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 29, 1996
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 8, 1996 registrant had 11,902,564 shares of common stock
outstanding.
<PAGE>
ELECTRO RENT CORPORATION
FORM 10-Q
FEBRUARY 29, 1996
TABLE OF CONTENTS
Page
Part I: FINANCIAL INFORMATION
Condensed Consolidated Statements of Income for the Three Months
and Nine Months Ended February 29, 1996 and February 28, 1995 3
Condensed Consolidated Balance Sheets at
February 29, 1996 and May 31, 1995 4
Condensed Consolidated Statements of Cash Flows for the Three
Months and Nine Months Ended February 29, 1996 and
February 28, 1995 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
Page 2
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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 29 (28) February 29 (28)
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rentals and leases $ 29,447 $ 25,596 $ 87,885 $ 72,858
Sales of equipment
and other revenues 4,464 4,657 14,950 15,934
-------- -------- --------- ---------
Total revenues 33,911 30,253 102,835 88,792
-------- -------- --------- ---------
Costs and expenses:
Depreciation of equipment 10,450 9,613 30,264 27,108
Costs of revenues other
than depreciation 4,905 5,111 15,720 14,819
Selling, general and
administrative expenses 9,540 9,485 28,617 27,712
Interest 754 788 1,898 1,697
-------- -------- --------- ---------
Total costs and expenses 25,649 24,997 76,499 71,336
-------- -------- --------- ---------
Income before income taxes 8,262 5,256 26,336 17,456
Income taxes 3,329 2,156 10,739 7,158
-------- -------- --------- ---------
Net income $ 4,933 $ 3,100 $ 15,597 $ 10,298
======== ======== ========= =========
Net income per common and common
equivalent share 0.40 0.26 $ 1.27 $ 0.85
======== ======== ========= =========
Average common and common
equivalent shares outstanding 12,376 12,190 12,328 12,185
======== ======== ========= =========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
Page 3
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<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (000 omitted)
ASSETS
<CAPTION>
February 29 May 31
1996 1995
--------- ---------
<S> <C> <C>
Cash $ 298 $ 432
Accounts receivable, net 20,978 17,600
Rental and lease equipment, net
of accumulated depreciation 120,566 118,192
Other property, net of accumulated
depreciation and amortization 19,097 18,703
Other 7,396 7,982
--------- ---------
$ 168,335 $ 162,909
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank borrowings $ 25,300 $ 36,100
Accounts payable 13,021 12,302
Accrued expenses 11,182 10,342
Deferred income taxes 10,351 11,977
--------- ---------
Total liabilities 59,854 70,721
--------- ---------
Shareholders' equity
Common stock 9,299 8,597
Retained earnings 99,134 83,543
Cumulative translation adjustment 48 48
--------- ---------
Total shareholders' equity 108,481 92,188
--------- ---------
$ 168,335 $ 162,909
========= =========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
Page 4
<PAGE>
<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (000 omitted)
<CAPTION>
Nine Months Ended
February 29 (28)
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,597 $ 10,298
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 31,311 28,231
Provision for losses on accounts receivable 502 145
Gain on sale of equipment (4,130) (4,068)
Change in operating assets and liabilities:
Increase in accounts receivable (3,880) (406)
Decrease in other assets 339 256
Decrease in accounts payable (230) (2,088)
Increase (decrease) in accrued expenses 840 (102)
Decrease in deferred income taxes (1,626) (2,967)
--------- ---------
Net cash provided by operating activities 38,723 29,299
--------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 13,119 14,260
Purchase of subsidiary, net of cash acquired - (7,174)
Payments for purchase of rental and lease equipment (40,678) (40,185)
Payments for purchase of other property (1,194) (769)
--------- ---------
Net cash used in investing activities (28,753) (33,868)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings (10,800) 4,047
Proceeds from issuance of common stock 702 37
Payments for repurchase of common stock (6) -
--------- ---------
Net cash provided by (used in) financing activities (10,104) 4,084
--------- ---------
Net decrease in cash (134) (485)
Cash at beginning of period 432 1,613
--------- ---------
Cash at end of period $ 298 $ 1,128
========= =========
<FN>
See accompanying notes to
condensed consolidated financial statements.
Page 5
<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 Common and Common Equivalent Share
- -----------------------------------
Earnings per share were computed based on the weighted average number of
common and common equivalent shares outstanding of 12,376,000 and 12,190,000 for
the three month periods ended February 29, 1996 and February 28, 1995, and
12,328,000 and 12,185,000 for the nine month periods ended February 29, 1996 and
February 28, 1995, respectively.
On July 13, 1995 the Board of Directors declared a three-for-two stock
split to be distributed August 18, 1995 to shareholders of record on July 31,
1995. Earnings per share and shares outstanding have been restated to give
retroactive effect to the stock split.
Note 3 -- Interest and Income Taxes Paid
- -------------------------------------------
Total interest paid during the nine month period ended February 29, 1996
and February 28, 1995 was $1,943,000 and $1,944,000, respectively. Total income
taxes paid during the nine month period ended February 29, 1996 was $11,598,000
compared to $7,619,000 during the same period in the prior year.
Note 4 -- Noncash Investing and Financing Activities
- -------------------------------------------------------
The Company had acquired equipment totaling $11,092,000 and $10,143,000 as
of February 29, 1996 and May 31, 1995, respectively, which was paid for during
subsequent quarters.
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
29, 1996 investment in sales-type leases of $938,000 net of deferred interest of
$64,000 is included in other assets. Interest income is recognized over the
life of the lease using the interest method.
Page 6
<PAGE>
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, 1995, was $23.2 million, and
consisted of cash and assumed debt.
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.
Note 7 -- Subsequent Event
On March 29, 1996, the Company purchased the assets of LDI Computer
Rentals, Inc., a wholly-owned subsidiary of LDI Corporation engaged in the
business of renting and selling personal computers. LDI Computer Rentals is
headquartered in Cleveland and has additional sales offices in Detroit, Atlanta
and Cincinnati. The purchase price, based on the book value of assets purchased
at March 29, 1996, was approximately $3 million, payable in cash and financed
with short term bank borrowings. The excess of the purchase price over the
estimated fair value of the net assets acquired (goodwill) of $180,000 will be
amortized on a straight-line basis over 15 years.
The acquisition will be accounted for by the purchase method during the
fourth quarter of fiscal 1996 and, accordingly, the results of operations of LDI
Computer Rentals will be included with those of the Company from the date of
acquisition.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------
Results of Operations
- ----------------------------
Total revenues increased 12% to $33,911,000 for the three month period
ended February 29, 1996, over the same period last year, due to a 15% increase
in rental and lease revenues, which was partially offset by a 4% decrease in
sales and other revenues. For the nine months ended February 29, 1996 total
revenues increased 16% to $102,835,000, as a result of 21% higher rental and
lease revenues, which was partially offset by 6% lower sales and other
revenues, as compared to the same period last year. The increase in rental and
lease revenues for the three and nine month periods is due primarily to
increases in rental equipment utilization, personal computer leasing and lease
yields, and the nine month period also includes the effect of the Genstar
acquisition on September 30, 1994. The decrease in sales of equipment is due to
a reduction in equipment available for sale resulting from higher rental
equipment utilization.
For the three and nine month periods ended February 29, 1996 depreciation
expense increased 9% and 12%, respectively, as compared to the prior year,
primarily as a result of increases in the lease equipment pool, and the nine
month period also includes the effect of the Genstar acquisition on September
30, 1994. Costs of revenues other than depreciation decreased 4% for the third
quarter primarily due to Genstar consolidation savings, but increased 6% for the
first nine months due to the inclusion of Genstar beginning in October 1994 and
increased parts expense.
Selling, general and administrative expenses were relatively unchanged for
the third quarter reflecting Genstar consolidation savings, while for the first
nine months the 3% increase results from the inclusion of Genstar beginning in
October 1994.
Interest expense decreased 4% for the third quarter reflecting lower
borrowings due to strong cash flows, which was partially offset by additional
interest paid on a tax audit assessment. For the first nine months interest
expense increased 12% primarily due to the Genstar acquisition borrowings.
Financial Condition and Liquidity
- -----------------------------------
During the first nine months of fiscal 1996, net cash provided by operating
activities was $38,723,000, compared to $29,299,000 for the same period last
year. This increase can be substantially attributed to increased net income and
depreciation, as well as lower payments of accounts payable and accrued
expenses. Net cash used in investing activities for the nine month period
decreased from $33,868,000 in fiscal 1995 to $28,753,000 in fiscal
1996, primarily due to the purchase of Genstar in the prior year. Short-term
bank borrowings decreased $10,800,000 during the first nine months of fiscal
1996 as a result of improved cash flows, as compared with an increase of
$4,047,000 in the prior year period resulting primarily from the Genstar
purchase.
The Company expects cash flows as recorded in the first nine months to
continue at approximately the same levels for the rest of the fiscal year, if
the Company's average equipment utilization and rental yield continue to remain
at the comparatively high levels experienced during the third quarter. While
this is a positive indicator for future periods, the Company must continue to
purchase substantial amounts of new product to meet customers' demands for
technologically current equipment.
Page 8
<PAGE>
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.
Page 9
<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 8, 1996 /s/ Daniel Greenberg
Daniel Greenberg
Chairman and Chief Executive Officer
DATED: April 8, 1996 /s/ William Weitzman
William Weitzman
President and Chief Operating Officer
DATED: April 8, 1996 /s/ Craig R. Jones
Craig R. Jones
Vice President and
Chief Financial Officer
Page 10
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-1-1995
<PERIOD-END> FEB-29-1996
<PERIOD-TYPE> 9-MOS
<CASH> 298
<SECURITIES> 0
<RECEIVABLES> 22,428
<ALLOWANCES> 1,450
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 263,587
<DEPRECIATION> 123,924
<TOTAL-ASSETS> 168,335
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 9,299
<OTHER-SE> 48
<TOTAL-LIABILITY-AND-EQUITY> 168,335
<SALES> 14,950
<TOTAL-REVENUES> 102,835
<CGS> 15,720
<TOTAL-COSTS> 74,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,898
<INCOME-PRETAX> 26,336
<INCOME-TAX> 10,739
<INCOME-CONTINUING> 15,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,597
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
