SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED NOVEMBER 30, 1994
COMMISSION FILE NUMBER 0-9061
ELECTRO RENT CORPORATION
Exact name of registrant as specified in its charter
CALIFORNIA 95-2412961
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6060 SEPULVEDA BOULEVARD
VAN NUYS, CALIFORNIA 91411-2501
(Address of principal executive offices) (Zip code)
(818) 786-2525
(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 X NO
At January 12, 1995 registrant had 7,844,639 shares of common stock outstanding.
<PAGE>
ELECTRO RENT CORPORATION
FORM 10-Q
NOVEMBER 30, 1994
TABLE OF CONTENTS
Page
Part I: FINANCIAL INFORMATION
Condensed Consolidated Statements of Income for the Three Months
and Six Months Ended November 30, 1994 and November 30, 1993 3
Condensed Consolidated Balance Sheets at
November 30, 1994 and May 31, 1994 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended November 30, 1994 and November 30, 1993 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II: OTHER INFORMATION 9
SIGNATURES 9
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<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (000 omitted except per share data)
<CAPTION>
Three Months Ended Six Months Ended
November 30 November 30
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rentals and leases $ 25,038 $ 21,261 $ 47,262 $ 42,419
Sales of equipment
and other revenues 5,713 6,277 11,277 12,626
-------- -------- -------- --------
Total revenues 30,751 27,538 58,539 55,045
-------- -------- -------- --------
Costs and expenses:
Depreciation of equipment 9,428 8,713 17,495 17,399
Costs of revenues other
than depreciation 4,830 4,933 9,708 10,254
Selling, general and
administrative expenses 9,737 8,558 18,227 17,051
Interest 573 476 909 1,036
-------- -------- -------- --------
Total costs and expenses 24,568 22,680 46,339 45,740
-------- -------- -------- --------
Income before income taxes 6,183 4,858 12,200 9,305
Income taxes 2,535 1,968 5,002 3,769
-------- -------- -------- --------
Net income $ 3,648 $ 2,890 $ 7,198 $ 5,536
======== ======== ======== ========
Net income per share $ 0.47 $ 0.37 $ 0.92 $ 0.71
======== ======== ======== ========
Average shares outstanding 7,845 7,828 7,844 7,828
======== ======== ======== ========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (000 omitted)
ASSETS
<CAPTION>
November 30 May 31
1994 1994
-------- --------
<S> <C> <C>
Cash $ 382 $ 1,613
Accounts receivable, net 20,609 15,338
Rental and lease equipment, net
of accumulated depreciation 121,826 95,978
Other property, net of accumulated
depreciation and amortization 19,118 18,649
Other 7,010 3,470
-------- --------
$ 168,945 $ 135,048
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank borrowings $ 45,900 $ 25,900
Accounts payable 15,856 11,703
Accrued expenses 11,337 6,986
Deferred income taxes 11,108 12,927
-------- --------
Total liabilities 84,201 57,516
-------- --------
Shareholders' equity
Common stock 2,536 2,522
Additional paid-in capital 6,031 6,031
Retained earnings 76,177 68,979
-------- --------
Total shareholders' equity 84,744 77,532
-------- --------
$ 168,945 $ 135,048
======== ========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (000 omitted)
<CAPTION>
Six Months Ended
November 30
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,198 $ 5,536
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,047 18,016
Provision for losses on accounts receivable 178 179
Gain on sale of equipment (3,090) (3,230)
Change in operating assets and liabilities,
net of effects from purchase of subsidiary:
Increase in accounts receivable (1,771) (1,387)
(Increase) decrease in other assets 1,101 (670)
Increase (decrease) in accounts payable (3,157) 33
Increase in accrued expenses 1,541 1,226
Decrease in deferred income taxes (1,851) (1,395)
-------- --------
Net cash provided by operating activities 18,196 18,308
-------- --------
Cash flows from investing activities:
Proceeds from sale of equipment 10,137 11,730
Purchase of subsidiary, net of cash acquired (8,267) -
Payment for purchase of rental and lease equipment (25,754) (21,832)
Payment for purchase of other property (704) (101)
-------- --------
Net cash used in investing activities (24,588) (10,203)
-------- --------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings 5,147 (8,600)
Proceeds from issuance of common stock 14 15
Payment for repurchase of common stock - (2)
-------- --------
Net cash provided by (used in) financing activities 5,161 (8,587)
-------- --------
Net decrease in cash (1,231) (482)
Cash at beginning of period 1,613 1,121
-------- --------
Cash at end of period $ 382 $ 639
======== ========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 -- Basis of Presentation
- -----------------------------------
The unaudited consolidated financial statements are condensed and do
not contain all information required by generally accepted accounting
principles to be included in a full set of financial statements. The
condensed consolidated financial statements include Electro Rent Corporation
and the accounts of its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated. The information furnished reflects
all adjustments which are, in the opinion of management, necessary to a fair
statement of the financial position and the results of operations of the
Company. All such adjustments are of a normal recurring nature.
Note 2 -- Net Income per Share
- -----------------------------------
Earnings per common share were computed based on the weighted average
number of shares outstanding of 7,844,639 and 7,828,481 in the three month
periods ended November 30, 1994 and November 30, 1993, and 7,834,928 and
7,828,234 in the six month periods ended November 30, 1994 and November 30,
1993, respectively.
Note 3 -- Interest and Income Taxes Paid
- -------------------------------------------
Total interest paid during the six month periods ended November 30, 1994
and November 30, 1993 was $1,256,000 and $1,096,000, respectively. Total
income taxes paid during the six month period ended November 30, 1994 was
$4,744,000 compared with $5,008,000 during the comparable prior year period.
Note 4 -- Noncash Investing and Financing Activities
- -------------------------------------------------------
The Company had acquired equipment totaling $15,009,000 and $9,763,000 as
of November 30, 1994 and May 31, 1994, respectively, which was paid for during
subsequent quarters. All cash flows are net of the effects from the purchase
of a subsidiary on September 30, 1994.
Note 5 -- Capital Leases
- ----------------------------
The Company has certain customer leases providing bargain purchase
options with a portion of lease revenue deferred until option exercise.
At November 30, 1994 investment in sales-type leases of $1,302,000 net of
deferred interest of $81,000 is included in other assets. Interest income
is recognized over the life of the lease using the interest method.
Note 6 -- Acquisition
- ----------------------------
On September 30, 1994, the Company purchased all of the outstanding stock
of Genstar Rental Electronics, Inc. (Genstar), a privately-held company engaged
in the business of renting, leasing and selling computers, workstations and
general purpose test and measurement equipment. The initial purchase price
based on Genstar's estimated Net Worth at September 30, 1994, was $9.2 million,
payable in cash. Additionally, the Company made cash payments of $15.2 million
at closing to retire Genstar's outstanding debt. The purchase price is subject
to adjustment as a result of an audit of Net Worth to be completed within 120
days of closing. Based on the unaudited Net Worth at September 30, 1994, the
Company acquired assets with a fair value of $29.1 million and assumed
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<PAGE>
liabilities of $19.8 million. Financing for the transaction was achieved
through additional short-term borrowings under Electro Rent's existing line
of credit.
The acquisition has been accounted for by the purchase method and,
accordingly, the results of operations of Genstar have been included with those
of the Company since the date of acquisition. The purchase price based on
unaudited Net Worth resulted in an excess of acquisition costs over net assets
acquired of approximately $100,000. Such excess (which will increase or
decrease based on the audit of Net Worth) and acquired intangibles of $4.3
million are being amortized on a straight-line basis over twenty years. The
following unaudited pro forma summary for the six month periods ended November
30, 1994 and 1993, combines the consolidated results of operations of the
Company and Genstar as if the acquisition had occurred at the beginning of the
respective fiscal years after giving effect to certain adjustments, including
amortization of goodwill, depreciation charges, estimated changes in interest
expense due to debt retirement and acquisition debt, and related income tax
effects. The pro forma results have been prepared for comparative purposes
only and do not purport to indicate the results of operations which would
actually have occurred had the combination been in effect on the dates
indicated, or which may occur in the future.
<TABLE>
<CAPTION>
Six Months Ended
November 30
-------- --------
(In thousands, except per share data) 1994 1993
-------- --------
<C> <C>
Net revenues $66,241 $66,557
Net income 6,845 5,663
Earnings per common share 0.87 0.72
Average shares outstanding 7,844 7,828
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------
Results of Operations
- ----------------------------
Total revenues increased by 12% to $30,751,000 for the three month period
ended November 30, 1994, as compared to the same period last year, due to an
18% increase in rental and lease revenue, which was partially offset by a 9%
decrease in sales and other revenues. For the six months ended November 30,
1994 total revenues increased by 6% to $58,539,000, as a result of 11% higher
rental and lease revenue, which was partially offset by 11% lower sales and
other revenues, as compared to the same period last year. Net income
increased by 26% to $3,648,000 for the second quarter of fiscal 1995 when
compared with $2,890,000 for the same period last year.
The acquisition of Genstar on September 30, 1994 impacted average monthly
revenues by approximately $1,500,000 for the last two months of the second
quarter. Due to its previous cost structure being largely intact, net income
was at breakeven. The cost savings of the Genstar consolidation are expected to
become apparent in the third and fourth quarters of fiscal 1995.
For both the three and six months periods ended November 30, 1994, there
have been significant increases in rentals of personal computers and
workstations, and test and measurement equipment rentals have increased
modestly. Reductions in defense spending continue to negatively impact the
overall test and measurement equipment market; however, the Company's market
share has expanded. Equipment sales have decreased by 11% for the quarter and
14% year to date as compared to the same periods last year due primarily to the
wind down of the TRW leasing program, higher rental utilization, and a
continuing shift in equipment pool to PCs and workstations, which have lower
residual values. Sales and other revenues decreased from $6,277,000 to
$5,713,000 for the three months ended November 30, 1994 and from $12,626,000 to
$11,277,000 for the six months then ended. Costs of revenues other than
depreciation for the three and six month periods ended November 30, 1994
decreased by 2% and 5%, respectively, when compared to the comparable prior
year periods. The decreases result from lower equipment sales, which was
partially offset by higher parts expense. Gross profit on sales improved due
to higher sale prices on older test and measurement equipment and improved
margins on workstations resulting from shorter depreciable lives. Interest
expense increased by 20% for the second quarter and decreased by 12% for the
first six months of fiscal 1995 from the comparable periods of the prior year.
Interest rates were higher for the three and six month periods of fiscal 1995,
and bank borrowings were lower until the September 30, 1994 acquisition, when
$25 million of additional bank borrowings were required.
Financial Condition and Liquidity
- -----------------------------------
During the first six months of fiscal 1995, net cash provided by operating
activities was $18,196,000 as compared with $18,308,000 in the same period of
fiscal 1994, primarily reflecting cash flow improvements related to higher net
income. Net cash used in investing activities increased by 141% from
$10,203,000 to $24,588,000, reflecting the purchase of Genstar, increased
purchases of rental and lease equipment, and lower sales proceeds. As a
result, during the six months ended November 30, 1994, the Company increased
short-term bank borrowings by $20,000,000.
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<PAGE>
With the expected continued growth in rentals of personal computers,
workstations, and test and measurement equipment, the Company is projecting
purchases of equipment to remain higher than last year. However, cash flow
provided by operating activities is expected to improve during the remainder of
the year, as Genstar consolidation savings are realized, resulting in a
reduction of bank borrowings.
Part II. OTHER INFORMATION
- ----------------------------
Items 1. through 3.
- ----------------------------
Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Nothing to report.
Item 5.
- ----------------------------
Nothing to report.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
(b) Reports on Form 8-K
A Report on Form 8-K, relating to the acquisition of Genstar Rental
Electronics, Inc., was filed on October 13, 1994.
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 thereto duly authorized.
ELECTRO RENT CORPORATION
DATED: January 16, 1995 /s/ Daniel Greenberg
Daniel Greenberg
Chairman and Chief Executive Officer
DATED: January 16, 1995 /s/ William Weitzman
William Weitzman
President and Chief Operating Officer
DATED: January 16, 1995 /s/ Craig R. Jones
Craig R. Jones
Vice President and
Chief Financial Officer
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> JUN-1-1994
<PERIOD-END> NOV-30-1994
<PERIOD-TYPE> 6-MOS
<CASH> 382
<SECURITIES> 0
<RECEIVABLES> 21,956
<ALLOWANCES> 1,347
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 249,285
<DEPRECIATION> 108,341
<TOTAL-ASSETS> 168,945
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,536
<OTHER-SE> 82,208
<TOTAL-LIABILITY-AND-EQUITY> 168,945
<SALES> 11,277
<TOTAL-REVENUES> 58,539
<CGS> 9,708
<TOTAL-COSTS> 45,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 909
<INCOME-PRETAX> 12,200
<INCOME-TAX> 5,002
<INCOME-CONTINUING> 7,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,198
<EPS-PRIMARY> 0.92
<EPS-DILUTED> 0.92
</TABLE>
