<PAGE> 1
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: June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________.
Commission File No. 0-24333
RAINBOW RENTALS, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-1512520
-------------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3711 Starr Centre Drive
Canfield, Ohio 44406
------------------------------------------
(Address of principal executive offices)
330-533-5363
-----------------
(Registrant's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
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 June 30, 2000: 5,925,735
<PAGE> 2
RAINBOW RENTALS, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of 3
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Income - for
the three and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of
Shareholders' Equity as of June 30, 2000 and
December 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows -
for the six months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 6. Exhibits and Reports on Form 8-K 13
2
<PAGE> 3
RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash $ 108 $ 440
Rental-purchase merchandise, net 33,661 33,042
Prepaid expenses and other current assets 1,600 1,423
-------- --------
Total current assets 35,369 34,905
Property and equipment, net 5,046 4,352
Deferred income taxes 1,412 1,312
Goodwill, net 8,144 8,205
Other assets, net 1,354 1,550
-------- --------
Total assets $ 51,325 $ 50,324
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of obligations under capital leases $ 6 $ 21
Accounts payable 1,426 1,679
Accrued income taxes 106 432
Accrued compensation and related costs 1,438 1,622
Other liabilities and accrued expenses 1,421 1,510
Deferred income taxes 3,073 2,673
-------- --------
Total current liabilities 7,470 7,937
Long-term debt 9,272 10,398
Obligations under capital leases, excluding current installments - 103
-------- --------
Total liabilities 16,742 18,438
Shareholders' equity
Serial preferred stock, no par value, 2,000,000 shares authorized,
none issued - -
Common stock, no par value; 10,000,000 shares authorized,
6,392,610 issued and 5,925,735 outstanding 11,039 11,039
Retained earnings 25,451 22,754
Treasury stock, 466,875 common shares at cost (1,907) (1,907)
-------- --------
Total shareholders' equity 34,583 31,886
-------- --------
Total liabilities and shareholders' equity $ 51,325 $ 50,324
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues
Rental revenue $ 21,101 $ 19,094 $ 41,863 $ 36,054
Fees 693 695 1,364 1,281
Merchandise sales 592 567 1,621 1,280
---------- ---------- ---------- ----------
Total revenues 22,386 20,356 44,848 38,615
Operating expenses
Merchandise costs 7,173 6,681 14,680 12,796
Store expenses
Salaries and related 5,215 4,635 10,350 8,761
Occupancy 1,713 1,472 3,332 2,857
Advertising 1,015 1,039 2,061 1,916
Other expenses 2,813 2,533 5,674 4,755
---------- ---------- ---------- ----------
Total store expenses 10,756 9,679 21,417 18,289
---------- ---------- ---------- ----------
Total merchandise costs and store
expenses 17,929 16,360 36,097 31,085
General and administrative expenses 1,713 1,421 3,330 2,735
Amortization 134 121 266 182
---------- ---------- ---------- ----------
Total operating expenses 19,776 17,902 39,693 34,002
---------- ---------- ---------- ----------
Operating income 2,610 2,454 5,155 4,613
Interest expense 197 202 395 300
Other expense, net 120 148 193 271
---------- ---------- ---------- ----------
Income before income taxes 2,293 2,104 4,567 4,042
Income taxes 938 874 1,870 1,678
---------- ---------- ---------- ----------
Net income $ 1,355 $ 1,230 $ 2,697 $ 2,364
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Basic and diluted earnings per share $ 0.23 $ 0.21 $ 0.46 $ 0.40
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 5,925,735 5,925,735 5,925,735 5,925,735
========== ========== ========== ==========
Diluted 5,925,735 5,959,430 5,925,735 5,948,336
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------ RETAINED TREASURY SHAREHOLDERS'
NUMBER COST EARNINGS STOCK EQUITY
------ ---- -------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 5,925,735 $ 11,039 $ 17,706 $ (1,907) $ 26,838
Net income - - 5,048 - 5,048
--------- --------- --------- --------- ---------
Balance at December 31, 1999 5,925,735 11,039 22,754 (1,907) 31,886
Net income (unaudited) - - 2,697 - 2,697
--------- --------- --------- --------- ---------
Balance at June 30, 2000 (unaudited) 5,925,735 $ 11,039 $ 25,451 $ (1,907) $ 34,583
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,697 $ 2,364
Reconciliation of net income to net cash provided
by operating activities
Depreciation of property and equipment and
amortization of intangibles 1,400 1,168
Depreciation of rental-purchase merchandise 11,708 10,325
Deferred income taxes 300 300
Gain on disposal of property and equipment (97) (12)
Purchases of rental-purchase merchandise (15,227) (13,945)
Rental-purchase merchandise disposed, net 2,900 2,439
Increase in
Prepaid expenses and other current assets (177) (148)
Increase (decrease) in
Accounts payable (253) 717
Accrued income taxes (326) 240
Accrued compensation and related costs (184) 75
Other liabilities and accrued expenses (89) 238
-------- --------
Net cash provided by operating activities 2,652 3,761
-------- --------
Cash flows from investing activities
Purchase of property and equipment, net (1,565) (1,159)
Proceeds on the sale of property and equipment 176 99
Acquisitions (351) (11,687)
-------- --------
Net cash used in investing activities (1,740) (12,747)
-------- --------
Cash flows from financing activities
Proceeds from long-term debt 15,367 21,775
Current installments and repayments of long-term debt (16,493) (11,980)
Loan origination fees paid - (20)
Principal payments under capital lease obligations (118) (32)
-------- --------
Net cash (used in) provided by financing activities (1,244) 9,743
-------- --------
Net increase (decrease) in cash (332) 757
Cash at beginning of period 440 -
-------- --------
Cash at end of period $ 108 $ 757
======== ========
Supplemental cash flow information:
Net cash paid during the period for
Interest $ 393 $ 222
Income taxes 1,956 1,197
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
RAINBOW RENTALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. Basis of Presentation
Rainbow Rentals, Inc. (Company) is engaged in the rental and sale of
home electronics, furniture, appliances, and computers to the general public.
The Company operates 101 stores in eleven states: Connecticut, Massachusetts,
Michigan, New York, Ohio, Pennsylvania, Rhode Island, North Carolina, South
Carolina, Tennessee and Virginia. The Company's corporate headquarters is
located in Canfield, Ohio.
The consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q. Therefore, certain information and
disclosures, normally required with financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted.
In the opinion of management, the financial statements contain all adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows of the Company. The
results of operations for the periods presented are not necessarily indicative
of the results for the entire year. It is suggested these financial statements
be read in conjunction with the financial statements and notes included in the
Company's Annual Report for fiscal year ended December 31, 1999.
2. Earnings Per Share
Basic earnings per common share are computed using net income available
to common shareholders divided by the weighted average number of common shares
outstanding. For computation of diluted earnings per share, the weighted average
number of common shares outstanding is increased to give effect to stock options
considered to be common stock equivalents.
The following table shows the amounts used in computing earnings per share.
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income available to common shareholders $ 1,355 $ 1,230 $ 2,697 $ 2,364
Denominator:
Basic weighted average shares 5,925,735 5,925,735 5,925,735 5,925,735
Effect of dilutive stock options - 33,695 - 22,601
---------- ---------- ---------- ----------
Diluted weighted average shares 5,925,735 5,959,430 5,925,735 5,948,336
========== ========== ========== ==========
Basic earnings per share $ 0.23 $ 0.21 $ 0.46 $ 0.40
========== ========== ========== ==========
Diluted earnings per share $ 0.23 $ 0.21 $ 0.46 $ 0.40
========== ========== ========== ==========
</TABLE>
3. Acquisitions
On February 1, 1999, the Company acquired certain assets of Rental Mart
of PA, Inc. ("Rental Mart") for approximately $1.3 million in cash. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, all identifiable assets were recorded at their estimated fair value
at the date of acquisition. The excess of the acquisition cost over the
estimated fair value of the net assets acquired ("goodwill" of $0.8 million) is
being amortized on a straight-line basis over twenty years. Assets acquired,
other than goodwill, consisted primarily of rental-purchase merchandise and a
non-compete agreement.
7
<PAGE> 8
On March 1, 1999, the Company acquired certain assets of Blue Ribbon
Rentals, Inc., and Blue Ribbon Rentals II, Inc. ("Blue Ribbon") for
approximately $10.4 million in cash. The acquisition was accounted for using the
purchase method of accounting. Accordingly, all identifiable assets were
recorded at their estimated fair value at the date of acquisition. The excess of
the acquisition cost over the estimated fair value of the net assets acquired
("goodwill" of $6.9 million) is being amortized on a straight-line basis over
twenty years. Assets acquired, other than goodwill, consisted primarily of
rental-purchase merchandise of $3.1 million, property and equipment of $0.3
million and a non-compete agreement of $0.3 million.
On June 1, 2000, the Company acquired certain assets of Best Value
Rentals of Erie, Inc., a Pennsylvania competitor, for approximately $0.3 million
in cash. The acquisition was accounted for using the purchase method of
accounting. Accordingly, all identifiable assets were recorded at their
estimated fair value at the date of acquisition. Goodwill of $0.1 million is
being amortized on a straight-line basis over twenty years. Assets acquired,
other than goodwill, consisted primarily of rental-purchase merchandise and a
non-compete agreement.
4. Subsequent Event
On July 1, 2000, the Company acquired certain assets of Rental Corp. of
America for approximately $2.6 million in cash. The acquisition will be
accounted for as a purchase with the acquired assets recorded at their estimated
fair values on the date of acquisition.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
At June 30, 2000 the Company operated 101 rental-purchase stores in
eleven states, providing quality, name brand, durable merchandise, including
home electronics, furniture, appliances and computers. Generally,
rental-purchase merchandise is rented to individuals under flexible agreements
that allow customers to own the merchandise after making a specified number of
rental payments (ranging from 12 to 24 months). Customers have the option to
return the merchandise at any time without further obligation, and also have the
option to purchase the merchandise at any time during the rental term.
During the second quarter, the Company opened six new stores, all in
new markets.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Statements of Income data as a percentage of total revenue.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues
Rental revenue 94.3% 93.8% 93.3% 93.4%
Fees 3.1 3.4 3.1 3.3
Merchandise sales 2.6 2.8 3.6 3.3
---- ---- ---- ----
Total revenues 100.0 100.0 100.0 100.0
Operating expenses
Merchandise costs 32.1 32.8 32.7 33.1
Store expenses
Salaries and related 23.3 22.8 23.1 22.7
Occupancy 7.6 7.2 7.4 7.4
Advertising 4.5 5.1 4.6 5.0
Other expenses 12.6 12.4 12.7 12.3
---- ---- ---- ----
Total store expenses 48.0 47.5 47.8 47.4
---- ---- ---- ----
Total merchandise costs and store 80.1 80.3 80.5 80.5
General and administrative expenses 7.7 7.0 7.4 7.1
Amortization 0.5 0.6 0.6 0.5
---- ---- ---- ----
Total operating expenses 88.3 87.9 88.5 88.1
---- ---- ---- ----
Operating income 11.7 12.1 11.5 11.9
Interest expense 0.9 1.0 0.9 0.8
Other expense, net 0.5 0.8 0.4 0.7
---- ---- ---- ----
Income before income taxes 10.3 10.3 10.2 10.4
Income taxes 4.2 4.3 4.2 4.3
---- ---- ---- ----
Net income 6.1% 6.0% 6.0% 6.1%
==== ==== ==== ====
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 AND 1999
For the three months ended June 30, 2000, total revenues
increased to $22.4 million from $20.4 million, an increase of 10.0% over the
comparable 1999 period. The inclusion of a full three months' results from the
eight stores opened in the last three quarters of 1999 accounted for 51.4% of
the Company's total increase in revenue or $1.1 million. Revenue from comparable
stores (stores in operation on April 1, 1999) accounted for 36.5% of the
increase, or $0.7 million, primarily as a result of the growth of stores opened
in 1998 and, to a lesser degree, the 13 stores acquired in 1999 and an increase
in revenue collected per unit. Revenue from comparable stores increased to $21.0
million from $20.3 million, an increase of 3.7% over the comparable 1999 period.
Revenue from the nine stores opened in 2000 accounted for 12.1% of the total
increase in revenue, or $0.2 million.
For the three months ended June 30, 2000, merchandise costs increased
to $7.2 million from $6.7 million, an increase of 7.4% over the comparable 1999
period, but as a percentage of total revenues, decreased to 32.1% from 32.8%.
The dollar increase in costs was primarily due to merchandise costs associated
with stores opened in 1999 and 1998. The percentage decrease is a result of
improved pricing, primarily of pre-rented merchandise, as well as an increase in
the rentals of higher margin merchandise.
For the three months ended June 30, 2000, total store expenses
increased to $10.8 million from $9.7 million, an increase of 11.1% over the
comparable 1999 period. The increase in total store expenses was primarily due
to the inclusion of a full three months' results from the eight stores opened in
the last three quarters of 1999. This increase accounted for 53.6% of the total
increase, or $0.6 million. Store expenses of the nine stores opened in 2000
9
<PAGE> 10
accounted for 42.1% of the increase, or $0.5 million. As a percentage of total
revenues, total store expenses increased to 48.0% from 47.5%. The percentage
increase was directly related to the increased number of new store openings in
2000 compared to 1999. The Company opened nine new stores in the first six
months of 2000 compared to only five in the comparable 1999 period. In addition,
due to the opening of five stores during the third and fourth quarters of 1999,
the store expenses of the 1999 stores as a group remain high as a percentage of
revenue. Salaries and related expenses increased as a percentage of revenue to
23.3% from 22.8% mainly from stores opened in 1999 and 2000, and to a lesser
degree, a slight increase in salaries of comparable stores. Occupancy increased
as a percentage of revenue to 7.6% from 7.2% mainly from stores opened in 1999
and 2000. Advertising decreased as a percentage of revenue to 4.5% from 5.1% due
to management's decision to reduce advertising costs and from economics of scale
realized from acquiring and opening stores in existing markets. Other expenses
increased as a percentage of revenue to 12.6% from 12.4% also from stores opened
in 1999 and 2000.
For the three months ended June 30, 2000, general and administrative
expenses increased to $1.7 million from $1.4 million, an increase of 20.5% over
the comparable 1999 period and as a percentage of total revenues increased to
7.7% from 7.0%. The increase was primarily due to the addition of three regional
managers, additional corporate personnel as well as training costs associated
with the Company's growth of nearly 60% in store-fronts since 1998.
For the three months ended June 30, 2000, operating income increased to
$2.6 million from $2.5 million, an increase of 6.3% over the comparable 1999
period. The increase is attributed to the increased profitability of comparable
stores primarily due to the growth of stores opened in 1999 and 1998 as well as
improved margins on rental merchandise. As a percentage of total revenues,
operating income decreased slightly to 11.7% from 12.1% due to the number and
timing of new store openings in 1999 and 2000 and increased general and
administrative expenses.
For the three months ended June 30, 2000, the Company's effective tax
rate decreased to 41.0% from 41.5% due to lower effective state tax rates.
For the three months ended June 30, 2000, net income increased to $1.4
million from $1.2 million, an increase of 10.2% over the comparable 1999 period,
and as a percentage of total revenues increased to 6.1% from 6.0% due to the
factors discussed above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999
For the six months ended June 30, 2000, total revenues increased to
$44.8 million from $38.6 million, an increase of 16.1% over the comparable 1999
period. Revenue from the nine stores opened in 1999 accounted for 34.6% of the
increase, or $2.2 million. The inclusion of a full six months' results from the
13 stores acquired during the first quarter of 1999 accounted for 31.2% of the
Company's total increase in revenue or $1.9 million. Revenue from comparable
stores (stores in operation on January 1, 1999) accounted for 29.6% of the
increase, or $1.8 million, primarily as a result of the growth of stores opened
in 1998 and an increase in revenue collected per unit. Revenue from the
comparable stores increased to $36.9 million from $35.1 million, an increase of
5.3% over the comparable 1999 period. Revenue from the nine stores opened in
2000 accounted for 4.6% of the total increase in revenue, or $0.3 million.
For the six months ended June 30, 2000, merchandise costs increased to
$14.7 million from $12.8 million, an increase of 14.7% over the comparable 1999
period primarily due to merchandise costs associated with stores opened and
acquired in 1999 and 1998. As a percentage of total revenues, merchandise costs
decreased to 32.7% from 33.1% as a result of improved pricing, primarily of
pre-rented merchandise, as well as an increase in the rentals of higher margin
merchandise.
For the six months ended June 30, 2000, total store expenses increased
to $21.4 million from $18.3 million, an increase 17.1% over the comparable 1999
period. The increase in total store expenses was primarily due to the inclusion
of a full six months' results from the 13 stores acquired in the first quarter
of 1999 and from the nine stores added in 1999. This increase accounted for
70.7% of the total increase, or $2.2 million. Store expenses from the nine
stores opened in 2000 accounted for 19.5% of the increase, or $0.6 million.
Store expenses of comparable stores accounted for 9.8% of the increase, or $0.3
million. As a percentage of total revenues, total store expenses increased to
47.8% from 47.4% due to the number and timing of new store openings in 1999 and
10
<PAGE> 11
2000. During the first six months of 2000 we opened nine stores compared to
only five in the comparable 1999 period amounting to higher new store losses in
aggregate in both dollars and as a percentage of revenue. Total store expenses
of comparable stores, however, decreased as a percentage of revenue to 44.9%
from 46.4% primarily from the growth and profitability of stores opened in 1998.
Advertising decreased as a percentage of revenue to 4.6% from 5.0% because of
management's decision to reduce adverting costs and from economics of scale
realized from acquiring and opening stores in existing markets.
For the six months ended June 30, 2000, general and administrative
expenses increased to $3.3 million from $2.7 million, an increase of 21.8% over
the comparable 1999 period and as a percentage of total revenues increased to
7.4% from 7.1%. The increase was primarily due to the addition of three regional
managers, an increase in costs associated with the Company's training programs
and additional corporate personnel, all of which were necessitated by the
Company's current and anticipated growth.
For the six months ended June 30, 2000, amortization of goodwill and
non-compete agreements relating to store acquisitions increased to $266,000 from
$182,000 in the comparable 1999 period. The increase was due to the inclusion of
a full six months' amortization relating to the acquisitions made in the first
quarter of 1999.
For the six months ended June 30, 2000, operating income increased to
$5.2 million from $4.6 million, an increase of 11.8% over the comparable 1999
period. The increase is attributed to the increased profitability of comparable
stores, primarily from the growth of stores opened in 1998, and a full six
months' operating income from the 13 stores acquired in the first quarter of
1999. As a percentage of total revenues, operating income decreased slightly to
11.5% from 11.9% due the number and timing of new store openings in 1999 and
2000 and increased general and administrative expenses.
For the six months ended June 30, 2000, interest expense increased to
$395,000 from $300,000 in the comparable 1999 period. The increase was due to
the inclusion of six months of interest expense attributable to the indebtedness
related to the Blue Ribbon acquisition on March 1, 1999.
For the six months ended June 30, 2000, the Company's effective tax
rate decreased to 41.0% from 41.5% due to lower effective state tax rates.
For the six months ended June 30, 2000, net income increased to $2.7
million from $2.4 million, an increase of 14.1% over the comparable 1999 period,
and as a percentage of total revenues decreased to 6.0% from 6.1% due to the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of purchasing
additional and replacement rental-purchase merchandise, expenditures related to
new store openings, acquisitions and working capital requirements for new and
existing stores. For the six months ended June 30, 2000 and 1999, purchases of
rental merchandise (excluding acquisitions) amounted to $15.2 million and $13.9
million, respectively. The increase is attributable to the nine stores opened in
2000, the inclusion of a full six months of operations of stores acquired in the
first quarter of 1999 and the growth of the nine stores opened in 1999.
For the six months ended June 30, 2000, cash provided by operating
activities decreased to $2.7 million from $3.8 million for the comparable 1999
period. The decrease was due to an increase in inventory and decreases in
accounts payable and accrued expenses. Cash used in investing activities
decreased to $1.7 million from $12.7 million. The amount for 1999 includes the
acquisition of 19 stores from Rental Mart and Blue Ribbon. Cash used in
financing activities was $1.2 million as compared to cash provided by financing
activities in the comparable 1999 period of $9.7 million. Borrowings under the
Company's revolving loan agreement financed the two 1999 acquisitions.
The Company currently has a $16.0 million Credit Facility (the "Credit
Facility") with a maturity date of March 1, 2002. The Credit Facility includes
certain cash flow, net worth and idle inventory requirements, as well as
covenants which limit the ability of the Company to incur additional
indebtedness, grant liens, transfer assets outside the ordinary course of
business, pay dividends, engage in acquisition transactions and make capital
expenditures (excluding the purchase of rental merchandise) in excess of a
specified amount. Availability under the Company's Credit Facility as of
11
<PAGE> 12
August 11, 2000 was approximately $5.0 million.
The Company plans to open an additional 2 stores during the remainder of
the year and to increase the number of new store openings thereafter. The
Company further believes that it will continue to have the opportunity to
increase the number of its stores and rental-purchase agreements through
selective acquisitions. Potential acquisitions may vary in size and the Company
may consider larger acquisitions that could be material to the Company. To
provide any additional funds necessary for the continued pursuit of its growth
strategies, the Company may use cash flow from operations, borrow additional
amounts under its Credit Facility, seek to obtain additional debt or equity
financing, or use its own equity securities, the availability of which will
depend upon market and other conditions. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. Such risks and uncertainties include,
but are not limited to, (i) the ability of the Company to execute effectively
its expansion program and (ii) changes in the government's regulation of the
industry. The Company undertakes no obligation to publicly update or revise any
of these forward-looking statements, whether as a result of new information,
future events or circumstances, or otherwise. There can be no assurance that the
events described in these forward-looking statements will occur. For further
information, please refer to the Company's filings with the Securities and
Exchange Commission, including specifically the Risk Factors contained in the
Company's prospectus dated June 4, 1998.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of shareholders was held on May 4, 2000.
(b) At the annual meeting, the Company's shareholders elected Wayland J.
Russell, Lawrence S. Hendricks, Michael J. Viveiros, Brian L. Burton
and Ivan J. Winfield, as directors for a one-year term which expires at
the annual meeting of shareholders in 2001.
The following tabulation represents voting for the Directors:
For Withheld Authority
--- ------------------
Wayland J. Russell 5,423,524 61,572
Lawrence S. Hendricks 5,474,896 10,200
Michael J. Viveiros 5,474,896 10,200
Brian L. Burton 5,475,096 10,000
Ivan J. Winfield 5,475,096 10,000
(c) At the annual meeting, the Company's shareholders ratified the
appointment of KPMG LLP as auditors of the Company for 2000. The
holders of 5,485,096 shares of Common Stock voted to ratify the
appointment. No shares were voted against the ratification and no
shares abstained.
ITEM 6. EXHIBITS
A. Exhibit No.
-----------
27.1 Financial Data Schedule
B. Reports on Form 8-K
-------------------
NONE
13
<PAGE> 14
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
RAINBOW RENTALS, INC.
(Registrant)
/e/ WAYLAND J. RUSSELL
-----------------------------------------
Wayland J. Russell, Chairman and
Chief Executive Officer
/e/ MICHAEL A. PECCHIA
-----------------------------------------
Michael A. Pecchia,
Chief Financial Officer
Date: August 14, 2000
14
