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, 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 March 24, 1997 registrant had 12,021,496 shares of common stock
outstanding.
<PAGE>
ELECTRO RENT CORPORATION
FORM 10-Q
FEBRUARY 28, 1997
TABLE OF CONTENTS
Page
Part I: FINANCIAL INFORMATION
Condensed Consolidated Statements of Income for the Three Months
and Nine Months Ended February 28(29), 1997 and 1996 3
Condensed Consolidated Balance Sheets at
February 28, 1997 and May 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended February 28(29), 1997 and 1996 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 Nine Months Ended
February 28 (29) February 28 (29)
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rentals and leases $ 32,010 $ 29,447 $ 96,881 $ 87,885
Sales of equipment
and other revenues 4,794 4,464 16,045 14,950
-------- -------- --------- ---------
Total revenues 36,804 33,911 112,926 102,835
-------- -------- --------- ---------
Costs and expenses:
Depreciation of equipment 11,440 10,450 33,591 30,264
Costs of revenues other
than depreciation 4,613 4,905 15,409 15,720
Selling, general and
administrative expenses 10,679 9,540 31,201 28,617
Interest 173 754 705 1,898
-------- -------- --------- ---------
Total costs and expenses 26,905 25,649 80,906 76,499
-------- -------- --------- ---------
Income before income taxes 9,899 8,262 32,020 26,336
Income taxes 4,058 3,329 13,127 10,739
-------- -------- --------- ---------
Net income $ 5,841 $ 4,933 $ 18,893 $ 15,597
======== ======== ========= =========
Net income per common and common
equivalent share $ 0.47 $ 0.40 $ 1.52 $ 1.27
======== ======== ========= =========
Average common and common
equivalent shares outstanding 12,466 12,376 12,440 12,328
======== ======== ========= =========
<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 28 May 31
1997 1996
--------- ---------
<S> <C> <C>
Cash $ 485 $ 1,394
Accounts receivable, net 21,588 20,598
Rental and lease equipment, net
of accumulated depreciation 132,719 122,206
Other property, net of accumulated
depreciation and amortization 19,341 19,323
Other 7,240 7,907
--------- ---------
$ 181,373 $ 171,428
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank borrowings $ 8,100 $ 16,800
Accounts payable 17,678 16,433
Accrued expenses 10,231 11,876
Deferred income taxes 11,304 11,696
--------- ---------
Total liabilities 47,313 56,805
--------- ---------
Shareholders' equity
Common stock 9,985 9,441
Retained earnings 124,075 105,182
--------- ---------
Total shareholders' equity 134,060 114,623
--------- ---------
$ 181,373 $ 171,428
========= =========
<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>
Nine Months Ended
February 28 (29)
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,893 $ 15,597
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 34,693 31,311
Provision for losses on accounts receivable 605 502
Gain on sale of equipment (4,169) (4,130)
Change in operating assets and liabilities:
Increase in accounts receivable (1,595) (3,880)
Decrease in other assets 420 339
Decrease in accounts payable (869) (230)
Increase (decrease) in accrued expenses (1,645) 840
Decrease in deferred income taxes (392) (1,626)
--------- ---------
Net cash provided by operating activities 45,941 38,723
--------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 13,912 13,119
Payments for purchase of rental and lease equipment (51,733) (40,678)
Payments for purchase of other property (873) (1,194)
--------- ---------
Net cash used in investing activities (38,694) (28,753)
--------- ---------
Cash flows from financing activities:
Decrease in short-term bank borrowings (8,700) (10,800)
Proceeds from issuance of common stock 544 702
Payments for repurchase of common stock - (6)
--------- ---------
Net cash used in financing activities (8,156) (10,104)
--------- ---------
Net decrease in cash (909) (134)
Cash at beginning of period 1,394 432
--------- ---------
Cash at end of period $ 485 $ 298
========= =========
<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 12,466,000 and 12,376,000
for the three month periods ended February 28 (29), 1997 and 1996, and
12,440,000 and 12,328,000 for the nine month periods ended February 28 (29),
1997 and 1996, respectively.
Note 3 -- Interest and Income Taxes Paid
- -------------------------------------------
Total interest paid during the nine month period ended February 28 (29),
1997 and 1996 was $700,000 and $1,943,000, respectively. Total income taxes
paid during the nine month period ended February 28 (29), 1997 was $15,613,000
compared to $11,598,000 during the same period in the prior year.
Note 4 -- Noncash Investing and Financing Activities
- -------------------------------------------------------
The Company acquired equipment totaling $17,946,000 and $15,832,000 as
of February 28, 1997 and May 31, 1996, respectively, and $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 28, 1997 investment in sales-type leases of $660,000 net of deferred
interest of $42,000 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 8.5% to $36,804,000 for the three month period
ended February 28, 1997, over the same period last year, due to an 8.7%
increase in rental and lease revenues and a 7.3% increase in sales and other
revenues. For the nine months ended February 28, 1997, total revenues
increased 9.8% to $112,926,000, as a result of 10.2% higher rental and lease
revenues and a 7.3% increase in sales and other revenues. The increase in
rental and lease revenues for the three and nine month periods is due
primarily to increases in personal computer rental and lease contracts and
the LDI Computer Rentals acquisition in March 1997. Sales of used equipment
increased in the three and nine month periods is due to higher availability
of personal computers from lease returns and greater demand for test
equipment.
For the three and nine month periods ended February 28 (29), 1997,
depreciation expense increased 9.4% and 11.0%, 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 decreased 6.0%
for the third quarter, and 2.0% year to date, primarily as a result of a
reduction in repair parts and outside equipment service. For the three and
nine month periods ended February 28, 1997, selling, general and
administrative expenses increased 11.9% and 9.0%, respectively, as compared
with the same periods in fiscal 1996, primarily due to an 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 77% and 63%, for the three and nine
month periods ended February 28 (29), 1997, respectively, as a result of
lower borrowings due to strong cash flows.
Financial Condition and Liquidity
- -----------------------------------
During the first nine months of fiscal 1997, net cash provided by
operating activities was $45,941,000, compared to $38,723,000 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 nine month period
increased from $28,753,000 in fiscal 1996 to $38,694,000 in fiscal 1997,
primarily due to substiantially greater payments for purchase of rental and
lease equipment. Short-term bank borrowings decreased $8,700,000 during the
first nine months of fiscal 1997 as a result of continued positive cash flows,
which compared with a $10,800,000 decrease in the prior year period.
The Company expects cash flows from operating activities 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 the first three quarters.
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. As part of its strategy for
internal growth, the Company has committed to increased purchases of high
utilization test and measurement equipment over the next six to nine months.
<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: March 26, 1997 /s/ Daniel Greenberg
Daniel Greenberg
Chairman and Chief Executive Officer
DATED: March 26, 1997 /s/ William Weitzman
William Weitzman
President and Chief Operating
Officer
DATED: March 26, 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> FEB-28-1997
<PERIOD-TYPE> 9-MOS
<CASH> 485
<SECURITIES> 0
<RECEIVABLES> 23,505
<ALLOWANCES> 1,917
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 286,258
<DEPRECIATION> 134,198
<TOTAL-ASSETS> 181,373
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 9,985
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 181,373
<SALES> 16,045
<TOTAL-REVENUES> 112,926
<CGS> 15,409
<TOTAL-COSTS> 80,201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 705
<INCOME-PRETAX> 32,020
<INCOME-TAX> 13,127
<INCOME-CONTINUING> 18,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,893
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
