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 December 31, 1997
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, including area code)
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 No
The total number of shares of each class of the registrant's Common
Stock, outstanding as of December 31, 1997:
Class Outstanding
Common Stock 10,740,975
<PAGE>
RENT-WAY, INC.
<TABLE>
Page
Part I Financial Information
Item 1. Financial Statements:
<S> <C>
Balance Sheets as of December 31, 1997 and 3
September 30, 1997
Statements of Income, Three Months 4
Ended December 31, 1997 and 1996
Statements of Cash Flows, Three Months Ended 5
December 31,1997 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results of Operations
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
</TABLE>
<PAGE>
RENT-WAY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 19,810,498 $ 598,664
Prepaid expenses 3,133,187 1,452,265
Rental merchandise, net 40,819,639 35,132,316
Deferred income taxes 1,129,133 1,071,927
Property and equipment, net 9,063,397 8,518,222
Goodwill, net 43,369,291 43,446,776
Deferred financing costs, net 1,327,872 1,475,088
Prepaid consulting fee 1,832,384 1,743,514
Other assets 3,160,442 2,849,166
--------------- ---------------
$ 123,645,843 $ 96,287,938
--------------- ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,009,969 $ 3,067,294
Other liabilities 2,923,559 3,411,605
Income taxes payable 1,330,951 695,743
Debt 20,132,835 48,156,426
--------------- ---------------
26,397,314 55,331,068
Commitments and Contingencies (Note 5) -- --
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; 10,740,975 and 7,059,451 shares issued and
outstanding, respectively 87,016,587 32,759,595
Retained earnings 10,231,942 8,197,275
---------------- ---------------
Total shareholders' equity 97,248,529 40,956,870
---------------- ---------------
$ 123,645,843 $ 96,287,938
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
RENT-WAY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three months ended
December 31,
1997 1996
(unaudited) (unaudited)
Revenues:
<S> <C> <C>
Rental revenue $ 23,515,013 $ 13,689,843
Other revenue 3,151,130 1,974,055
--------------- ---------------
Total revenues 26,666,143 15,663,898
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 6,259,770 3,700,681
Property and equipment 565,855 276,125
Amortization of goodwill 590,802 306,212
Salaries and wages 6,975,988 4,368,970
Advertising 1,228,284 823,374
Occupancy 1,841,436 1,034,984
Other operating expenses 4,927,909 3,016,066
--------------- ---------------
Total costs and operating expenses 22,390,044 13,526,412
--------------- ---------------
Operating income 4,276,099 2,137,486
Other income (expense):
Interest expense (795,409) (375,496)
Interest income 109,655 505
Other expense, net (8,184) (2,071)
---------------- ---------------
Income before income taxes and extraordinary item 3,582,161 1,760,424
Income tax expense 1,547,494 811,033
--------------- ---------------
Income before extraordinary item 2,034,667 949,391
Extraordinary item -- (269,017)
--------------- ----------------
Net income 2,034,667 680,374
Redeemable preferred stock net gain on redemption -- 280,175
--------------- ---------------
Earnings applicable to common shares $ 2,034,667 $ 960,549
=============== ===============
Earnings per common share (Note 2):
Basic earnings per share adjusted to give effect to the net preferred stock
gain on redemption:
Income before extraordinary item $ 0.24 $ 0.19
=============== ===============
Net income $ 0.24 $ 0.15
=============== ===============
Diluted earnings per share adjusted to give effect to the net preferred
stock gain on redemption:
Income before extraordinary item $ 0.21 $ 0.17
=============== ===============
Net income $ 0.21 $ 0.14
=============== ===============
Weighted average number of shares outstanding:
Basic 8,535,945 6,593,876
=============== ===============
Diluted 10,790,233 7,026,327
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
RENT-WAY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
December 31,
1997 1996
(unaudited) (unaudited)
Operating activities:
<S> <C> <C>
Net income $ 2,034,667 $ 680,374
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 7,499,289 4,283,018
Deferred income taxes (57,206) --
Extraordinary item -- 269,017
Changes in assets and liabilities:
Prepaid expenses (1,680,922) (402,461)
Rental merchandise (11,947,093) (6,929,733)
Prepaid consulting fees (88,870) 44,643
Other assets (573,190) (221,687)
Accounts payable (1,057,325) (331,903)
Income taxes payable 635,208 214,747
Other current liabilities (628,389) (503,167)
---------------- ---------------
Net cash used in operating activities (5,863,831) (2,897,152)
Investing activities:
Purchase of businesses (111,060) (213,703)
Purchases of property and equipment (1,111,030) (550,073)
---------------- ---------------
Net cash used in investing activities (1,222,090) (763,776)
Financing activities:
Proceeds from borrowings 2,000,000 13,177,032
Payments on borrowings including early extinguishment (23,023,591) (8,067,607)
Deferred finance costs 64,354 (536,866)
Redeemable preferred stock dividend -- (32,143)
Redeemable preferred stock redemption -- (840,525)
Issuance of common stock 47,256,992 --
--------------- ---------------
Net cash provided by financing activities 26,297,755 3,699,891
---------------- ---------------
Increase in cash and cash equivalents 19,211,834 38,963
Cash and cash equivalents at beginning of period 598,664 179,425
--------------- ---------------
Cash and cash equivalents at end of period $ 19,810,498 $ 218,388
=============== ===============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 712,546 $ 302,007
Income taxes $ 969,492 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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.
Cash equivalents - Includes short term investments made by the Company
with funds received from a public stock offering (See Note 3) in December
1997. These funds are invested in commercial paper having a maturity
period equal to or less than thirty-five days.
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. New Accounting Standards:
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share",
effective for periods ending after December 15, 1997. The Company, in
recognition of requirements SFAS No. 128, has presented basic and diluted
earnings per common share in the statements of income. 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 month period ended December 31, 1996 has been
restated in accordance with SFAS No. 128.
In March 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure" effective for fiscal years beginning
after December 15, 1997. The Company adopted SFAS No. 129 which had no
impact on the financial statements.
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 up to 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 6). The remaining
proceeds have been invested in short-term commercial paper.
<PAGE>
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
(unaudited)
4. Acquisitions:
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. Pursuant to the terms of the
purchase agreement, $2.0 million 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. In June
1997, the full amount of the escrow account was released to the sellers.
The acquisition was accounted for using the purchase method of accounting.
Rental King's assets and liabilities were recorded at their estimated fair
market values as of the date of the acquisition. The excess of the
acquisition cost over the estimated fair values of the net assets
acquired, ("goodwill") of $17,322,875 is being amortized on a straight
line basis over twenty years. The total costs of the net assets acquired
was $17,284,618 and consisted of assets of $25,300,591 less liabilities
assumed of $6,337,325 and acquisition costs of $1,678,648. 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
statement of income for the three months ended December 31, 1997 includes
the results of operations of Rental King for the entire period.
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. Pursuant to
terms of the acquisition, $350,000 of the purchase price was placed in
escrow subject to terms of the escrow agreement to satisfy sellers'
representations and warranties and any purchase price adjustments. The
escrow agreement provides for release of the escrow on completion of a
financial audit of Coleman and final resolution of any purchase price
adjustments. In December 1997, the full amount of the escrow was released
with $231,843 returned to the Company. The acquisition was accounted for
using the purchase method of accounting. Coleman's assets and liabilities
were recorded at their estimated fair values as of the acquisition date.
The excess of the acquisition cost over the estimated fair values of the
net assets acquired, ("goodwill") of $3,750,291 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 $7,683,383 less liabilities assumed of
$4,548,836 and acquisition costs of $347,126. 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 $158,151. 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 Statement of Income
for the three months ended December 31, 1997 includes 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
<PAGE>
RENT-WAY, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
(unaudited)
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
$2,734,031 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 $3,964,646 less acquisition costs of $154,768. The Statement of
Income for the three months ended December 31, 1997 includes the operating
results for these stores for the entire period.
5. Commitments and 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 $2,300,000. 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.
Additional claims exist in the range of $700,000 to $1,300,000 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 former shareholders of companies it has acquired or covered by
insurance policies and therefore will not have a material effect on the
results of operations or financial condition of the Company.
6. Debt:
As of December 31, 1997, the Company had no outstanding senior
indebtedness under its collateralized revolving credit facility, ("the
Facility"), with a syndicate of banks, led by National City Bank of
Pennsylvania. The Facility was paid off , without penalties, with funds
received from the Company's public stock offering (see Note 3). As of
December 31, 1997, the Company was in compliance with all covenants
contained in the facility.
On October 8, 1997, the Company exercised its right to redeem $7,000,000
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.
7. Subsequent Events:
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 with
annualized revenues of approximately $22 million. The Company paid
approximately $25.2 million in cash and assumed liabilities, with $750,000
placed in an escrow account to satisfy sellers' breaches of
representations and warranties and any final purchase price adjustments.
On January 6, 1998, the Company signed a letter of intent to acquire the
stock of Champion Rentals, Inc. ("Champion Rentals"), a privately-owned
rental-purchase chain for approximately $70 million plus the assumption of
liabilities. Champion Rentals, with 145 stores, has annualized revenues of
approximately $80 million. Consummation of the acquisition is subject to
completion of due diligence, execution of a definitive purchase agreement,
financing, and other customary closing conditions. The purchase price is
subject to adjustment at closing. Rent-Way is currently evaluating the
financing of the acquisition. Of Champion Rentals' 145 stores, located
primarily in the Southeast United States, 25 locations were opened in
1997.
<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 December 31, 1997, the Company generated
record revenues, operating income, and net income. The Company's total revenues
increased by 70.2% compared to the same three month period last year. Operating
income and net income increased by 100.1% and 199.1%, 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 1997, improved same store operating profits, and a reduction in certain
expenses resulting from economies of scale.
On October 8, 1997, the Company exercised its option to force redemption of
$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.
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 up to 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
6). The remaining proceeds have been invested in short-term commercial paper and
repurchase agreements.
On January 6, 1998, the Company signed a letter of intent to acquire the stock
of Champion Rentals, Inc., a privately-owned rental-purchase chain for
approximately $70 million plus assumption of liabilities. Champion Rentals, with
145 stores, has annualized revenues of approximately $80 million. Consummation
of the acquisition is subject to completion of due diligence, preparation of a
definitive purchase agreement, financing, and other customary closing
conditions. The purchase price is subject to adjustment at closing. Rent-Way is
currently evaluating several proposals from institutional lenders regarding the
financing of the acquisition. Of Champion Rentals' 145 stores, located primarily
in the Southeast United States, 25 were opened in 1997. Rent-Way expects that
the acquisition, if consummated, will have the effect of increasing earnings per
share. Upon the closing of the recently announced 50-store acquisition of Ace
T.V. Rentals and the completion of the acquisition of Champion Rentals,
Rent-Way's total stores will increase to 382.
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 Rent-Way.
Management is actively seeking merger and acquisition candidates with financial
and geographic profiles consistent with the Company's growth objectives.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
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
December 31,
1997 1996
---- ----
Revenues:
<S> <C> <C>
Rental revenue 88.2% 87.4%
Other revenue 11.8 12.6
------- ------
Total revenues 100.0 100.0
Costs and operating expenses:
Depreciation and amortization:
Rental merchandise 23.5 23.6
Property and equipment 2.1 1.8
Amortization of goodwill 2.2 2.0
------- ------
Total depreciation and amortization 27.8 27.4
Salaries and wages 26.2 27.9
Advertising 4.6 5.3
Occupancy 6.9 6.6
Other operating expenses 18.5 19.2
------- ------
Total costs and operating expenses 84.0 86.4
Operating income 16.0 13.6
Interest expense (3.0) (2.4)
Other Income 0.4 -
------- ------
Income before income taxes and extraordinary item 13.4 11.2
Income tax expense (5.8) (5.2)
-------- ------
Income before extraordinary item 7.6 6.0
Extraordinary item -- (1.7)
------- ------
Net income 7.6 4.3
Gain on redemption of preferred stock -- 1.8
------- ------
Earnings applicable to common shares 7.6% 6.1%
======= ======
</TABLE>
Comparison of Three Months Ended December 31, 1997 and 1996
For the three months ended December 31, 1997 compared to the three months ended
December 31, 1996, total revenues increased by $11.0 million (70.2%) to $26.7
million from $15.7 million. The increase was principally due to the inclusion of
the results for the stores acquired during fiscal 1997. The stores acquired in
the Rental King Acquisition accounted for $6.6 million (60.0%) of the increase,
the stores acquired in the Coleman Acquisition accounted for $2.3 million
(20.9%) of the increase, the stores acquired in other fiscal 1997 acquisitions
accounted for $1.2 million (10.9%) of the increase, and the Company's same
stores accounted for $0.9 million (8.2%) of the increase. Other revenue
increased by $1.2 million (59.6%) to $3.2 million from $2.0 million principally
due to stores acquired in 1997.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Comparison of Three Months Ended December 31, 1997 and 1996, Continued
For the three months ended December 31, 1997 compared to the three months
ended December 31, 1996, total costs and operating expenses increased to $22.4
million from $13.5 million primarily as a result of the costs and operating
expenses associated with stores acquired in 1997, but decreased to 84.0% from
86.4% of total revenues. This decrease of 2.4% resulted primarily from a 1.7%
decrease in salaries and wages as a percentage of total revenues, a 0.7%
decrease in advertising as a percentage of total revenues, and a 0.7% decrease
in other operating expenses as a percentage of total revenues. Depreciation
expense related to rental merchandise increased by $2.6 million to $6.3 million
from $3.7 million, but only decreased by 0.1% as a percentage of total revenues.
Amortization of goodwill increased by $0.3 million primarily because of the
increase in goodwill related to stores acquired in 1997. Salaries and wages
increased to $7.0 million from $4.4 million, but decreased 1.7% as a percentage
of total revenues to 26.2% from 27.9%. The $2.6 million increase is principally
due to the addition of eighty-two new locations, upgrades in the regional
manager position, and an overall strengthening of corporate personnel.
Advertising expense increased $0.4 million to $1.2 million from $0.8 million
principally due to the addition of the stores acquired in 1997, but decreased to
4.6% from 5.3% of total revenues. The decrease was due to increased efficiencies
attained by focusing advertising efforts on cluster markets. Occupancy expense
increased $0.8 million or 0.3% as a percentage of total revenues to $1.8 million
from $1.0 million principally due to the addition of the stores acquired in
1997. The increase resulted primarily from the Rental King stores which were
operating on a lower average revenue base per store. Other operating expenses
increased $1.9 million to $4.9 million from $3.0 million principally due to the
addition of the stores acquired in 1997, but decreased to 18.5% from 19.2% of
total revenues. This 0.7% decrease occurred because of the Company's ability to
allocate corporate costs and certain overhead costs over a greater number of
stores and increased revenues.
For the three months ended December 31, 1997 compared to the three months ended
December 31, 1996, operating income increased by $2.2 million (100.1%) to $4.3
million from $2.1 million and increased to 16.0% from 13.6% of total revenues.
The improvement in operating income was principally due to the stores acquired
in 1997 and the factors discussed above.
For the three months ended December 31, 1997 compared to the three months ended
1996, interest expense increased by $0.4 million to $0.8 million from $0.4
million principally due to an increase in debt of $1.9 million from $18.2
million to $20.1 million. This increase was primarily due to borrowings on the
Company's credit facility in connection with the seven rental-purchase stores
acquired in July and September 1997 and a higher volume of rental merchandise
purchases for the fall season. These borrowings were subsequently extinguished
using proceeds from the Company's public stock offering (see Note 3).
For the three months ended December 31, 1997 compared to the three months ended
December 31, 1996, income tax expense increased to $1.5 million from $0.8
million because the Company generated greater taxable income. The Company is
accruing income tax expense based on an effective tax rate of 43.2%, which 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 December 31, 1997 compared to the three months ended
December 31, 1996, net income increased by $1.3 million (199.1%) to $2.0 million
from $0.7 million. The increase was due to the factors discussed above.
Liquidity and Capital Resources
As of December 31, 1997, the Company had no outstanding senior indebtedness
under its collateralized revolving credit facility, ("the Facility"), with a
syndicate of banks, led by National City Bank of Pennsylvania. The Facility was
paid down, with funds received from the Company's public stock offering (see
Note 3). As of December 31, 1997, the Company was in compliance with all
covenants contained in the facility. The agreement expires on November 22, 1999.
As of December 31, 1997, the Company had approximately $35.0 million of
availability under its working capital loan commitment.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
Liquidity and Capital Resources (Continued)
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 $47,104,715 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
6). The remaining balance was invested in short-term commercial paper.
On October 8, 1997, the Company exercised its right to redeem $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.
For the three months ended December 31, 1997 compared to the three months ended
December 31, 1996, the Company's net cash used in operating activities increased
to $5.9 million from $2.9 million. This increase was principally due to a $5.0
million increase in rental merchandise purchases, a $1.3 million increase in
prepaid assets and a $0.1 million increase in other current liabilities, offset
by a $3.2 million increase in non-cash amortization and depreciation. The
increase in depreciation, amortization, and rental merchandise purchases
resulted primarily from the stores acquired in 1997.
For the three months ended December 31, 1997 compared to the three months ended
December 31, 1996, the Company's net cash used in investing activities increased
by $0.4 million.
For the three months ended December 31, 1997 compared to the three months ended
December 31, 1996, the Company's net cash provided by financing activities
increased to $26.3 million from $3.7 million. The increase in net cash provided
by financing activities was principally due to funds received from the Company's
public stock offering, (See Note 3).
Inflation
During the three months ended December 31, 1997, 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 March 1997, the FASB issued SFAS No. 128, "Earnings per Share", effective for
periods ending after December 15, 1997. The Company, in recognition of
requirements SFAS No. 128, has determined the impact of basic and diluted
earnings per common 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 notes and debentures
and the weighted average number of shares outstanding is adjusted for the
potential impact of options, warrants and convertible subordinated notes and
debentures. Earnings per common share for the three month periods ending
December 31, 1997 and 1996 has been calculated in accordance with SFAS No. 128.
In March 1997, the FASB also issued SFAS No. 129, "Disclosure of Information
about Capital Structure" effective for fiscal years beginning after December 15,
1997. The Company adopted SFAS No. 129 which had no impact on the financial
statements.
<PAGE>
RENT-WAY, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, (Continued)
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 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 6. Exhibits and Reports on Form 8-K
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
None
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 Jeffrey A. Conway
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer and Duly
Authorized Officer)
<PAGE>
RENT-WAY, INC.
EXHIBIT 11
<TABLE>
<CAPTION>
Computation of Earnings Per Common Share
For the three months ended
December 31,
(unaudited)
1997 1996
---- ----
BASIC
<S> <C> <C>
Net income $ 2,034,667 $ 680,374
Redeemable preferred stock net gain on redemption -- 280,175
------------ -------------
Earnings applicable to common shares $ 2,034,667 $ 960,549
============ =============
Weighted average number of common shares
outstanding during the period 8,535,945 6,593,876
============ =============
Basic earnings per common share:
Income before extraordinary item $ 0.24 $ 0.19
=========== =============
Net income $ 0.24 $ 0.15
=========== =============
DILUTED
Earnings applicable to common shares $ 2,034,667 $ 960,549
Interest on convertible debt (net of tax benefit) 210,000 --
------------ -------------
Earnings applicable to diluted earnings per common share $ 2,244,667 $ 960,549
============ =============
Weighted average number of common shares used in
calculating basic earnings per share 8,535,945 6,593,876
Add - incremental shares representing:
Common equivalent shares (determined using the "treasury stock" method)
representing shares issuable upon exercise of stock options, warrants and
escrowed
shares 758,398 432,451
Shares issuable on conversion of convertible debentures 1,495,890 --
------------ ------------
Weighted average number of shares used in
calculation of fully diluted earnings per common share 10,790,233 7,026,327
============ ============
Diluted earnings per common share:
Income before extraordinary item $ 0.21 $ 0.17
=========== ============
Net income $ 0.21 $ 0.14
=========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 19,810,498
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 40,819,639
<CURRENT-ASSETS> 0
<PP&E> 12,746,775
<DEPRECIATION> 3,683,375
<TOTAL-ASSETS> 123,645,843
<CURRENT-LIABILITIES> 0
<BONDS> 20,132,835
0
0
<COMMON> 87,016,587
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 123,645,843
<SALES> 23,515,013
<TOTAL-REVENUES> 26,666,143
<CGS> 6,259,770
<TOTAL-COSTS> 22,390,044
<OTHER-EXPENSES> (8,184)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 685,754
<INCOME-PRETAX> 3,582,161
<INCOME-TAX> 1,547,494
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,034,667
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.21
</TABLE>
