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 AUGUST 31, 1997
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 October 9, 1997 registrant had 12,050,571 shares of common stock
outstanding.
<PAGE>
ELECTRO RENT CORPORATION
FORM 10-Q
AUGUST 31, 1997
TABLE OF CONTENTS
Page
Part I: FINANCIAL INFORMATION
Condensed Consolidated Statements of Income for the
Three Months Ended August 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets at
August 31, 1997 and May 31, 1997 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended August 31, 1997 and 1996 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
August 31
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Rentals and leases $ 34,392 $ 32,380
Sales of equipment
and other revenues 4,525 5,764
--------- ---------
Total revenues 38,917 38,144
--------- ---------
Costs and expenses:
Depreciation of equipment 11,615 11,007
Costs of revenues other
than depreciation 4,157 5,563
Selling, general and
administrative expenses 11,208 10,179
Interest 113 300
--------- ---------
Total costs and expenses 27,093 27,049
--------- ---------
Income before income taxes 11,824 11,095
Income taxes 4,847 4,548
--------- ---------
Net income $ 6,977 $ 6,547
========= =========
Net income per common and common
equivalent share $ 0.56 $ 0.53
========= =========
Average common and common
equivalent shares outstanding 12,480 12,426
========= =========
<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>
August 31 May 31
1997 1997
--------- ---------
<S> <C> <C>
Cash $ 1,002 $ 2,207
Accounts receivable, net 22,517 19,968
Rental and lease equipment, net
of accumulated depreciation 144,729 139,377
Other property, net of accumulated
depreciation and amortization 19,344 19,438
Other 7,332 7,223
--------- ---------
$ 194,924 $ 188,213
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank borrowings $ 9,700 $ 4,200
Accounts payable 10,338 20,096
Accrued expenses 15,077 11,001
Deferred income taxes 13,551 13,696
--------- ---------
Total liabilities 48,666 48,993
--------- ---------
Shareholders' equity
Common stock 10,026 9,965
Retained earnings 136,232 129,255
--------- ---------
Total shareholders' equity 146,258 139,220
--------- ---------
$ 194,924 $ 188,213
========= =========
<FN>
See accompanying notes to
condensed consolidated financial statements.
</TABLE>
Page 4
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ELECTRO RENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (000 omitted)
[CAPTION]
Three Months Ended
August 31
1997 1996
--------- ---------
[S] [C] [C]
Cash flows from operating activities:
Net income $ 6,977 $ 6,547
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,992 11,440
Provision for losses on accounts receivable 181 188
Gain on sale of equipment (1,476) (1,573)
Change in operating assets and liabilities:
Increase in accounts receivable (2,730) (654)
Increase in other assets (188) (90)
Decrease in accounts payable (840) (932)
Increase in accrued expenses 4,076 3,430
Decrease in deferred income taxes (145) (134)
--------- ---------
Net cash provided by operating activities 17,847 18,222
--------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 3,736 5,183
Payments for purchase of rental and lease equipment (28,145) (19,194)
Payments for purchase of other property (204) (174)
--------- ---------
Net cash used in investing activities (24,613) (14,185)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings 5,500 (4,600)
Proceeds from issuance of common stock 61 95
--------- ---------
Net cash provided by financing activities 5,561 (4,505)
--------- ---------
Net decrease in cash (1,205) (468)
Cash at beginning of period 2,207 1,394
--------- ---------
Cash at end of period $ 1,002 $ 926
========= =========
[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 12,480,000 and 12,426,000
for the three month periods ended August 31, 1997 and 1996.
Note 3 -- Interest and Income Taxes Paid
- -------------------------------------------
Total interest paid during the three month periods ended August 31, 1997
and 1996 was $127,000 and $296,000, respectively. Total income taxes paid
during the three month period ended August 31, 1997 was $2,741,000 compared to
$583,000 during the same period in the prior year.
Note 4 -- Noncash Investing and Financing Activities
- -------------------------------------------------------
The Company acquired equipment totaling $10,486,000 and $19,405,000 as
of August 31, 1997 and May 31, 1997, respectively, and $12,399,000 and
$15,832,000 as of August 31, 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
August 31, 1997 investment in sales-type leases of $626,000 net of deferred
interest of $37,000 is included in other assets. Interest income is
recognized over the life of the lease using the interest method.
Page 6
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Note 6 -- Acquisition
- ----------------------------
On September 22, 1997, Electro Rent Corporation entered into a definitive
agreement to acquire the computer and test and measurement equipment rental
business of GE Capital Technology Management Services (TMS), a division of GE
Capital Services, for $320 million in cash. The acquisition, which is expected
to close by October 31, 1997, is subject to certain closing conditions. On
October 6, 1997, the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1966 expired.
Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------
Results of Operations
Total revenues increased 2.0% to $38,917,000 for the three month period
ended August 31, 1997, over the same period last year, due to a 6.2%
increase in rental and lease revenues, partially offset by a 21.5% decline
in sales and other revenues.
The increase in rental and lease revenues for the three month period is
due primarily to increases in personal computer rental and lease contracts.
Sales of used equipment which decreased in the three month period is due to
a significant buyout of test equipment by one customer in the previous fiscal
year first quarter.
For the three month period ended August 31, 1997, depreciation expense
increased 5.5% as compared to the same prior year period, due to increases in
the pool of equipment for rental and lease. Costs of revenues other than
depreciation decreased 25.3% for the first quarter primarily as a result of a
reduction in cost of sales related to the decline in sales of used equipment.
For the three month period ended August 31, 1997, selling, general and
administrative expenses increased 10.1%, as compared with the same period in
fiscal 1997, primarily due to an increase in the number of employees and
increased facility and communications costs.
Interest expense decreased 62.3% for the three month period ended August
31, 1997, respectively, as a result of lower borrowings due to strong cash
flows.
Financial Condition and Liquidity
- -----------------------------------
During the first three months of fiscal 1998, net cash provided by operating
activities was $17,847,000, compared to $18,222,000 for the same period last
year. This decrease can be substantially attributed to an increase in
accounts receivable. Net cash used in investing activities for the three
month period increased from $14,185,000 in fiscal 1997 to $24,613,000 in
fiscal 1998 primarily due to substiantially increased purchases of rental and
lease equipment. Short-term bank borrowings increased $5,500,000 during the
first three months of fiscal 1998 as a result of payments for equipment
purchases, which compared with a $4,600,000 decrease in the prior year period.
On September 22, 1997, Electro Rent Corporation entered into a definitive
agreement to acquire the computer and test and measurement equipment rental
business of GE Capital Technology Management Services (TMS), a division of GE
Capital Services, for $320 million in cash. The acquisition, which is expected
to close by October 31, 1997, is subject to certain closing conditions. On
October 1, 1997, the Company received a commitment for bank financing for
the TMS acquisition in the form of a $360 million reducing revolving credit
facility.
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
(a) On October 9, 1997, the 1997 Annual Meeting of Shareholders of
the Registrant was held. Proxies pursuant to Regulation 14A were solicited in
connection with the meeting. 10,780,500 shares were present in person or by
proxy out of a total of 12,050,571 shares issued and outstanding and eligible
to vote on the record date.
(b) The meeting involved the election of directors. The following
directors were elected by the number of affirmative votes set opposite their
respective names:
Name Number of Votes
Gerald D. Barrone 10,739,285
Nancy Y. Bekavac 10,685,873
Daniel Greenberg 10,741,000
Joseph J. Kearns 10,739,285
S. Lee Kling 10,736,248
Michael R. Peevey 10,681,986
Will Richeson, Jr. 10,682,628
William Weitzman 10,744,037
(c) Other matters submitted to a vote of security holders:
The shareholders ratified the appointment of Arthur Andersen LLP as the
registrant's independent public accountants for the current year. 10,641,414
shares were voted for, 32,024 were voted against, and 107,062 shares abstained
from voting.
The shareholders also approved an Amendment to the Articles of Incorporation
to increase the authorized number of common shares from 20,000,000 to
40,000,000. 10,516,604 shares were voted for, 163,298 were voted against, and
55,797 shares abstained from voting.
Item 5.
- ----------------------------
Nothing to report.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
(b) Reports of Form 8-K
On October 1, 1997 a Report of Form 8-K was filed, relating to the
acquisition of the computer and test and measurement equipment rental business
of GE Capital Technology Management Services, a division of GE Capital
Services.
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: October 13, 1997 /s/ Daniel Greenberg
Daniel Greenberg
Chairman and Chief Executive Officer
DATED: October 13, 1997 /s/ William Weitzman
William Weitzman
President and Chief Operating
Officer
DATED: October 13, 1997 /s/ Craig R. Jones
Craig R. Jones
Vice President and
Chief Financial Officer
Page 10
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-1-1997
<PERIOD-END> AUG-31-1997
<PERIOD-TYPE> 3-MOS
<CASH> 1,002
<SECURITIES> 0
<RECEIVABLES> 24,369
<ALLOWANCES> 1,852
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 302,805
<DEPRECIATION> 138,732
<TOTAL-ASSETS> 194,924
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 10,026
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 194,924
<SALES> 4,525
<TOTAL-REVENUES> 38,917
<CGS> 4,157
<TOTAL-COSTS> 26,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> 11,824
<INCOME-TAX> 4,847
<INCOME-CONTINUING> 6,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,977
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
