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, 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 January 9, 1997 registrant had 11,986,751 shares of common stock
outstanding.
<PAGE>
ELECTRO RENT CORPORATION
FORM 10-Q
NOVEMBER 30, 1996
TABLE OF CONTENTS
Page
Part I: FINANCIAL INFORMATION
Condensed Consolidated Statements of Income for the Three Months
and Six Months Ended November 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets at
November 30, 1996 and May 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended November 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II: OTHER INFORMATION 8
SIGNATURES 9
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
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rentals and leases $ 32,491 $ 29,825 $ 64,871 $ 58,438
Sales of equipment
and other revenues 5,487 4,738 11,251 10,486
-------- -------- --------- ---------
Total revenues 37,978 34,563 76,122 68,924
-------- -------- --------- ---------
Costs and expenses:
Depreciation of equipment 11,144 10,118 22,151 19,814
Costs of revenues other
than depreciation 5,233 5,055 10,796 10,815
Selling, general and
administrative expenses 10,343 9,689 20,522 19,077
Interest 232 532 532 1,144
-------- -------- --------- ---------
Total costs and expenses 26,952 25,394 54,001 50,850
-------- -------- --------- ---------
Income before income taxes 11,026 9,169 22,121 18,074
Income taxes 4,521 3,759 9,069 7,410
-------- -------- --------- ---------
Net income $ 6,505 $ 5,410 $ 13,052 $ 10,664
======== ======== ========= =========
Net income per common and common
equivalent share $ 0.52 $ 0.44 $ 1.05 $ 0.87
======== ======== ========= =========
Average common and common
equivalent shares outstanding 12,429 12,332 12,427 12,326
======== ======== ========= =========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
Page 3
<PAGE>
<TABLE>
ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (000 omitted)
ASSETS
<CAPTION>
November 30 May 31
1996 1996
--------- ---------
<S> <C> <C>
Cash $ 187 $ 1,394
Accounts receivable, net 21,844 20,598
Rental and lease equipment, net
of accumulated depreciation 127,209 122,206
Other property, net of accumulated
depreciation and amortization 18,993 19,323
Other 7,463 7,907
--------- ---------
$ 175,696 $ 171,428
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank borrowings $ 12,700 $ 16,800
Accounts payable 12,862 16,433
Accrued expenses 10,712 11,876
Deferred income taxes 11,425 11,696
--------- ---------
Total liabilities 47,699 56,805
--------- ---------
Shareholders' equity
Common stock 9,763 9,441
Retained earnings 118,234 105,182
--------- ---------
Total shareholders' equity 127,997 114,623
--------- ---------
$ 175,696 $ 171,428
========= =========
<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>
Six Months Ended
November 30
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,052 $ 10,664
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,875 20,526
Provision for losses on accounts receivable 367 341
Gain on sale of equipment (2,872) (2,943)
Change in operating assets and liabilities:
Increase in accounts receivable (1,613) (1,921)
Decrease in other assets 276 628
Increase (decrease) in accounts payable (983) 116
Increase (decrease) in accrued expenses (1,164) 2,656
Decrease in deferred income taxes (271) (1,111)
--------- ---------
Net cash provided by operating activities 29,667 28,956
--------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 9,786 9,290
Payments for purchase of rental and lease equipment (36,656) (28,028)
Payments for purchase of other property (226) (350)
--------- ---------
Net cash used in investing activities (27,096) (19,088)
--------- ---------
Cash flows from financing activities:
Decrease in short-term bank borrowings (4,100) (8,600)
Proceeds from issuance of common stock 322 156
Payments for repurchase of common stock - (6)
--------- ---------
Net cash used in financing activities (3,778) (8,450)
--------- ---------
Net increase (decrease) in cash (1,207) 1,418
Cash at beginning of period 1,394 432
--------- ---------
Cash at end of period $ 187 $ 1,850
========= =========
<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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 12,429,000 and 12,332,000
for the three month periods ended November 30, 1996 and 1995, and 12,427,000
and 12,326,000 for the six month periods ended November 30, 1996 and 1995,
respectively.
Note 3 -- Interest and Income Taxes Paid
- -------------------------------------------
Total interest paid during the six month period ended November 30, 1996
and 1995 was $527,000 and $1,168,000, respectively. Total income taxes paid
during the six month period ended November 30, 1996 was $10,035,000 compared
to $6,315,000 during the same period in the prior year.
Note 4 -- Noncash Investing and Financing Activities
- -------------------------------------------------------
The Company acquired equipment totaling $13,244,000 and $15,832,000 as
of November 30, 1996 and May 31, 1996, 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, 1996 investment in sales-type leases of $910,000 net of deferred
interest of $56,000 is included in other assets. Interest income is
recognized over the life of the lease using the interest method.
Page 6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------
Results of Operations
Total revenues increased 10% to $37,978,000 for the three month
period ended November 30, 1996, over the same period last year, due
to a 9% increase in rental and lease revenues and a 16% increase in
sales and other revenues. For the six months ended November 30,
1996, total revenues increased 10% to $76,122,000, as a result of 11%
higher rental and lease revenues and a 7% increase in sales and other
revenues. The increase in rental and lease revenues for the three and
six month periods is due primarily to increases in both personal
computer and test equipment rental and lease contracts, the LDI
Computer Rentals acquisition in March 1996, and higher lease yields.
Sales of used equipment increased in the three and six month periods
due to higher availability of personal computers from lease returns and
greater demand for test equipment.
For the three and six month periods ended November 30, 1996,
depreciation expense increased 10% and 12%, respectively, as
compared to the same prior year periods, due to increases in the pool
of equipment for rental and lease. Costs of revenues other than
depreciation increased 4% for the second quarter, as a result of
increased sales, and were essentially unchanged for the first six months
of fiscal 1997, as compared with the same periods in the prior year. For
the three and six month periods ended November 30, 1996, selling,
general and administrative expenses increased 7% and 8%,
respectively, as compared with the same periods in fiscal 1996,
primarily due to a 9% increase in the number of employees related to
new office openings, the LDI Computer Rentals acquisition and a need
to build depth in the organization.
Interest expense decreased 56% and 53%, for the three and six
month periods ended November 30, 1996, respectively, as a result of
lower borrowings due to strong cash flows.
Financial Condition and Liquidity
- -----------------------------------
During the first six months of fiscal 1997, net cash provided by
operating activities was $29,667,000, compared to $28,956,000 for the same
period last year. This increase can be substantially attributed to increased
net income and depreciation, partially offset by a decrease in accrued
expenses. Net cash used in investing activities for the six month period
increased from $19,088,000 in fiscal 1996 to $27,096,000 in fiscal 1997,
primarily due to substiantially greater payments for purchase of rental and
lease equipment. Short-term bank borrowings decreased $4,100,000 during the
first six months of fiscal 1997 as a result of continued positive cash flows,
which compared with a $8,600,000 decrease in the prior year period.
The Company expects cash flows as recorded in the first six 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 the first half.
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 up-to-date equipment.
<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 9, 1997 /s/ Daniel Greenberg
Daniel Greenberg
Chairman and Chief Executive Officer
DATED: January 9, 1997 /s/ William Weitzman
William Weitzman
President and Chief Operating
Officer
DATED: January 9, 1997 /s/ Craig R. Jones
Craig R. Jones
Vice President and
Chief Financial Officer
Page 10
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-1-1996
<PERIOD-END> NOV-30-1996
<PERIOD-TYPE> 6-MOS
<CASH> 187
<SECURITIES> 0
<RECEIVABLES> 23,616
<ALLOWANCES> 1,772
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 276,041
<DEPRECIATION> 129,839
<TOTAL-ASSETS> 175,696
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 9,763
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 175,696
<SALES> 11,251
<TOTAL-REVENUES> 76,122
<CGS> 10,796
<TOTAL-COSTS> 53,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 532
<INCOME-PRETAX> 22,121
<INCOME-TAX> 9,069
<INCOME-CONTINUING> 13,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,052
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
