,197,299 16,435,156 8,897,980
Property and equipment 650,976 317,392 1,216,831 593,517
Amortization of goodwill 1,060,622 467,830 1,651,424 774,042
Salaries and wages 11,377,246 5,667,057 18,353,234 10,036,027
Advertising 2,438,799 1,130,224 3,667,083 1,953,598
Occupancy 3,062,599 1,589,709 4,904,035 2,624,693
Other operating expenses 10,143,354 4,842,079 15,071,263 7,858,145
-------------- -------------- -------------- --------------
Total costs and operating expenses 38,908,982 19,211,590 61,299,026 32,738,002
-------------- -------------- -------------- --------------
Operating income 6,993,447 3,333,791 11,269,546 5,471,277
Other income (expense):
Interest expense (1,579,043) (872,184) (2,374,452) (1,247,680)
Interest income - 415 109,655 920
Other income (expense), net (642) (21,724) (8,826) (23,795)
--------------- --------------- --------------- ---------------
Income before income taxes
and extraordinary item 5,413,762 2,440,298 8,995,923 4,200,722
Income tax expense 2,327,911 1,145,017 3,875,405 1,956,050
-------------- -------------- --------------- --------------
Income before extraordinary item 3,085,851 1,295,281 5,120,518 2,244,672
Extraordinary item - - - (269,017)
-------------- -------------- -------------- --------------
Net income 3,085,851 1,295,281 5,120,518 1,975,655
Net gain on redemption of preferred stock - - - 280,175
-------------- -------------- -------------- --------------
Earnings applicable to common shares $ 3,085,851 $ 1,295,281 $ 5,120,518 $ 2,255,830
============== ============== ============= ==============
Earnings per common share (Note 2):
Basic earnings per share (adjusted to give effect to the net gain on redemption
of preferred stock):
Income before extraordinary item $ 0.29 $ 0.20 $ 0.53 $ 0.38
============== ============== ============== ==============
Net income $ 0.29 $ 0.20 $ 0.53 $ 0.34
============== ============== ============== ==============
Diluted earnings per share (adjusted to give effect to the net gain on
redemption of preferred stock):
Income before extraordinary item $ 0.26 $ 0.18 $ 0.47 $ 0.35
============== ============== ============== ==============
Net income $ 0.26 $ 0.18 $ 0.47 $ 0.32
============== ============== ============== ==============
Weighted average common shares outstanding:
Basic 10,727,843 6,609,853 9,660,775 6,602,048
============== ============== ============== ==============
Diluted 12,848,310 8,687,547 11,759,553 8,206,540
============== ============== ============== ==============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RENT-WAY, INC.
STATEMENTS OF CASH FLOWS
For the six months ended
March 31,
1998 1997
(unaudited) (unaudited)
Operating activities:
<S> <C> <C>
Net income $ 5,120,518 $ 1,975,655
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 19,455,673 10,265,539
Deferred income taxes 262,276 (98,666)
Extraordinary item - 269,017
Changes in assets and liabilities:
Prepaid expenses (2,297,426) (405,896)
Rental merchandise (26,758,527) (13,661,661)
Non compete and prepaid consulting fees (346,649) 89,286
Other assets (129,359) (155,507)
Accounts payable 2,219,481 (360,578)
Income taxes payable 346,938 792,383
Other current liabilities 895,342 557,102
--------------- ---------------
Net cash used in operating activities (1,231,733) (733,326)
Investing activities:
Purchase of businesses, net of cash acquired of $524,838 and
$827,912 respectively (96,274,315) (21,289,455)
Purchases of property and equipment (3,741,122) (1,614,140)
---------------- ---------------
Net cash used in investing activities (100,015,437) (22,903,595)
Financing activities:
Proceeds from borrowings 94,724,289 38,126,385
Payments on borrowings including early extinguishment (40,626,358) (10,447,199)
Redeemable preferred stock dividend - (32,143)
Redeemable preferred stock redemption - (840,525)
Deferred finance costs (405,252) (1,356,158)
Proceeds from common stock issuance 47,448,752 102,983
--------------- ---------------
Net cash provided by financing activities 101,141,431 25,553,343
--------------- ---------------
Increase/(decrease) in cash (105,739) 1,916,422
Cash at beginning of period 598,664 179,425
--------------- ---------------
Cash at end of period $ 492,925 $ 2,095,847
=============== ===============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 1,489,081 $ 989,966
Income taxes $ 3,266,492 $ 1,163,368
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
RENT-WAY, INC.
NOTES TO 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 rental-purchase 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-Q, 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.
The Company utilizes derivative financial instruments to reduce its
exposure resulting from fluctuations in interest rates. The derivative
financial instruments in effect at March 31, 1998 consist of three
interest rate swap agreements. The interest rate swap agreements are used
by the Company to convert part of the Company's floating interest rate
debt to a fixed interest rate. Interest rate expense under the swap
agreements, and the amended facility (the "Facility") that they hedge, are
recorded at the net effective interest rate of hedge transactions. The
Company's practice is not to hold or issue derivative financial
instruments for trading or speculative purposes.
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-K for the fiscal year ended September 30,
1997.
2. Earnings per Share:
Basic earnings per common share is computed using income available to
common shareholders divided by the weighted average number of common
shares outstanding. Diluted earnings per common share is computed using
income available to common shareholders adjusted for anticipated interest
savings, net of related taxes, for convertible subordinated debentures and
the weighted average number of shares outstanding is adjusted for the
potential impact of options, warrants and convertible subordinated
debentures. Earnings per common share for the three and six month periods
ended March 31, 1997 has been restated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128.
<TABLE>
<CAPTION>
Reconciliation of Numerators and Denominators of the Basic and Diluted EPS Computation
Computation of Earnings per Share: For the three months ended For the six months ended
---------------------------------
March 31, March 31,
(unaudited) (unaudited)
1998 1997 1998 1997
BASIC
<S> <C> <C> <C> <C>
Net income $ 3,085,851 $ 1,295,281 $ 5,120,518 $ 1,975,655
Redeemable preferred stock net gain on redemption - - - 280,175
------------- ------------ ------------ ------------
Earnings applicable to common shares $ 3,085,851 $ 1,295,281 $ 5,120,518 $ 2,255,830
============= ============ =========== ============
Weighted average number of common shares
outstanding during the period 10,727,843 6,609,853 9,660,775 6,602,048
============= ============ ============ =========
Basic earnings per common share:
Income before extraordinary item $ 0.29 $ 0.20 $ 0.53 $ 0.38
============= =========== ============ ============
Net income $ 0.29 $ 0.20 $ 0.53 $ 0.34
============= =========== ============ ============
</TABLE>
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RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
2. Earnings per Share: (Continued)
<TABLE>
<CAPTION>
DILUTED
<S> <C> <C> <C> <C>
Earnings applicable to common shares $ 3,085,851 $ 1,295,281 $ 5,120,518 $2,255,830
Interest on convertible debt (net of tax benefit) 210,000 245,000 425,000 350,000
------------- ------------ ------------ ------------
Earnings applicable to diluted earnings per common share $ 3,295,851 $ 1,540,281 $ 5,545,518 $ 2,605,830
============= ============ =========== ============
Weighted average number of common shares used in
calculating basic earnings per share 10,727,843 6,609,853 9,660,775 6,602,048
Add - incremental shares representing:
Common equivalent shares (determined using the
"treasury stock" method) representing shares issuable
upon exercise of stock options and warrants 624,577 442,693 602,888 439,993
Shares issuable on conversion of 10% notes - 704,225 - 704,225
Shares issuable on conversion of 7% debentures 1,495,890 930,776 1,495,890 460,274
------------- ------------ ----------- ------------
Weighted average number of shares used in
calculation of diluted earnings per common share 12,848,310 8,687,547 11,759,553 8,206,540
============= ========== =========== ============
Diluted earnings per common share:
Income before extraordinary item $ 0.26 $ 0.18 $ 0.47 $ 0.35
============= =========== ============ ============
Net income $ 0.26 $ 0.18 $ 0.47 $ 0.32
============= =========== ============ ============
</TABLE>
3. Public Stock Offering:
On December 2, 1997, the Company completed a public stock offering
consisting of 2,500,000 shares of common stock offered by the Company and
87,250 shares of common stock offered by certain selling shareholders. In
addition, on December 30, 1997, the underwriters exercised a 30 day option
to purchase 388,088 shares of common stock to cover over-allotments. The
shares were offered at a price of $17.25 per share. The Company received
net proceeds (less underwriters discount and selling expenses) of
$46,982,586 including the underwriters exercise of the over-allotment
option. The Company used these proceeds to repay outstanding borrowings of
$23,022,110 under the Company's credit agreement with a syndicate of banks
led by National City Bank of Pennsylvania (see note 5) and to fund the
asset purchase of South Carolina Rentals, Inc., Paradise Valley Holdings,
Inc. and L & B Rents, Inc. ("ACE Rentals").
4. Acquisitions:
On February 5, 1998, the Company signed a definitive purchase agreement
to acquire all the outstanding shares of Champion Rentals, Inc.
("Champion"). At the time of the acquisition, Champion operated a chain
of 145 rental-purchase stores located in Alabama, Arkansas, Florida,
Georgia, Kentucky, Louisiana, North Carolina, Ohio, South Carolina,
Tennessee and Virginia with annual revenues of approximately $75.0
million. The consideration paid in exchange for all the outstanding
shares of Champion was $69,650,000 in cash. Pursuant to terms of the
purchase agreement $2,500,000 of the purchase price was placed in escrow
subject to the terms of the escrow agreement to satisfy sellers'
representations and warranties and any purchase price adjustments. The
escrow agreement provides for the release of $1,500,000 pending the
completion of an audit of Champion's financial statements and business
records. The balance of $1,000,000 will be held for a one year period
from the date of the closing. The acquisition was accounted for using the
purchase method of accounting. Champion's assets and liabilities were
recorded at their
<PAGE>
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
(unaudited)
4. Acquisitions: (Continued)
estimated fair values at the time of the acquisition. The fair value of
rental merchandise, property and equipment, intangible assets including
non-compete agreements and customer lists, certain liabilities and the
final purchase price will be determined based on the completion of the
financial statement audit, valuation procedures and certain additional
procedures. The estimated excess of the acquisition cost over the
estimated fair value of the net assets acquired, ("goodwill") of
$65,765,657 is being amortized on a straight line basis over thirty
years. The total estimated costs of net assets acquired was $69,650,000
and consisted of assets of $88,169,758 less liabilities assumed of
$17,449,848 and acquisition costs of $1,069,910. The acquisition of
Champion was funded with borrowings drawn on the Company's existing
senior credit facility with a syndicate of banks co-led by National City
Bank of Pennsylvania and NationsBank, N.A. (see Note 5). The Statements
of Income for both the three and six month periods ending March 31, 1998
include the result of operations of Champion since February 5, 1998.
On January 7, 1998, the Company completed the asset purchase of South
Carolina Rentals, Inc., Paradise Valley Holdings, Inc., and L & B Rents,
Inc., (collectively, "ACE Rentals"), assuming effective control of the
results of operations as of January 1, 1998. At the time of the
acquisition, ACE Rentals operated a chain of fifty rental-purchase stores
located in California and South Carolina with annual revenues of
approximately $22.0 million. The consideration paid in exchange for the
assets of ACE Rentals was $25,248,514 in cash and the assumption of
liabilities of $477,851. Pursuant to the terms of the purchase agreement
$750,000 of the purchase price was placed in escrow, subject to the terms
and conditions of the escrow agreement to satisfy sellers'
representations and warranties and any purchase price adjustments. The
escrow agreement provides for release of the escrow pending the
completion of an audit of ACE Rentals' financial statements and business
records. The acquisition was accounted for using the purchase method of
accounting. ACE Rentals' assets and certain liabilities were recorded at
their estimated fair values at the time of the acquisition. The fair
value of rental merchandise, property and equipment, intangible assets
including non-compete agreements and customer lists, certain liabilities
and the final purchase price will be determined based on the completion
of the financial statement audit, valuation procedures and certain
additional procedures. The estimated excess of the acquisition cost over
the estimated fair value of the net assets acquired, ("goodwill") of
$19,516,482 is being amortized on a straight line basis over thirty
years. The total estimated costs of net assets acquired was $25,248,514
and consisted of assets of $26,411,482 less liabilities assumed of
$477,851 and acquisition costs of $685,117. The acquisition of ACE
Rentals was primarily funded with proceeds received in connection with
the Company's public stock offering (see Note 3) with the balance being
drawn on the Company's existing senior credit facility with a syndicate
of banks, co-led by National City Bank of Pennsylvania and NationsBank,
N.A. (see Note 5). The Statements of Income for both the three and six
month periods ending March 31, 1998 include the results of operations of
ACE Rentals since January 1, 1998.
On January 24, 1997, the Company signed a definitive purchase agreement
to acquire all the outstanding shares of Perry Electronics, Inc. d/b/a
Rental King ("Rental King"). On February 6, 1997, the Company consummated
the transaction and acquired all the outstanding shares of Rental King,
assuming effective control of the results of operations as of February 1,
1997. At the time of acquisition, Rental King operated a chain of seventy
rental-purchase stores in Colorado, Florida, Indiana, Kentucky, Michigan,
Ohio and West Virginia with annual revenues of approximately $24.0
million. The consideration paid in exchange for all the outstanding
shares of Rental King was $17,284,618 in cash. The acquisition was
accounted for using the purchase method of accounting. Rental King's
assets and liabilities were recorded at their fair market values as of
the date of the acquisition. The excess of the acquisition cost over the
fair value of the net assets acquired, ("goodwill") of $17,310,446 is
being amortized on a straight line basis over twenty years. The total
cost of the net assets acquired was $17,284,618 and consisted of assets
of $25,288,162 less liabilities assumed of $6,337,325 and acquisition
costs of $1,666,219. The acquisition of Rental King was primarily funded
by the net proceeds received on a private placement of $20.0 million in
subordinated convertible debentures. The balance of the cash paid on
closing was drawn upon the Company's existing line of credit. Assets
acquired (at fair market value) other than goodwill consist primarily of
rental merchandise of $6,386,000, property and equipment of $744,615,
other assets of $347,101 and non-compete agreements of $500,000.
Liabilities assumed (at fair market value) consist primarily of trade
payables of $488,561, accrued liabilities of $2,085,270, bank debt of
$2,939,494 and notes payable of $824,000. The Statements of Income for
the three and six months ended March 31, 1998 include the results of
operations of Rental King for the entire period.
<PAGE>
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
(unaudited)
4. Acquisitions (Continued):
On January 2, 1997, the Company acquired all the outstanding shares of
Bill Coleman TV, Inc., ("Coleman"), a privately owned chain of fifteen
rental-purchase stores operating in Michigan with annual revenues of
approximately $7.5 million, in exchange for consideration consisting of
$2,679,921 in cash and an option to purchase 25,000 shares of the
Company's common stock at an exercise price of $8.875 per share with a
fair market value of $107,500. The 25,000 stock options are 100%
exercisable and expire five years from the date of the grant. The
acquisition was accounted for using the purchase method of accounting.
Coleman's assets and liabilities were recorded at their fair values as of
the acquisition date. The excess of the acquisition cost over the fair
value of the net assets acquired, ("goodwill") of $3,763,420 is being
amortized on a straight line basis over twenty years. The total cost of
the net assets acquired was $2,787,421 ($2,679,921 in cash and $107,500
in stock options) and consisted of assets of $7,696,513 less liabilities
assumed of $4,548,836 and acquisition costs of $360,256. Assets acquired
(at fair market value) other than goodwill, consisted primarily of rental
merchandise of $2,401,000, property and equipment of $42,000, deferred
tax assets of $787,487, a note receivable of $244,454, a non-compete
agreement of $300,000 and other assets of $158,152. Liabilities assumed
(at fair market value) consisted primarily of trade accounts payable of
$1,838,190, debt of $2,474,155 and note payable of $236,491. The
Statements of Income for the three and six months ended March 31, 1998
include the operations of Coleman for the entire period.
In July and September 1997, the Company purchased the rental merchandise
and rental-purchase contracts of seven rental-purchase stores located in
Pennsylvania, Maryland, and Virginia, with combined annual revenues of
approximately $4.3 million. The Company paid cash in exchange for the
assets and each acquisition was recorded using the purchase method of
accounting. The acquired assets were recorded at their estimated fair
values at the date of acquisition. The excess of the acquisition cost
over the estimated fair values of the assets acquired, ("goodwill") of
$2,734,511 is being amortized on a straight line basis over twenty years.
The total cost of the net assets acquired was $3,809,878 and consisted of
assets of $3,965,126 less acquisition costs of $155,248. The Statements
of Income for the three and six months ended March 31, 1998 include the
operating results for these stores for the entire period.
Following are pro forma results of operations for the six months ended
March 31, 1998 and 1997 assuming the acquisitions of Champion and ACE
Rentals had occurred on October 1, 1996. The results are not necessarily
indicative of future operations or what would have occurred had the
acquisitions been consummated as of October 1, 1997.
<TABLE>
<CAPTION>
Unaudited Pro Forma Operations
Six months ended March 31,
1998 1997
------------- -------------
<S> <C> <C>
Revenues $98,929,972 $90,761,211
Net income $ 7,419,729 $ 6,353,285
============= =============
Diluted earnings per common share (adjusted to give effect to the net gain on redemption of preferred stock):
$ 0.63 $ 0.55
</TABLE>
<PAGE>
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
(unaudited)
5. Debt:
<TABLE>
<CAPTION>
On February 5, 1998, the Company amended its existing senior credit
facility with a syndicate of banks led by National City Bank of
Pennsylvania. The Facility, co-led by National City Bank of
Pennsylvania, acting as syndication and administrative agent, and
NationsBank, N.A. as documentation agent, provides for loans and letters
of credit up to $120.0 million. The syndicate members and their ratable
share of the Facility are as follows:
<S> <C>
National City Bank of Pennsylvania 15.0000%
NationsBank, N.A. 14.1670%
Harris Trust and Savings Bank 14.1670%
LaSalle National Bank 14.1670%
Sun Trust Bank, Central Florida, National Association 7.0825%
Manufacturers and Traders Trust Company 14.1670%
CoreStates Bank, N.A. 7.0825%
Star Bank, N.A. 14.1670%
</TABLE>
Of the $120.0 million available under the Facility, approximately $7.0
million was outstanding at the date of the amendment and approximately
$81.0 million was used for the acquisition of Champion Rentals, Inc and
the extinguishment of their existing debt (see Note 4). The Facility
expires on February 5, 2001.
Under the Facility, the Company may borrow funds under a base rate
option plan or euro-rate option plan. Under the base rate option plan
the Company may borrow funds based on a spread of prime-rate plus 0.0%
to 0.5%. The actual spread is determined based on the ratio of debt to
cash flow from operations during the period. Under the euro-rate option,
the Company may borrow funds based on a spread of the London Interbank
Offer Rate, ("LIBOR") plus 100 to 200 basis points. The actual spread is
determined based on the ratio of debt to cash flow generated from
operations during the period. Borrowings under the euro-rate option
require the Company to select a fixed interest period during which the
euro-rate is applicable with the borrowed amount not to be repaid prior
to the last day of the selected interest period. In addition, borrowings
tranche's under the euro-rate option must be in multiples of $250,000
and not less than $1,000,000 in total. Commitment fees associated with
the Facility are equal to 0.125% for each banks' commitment which
existed prior to this amendment and 0.25% for each banks' commitment
starting with the date of this amendment. The Facility requires the
Company to meet certain financial covenants and ratios including maximum
leverage, minimum interest coverage and minimum tangible net worth
ratios. In addition, the company must meet requirements regarding
monthly, quarterly and annual financial reporting. The Facility also
contains non-financial covenants which restrict actions of the Company
with respect to the payment of dividends, acquisitions, mergers,
disposition of assets or subsidiaries, issuance of capital stock and
capital expenditures. The Company may at any time repay outstanding
borrowings, in whole or part, without premium or penalty, except with
respect to restrictions identified above in connection with the
selection of the euro-rate option. As of March 31, 1998, the Company had
$83.0 million of floating rate debt under the euro-rate option and $4.3
million of floating rate debt under the base rate option, with interest
rates of 7.625% and 9.0% respectively. As of March 31, 1998, the Company
was in compliance with all covenants contained in the Facility.
On October 8, 1997, the Company exercised its right to convert $7.0
million in subordinated convertible notes, ("the Notes") held by
Massachusetts Mutual Life Insurance Company. The Company was able to
exercise this right when the market price of the Company's common stock
remained above $16.50 per share for a twenty consecutive day period. The
Notes converted into 704,223 shares of the Company's common stock, at a
conversion price of $9.94 per share.
<PAGE>
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
(unaudited)
6. Derivative Financial Instrument:
The Company uses derivative financial instruments to reduce the impact on
interest expense of fluctuations in interest rates on the Facility. The
Company does not enter into derivative financial instruments for trading
or speculative purposes. As of March 31, 1998, the Company had in place
three interest rate swaps, under which the Company agreed with
counterparties to exchange, at quarterly intervals, the interest payments
on the Company's variable pay rate of the three-month LIBOR on the
Facility and the counterparties fixed pay rate for the notional amount of
the interest rate swap agreements. The Company actively evaluates the
creditworthiness of the financial institutions which are counterparties
to interest rate swap agreements, and it does not appear that any
counterparty will fail to meet their obligation. The following table
illustrates the notional amounts outstanding, maturity dates and the pay
and receive rates of each of the interest rate swap agreements at March
31, 1998:
<TABLE>
<CAPTION>
Notional Maturity Pay Receive
Amount Date Rate Rate
Interest rate swap,
<S> <C> <C> <C> <C>
National City Bank $30,000,000 May 2003 5.965% 5.625%
Interest rate swap,
NationsBanc $20,000,000 May 2003 5.760% 5.625%
Interest rate swap,
Manufacturers' and
Traders Trust Company $10,000,000 May 2003 5.925% 5.625%
</TABLE>
Interest expense is recognized based on the counterparties fixed interest
and 100-200 basis points, as required by the Facility, for the notional
amount of the interest rate swap agreements. Interest expense is
recognized for borrowings in excess of the notional amount based on the
terms of the Facility. The fair value of the interest rate swap
agreements, based on settlement cost as estimated by a dealer, are not
reflected in the financial statements since they are effectively used as
hedging instruments. The following table summarizes the notional amount,
carrying amount and fair values of the interest rate swap agreements as
of March 31, 1998:
<TABLE>
<CAPTION>
Notional Carrying
Amount Fair Value Amount
Interest rate swap,
<S> <C> <C> <C>
National City Bank $30,000,000 ($110,840) ($ 9,917)
Interest rate swap,
NationsBanc $20,000,000 ($ 48,665) ($ 2,750)
Interest rate swap,
Manufacturers' and
Traders Trust Company $10,000,000 ($ 14,400) ($12,667)
</TABLE>
7. Contingencies:
The Company is subject to legal proceedings and claims in the ordinary
course of its business that have not been finally adjudicated. Certain
of these cases have resulted in contingent liabilities ranging from
$600,000 to $2,250,000. The majority of such claims are, in the opinion
of management, covered by insurance policies and therefore should not
have a material effect on the results of operations or financial
position of the Company.
<PAGE>
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
(unaudited)
7. Contingencies: (Continued)
Additional claims exist in the range of $1,200,000 to $1,750,000 for
which management believes it has meritorious defenses but for which the
likelihood of an unfavorable outcome is currently not determinable. In
management's opinion, each of these claims will either be indemnified by
the previous shareholders of prior acquisitions or covered by insurance
policies and therefore will not have a material effect on the results of
operations or financial condition of the Company.
8. New Accounting Standard:
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits" effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 132
will have no impact on the Company's financial statements.
9. Subsequent Event:
On March 23, 1998,the Company signed an agreement to purchase land and a
building to be used as a new corporate headquarters. The purchase price
was $3,650,000, with $1,650,000 of the purchase price being deferred,
interest free, for a one year period from the date of this agreement. The
closing of the purchase is subject to normal due diligence and other
contingent items.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
During the three month period ended March 31, 1998, the Company generated
record revenues, operating income, and net income. The Company's total
revenues increased by 103.6% compared to the same three month period last
year. Operating income and net income increased by 109.8% and 138.2%,
respectively, when compared to the same three month period last year. The
increase in revenue, operating income and net income are primarily due to
acquisitions made during fiscal 1998, improved same store operating
profits, and a reduction in certain expenses as a percentage of revenue
resulting from economies of scale. In addition, the Company experienced
an 8% increase in same store revenue compared to the same period last
year.
On March 23, 1998, the Company signed a contract to purchase a new
building to be used as a corporate headquarters. The total purchase price
of the building was $3,650,000 with $1,650,000 of the purchase price
deferred, without interest charges, for one year. The closing of the
purchase is subject to normal due diligence and other contingent items.
On February 5, 1998, the company amended its existing senior credit
facility with a syndicate of banks led by National City Bank of
Pennsylvania. The amended facility (the "Facility"), co-led by National
City Bank of Pennsylvania, acting as syndication and administrative
agent, and NationsBank, N.A. as documentation agent, provides for loans
and letters of credit up to $120.0 million.
On February 5, 1998, the Company completed the acquisition of Champion
Rentals, Inc. ("Champion"), a privately-owned rental purchase chain with
145 locations in the southeast United States. The Company paid
approximately $69.7 million in cash plus the assumption of $17.4 million
in liabilities. Pursuant to the terms of the purchase agreement, $2.5
million of the purchase price was placed in an escrow account as a source
of payment for seller's breaches of representations and warranties and
final purchase price adjustments. The acquisition of Champion was funded
with borrowings drawn on the Company's existing senior credit facility
(see note 5). The Champion acquisition substantially increases market
penetration in several of the Company's established areas of operation,
while opening the door to new markets such as Alabama, Arkansas, Georgia,
Louisiana, North Carolina and Tennessee. Of Champion Rentals' 145 stores,
25 were opened in 1997.
On January 7, 1998, the Company signed an asset purchase agreement and
acquired Ace TV Rentals, ("ACE"), a privately-owned 50 store
rental-purchase chain with locations in South Carolina and California.
The Company paid approximately $25.2 million in cash plus the assumption
of certain liabilities, with $750,000 placed in an escrow account as a
source of payment for seller's breaches of representations and warranties
and final purchase price adjustments. ACE, with annualized revenues of
approximately $22 million, operates 46 stores in South Carolina and four
stores in California, two new markets for the Company.
On December 2, 1997, the Company completed a public offering consisting
of 2,500,000 shares of common stock offered by the Company and 87,250
shares of common stock offered by certain selling shareholders. In
addition, on December 30, 1997, the underwriters exercised a 30 day
option to purchase 388,088 shares of common stock to cover
over-allotments. The shares were offered at a price of $17.25 per share.
The Company received net proceeds (less underwriters discount and selling
expenses) of $46,982,586 including the underwriters exercise of the
over-allotment option. The Company used these proceeds to repay
outstanding borrowings of $23.0 million under the Company's credit
agreement with a syndicate of banks led by National City Bank of
Pennsylvania (See Note 5). The remaining proceeds have been invested in
short-term commercial paper and repurchase agreements.
On October 8, 1997, the Company exercised its option to convert
$7,000,000 in subordinated convertible notes, ("the Notes") held by
Massachusetts Mutual Life Insurance Company. The Company was able to
exercise this option when the market price of the Company's common stock
remained above $16.50 per share for a twenty consecutive date period. The
Notes converted into 704,223 shares of the Company's common stock, at a
conversion price of $9.94 per share.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Management is actively seeking merger and acquisition candidates with
financial and geographic profiles consistent with the Company's growth
objectives.
Results of Operations
The following table sets forth, for the periods indicated, certain items
from the Company's unaudited Statements of Income, expressed as a
percentage of revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Rental revenue 89.1% 88.0% 88.7 % 87.7
%
Other revenue 10.9 12.0 11.3 12.3
------ ------ ------ ------
Total revenues 100.0% 100.0% 100.0% 100.0%
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 22.2 23.1 22.6 23.3
Property and equipment 1.4 1.4 1.6 1.5
Amortization of goodwill 2.3 2.1 2.3 2.0
------ ------ ------ ------
Total depreciation and amortization 25.9 26.6 26.5 26.8
Salaries and wages 24.8 25.1 25.3 26.3
Advertising 5.3 5.0 5.1 5.1
Occupancy 6.7 7.1 6.8 6.9
Other operating expenses 22.1 21.4 20.8 20.6
------ ------ ------ ------
Total costs and operating expenses 84.8 85.2 84.5 85.7
------ ------ ------ ------
Operating income 15.2 14.8 15.5 14.3
Interest expense (3.4) (3.9) (3.3) (3.3)
Other income - (0.1) 0.2 -
------ ------ ------ ------
Income before income taxes and
extraordinary item 11.8 10.8 12.4 11.0
Income tax expense 5.1 5.1 5.3 5.1
------ ------ ------ ------
Income before extraordinary item 6.7 5.7 7.1 5.9
Extraordinary item - - - (0.7)
------- ------ ------ ------
Net income 6.7% 5.7% 7.1% 5.2
------- ------ ------ ------
%
Gain on redemption of preferred stock - - - 0.7
------- ------ ------ ------
Earnings applicable to common shares 6.7% 5.7% 7.1% 5.9%
======= ====== ====== ======
</TABLE>
Comparison of Three Months Ended March 31, 1998 and 1997
For the three months ended March 31, 1998 compared to the three months
ended March 31, 1997, total revenues increased by $23.4 million (103.6%)
to $45.9 million from $22.5 million. The increase was principally due to
increased same store revenues and the inclusion of the results for the
stores acquired during fiscal 1998. The stores acquired in the Champion
acquisition accounted for $12.3 million (52.6%) of the increase, the
stores acquired in the ACE acquisition accounted for $5.6 million (23.9%)
of the increase, the stores acquired in the Rental King
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Comparison of Three Months Ended March 31, 1998 and 1997 (Continued)
acquisition accounted for $2.8 million (12.0%) of the increase, the
stores acquired in other fiscal 1997 acquisitions accounted for $1.3
million (5.5%) of the increase, and the Company's same stores accounted
for $1.4 million (6.0%) of the increase. Other revenue increased by $2.3
million (85.4%) to $5.0 million from $2.7 million principally due to
stores acquired in 1997.
For the three months ended March 31, 1998 compared to the three months
ended March 31, 1997, total costs and operating expenses increased to
$38.9 million from $19.2 million primarily as a result of the costs and
operating expenses associated with stores acquired in fiscal 1997 and
1998, but decreased to 84.8% from 85.2% of total revenue. This decrease
of 0.4% resulted primarily from a 0.7% decrease in depreciation and
amortization as a percentage of total revenues a 0.3% decrease in
salaries and wages as a percentage of total revenues, and a 0.4% decrease
in occupancy expense as a percentage of total revenues offset by a 0.7%
increase in other operating expenses and a 0.3% increase in advertising.
Depreciation expense related to rental merchandise increased by $5.0
million to $10.2 million from $5.2 million, but decreased 0.9% as a
percentage of total revenues due to increases in weekly rental rates,
lower purchase costs of rental merchandise due to increased volume, and
improvements in the realization of potential collectible rental revenue.
Amortization of goodwill increased by $0.6 million primarily because of
the increase in goodwill related to the stores acquired in fiscal 1997
and 1998. Amortization of goodwill was 2.3% and 2.1% of total revenues
for the three months ended March 31, 1998 and 1997, respectively.
Salaries and wages increased to $11.4 million from $5.7 million, but
decreased 0.3% as a percentage of total revenues to 24.8% from 25.1%. The
$5.7 million increase is principally due to the addition of 198 new
locations and an overall strengthening of corporate personnel.
Advertising expense increased $1.3 million or 0.3% as a percentage of
total revenues to $2.4 million from $1.1 million principally due to the
addition of the stores acquired in fiscal 1997 and 1998. Occupancy
expense increased to $3.1 million from $1.6 million, but decreased 0.4%
as a percentage of total revenues to 6.7% from 7.1%. The $1.5 million
increase is primarily due to the addition of the stores acquired in
fiscal 1997 and 1998. Other operating expenses increased by $5.3 million
to $10.1 million from $4.8 million, or 0.7% as a percentage of total
revenues mainly due to the addition of the stores acquired in fiscal 1997
and 1998.
For the three months ended March 31, 1998 compared to the three months
ended March 31, 1997, operating income increased by $3.7 million (109.8%)
to $7.0 million from $3.3 million, and increased to 15.2% from 14.8% of
total revenues. The improvement in operating income was principally due
to the stores acquired in 1997 and 1998 and the factors discussed above.
For the three months ended March 31, 1998 compared to the three months
ended March 31, 1997, interest expense increased $0.7 million to $1.6
million from $0.9 million due to an increase in debt of $90.8 million
from $20.1 million to $110.9 million. This increase is principally the
result of the purchase of Champion on February 5, 1998 and the
extinguishment of its existing debt with $81.0 million in funds drawn on
the Company's senior credit facility.
For the three months ended March 31, 1998 compared to the three months
ended March 31, 1997, income tax expense increased to $2.3 million from
$1.1 million because the Company generated greater taxable income. The
Company's income tax rate of 43.0% is higher than the statutory tax rates
because amortization expense related to goodwill incurred in connection
with certain acquisitions is not deductible for purposes of computing
income tax.
For the three months ended March 31, 1998 compared to the three months
ended March 31, 1997, net income increased by $1.8 million (138.2%) to
$3.1 million from $1.3 million. The increase was due to the factors
discussed above.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Comparison of Six Months Ended March 31, 1998 and 1997
For the six months ended March 31, 1997 compared to the six months ended
March 31, 1996, total revenues increased by $34.4 million (89.9%) to
$72.6 million from $38.2 million. The increase was principally due to
increased same store revenues and the inclusion of the stores acquired in
fiscal 1997 acquisitions, the ACE acquisition, and the Champion
acquisition. Stores acquired in fiscal 1997 accounted for $14.8 million
(43.0%) of the increase, stores acquired in the ACE acquisition accounted
for $5.6 million (16.3%) of the increase, stores acquired in the Champion
acquisition accounted for $12.3 million (35.8%) of the increase and the
Company's same stores accounted for $1.7 million (4.9%) of the increase.
Other revenue increased $3.5 million (74.5%) to $8.2 million from $4.7
million principally due to stores acquired in 1997 and 1998.
For the six months ended March 31, 1998 compared to the six months ended
March 31, 1997, total costs and operating expenses increased to $61.3
million from $32.7 million primarily as a result of the costs and
operating expenses associated with stores acquired in 1997 and 1998, but
decreased to 84.5% from 85.7% of total revenues. This decrease of 1.2%
resulted primarily from a 0.3% decrease in depreciation and amortization
as a percentage of total revenues, a 1.0% decrease in salaries and wages
as a percentage of total revenues, and a 0.1% decrease in occupancy
expense as a percentage of total revenues. Depreciation expense related
to rental merchandise increased by $7.5 million to $16.4 million from
$8.9 million, but decreased by 0.7% as a percentage of total revenues
primarily due to increases in weekly rental rates, lower purchase costs
of rental merchandise due to increasing volume, and improvements in the
realization of potential collectible rental revenue. Amortization of
goodwill increased by $0.9 million primarily because of the increase in
goodwill related to stores acquired in 1997 and 1998. Salaries and wages
increased to $18.4 million from $10.0 million, but decreased 1.0% as a
percentage of total revenues to 25.3% from 26.3%. The $8.4 million
increase is principally due to the addition of 198 new locations, up
grades in the regional manager position, and an overall strengthening of
corporate personnel. Advertising expense increased $1.7 million to $3.7
million from $2.0 million principally due to the addition of the stores
acquired in 1997 and 1998. Advertising expense as a percentage of total
revenues remained constant at 5.1%. Occupancy expense increased $2.3
million to $4.9 million from $2.6 million mainly due to the addition of
the stores acquired in 1997 and 1998. Other operating expenses increased
$7.2 million to $15.1 million from $7.9 million, or 0.2% as a percentage
of total revenues principally due to the addition of the stores acquired
in 1997 and 1998.
For the six months ended March 31, 1998 compared to the six months ended
March 31, 1997, operating income increased by $5.8 million (106.0%) to
$11.3 million from $5.5 million, and increased to 15.5% from 14.3% of
total revenues. The improvement in operating income was principally due
to the stores acquired in 1997 and 1998 and the factors discussed above.
For the six months ended March 31, 1998 compared to the six months ended
1997, interest expense increased by $1.2 million to $2.4 million from
$1.2 million due to an increase in debt of $62.7 million from $48.2
million to $110.9 million. This increase is the result of the purchase of
Champion on February 5, 1998 and the extinguishment of its existing debt
with $81.0 million in funds drawn on the Company's senior credit
facility.
For the six months ended March 31, 1998 compared to the six months ended
March 31, 1997, income tax expense increased to $3.9 million from $2.0
million because the Company generated greater taxable income. The Company
is accruing income tax expense based on an effective tax rate of 43.0%,
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 six months ended March 31, 1998 compared to the six months ended
March 31, 1997, net income increased by $3.1 million (159.2%) to $5.1
million from $2.0 million. The increase was due to the factors discussed
above.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Liquidity and Capital Resources
On February 5, 1998, the company amended its existing senior credit
facility with a syndicate of banks led by National City Bank of
Pennsylvania. The amended facility (the "Facility"), co-led by National
City Bank of Pennsylvania, acting as syndication and administrative
agent, and NationsBank, N.A. as documentation agent, provides for loans
and letters of credit up to $120.0 million.
Of the $120.0 million available under the Facility, approximately $7.0
million was outstanding at the date of the amendment and approximately
$81.0 million was used for the acquisition of Champion and the
extinguishment of its existing debt (see Note 4). The Facility expires on
February 5, 2001.
On October 8, 1997, the Company exercised its right to convert $7,000,000
in subordinated convertible notes, ("the Notes") held by Massachusetts
Mutual Life Insurance Company. The indebture allowed the Company to force
conversion when the market price of the Company's common stock exceeded
$16.50 per share for a twenty consecutive day period. The Notes converted
into 704,223 shares of the Company's common stock, at a conversion price
of $9.94 per share.
On December 2, 1997, the Company completed a public offering of 2,587,250
shares of Common Stock. Of the 2,587,250 shares of Common Stock offered,
2,500,000 shares were offered by the Company and 87,250 were offered by
certain selling shareholders. The Company also granted the underwriters
an option to purchase an additional 388,088 shares of Common Stock to
cover over-allotments. On December 30, 1997, the Underwriters exercised
this option. The shares were offered at a price of $17.25 per share. The
Company received net proceeds (less underwriters discount and selling
expenses) of $46,982,586 including the underwriters exercise of the
over-allotment option. The Company used these proceeds to repay
outstanding borrowings of $23.0 million under the Company's credit
agreement with a syndicate of banks led by National City Bank of
Pennsylvania (see note 5).
For the six months ended March 31, 1998 compared to the six months ended
March 31, 1997, the Company's net cash used in operating activities
increased to $1.2 million from $0.7 million. This increase was
principally due to a $13.1 million increase in rental merchandise
purchases, a $1.9 million increase in prepaid expenses and a $0.4 million
increase in prepaid consulting fees offset by a $9.2 million increase in
non-cash amortization and depreciation, a $2.6 million increase in
accounts payable and a $3.1 million increase in net income. These
increases in resulted primarily from the stores acquired in 1998.
For the six months ended March 31, 1998 compared to the six months ended
March 31, 1997, the Company's net cash used in investing activities
increased by $77.1 million. This increase is primarily due to the
acquisitions of Champion Rentals and ACE Rentals.
For the six months ended March 31, 1998, compared to the six months ended
March 31, 1997, the Company's net cash provided by financing activities
increased to $101.1 million from $25.6 million. The increase in net cash
provided by financing activities was principally due to funds received
from the Company's public stock offering and funds drawn on the Company's
line of credit in conjunction with the Champion acquisition, (see note
3).
Quantitative and Qualitative Disclosures About Market Risk
The Company's major market risk exposure is primarily due to possible
fluctuations in interest rates. The Company's policy is to manage
interest rate risk by utilizing interest rate swap agreements to convert
a portion of the floating interest rate debt to fixed interest rates. The
company does not enter into derivative financial instruments for trading
or speculative purposes. The interest rate swap agreements are entered
into with major financial institutions thereby minimizing the risk of
credit loss.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Quantitative and Qualitative Disclosures About Market Risk (Continued)
The following table presents information about the Company's market
sensitive financial instruments. The table illustrates the principle and
notional amounts, as well as the date of maturity, actual and weighted
average pay and receive rates for all significant financial and
derivative financial instruments in effect as of March 31, 1998:
<TABLE>
<CAPTION>
Expected Maturity Dates
(dollars in millions): 1998 1999 2001 2002 2003 Thereafter
-------------------------- ---- ---- ---- ---- ---- ----------
Debt:
Existing credit facility
<S> <C>
Base rate option $4.3
- Actual floating rate, receive rate 9.0%
Euro-rate option $83.0
- Actual floating rate, receive rate 5.625%
Convertible Subordinated
Debentures $20.0
- Actual fixed interest rate 7.0%
Interest rate swap agreements:
National City Bank, notional amount $30.0
- Actual fixed interest rate, pay rate 5.965%
NationsBank, notional amount $20.0
- Actual fixed interest rate, pay rate 5.760%
Manufacturers and Traders Trust, $10.0
notional amount
Actual fixed interest rate, payrate 5.925%
</TABLE>
Inflation
During the three months ended March 31, 1998, 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.
Other Matters
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits" effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 132
will have no impact on the Company's financial statements.
Cautionary Statement
This Report on Form 10-Q and the foregoing Management's Discussion and
Analysis of Financial Condition and Results of Operations contains
various "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements represent
the Company's expectations or beliefs concerning future events. Any
forward-looking statements made by or on behalf of the Company are
subject to uncertainties and other factors that could cause actual
results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to, (i) the ability of the
Company to acquire additional rental-purchase stores on favorable terms,
(ii) the ability of the Company to improve the performance of such
acquired stores and to integrate such acquired
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Cautionary Statement (Continued)
stores into the Company's operations, and (iii) the impact of state and
federal laws regulating or otherwise affecting the rental-purchase
transaction.
Undo reliance should not be placed on any forward-looking statements made
by or on behalf of the Company as such statements speak only as of the
date made. The Company undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, the occurrence of future events or otherwise.
<PAGE>
RENT-WAY, INC.
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on March 11,
1998 at the 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 11, 1998 were approved. Below are details
of the matters voted on at the meeting:
<TABLE>
<CAPTION>
Proposal 1 - Election of Directors
Elections were held for two (2) Class III directors to serve until the 2001 Annual Meeting of Shareholders. The results of
the votes are as follows:
Votes
Name Class Votes For Withheld Abstain Against Non-Vote
---- ----- --------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
William E. Morgenstern III 8,145,375 165,705 0 0 2,481,796
Vincent A. Carrino III 8,146,295 164,785 0 0 2,481,796
</TABLE>
Proposal 2 - Amendment to the Company's 1995 Stock Option Plan
The amendment to the 1995 Stock Option Plan calls for an increase in the
maximum number of shares of common stock of the Company that may be
optioned or purchased under the Plan from 400,000 to 2,000,000 shares.
The result of the vote on the adoption of the amendment to the 1995 Stock
Option Plan was 5,156,276 for, 1,861,313 against, 24,099 abstentions, and
3,751,188 non-votes.
<PAGE>
RENT-WAY, INC.
ITEM 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
a. Exhibits
The Exhibits filed as part of this report are listed below.
Exhibit No. Description
<S> <C> <C>
11 Computation of Net Income per Common Share
27 Financial data schedule
b Reports on Form 8-K
(1) January 8, 1998 Reporting Letter of Intent to acquire Champion Rentals, Inc.
(2) January 20, 1998 Reporting consummation of ACE Rentals acquisition
(3) February 19, 1998 Reporting consummation of Champion Rentals, Inc. acquisition
(4) March 23, 1998 Reporting audited historical financial statements and pro forma financial statements
on the ACE Rentals acquisition
</TABLE>
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.
Date /s/ Jeffrey A. Conway
----------------------------
Jeffrey A. Conway
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer and Duly
Authorized Officer)
<PAGE>
<TABLE>
<CAPTION>
RENT-WAY, INC.
EXHIBIT 11
Computation of Earnings per Share: For the three months ended For the six months ended
- ---------------------------------
March 31, March 31,
(unaudited) (unaudited)
1998 1997 1998 1997
BASIC
<S> <C> <C> <C> <C>
Net income $ 3,085,851 $ 1,295,281 $ 5,120,518 $ 1,975,655
Redeemable preferred stock net gain on redemption - - - 280,175
------------- ------------ ------------ ------------
Earnings applicable to common shares $ 3,085,851 $ 1,295,281 $ 5,120,518 $ 2,255,830
============= ============ =========== ============
Weighted average number of common shares
outstanding during the period 10,727,843 6,609,853 9,660,775 6,602,048
============= ============ ============ =========
Basic earnings per common share:
Income before extraordinary item $ 0.29 $ 0.20 $ 0.53 $ 0.38
============= =========== ============ ============
Net income $ 0.29 $ 0.20 $ 0.53 $ 0.34
============= =========== ============ ============
DILUTED
Earnings applicable to common shares $ 3,085,851 $ 1,295,281 $ 5,120,518 $ 2,255,830
Interest on convertible debt (net of tax benefit) 210,000 245,000 425,000 350,000
------------- ------------ ------------ ------------
Earnings applicable to diluted earnings per common share $ 3,295,851 $ 1,540,281 $ 5,545,518 $ 2,605,830
============= ============ ============ ============
Weighted average number of common shares used in
calculating basic earnings per share 10,727,843 6,609,853 9,660,775 6,602,048
Add - incremental shares representing:
Common equivalent shares (determined using the
"treasury stock" method) representing shares issuable
upon exercise of stock options and warrants 624,577 442,693 602,888 439,993
Shares issuable on conversion of 10% notes - 704,225 - 704,225
Shares issuable on conversion of 7% debentures 1,495,890 930,776 1,495,890 460,274
------------- ------------ ----------- ------------
Weighted average number of shares used in
calculation of diluted earnings per common share 12,848,310 8,687,547 11,759,553 8,206,540
============= ========== =========== ============
Diluted earnings per common share:
Income before extraordinary item $ 0.26 $ 0.18 $ 0.47 $ 0.35
============= =========== ============ ============
Net income $ 0.26 $ 0.18 $ 0.47 $ 0.32
============= =========== ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 492,925
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 67,946,234
<CURRENT-ASSETS> 0
<PP&E> 18,240,913
<DEPRECIATION> 4,334,354
<TOTAL-ASSETS> 224,482,942
<CURRENT-LIABILITIES> 123,956,002
<BONDS> 0
0
0
<COMMON> 87,208,347
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 224,482,942
<SALES> 40,879,036
<TOTAL-REVENUES> 45,902,429
<CGS> 38,908,982
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (642)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,579,043
<INCOME-PRETAX> 5,413,762
<INCOME-TAX> 2,327,911
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,085,851
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
</TABLE>
