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 FEBRUARY 28, 1995
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 April 13, 1995 registrant had 7,849,201 shares of common stock outstanding.
<PAGE>
ELECTRO RENT CORPORATION
FORM 10-Q
FEBRUARY 28, 1995
TABLE OF CONTENTS
Page
Part I: FINANCIAL INFORMATION
Condensed Consolidated Statements of Income for the Three Months
and Nine Months Ended February 28, 1995 and February 28, 1994 3
Condensed Consolidated Balance Sheets at
February 28, 1995 and May 31, 1994 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended February 28, 1995 and February 28, 1994 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 10
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<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (000 omitted except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
February 28 February 28
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rentals and leases $ 25,596 $ 20,541 $ 72,858 $ 62,960
Sales of equipment
and other revenues 4,657 7,249 15,934 19,875
-------- -------- -------- --------
Total revenues 30,253 27,790 88,792 82,835
-------- -------- -------- --------
Costs and expenses:
Depreciation of equipment 9,613 8,755 27,108 26,154
Costs of revenues other
than depreciation 5,111 5,765 14,819 16,019
Selling, general and
administrative expenses 9,485 8,001 27,712 25,052
Interest 788 439 1,697 1,475
-------- -------- -------- --------
Total costs and expenses 24,997 22,960 71,336 68,700
-------- -------- -------- --------
Income before income taxes 5,256 4,830 17,456 14,135
Income taxes 2,156 1,946 7,158 5,715
-------- -------- -------- --------
Net income $ 3,100 $ 2,884 $ 10,298 $ 8,420
======== ======== ======== ========
Net income per share $ 0.40 $ 0.37 $ 1.31 $ 1.08
======== ======== ======== ========
Average shares outstanding 7,848 7,835 7,845 7,831
======== ======== ======== ========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
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<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (000 omitted)
ASSETS
<CAPTION>
February 28 May 31
1995 1994
-------- --------
<S> <C> <C>
Cash $ 1,128 $ 1,613
Accounts receivable, net 19,368 15,338
Rental and lease equipment, net
of accumulated depreciation 120,524 95,978
Other property, net of accumulated
depreciation and amortization 18,952 18,649
Other 7,413 3,470
-------- --------
$ 167,385 $ 135,048
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank borrowings $ 44,800 $ 25,900
Accounts payable 13,945 11,703
Accrued expenses 10,434 6,986
Deferred income taxes 10,339 12,927
-------- --------
Total liabilities 79,518 57,516
-------- --------
Shareholders' equity
Common stock 2,559 2,522
Additional paid-in capital 6,031 6,031
Retained earnings 79,277 68,979
-------- --------
Total shareholders' equity 87,867 77,532
-------- --------
$ 167,385 $ 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>
Nine Months Ended
February 28
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,298 $ 8,420
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,231 27,078
Provision for losses on accounts receivable 145 271
Gain on sale of equipment (4,068) (5,077)
Change in operating assets and liabilities,
net of effects from purchase of subsidiary:
Increase in accounts receivable (406) (2,131)
(Increase) decrease in other assets 256 (737)
Increase (decrease) in accounts payable (2,088) 88
Increase (decrease) in accrued expenses (102) 787
Decrease in deferred income taxes (2,967) (2,118)
-------- --------
Net cash provided by operating activities 29,299 26,581
-------- --------
Cash flows from investing activities:
Proceeds from sale of equipment 14,260 18,425
Purchase of subsidiary, net of cash acquired (7,174) -
Payment for purchase of rental and lease equipment (40,185) (31,325)
Payment for purchase of other property (769) (155)
-------- --------
Net cash used in investing activities (33,868) (13,055)
-------- --------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings 4,047 (14,200)
Payment for retirement of subordinated debentures - (1)
Proceeds from issuance of common stock 37 117
Payment for repurchase of common stock - (7)
-------- --------
Net cash provided by (used in) financing activities 4,084 (14,091)
-------- --------
Net decrease in cash (485) (565)
Cash at beginning of period 1,613 1,121
-------- --------
Cash at end of period $ 1,128 $ 556
======== ========
<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 7,847,750 and 7,835,205 in the three month
periods ended February 28, 1995 and February 28, 1994, and 7,845,188 and
7,830,532 in the nine month periods ended February 28, 1995 and February 28,
1994, respectively.
Note 3 -- Interest and Income Taxes Paid
- -------------------------------------------
Total interest paid during the nine month periods ended February 28, 1995
and February 28, 1994 was $1,944,000 and $1,369,000, respectively. Total
income taxes paid during the nine month period ended February 28, 1995 was
$7,619,000 compared with $7,732,000 during the comparable prior year period.
Note 4 -- Noncash Investing and Financing Activities
- -------------------------------------------------------
The Company had acquired equipment totaling $12,030,000 and $9,763,000 as
of February 28, 1995 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
February 28, 1995 investment in sales-type leases of $1,397,000 net of deferred
interest of $82,000 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 purchase price based on
Genstar's audited Net Worth at September 30, 1994, was $8.3 million, payable in
cash. Additionally, the Company made cash payments of $15.2 million at closing
to retire Genstar's outstanding debt. Financing for the transaction was
achieved through additional short-term borrowings under Electro Rent's existing
line of credit.
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<PAGE>
The acquistion 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 audited Net
Worth resulted in an excess of acquisition costs over net assets acquired of
approximately $100,000. Such excess 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 nine month periods ended February 28, 1995
and 1994, 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>
For the Nine Months Ended February 28, 1995 1994
- ------------------------------------------- -------- --------
(In thousands, except per share data)
<S> <C> <C>
Net Revenue $ 96,477 $100,195
Net income 9,939 9,146
Earnings per common share 1.27 1.17
Average shares outstanding 7,845 7,831
</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 9% to $30,253,000 for the three month period
ended February 28, 1995, as compared to the same period last year, due to a 25%
increase in rental and lease revenue, which was partially offset by a 36%
decrease in sales and other revenues. For the nine months ended February 28,
1995 total revenues increased by 7% to $88,792,000, as a result of 16% higher
rental and lease revenue, which was partially offset by 20% lower sales and
other revenues, as compared to the same period last year. Net income
increased by 7% to $3,100,000 for the third quarter of fiscal 1995 when
compared with $2,884,000 for the same period last year. The results reflect
the interim effects of the acquisition of Genstar Rental Electronics, Inc. on
September 30, 1994.
Since its acquisition, Genstar's operations have been fully evaluated and
the necesssary steps have been taken to maximize efficiencies through the
consolidation of facilities and functions. The integration process has now
been largely completed and it is expected that the Company will be able to
achieve a cost structure for Genstar's remaining operations which will be
approximately one-half of its pre-acquisition level. The benefits of these
efforts have begun to be realized in the third quarter and will continue in the
fourth quarter. Genstar contributed an estimated $1.5 million per month to
third quarter revenues, a strong indication that its revenue and customer base
have been retained.
For both the three and nine months periods ended February 28, 1995, 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 decreased by 38% for the quarter and 23%
year to date as compared to the same periods last year due primarily to the
winding down of a major leasing program last year which produced unusually
large used equipment sales in that period, higher rental utilization, and
increasing sales of PCs and workstations, which have lower residual values
than test and measurement equipment.
Sales and other revenues decreased from $7,249,000 to $4,657,000 for the three
months ended February 28, 1995 and from $19,875,000 to $15,934,000 for the nine
months then ended. Costs of revenues other than depreciation for the three and
nine month periods ended February 28, 1995 decreased by 11% and 7%,
respectively, when compared to the same prior year periods. The decreases
result from lower equipment sales, which were partially offset by higher parts
expense. Interest expense increased by 79% for the third quarter and by 15%
for the first nine months of fiscal 1995 from the comparable periods of the
prior year. Interest rates were higher for the three and nine month periods of
fiscal 1995, and bank borrowings were lower until the September 30, 1994
acquisition of Genstar, when $25 million of additional bank borrowings were
required.
-- Page 8 --
<PAGE>
Financial Condition and Liquidity
- -----------------------------------
During the first nine months of fiscal 1995, net cash provided by
operating activities was $29,299,000 as compared with $26,581,000 in the same
period of fiscal 1994, primarily reflecting cash flow improvements related to
higher income before depreciation and gain on sale of equipment. Net cash used
in investing activities increased by 159% from $13,055,000 to $33,868,000,
reflecting the purchase of Genstar, increased purchases of rental and lease
equipment, and lower sales proceeds. As a result, during the nine months ended
February 28, 1995, the Company increased short-term bank borrowings by
$4,047,000, net of the effects from the purchase of Genstar.
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 revenues continue to
increase and 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
- -------------------------------------------
Nothing to report.
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<PAGE>
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: April 13, 1995 /s/ Daniel Greenberg
Daniel Greenberg
Chairman and Chief Executive Officer
DATED: April 13, 1995 /s/ William Weitzman
William Weitzman
President and Chief Operating Officer
DATED: April 13, 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> FEB-28-1995
<PERIOD-TYPE> 9-MOS
<CASH> 1,128
<SECURITIES> 0
<RECEIVABLES> 20,628
<ALLOWANCES> 1,260
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 268,533
<DEPRECIATION> 129,057
<TOTAL-ASSETS> 167,385
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,559
<OTHER-SE> 85,308
<TOTAL-LIABILITY-AND-EQUITY> 167,385
<SALES> 15,934
<TOTAL-REVENUES> 88,792
<CGS> 14,819
<TOTAL-COSTS> 69,639
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,697
<INCOME-PRETAX> 17,456
<INCOME-TAX> 7,158
<INCOME-CONTINUING> 10,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,298
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
</TABLE>
