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, 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 January 12, 1996 registrant had 11,805,523 shares of common stock
outstanding.
<PAGE>
ELECTRO RENT CORPORATION
FORM 10-Q
NOVEMBER 30, 1995
TABLE OF CONTENTS
Page
Part I: FINANCIAL INFORMATION
Condensed Consolidated Statements of Income for the Three Months
and Six Months Ended November 30, 1995 and November 30, 1994 3
Condensed Consolidated Balance Sheets at
November 30, 1995 and May 31, 1995 4
Condensed Consolidated Statements of Cash Flows for the Three
Months and Six Months Ended November 30, 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 Six Months Ended
November 30 November 30
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rentals and leases $ 29,825 $ 25,038 $ 58,438 $ 47,262
Sales of equipment
and other revenues 4,738 5,713 10,486 11,277
-------- -------- -------- --------
Total revenues 34,563 30,751 68,924 58,539
-------- -------- -------- --------
Costs and expenses:
Depreciation of equipment 10,118 9,428 19,814 17,495
Costs of revenues other
than depreciation 5,055 4,830 10,815 9,708
Selling, general and
administrative expenses 9,689 9,737 19,077 18,227
Interest 532 573 1,144 909
-------- -------- -------- --------
Total costs and expenses 25,394 24,568 50,850 46,339
-------- -------- -------- --------
Income before income taxes 9,169 6,183 18,074 12,200
Income taxes 3,759 2,535 7,410 5,002
-------- -------- -------- --------
Net income $ 5,410 $ 3,648 $ 10,664 $ 7,198
======== ======== ======== ========
Net income per common and common
equivalent share 0.44 0.30 $ 0.87 $ 0.59
======== ======== ======== ========
Average common and common
equivalent shares outstanding 12,332 12,134 12,326 12,114
======== ======== ======== ========
<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>
November 30 May 31
1995 1995
-------- --------
<S> <C> <C>
Cash $ 1,850 $ 432
Accounts receivable, net 19,180 17,600
Rental and lease equipment, net
of accumulated depreciation 119,541 118,192
Other property, net of accumulated
depreciation and amortization 18,526 18,703
Other 7,169 7,982
-------- --------
$ 166,266 $ 162,909
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank borrowings $ 27,500 $ 36,100
Accounts payable 11,900 12,302
Accrued expenses 12,998 10,342
Deferred income taxes 10,866 11,977
-------- --------
Total liabilities 63,264 70,721
-------- --------
Shareholders' equity
Common stock 8,753 8,597
Retained earnings 94,201 83,543
Cumulative translation adjustment 48 48
-------- --------
Total shareholders' equity 103,002 92,188
-------- --------
$ 166,266 $ 162,909
======== ========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
Page 4
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<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (000 omitted)
<CAPTION>
Six Months Ended
November 30
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,664 $ 7,198
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,526 18,047
Provision for losses on accounts receivable 341 178
Gain on sale of equipment (2,943) (3,090)
Change in operating assets and liabilities:
Increase in accounts receivable (1,921) (1,771)
Decrease in other assets 628 1,101
Increase (decrease) in accounts payable 116 (3,157)
Increase in accrued expenses 2,656 1,541
Decrease in deferred income taxes (1,111) (1,851)
-------- --------
Net cash provided by operating activities 28,956 18,196
-------- --------
Cash flows from investing activities:
Proceeds from sale of equipment 9,290 10,137
Purchase of subsidiary, net of cash acquired - (8,267)
Payments for purchase of rental and lease equipment (28,028) (25,754)
Payments for purchase of other property (350) (704)
-------- --------
Net cash used in investing activities (19,088) (24,588)
-------- --------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings (8,600) 5,147
Proceeds from issuance of common stock 156 14
Payments for repurchase of common stock (6) -
-------- --------
Net cash provided by (used in) financing activities (8,450) 5,161
-------- --------
Net increase (decrease) in cash 1,418 (1,231)
Cash at beginning of period 432 1,613
-------- --------
Cash at end of period $ 1,850 $ 382
======== ========
<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 12,332,000 and 12,134,000
for the three month periods ended November 30, 1995 and November 30, 1994, and
12,326,000 and 12,114,000 for the six month periods ended November 30, 1995
and November 30, 1994, 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 six month period ended November 30, 1995
and November 30, 1994 was $1,168,000 and $1,256,000, respectively. Total
income taxes paid during the six month period ended November 30, 1995 was
$6,315,000 compared to $4,744,000 during the same period in the prior year.
Note 4 -- Noncash Investing and Financing Activities
- -------------------------------------------------------
The Company had acquired equipment totaling $9,625,000 and $10,143,000
as of November 30, 1995 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
November 30, 1995 investment in sales-type leases of $944,000 net of deferred
interest of $65,000 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.
Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------
Results of Operations
- ----------------------------
Total revenues increased 12% to $34,563,000 for the three month period
ended November 30, 1995, over the same period last year, due to a 19% increase
in rental and lease revenues, which was partially offset by a 17% decrease in
sales and other revenues. For the six months ended November 30, 1995 total
revenues increased 18% to $68,924,000, as a result of 24% higher rental and
lease revenues, which was partially offset by 7% lower sales and other
revenues, as compared to the same period last year. The increase in rental
and lease revenues for the three and six month periods is due primarily to
inclusion of Genstar's operations since its acquisition on September 30, 1994,
and increases in average equipment utilization and rental yield. The decrease
in sales of equipment is due to a reduction in equipment available for sale
resulting from higher rental utilization, which was partially offset by
increased sales related to Genstar.
For the three and six month periods ended November 30, 1995 depreciation
expense increased 7% and 13%, respectively, as compared to the prior year,
primarily as a result of the Genstar acquisition, but improved utilization
kept the growth rates lower than those of rental and lease revenues. Costs of
revenues other than depreciation increased 5% for the second quarter and 11%
for the first six months due to the Genstar acquisition and also due to
increased parts expense. Selling, general and administrative expenses were
relatively unchanged for the second quarter reflecting consolidation savings
realized from the Genstar acquisition, while for the first six months the 5%
increase results from the inclusion of Genstar beginning in October 1994,
which was partially offset by consolidation savings fully realized in fiscal
1996.
Interest expense decreased 7% for the second quarter reflecting lower
borrowings due to strong cash flows, in spite of increased purchases of
equipment. For the first six months interest expense increased 26% primarily
due to the Genstar acquisition borrowings.
Financial Condition and Liquidity
- -----------------------------------
During the first six months of fiscal 1996, net cash provided by
operating activities was $28,956,000, compared to $18,196,000 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 six month
period decreased from $24,588,000 in fiscal 1995 to $19,088,000 in fiscal 1996
primarily as a result of the purchase of Genstar in the prior year, which was
partially offset by increased equipment purchases in fiscal 1996. Short-term
bank borrowings decreased $8,600,000 during the first half of fiscal 1996 as a
result of improved cash flows, as compared with an increase of $5,147,000 in
the prior year period resulting primarily from the Genstar purchase.
The Company expects cash flows as recorded in the first half 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 second 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: January 12, 1996 /s/ Daniel Greenberg
Daniel Greenberg
Chairman and Chief Executive Officer
DATED: January 12, 1996 /s/ William Weitzman
William Weitzman
President and Chief Operating Officer
DATED: January 12, 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> JUN-30-1996
<PERIOD-START> JUN-1-1995
<PERIOD-END> NOV-30-1995
<PERIOD-TYPE> 6-MOS
<CASH> 1,850
<SECURITIES> 0
<RECEIVABLES> 20,497
<ALLOWANCES> 1,317
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 262,220
<DEPRECIATION> 124,153
<TOTAL-ASSETS> 166,266
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8,753
<OTHER-SE> 48
<TOTAL-LIABILITY-AND-EQUITY> 166,266
<SALES> 10,486
<TOTAL-REVENUES> 68,924
<CGS> 10,815
<TOTAL-COSTS> 49,706
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,144
<INCOME-PRETAX> 18,074
<INCOME-TAX> 7,410
<INCOME-CONTINUING> 10,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,664
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
