<PAGE>
This filing consists of 95 pages.
The Exhibit Index is on Page 56.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
X Annual Report Pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934 for fiscal year ended March 31, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
COMMISSION FILE NUMBER D-15159
RENTRAK CORPORATION
(exact name of registrant as specified in its charter)
OREGON 93-0780536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number.)
7227 N.E. 55TH AVENUE, PORTLAND, OREGON 97218
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (503) 284-7581
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
(Title of Class)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K [ ]
As of June 25, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the last sales price as reported by
NASDAQ was $4.3125.
(Excludes value of shares of Common Stock held of record by directors and
officers and by shareholders whose record ownership exceeded five percent of the
shares outstanding at June 25, 1996. Includes shares held by certain depository
organizations.)
As of June 25, 1996, the Registrant had 12,139,639 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE 1996 ANNUAL MEETING
OF THE SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS
FORM 10-K
<PAGE>
TABLE OF CONTENTS
PART I
Item Page
- ---- ----
1. Business 3
2. Properties 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for the Registrant's Common Stock and Related 11
Stockholder Matters
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial 13
Conditions and Results of Operations
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
PART III
10. Directors and Executive Officers of the Registrant 53
11. Executive Compensation 53
12. Security Ownership of Certain Beneficial Owners 53
and Management
13. Certain Relationships and Related Transactions 53
PART IV
14. Exhibits, Financial Statement Schedules and 54
Reports on Form 8-K
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
The Company's primary business is the distribution of video cassettes to
home video specialty stores under its Pay Per Transaction program through its
Rentrak Home Entertainment division ("RHE"). In addition, the Company operates
a number of "store within a store" retail video outlets which rent and sell
video cassettes in Wal-Mart and K-Mart stores through its BlowOut Entertainment
Inc., ("BlowOut") subsidiary. The Company also operates a number of retail
stores which sell professional and college licensed sports apparel merchandise
through its Pro Image Inc., (Pro Image) subsidiary.
The Company approved plans to discontinue the operations of Pro Image and
BlowOut. [See Note 15 of the Notes to The Consolidated Financial Statements and
See "Business/License Sports Apparel" and "Business/Video Retail".]
PAY-PER-TRANSACTION
The Company distributes pre-recorded video cassettes ("Cassettes")
principally to home video specialty stores under its Pay Per Transaction revenue
sharing system (the "PPT System"). The PPT System enables home video specialty
stores and other retailers, including grocery stores and convenience stores, who
rent Cassettes to consumers ("Retailers") to obtain Cassettes at a significantly
lower initial cost than if they purchased the Cassettes from conventional video
distributors. Under the PPT System, after the Retailer pays a processing fee
(the "Processing Fee") to the Company and is approved for participation in the
PPT System, Cassettes are leased to the Retailer for a one-time fee (the
"Handling Fee") plus a percentage of revenues generated by retailers from
rentals to consumers (the "Transaction Fee"). The Company retains a portion of
each Handling and Transaction Fee and remits the remainder to the appropriate
owner of the Cassette's distribution rights, usually motion picture producers,
licensees or distributors ("Program Suppliers"). The anticipated benefit to the
Retailer is a higher volume of rental transactions, as well as a reduction in
capital cost and risk. The anticipated benefit to the Program Supplier is an
increase in the total number of Cassettes shipped, resulting in increased
revenues and opportunity for profit. The anticipated benefit to the consumer is
the potential of finding more copies of certain newly released hit titles and a
greater selection of other titles at Retailers participating in the PPT System
("Participating Retailers").
The Company markets its PPT System service throughout the United States and
Canada. The Company also owns a twenty-five percent interest in K.K. Rentrak
Japan, a Japanese corporation which markets a similar service to video retailers
in Japan. Prior to June 16, 1994, the Company's ownership position in K.K.
Rentrak Japan was thirty three and one-third percent.
Under conventional distribution, a Program Supplier sells the Cassette to a
distributor for an average price of approximately $62. The distributor then
sells the Cassette to a Retailer for an average price of approximately $67. The
Retailer then rents the Cassette to the consumer at an average price of $2.50
and retains all of the rental revenue.
The Company currently offers substantially all of the titles of thirty-
three companies, including Twentieth Century Fox Home Entertainment (formerly
Fox Video), a subsidiary of Twentieth Century Fox Film Corporation, and Buena
Vista Pictures Distribution, Inc., a subsidiary of The Walt Disney Company. The
Company's arrangements with Program Suppliers have been of varying duration,
scope and formality. The Company has one program supplier that supplied
product that generated 39 percent, a second that generated 21 percent, and a
third that generated 15 percent of Rentrak revenues for the year ended March 31,
1996. There were no other program
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suppliers who provided product accounting for more than 10 percent of sales for
the year ended March 31, 1996. In some cases, the Company has obtained
Cassettes pursuant to contracts or arrangements with Program Suppliers on a
title-by-title basis and in other cases the contracts or arrangements provide
that all Cassettes released for distribution by such Program Supplier will be
provided to the Company for the PPT System. Many of the Company's agreements
with suppliers may be terminated upon relatively short notice. There can be no
assurance that any of the Program Suppliers will continue to distribute through
the Company's PPT System, continue to have available for distribution Cassettes
which the Company can distribute on a profitable basis, or continue to remain in
business. Even if Cassettes are otherwise available from Program Suppliers to
the Company, there can be no assurance that they will be made available on terms
acceptable to the Company. During the last three years, the Company has not
experienced any material deficiency in its ability to acquire cassettes which
are suitable for the Company's markets on acceptable terms and conditions from
Program Suppliers who have agreed to provide the same to the Company.
Certain Program Suppliers have requested and the Company has provided
financial or performance commitments from the Company, including advances,
warrants, letters of credit or guarantees as a condition of obtaining certain
titles. The Company has provided such commitments primarily to induce Program
Suppliers to begin participation in the PPT System and to demonstrate its
financial benefits. The Company determines whether to provide such commitments
on a case-by-case basis, depending upon the Program Supplier's success with such
titles prior to home video distribution and the Company's assessment of expected
success in home rental distribution. The Company intends to continue this
practice of providing such commitments and there can be no assurance that this
practice will not in the future result in losses which may be material.
DISTRIBUTION OF CASSETTES
The Company's proprietary RPM Software allows the Retailer to order
Cassettes through their Point of Sale (POS) system and provides the Retailer
with substantial information regarding all offered titles. Ordering occurs via
a networked computer interface. To further assist the Retailer in ordering, the
Company also produces a monthly product catalogue called "Ontrak."
To be competitive, Retailers must be able to rent their Cassettes on the
"street date" announced by the Program Supplier for the title. The Company
distributes its Cassettes via overnight air courier to assure delivery to
Participating Retailers on the street date. The costs of such distribution
comprises a portion of the Company's cost of sales.
COMPUTER OPERATIONS
To participate in the Company's PPT System, Retailers must have approved
computer software and hardware to process all of their rental and sale
transactions. Retailers are required to use one of the POS software vendors
approved by the Company as conforming to the Company's specifications. The
Company's Rentrak Profit Maker Software (the "RPM Software") resides on the
Retailer's POS computer system and transmits a record of PPT transactions to the
Company over a telecommunications network. The RPM Software also assists the
Retailer in ordering newly released titles and in managing the inventory of
Cassettes.
The Company's computer processes these transactions and prepares reports
for Program Suppliers and Retailers. In addition, it determines variations from
statistical norms for potential audit action. The Company's computer also
transmits information on new titles and confirms orders made to the RPM Software
at the Retailer location.
Streamlined Solutions, Inc., ("SSI") an Oregon corporation, is a wholly
owned subsidiary of the Company. SSI markets the Company's expertise in such
areas as information processing and just in time distribution.
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RETAILER AUDITING
The Company audits Participating Retailers in order to verify that they are
reporting all rentals and sales on a consistent, accurate and timely basis.
Several different types of exception reports are produced weekly. These reports
are designed to identify any Participating Retailers who vary from the Company's
statistical norms. Depending upon the results of the Company's analysis of the
reports, the Company may conduct an in-store audit. Audits are conducted with
and without notice and refusal to allow such an audit is cause for immediate
termination from the PPT System. If audit violations are found, the
Participating Retailer is subject to fines, audit penalties, immediate removal
from the PPT System and repossession of all leased Cassettes.
SEASONALITY
The Company believes that the home video industry is seasonal because
Program Suppliers tend to introduce hit titles at two periods of the year, early
summer and Christmas. Since the release to home video usually follows the
theatrical release by approximately six months (although significant variations
do occur on certain titles), the seasonal peaks for home video also generally
occur in early summer and at Christmas. The Company believes its volume of
rental transactions reflects, in part, this seasonal pattern, although the
growth of Program Suppliers, titles available to the Company, and Participating
Retailers may tend to obscure any seasonal effect. The Company believes such
seasonal variations may be reflected in future quarterly patterns of its
revenues and earnings.
RETAILER FINANCING PROGRAM
The Company has established a retailer financing program whereby on a
selective basis, the Company will provide financing to video retailers which the
Company believes have the potential for substantial growth in the industry. In
connection with these financings, the Company typically makes a loan and/or
equity investment in the retailer. In some cases, a warrant to purchase stock
may be obtained. As part of such financing, the retailer typically agrees to
cause all of its current and future retail locations to participate in the PPT
System for a designated period of time (usually 5 - 20 years). Under these
agreements, retailers are typically required to obtain all of their requirements
of cassettes offered under the PPT system or obtain a minimum amount of
cassettes based on a percentage of the retailer's revenues. Notwithstanding the
long term nature of such agreements, both the Company and the retailer may, in
some cases, retain the right to terminate such agreement upon 30-90 days prior
written notice. These financings are highly speculative in nature and involve a
high degree of risk and no assurance of a satisfactory return on investment can
be given. The Board of Directors has authorized up to $14 million to be used in
connection with the Company's retailer financing program. As of June 25, 1996,
the Company has invested or made oral or written commitments for substantially
all of the $14 million authorized for this program. [See Note 4 of the Notes to
the Consolidated Financial Statements.]
As of March 31, 1996, the Company has invested or loaned approximately $7.3
million under the program. Because of the financial condition of a number of
these retailers, the Company significantly increased its reserves to
approximately $6.0 million of the original loan or investment amount. Of the
$1.3 million which has not been reserved at March 31, 1996, $1 million of it was
received by the Company subsequent to fiscal year end.
COMPETITION
The home video industry is highly competitive. The Company has one direct
competitor presently distributing cassettes on a revenue sharing basis. The
Company, SuperComm, Inc., is a wholly-owned subsidiary of The Walt Disney Co.
and has thus far concentrated its efforts in the supermarket industry. In
addition, the Company faces substantial competition from conventional
distributors. The Company's competitors include organizations which have
existing distribution
<PAGE>
networks, long-standing relationships with Program Suppliers and Retailers,
and/or significantly greater financial resources than the Company.
In addition to the direct competition described above, the Company faces
indirect competition from alternative delivery technologies which are intended
to provide video entertainment directly to the consumer. These technologies
include: 1) direct broadcast satellite transmission systems, which broadcast
movies in digital format direct from satellites to small antennas in the home;
2) cable systems which may transmit digital format movies to the home over cable
systems employing fiber-optic technology and 3) pay cable television systems,
which may employ digital data compression techniques to increase the number of
channels available and hence the number of movies which can be transmitted.
Another source of indirect competition comes from Program Suppliers releasing
titles intended for "sell-through" rather than rental to consumers at
approximately $20 to $30. To date, such "sell-through" pricing has generally
been limited to certain newly released hit titles with wide general family
appeal. As the Company's business is dependent upon the existence of a home
video rental market, a substantial shift in the video business to alternative
technologies or "sell-through" policies could have a material adverse effect on
the Company's business.
FOREIGN OPERATIONS
On December 20, 1989, the Company entered into an agreement with Culture
Convenience Club, Co., Ltd. (CCC), a Japanese corporation, which is Japan's
largest video specialty retailer. CCC believes it represents over ten (10%)
percent of the retail video rental market in Japan. Pursuant to the agreement,
the parties formed Rentrak Japan, a corporation, which is presently owned
twenty-five percent by the Company and seventy-five percent by CCC's shareholder
Company, Tsutaya Shoten Co., Ltd. Rentrak Japan was formed to implement the
Company's PPT Program in Japan, with future expansion to The Philippines,
Singapore, Taiwan, Hong Kong, South Korea, North Korea, China, Thailand,
Indonesia, Malaysia and Vietnam. The Company provided its PPT technology and
the use of certain trademarks and service marks to Rentrak Japan, and CCC
provided management personnel, operating capital, and adaptation of the PPT
technology to meet Japanese requirements. On August 6, 1992, the Company
entered into an expanded definitive agreement with CCC to develop Rentrak's PPT
Program in certain markets throughout the world.
Prior to June 16, 1994 the Company owned a thirty three and one-third
percent interest in Rentrak Japan. On June 16, 1994, the company and CCC
entered into an amendment to the definitive agreement (the "agreement").
Pursuant to this agreement, as amended, the Company will receive a royalty of
1.67% for all sales of up to $47,905,000 plus one-half of one percent of sales
greater than $47,905,000 in each royalty year which is June 1 - May 31. The
amendment provides for payment to the Company of a one time royalty of
$2,000,000 payable $1,000,000 by July 31, 1994, which the Company received, and
$1,000,000 no later than March 31, 1999. The Company also sold to CCC 34 shares
of Rentrak Japan reducing the Company's ownership in Rentrak Japan to twenty-
five percent from thirty three and one-third percent. The term of the Agreement
has been extended from the year 2001 to the year 2039.
TRADEMARKS, COPYRIGHTS, AND PROPRIETARY RIGHTS
The Company has registered its "RENTRAK", "PPT", "Pay Per Transaction",
"Ontrak", "BudgetMaker", "DataTrak", "Prize Find" and "BlowOut Video" marks
under federal trademark laws. The Company has applied and obtained registered
status in several foreign countries for many of its trademarks. The Company
claims a copyright in its RPM Software and considers it to be proprietary.
<PAGE>
EMPLOYEES
As of March 31, 1996, including all subsidiaries, the Company employs 1,668
full-time employees. The Company considers its relations with its employees to
be good. As of March 31, 1996, RHE employed 206 full-time employees.
LICENSED SPORTS APPAREL
In March 1996, The Board of Directors approved in principal the spin-off of
The Pro Image Inc., ("Pro Image") into a separate public company pursuant to
which Rentrak would dividend to its shareholders shares of Pro Image
representing 100% ownership of Pro Image. Since then, the Company has been
approached by parties interested in acquiring Pro Image. This divestiture is
expected to be completed by fiscal year end. The proposed divestiture through
stock dividend is subject to a number of conditions, including formal
declaration of a dividend by the Board of Directors.
On October 15, 1993, the Company acquired all of the outstanding shares of
common stock of Pro Image, a Utah corporation. At the time of acquisition Pro
Image was primarily a franchisor of retail sports apparel stores, with
approximately 200 franchisees. On August 31, 1994, the Company acquired all of
the outstanding common stock of Team Spirit, Inc. ("Team Spirit"). Team Spirit
at that time operated 39 sports licensed apparel stores in fifteen states
primarily located in the Midwestern United States. Simultaneous with the
acquisition, Rentrak transferred all of the assets of Team Spirit to Pro Image
and Team Spirit became a wholly owned subsidiary of Pro Image.
On October 5, 1994, Rentrak acquired all of the outstanding common stock of
Image Makers, Inc, and Barenz-Runia, Inc. These companies were franchisees of
Pro Image and operated seven stores in the Pacific Northwest. On July 10, 1995,
Rentrak acquired certain assets of Carlson Interest Incorporated ("Carlson").
This company was a franchisee of Pro Image and operated seven stores in the
midwestern United States. Simultaneous with these acquisitions, the net assets
of the combined companies were transferred to Pro Image.
As of March 31, 1996, Pro Image had approximately 167 franchise stores in
43 states, Canada, Germany, Mexico, Japan, Korea and Indonesia. Pro Image also
operates 66 company-owned retail stores in 28 states throughout the country.
The franchisees and company-owned stores are primarily located in major regional
malls. Pro Image also generates revenue via sales of product to franchisees.
These sales are provided as a service to the franchisees and are not profitable.
INTERNATIONAL FRANCHISING
Another area of potential growth in Pro Image's business is international
franchising. In 1996, Pro Image sold master franchise agreements in Japan,
Korea, Indonesia, Malaysia and United Arab Emirates and generated $1.0 million
in international franchise fees. In signing international master franchise
agreements, Pro Image contracts with an individual residing in the applicable
country, providing rights to the trademarks and tradenames as well as training
and support. Pro Image receives an initial franchise fee as well as a
percentage of royalties on all subsequent franchises sold by the master
franchisee.
SEASONALITY
Pro Image's regional mall-based stores are heavily dependent on the
Christmas holiday season. Approximately 35% of annual sales and the majority of
the profits in mall-based stores are generated in the months of November and
December.
<PAGE>
COMPETITION
Pro Image faces intense competition for customers and for suitable store
locations from a variety of retailers. Pro Image competes with traditional and
specialty retailers (regional chains, specialty stores, local operators and mail
order companies), mass merchandisers (discount stores and department stores) and
large format retailers (warehouse and superstore operators). Some of these
competitors have substantially greater resources than the Company.
FOREIGN OPERATIONS
Pro Image currently has 19 franchise stores in Canada, 2 in Mexico, 1 in
Japan and 1 in Germany. In addition, during the first quarter of fiscal 1996,
Pro Image signed master franchise agreements in Korea, Japan, Indonesia,
Malaysia and United Arab Emirates
TRADEMARKS, COPYRIGHTS, AND PROPRIETARY RIGHTS
The Company owns the registered marks, "The Pro Image", "The Pro Image U
Shop", "The Pro Image Everything For The Sports Fan" and "The Pro Image Campus".
EMPLOYEES
As of March 31, 1996, Pro Image employed 393 employees. None of Pro
Image's employees are represented by a labor union. Pro Image considers its
relations with its employees to be good.
VIDEO RETAIL
In June 1996, the Board of Directors of the Company approved in principal
the spin-off of BlowOut into a public company pursuant to which Rentrak would
dividend to its shareholders shares of BlowOut representing 73.1 percent
ownership of BlowOut. Rentrak will retain 19.9 percent and certain minority
shareholders will retain 7 percent. Final disposition of BlowOut is expected to
be completed by fiscal year end. The proposed divestiture through a stock
dividend is subject to a number of conditions, including formal declaration of a
dividend by the Board of Directors.
The Company's 93 percent owned subsidiary, BlowOut Entertainment, Inc.
(BlowOut) is engaged in the business of operating "store within a store" retail
video outlets which rent and sell motion picture video cassettes, video games,
computer games and programs on CD-Rom in Wal-Mart Super Centers, Super Kmart
Centers and Ralph's grocery stores. As of March 31, 1996, BlowOut operated 187
stores.
On August 31, 1994, the Company acquired 169,230 newly issued shares of
common stock of Entertainment One, Inc (E-1) valued at $338,460 in lieu of a
financing fee associated with $1,700,000 of financing provided by the Company to
E-1. On December 1, 1994, the Company acquired 500,000 newly issued shares of
common stock in E-1 at $2.00 per share. On May 26, 1995, the Company purchased
3,200,000 shares of common stock of E-1 from an E-1 stockholder at $.004 per
share. Following the acquisition, the Company owned approximately 57 percent of
the outstanding shares of E-1.
On October 20, 1995, the Company purchased from E-1 $985,591 principal
amount of convertible debentures, all of which were converted into 13,798,275
shares of common stock of E-1 on December 15, 1995. Also on December 15, 1995,
the Company converted a $2,000,000 line of credit that it had provided to E-1
into 28,000,000 shares of common stock of E-1. Following these transactions,
the Company owned 93 percent of the outstanding shares of E-1.
<PAGE>
On August 31, 1995, the Company acquired certain assets and assumed certain
liabilities of Supercenter Entertainment Corporation (SEC), which constituted
the Wal-Mart and Kmart "store within a store" video retail operations of SEC.
The Company issued 878,000 shares of Rentrak common stock with an aggregate
market value of approximately $5,200,000 in consideration for the SEC business.
DEVELOPMENT COSTS; LACK OF PROFITABILITY
Substantial capital outlays are required to open each new store. BlowOut's
operating cash flow is not sufficient to fund all of the planned expansion, and
as a result BlowOut will have to obtain other debt or equity financing or expand
less aggressively. There can be no assurance that either the Company or BlowOut
will be able to obtain any such additional financing on reasonable terms.
Furthermore, BlowOut has not operated at a profit and there can be no assurance
that it will at any time in the foreseeable future.
SEASONALITY
Future operating results may be affected by the number and timing of store
openings, the quality of new release titles available for rental and sale,
weather and other special and unusual events. In addition, any concentration of
new store openings and related new store pre-opening costs near the end of a
fiscal quarter could have an adverse effect on the financial results for that
quarter. See "Competition" under PPT Business for further information.
COMPETITION
The video rental industry is highly competitive, with numerous national,
regional and local video operators. Competitors such as Blockbuster Video have
substantially greater financial resources and marketing capabilities. Because a
majority of the Wal-Mart and K-Mart stores in which BlowOut operates retail
video outlets are located in rural areas, the video operations also face
competition from supermarket rental operations, one of the fastest growing
segments of the video rental market. In addition, BlowOut competes with a
number of other leisure and retail entertainment providers, including
television, movie theaters, bowling alleys and sporting events.
Both the Company and BlowOut's retail video operations are subject to the
same competition from alternative delivery technologies for home video
entertainment as the PPT System. See "Competition" under PPT business for
further information.
DEPENDENCE ON WAL-MART
BlowOut has entered into master leases with Wal-Mart and K-Mart. Of the
187 stores opened, 75 percent are located inside Wal-Mart. The master leases
provide for an initial five-year term for each new store, with an additional
five-year optional renewal term. Either party to the Wal-Mart lease can elect
to close stores which fail to generate a minimum level of revenues, and any such
closure at the request of BlowOut would require BlowOut to pay Wal-Mart a
termination fee of $3,000 for each store closed. BlowOut does not have any
exclusive right to open stores or any control over the geographic area or market
in which the new stores will be located. The master leases also allow Wal-Mart
under certain conditions, to establish minimum price points on videocassette
titles which are being sold in particular Wal-Mart stores.
BlowOut is highly dependent on its relationships with its host stores.
There can be no assurance that Wal-Mart, K-Mart or Ralph's will open additional
stores in locations which are commercially viable for retail video operations,
or that the number of future stores opened by Wal-Mart or K-Mart will meet
BlowOut's current expansion plans. Either host store could change its
development or operation plans at any time, and there can be no assurance that
BlowOut will be
<PAGE>
able to operate stores within either the Wal-Mart or K-Mart stores for any
period of time following the expiration of the term of each store's lease
provided in the master leases. Furthermore, if either Wal-Mart, K-Mart or
Ralph's terminates its relationship with BlowOut, there can be no assurance that
BlowOut could find a suitable retail mass merchant with sufficient stores to
support their "store within a store" retail concept.
EMPLOYEES
As of March 31, 1996, BlowOut employed 1,010 employees. BlowOut considers
its relations with its employees to be good.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 14 of the Notes to the Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company currently maintains its executive offices in Portland, Oregon
where it leases a 30,000 square foot building for its executive offices. The
Company's lease expires on November 30, 1997. During 1995, the Company entered
into a lease agreement for a new 53,566 square foot corporate headquarters which
is currently under construction. This new lease begins on January 1, 1997 or
when the building is available and expires on December 31, 2006. The Company
maintains its distribution facilities in Wilmington, Ohio where it leases
102,400 square feet. The Company's lease expires on June 7, 2002. Pro Image
leases it's corporate headquarters offices at Bountiful, Utah in an 11,500
square foot office building. Pro Image's corporate stores are leased facilities
located throughout the country. The average size of a Pro Image corporate store
is approximately 2,000 square feet. BlowOut's retail stores are leased under
master lease agreements with Wal-Mart, K-Mart and Ralphs throughout the United
States. The Wal-Mart and K-Mart master leases are for an initial five-year term
for each new store, with an additional five-year optional renewal term.
Management believes its office and warehouse space is adequate and suitable for
its current and foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Subsequent to year end, a lawsuit was filed against Pro Image in Los
Angeles County Superior Court by Stewart Jin Park, claiming $3 million in
compensatory damages plus punitive damages, costs and attorney fees for breach
of contract and other claims based upon the alleged refusal to award him certain
franchises. Pro Image believes this law suit is without merit and intends to
contest the matter vigorously. Management is of the opinion that the ultimate
outcome of this matter will not have a material, adverse effect on Rentrak's
financial position or results of operations.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
any ultimate liability with respect to these actions should not materially
affect the financial position or results of operations of the Company as a
whole.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter of
the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $.001 par value, is traded on the NASDAQ
National Market System and prices are quoted on the NASDAQ National Market
System under the symbol "RENT". Prior to the Company's public offering on
November 14, 1986, there was no public market for the common stock. As of June
25, 1996 there were approximately 416 holders of record of the Company's common
stock. On June 25, 1996, the closing sales price of the common stock as quoted
on the NASDAQ National Market System was $4.375.
The following table sets forth the reported high and low sales prices of
the common stock for the period indicated as regularly quoted on the NASDAQ
National Market System. The over-the-counter market quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
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QUARTER ENDED HIGH LOW
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JUNE 30, 1994 $ 7.50 $ 4.75
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SEPTEMBER 30, 1994 $ 9.375 $ 6.25
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DECEMBER 31, 1994 $ 9.25 $ 6.25
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MARCH 31, 1995 $ 8.75 $ 6.25
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JUNE 30, 1995 $ 7.00 $ 4.575
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SEPTEMBER 30, 1995 $ 6.625 $ 5.375
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DECEMBER 31, 1995 $ 6.625 $ 4.625
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MARCH 31, 1996 $ 5.875 $ 4.25
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DIVIDENDS:
No cash dividends have been paid or declared during the last five fiscal
years. The present policy of the Board of Directors is to retain earnings to
provide funds for operation and expansion of the Company's business. The
Company does not intend to pay cash dividends in the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts)
Year Ended March 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues:
Processing fees $ 2,260 $ 2,299 $ 1,662 $ 1,114 $ 551
Handling fees 11,063 12,170 13,712 18,052 25,716
Transaction fees 27,738 33,399 40,967 49,904 70,187
Sell-through 5,196 4,980 5,665 8,923 10,601
Other 1,165 1,237 1,955 6,555 6,211
International operations 0 200 116 0 0
-------------------------------------------------------------------
Total net revenues 47,422 54,285 64,077 84,548 113,266
Cost of sales 37,759 41,297 49,697 66,375 95,168
-------------------------------------------------------------------
Gross profit 9,663 12,988 14,380 18,173 18,098
Selling and administrative expense 10,138 14,742 14,008 15,527 20,860
Suspension of European operations 0 0 901 0 0
Other income (expense) 242 521 538 3,522 681
-------------------------------------------------------------------
Income (loss) from continued operations before
benefit (provision) for income taxes, minority
partner interests and extraordinary item (233) (1,233) 9 6,168 (2,081)
Income tax benefit (provision) 0 (305) 764 (768) 595
-------------------------------------------------------------------
Income (loss) from continued operations before
minority partner interests and extraordinary item (233) (1,538) 773 5,400 (1,486)
Losses attributable to minority partner
interests 0 649 131 0 0
-------------------------------------------------------------------
Income (loss) from continued operations before
extraordinary item (233) (889) 904 5,400 (1,486)
Discontinued Operations: (1)
Loss from operations of discontinued subsidiaries
less applicable income tax provision (benefit) (286) (91) (287) (18,700)
Loss on disposal of subsidiaries (12,100)
Extraordinary item, income tax benefit from
carryforward of net operating losses 0 280 0 0 0
-------------------------------------------------------------------
Net income (loss) $ (233) $ (895) $ 813 $ 5,113 $(32,286)
-------------------------------------------------------------------
-------------------------------------------------------------------
Net income (loss) per share - assuming issuance
of all dilutive contingent shares
Continuing operations $ (0.03) $ (0.07) $ 0.09 $ 0.42 $ (0.12)
Discontinued operations 0.00 (0.03) (0.01) (0.02) (2.56)
-------------------------------------------------------------------
Net income (loss) $ (0.03) $ (0.10) $ 0.08 $ 0.40 $ (2.68)
-------------------------------------------------------------------
-------------------------------------------------------------------
Common shares and common share equivalents
outstanding 8,552 9,306 10,162 14,317 12,019
</TABLE>
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (2)
Working Capital $ 18,875 $ 17,116 $ 16,155 $ 12,897 $(12,579)
Total Assets 27,582 34,824 44,620 64,818 56,252
Long-term Debt 5 0 0 0 0
Stockholders' Equity 21,398 22,722 29,523 40,292 14,404
</TABLE>
(1) Discontinued Operations includes the operations of TPI and BlowOut.
Results of operations in 1993 reflect only those of BlowOut as TPI was
acquired during fiscal year 1994. Additional acquisitions were made by TPI
and BlowOut during 1995 and 1996, therefore comparisons between years are
not meaningful. See acquisitions footnote 8 and discontinued operations
footnote 15 in the consolidated financial statements.
(2) The 1995 and prior balance sheets have not been restated for discontinued
operations.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Information included in Management's Discussion and Analysis of Financial
Conditions and Results of Operations regarding revenue growth, gross profit
margin and liquidity constitute forward-looking statements that involve a number
of risks and uncertainties. The following factors are among the factors that
could cause actual results to differ materially from the forward-looking
statements: non-renewal of line of credit, business conditions and growth in the
video industry and general economics, both domestic and internationals;
competitive factors, including increased competition, new technology, and the
continued availability of cassettes from Program Suppliers.
RESULTS OF OPERATIONS
As discussed in the Notes to the Consolidated Financial Statements, the Company
approved plans to discontinue the operations of Pro Image and BlowOut.
Accordingly the financial results of these entities are reflected as
discontinued operations in the March 31, 1996 financial statements, and the
previous years' statements of operations have been restated to reflect these
entities as discontinued. The 1995 and prior balance sheets have not been
restated.
For a more meaningful analysis, results are presented for three groups of
operations: Continuing Operations which is comprised primarily of Domestic PPT
Operations, including Canada PPT Operations; Discontinued Operations of Pro
Image; and Discontinued Operations of BlowOut. The following table(s) breaks
out these groups for the years ended March 31, 1996, 1995 and 1994. All
significant intercompany transactions have been eliminated except for those
transactions between continuing and discontinued operations which are expected
to continue in the future after disposition of the entities. This analysis is
to be read in conjunction with the Company's Consolidated Financial Statements.
<PAGE>
Rentrak Corporation
Statement of Operations
For the Twelve Months Ended March 31, 1994, March 31, 1995 and March 31, 1996
<TABLE>
<CAPTION>
March 31, March 31, March 31,
Continuing Operations 1994 1995 1996
----------------------------------------------------
<S> <C> <C> <C>
Revenue $64,076,512 $84,547,899 $113,266,320
Operating Costs and Expenses
Cost of Sales 49,697,063 66,374,471 95,167,529
Selling & Administrative 14,908,294 15,526,912 20,859,923
----------------------------------------------------
Income/(Loss) from Operations (528,845) 2,646,516 (2,761,132)
Other Income 538,044 3,522,039 680,671
----------------------------------------------------
Income/(Loss) for Continuing Operations
Before (Provision) Benefit for Income Taxes 9,199 6,168,555 (2,080,461)
Income Tax (Provision) Benefit 763,919 (768,045) 594,792
----------------------------------------------------
Income/(Loss) from Continuing Operations 773,118 5,400,510 (1,485,669)
Losses Attributable to Minority Partner Interests 130,918 0 0
Income/(Loss) From Operations of
Discontinued Subsidiaries, Net of Income Taxes (90,971) (286,987) (18,700,000)
Loss on Disposal of Discontinued Subsidiaries 0 0 (12,100,000)
----------------------------------------------------
Net Income (Loss) $813,065 $5,113,523 ($32,285,669)
----------------------------------------------------
----------------------------------------------------
</TABLE>
<PAGE>
Rentrak Corporation
Statement of Operations
For the Twelve Months Ended March 31, 1994, March 31, 1995 and March 31, 1996
<TABLE>
<CAPTION>
March 31, March 31, March 31,
Discontinued Operations - Pro Image 1994 1995 1996
--------------------------------------------------
<S> <C> <C> <C>
Revenue $3,950,705 $26,363,211 $39,131,760
Operating Costs and Expenses
Cost of Sales 2,245,000 16,840,331 24,325,523
Selling & Administrative 1,264,924 9,252,704 19,383,052
Other Expense - Writeoff of Intangible Assets - - 9,179,239
--------------------------------------------------
Income/(Loss) from Operations 440,781 270,176 (13,756,054)
Other Income (Expenses) (61,450) (130,754) (242,299)
--------------------------------------------------
Net Income (Loss) Before Tax Provision $379,331 $139,422 ($13,998,353)
--------------------------------------------------
--------------------------------------------------
Discontinued Operations - Blowout Entertainment
Revenue $869,270 $1,255,121 $17,466,804
Operating Costs and Expenses
Cost of Sales 219,764 318,526 13,961,420
Selling & Administrative 1,119,980 1,403,818 10,074,040
--------------------------------------------------
Income/(Loss) from Operations (470,474) (467,223) (6,568,656)
Other Income (Expenses) 172 0 (689,103)
--------------------------------------------------
Net Income (Loss) Before Tax Provision ($470,302) ($467,223) ($7,257,759)
--------------------------------------------------
--------------------------------------------------
Discontinued Operations - Combined
Pro Image & BlowOut Entertainment
Revenue $4,819,975 $27,618,332 $56,598,564
Operating Costs and Expenses
Cost of Sales 2,464,764 17,158,857 38,286,943
Selling & Administrative 2,384,904 10,656,522 29,457,092
Other Expense - Writeoff of Intangible Assets - - 9,179,239
--------------------------------------------------
Income/(Loss) from Operations (29,693) (197,047) (20,324,710)
Other Income (Expenses) (61,278) (130,754) (931,402)
--------------------------------------------------
Net Income (Loss) Before Tax Provision (90,971) (327,801) (21,256,112)
Income Tax (Provision) Benefit 0 40,814 2,556,112
--------------------------------------------------
Net Income (Loss) ($90,971) ($286,987) ($18,700,000)
--------------------------------------------------
--------------------------------------------------
</TABLE>
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
CONTINUING OPERATIONS - DOMESTIC PPT OPERATIONS AND OTHER CONTINUING
SUBSIDIARIES
For the year ended March 31, 1996, total revenue increased $28.8 million,
or 34 percent, rising to $113.3 million from $84.5 million in the prior year.
Total revenue includes the following fees: processing fees generated when
retailers are approved for participation in the PPT system; handling fees
generated when prerecorded videocassettes ("Cassettes") are distributed to
retailers; transaction fees generated when retailers rent Cassettes to
consumers; sell-through fees generated when retailers sell Cassettes to
consumers; royalty payments from Rentrak Japan; and sale of video cassettes.
The increase in total revenue and the increases described in the following
paragraphs were primarily due to the growth in (i) the number of retailers
approved to lease Cassettes under the PPT system from the Company (the
"Participating Retailers"); (ii) the number of participating program suppliers
("Program Suppliers"), primarily Buena Vista; (iii) the number of titles
released to the system; and (iv) the total number of Cassettes leased under the
system. By fiscal year-end, the number of Participating Retailers had grown 29
percent to 4,659 from 3,614 a year earlier. As of March 31, 1996, there were
3,922 retailers located in the United States and 737 located in Canada.
In fiscal 1996, processing-fee revenue decreased to $0.6 million from $1.1
million in fiscal 1995, a decline of $0.5 million, or 45 percent. The decrease
was due to a reduction in the amount of processing fees charged. During the
year, handling-fee revenue rose to $25.7 million from $18.1 million in fiscal
1995, an increase of $7.6 million, or 42 percent. Transaction-fee revenue
totaled $70.0 million, an increase of $20.1 million, or 40 percent, from $49.9
million the previous year. Sell-through revenue was $10.6 million in fiscal
1996 as compared to $8.9 million in fiscal 1995, an increase of $1.7 million, or
19 percent.
Royalty revenue from Rentrak Japan decreased to $1.2 million during fiscal
1996 from $1.8 million the previous year. Included in fiscal 1995's royalty
revenue was a nonrecurring payment of $1.0 million.
Cost of sales in fiscal 1996 rose to $95.2 million from $66.4 million the
prior year, an increase of $28.8 million, or 43 percent. The increase is
primarily due to the increase in revenues noted above. In addition, fiscal 1996
includes a charge of $2.2 million to increase reserves against advances made to
program suppliers. In fiscal 1996, the gross profit margin decreased to 16
percent from 21 percent the previous year. In addition to the one-time charge
noted above, the decrease reflects an increase in major motion picture studio
product, which traditionally has a lower gross margin.
Selling, general and administrative expenses were $20.9 million in fiscal
1996 compared to $15.5 million in fiscal 1995. This increase of $5.4 million,
or 34 percent, was primarily due to the following one time charges: An increase
of approximately $3.0 million in the reserves against loans and investments in
retailers; other reserves against assets of $1.4 million; and $1.5 million in
advertising co-op allowances in excess of amounts retained from program
suppliers. As a percentage of total revenue, selling, general and
administrative expenses was 18 percent in both years.
Other income decreased from $3.5 million in fiscal 1995 to $0.7 million for
fiscal 1996, a decrease of $2.8 million. In 1995, other income included a gain
of $2.8 million on the sale of certain investment securities held for sale.
For the year ended March 31, 1996, Domestic PPT Operations recorded a pre-
tax loss of $2.1 million, or 2 percent of total revenue, compared to a pre-tax
profit of $6.2 million, or 7 percent of total revenue, in fiscal 1995. This
decrease is due to the one time charges noted above.
Included in the amounts above are the results from Other Subsidiaries which
are primarily comprised of a software development company and other video retail
and wholesale operations.
<PAGE>
The operations of the software development company, which were immaterial, were
curtailed in fiscal 1996. Total revenue from Other Subsidiaries increased to
$5.2 million in fiscal 1996 from $4.8 million in fiscal 1995, an increase of
$0.4 million, or 8 percent. Cost of sales was $2.5 million, an increase of $0.6
million over the $1.9 million recorded in fiscal 1995. Selling, general and
administrative expenses decreased to $2.6 million in fiscal 1996 from $3.1
million in fiscal 1995, a decrease of $0.5 million, or 14 percent. As a
percentage of total revenue, selling, general and administrative expenses
decreased to 50 percent at year-end from 65 percent a year earlier.
For the year ended March 31, 1996, Other Subsidiaries recorded a pre-tax
loss of $0.4 million, or 7 percent of total revenue. This compares with a pre-
tax loss of $0.2 million, or 5 percent of total revenue, in fiscal 1995.
DISCONTINUED OPERATIONS - PRO IMAGE
In March 1996, The Board of Directors approved in principal the spin-off of
Pro Image into a separate public company pursuant to which Rentrak would
dividend to its shareholders shares of Pro Image representing 100% ownership of
Pro Image. Since then, the Company has been approached by parties interested in
acquiring Pro Image. This divestiture is expected to be completed by fiscal
year end. The proposed divestiture through stock dividend is subject to a
number of conditions, including formal declaration of a dividend by the Board of
Directors.
For the fiscal year ended February 29, 1996, Pro Image recorded total
revenue of $39.1 million, up $12.7 million or 48% from $26.4 million in the
prior year. Cost of sales in fiscal 1996 rose to $24.3 million from $16.8
million in the prior year, an increase of $7.5 million, or 45 percent. Selling,
general and administrative expenses were $19.4 million in fiscal 1996 compared
to $9.3 million in fiscal 1995, an increase of $10.1 million, or 109 percent.
The increase in revenues, cost of sales and selling, general and administrative
expenses is due primarily to the acquisition and opening of new stores. Other
operating expenses increased from $0 to $9.4 million. This increase of $9.3
million was due to the write down of intangible assets of $9.3 million to their
net realizable value of $0. [See Note 4 to the Notes to the Consolidated
Financial Statements.] Pro Image results for fiscal 1995 include those for Team
Spirit from September 1994 (acquisition date by Pro Image) through February
1995.
DISCONTINUED OPERATIONS - BLOWOUT
In June 1996, the Board of Directors of the Company approved in principal
the spin-off of BlowOut into a public company pursuant to which Rentrak would
dividend to its shareholders shares of BlowOut representing 73.1 percent
ownership of BlowOut. Rentrak will retain 19.9 percent and certain minority
shareholders will retain 7 percent. Final disposition of BlowOut is expected to
be completed by fiscal year end. The proposed divestiture through a stock
dividend is subject to a number of conditions, including formal declaration of a
dividend by the Board of Directors.
For the fiscal year ended March 31, 1996, BlowOut recorded total revenue of
$17.5 million, cost of sales of $14.0 million, and a pre-tax loss of $7.3
million. Comparisons to the fiscal year ended March 31, 1995, are not
meaningful because of the acquisitions of Entertainment One, Inc. ("E-1") and
Supercenter Entertainment Corporation ("SEC") which occurred in June and
September 1995, respectively. [See Note 8 of the Notes to the Consolidated
Financial Statements.] The BlowOut results for fiscal 1996 include those for E-
1 from June 1995 through March 1996 and SEC from September 1995 through March
1996.
CONSOLIDATED BALANCE SHEET
At March 31, 1996, total assets were $56.3 million, a decrease of $8.5
million from the $64.8 million of a year earlier. A substantial portion of the
decrease was due to the write-off of the intangible assets related to the
acquisitions of Pro Image and Team Spirit. [See Note 4 to the Notes of the
Consolidated Financial Statements.] Inventory at year-end equaled $1.7 million,
down $4.6
<PAGE>
million from $6.3 million at the end of fiscal 1995. This decrease is comprised
of approximately $5.7 million related to discontinued operations with an
offsetting increase of $1.1 million relating to continuing operations. As of
March 31, 1996, property and equipment had decreased $3.4 million to $1.5
million from $4.9 million a year earlier. Of this decrease, approximately $3.2
million was related to discontinued operations. At year-end, intangibles had
decreased to $0.3 million from $11.0 million at the end of fiscal year 1995, a
decrease of $10.7 million. Of this decrease, $9.3 million was related to the
write-down of The Pro Image, Inc. and Team Spirit intangible assets which was
recorded in discontinued operations.
As noted earlier, the Company approved plans to discontinue the operations
of Pro Image and BlowOut. At March 31, 1996, the net assets of Pro Image and
BlowOut have been segregated in the Consolidated Financial Statements. The
March 31, 1995 balance sheet has not been restated.
Net noncurrent assets of Pro Image which are included in net noncurrent
assets of discontinued operations in the accompanying Consolidated Financial
Statements at March 31, 1996 are comprised primarily of property and equipment
and long-term debt. Net current liabilities of Pro Image which are included in
net current liabilities of discontinued operations in the accompanying
Consolidated Financial Statements at March 31, 1996 are comprised primarily of
inventory, receivables, accounts payable, accrued liabilities, estimated
operating losses to be incurred by Pro Image through the expected disposal date
and other costs associated with the disposition.
Net noncurrent assets of BlowOut which are included in net non current
assets of discontinued operations in the accompanying Consolidated Financial
Statements at March 31, 1996 are comprised primarily of rental inventory,
property and equipment, intangibles, and long-term debt. Net current
liabilities of BlowOut which are included in net current liabilities of
discontinued operations in the accompanying Consolidated Financial Statements at
March 31, 1996 are comprised primarily of cash, inventory, accounts payable,
accrued liabilities, estimated operating losses to be incurred by BlowOut
through the expected disposal date and other costs associated with the
disposition.
FISCAL 1995 COMPARED TO FISCAL 1994
CONTINUED OPERATIONS - DOMESTIC PPT OPERATIONS AND OTHER SUBSIDIARIES
For the year ended March 31, 1995, total revenue from Domestic PPT
Operations increased $20.4 million, or 32 percent, rising to $84.5 million from
$64.1 million in the prior year. Total revenue includes the following fees:
processing fees generated when retailers are approved for participation in the
PPT system; handling fees generated when prerecorded videocassettes are
distributed to retailers; transaction fees generated when retailers rent
Cassettes to consumers; sell-through fees generated when retailers sell
Cassettes to consumers; and royalty payments from Rentrak Japan.
The increase in total revenue and the increases described in the following
paragraphs were primarily due to the growth in (i) the number of retailers
approved to lease Cassettes from the Company; (ii) the number of participating
program suppliers, primarily Buena Vista; (iii) the number of titles released to
the system; and (iv) the total number of Cassettes leased under the system. By
fiscal year-end, the number of Participating Retailers had grown 14 percent to
3,614 from 3,176 a year earlier. As of March 31, 1995, there were 3,034
retailers located in the United States and 580 located in Canada.
In fiscal 1995, processing-fee revenue decreased to $1.1 million from $1.7
million in fiscal 1994, a decline of $0.6 million, or 33 percent. The decrease
was due to a reduction in the amount of processing fees charged.
During the year, handling-fee revenue rose to $18.1 million from $13.7
million in fiscal 1994, an increase of $4.4 million, or 32 percent.
Transaction-fee revenue totaled $49.9 million, an increase of $8.9 million, or
22 percent, from $41.0 million the previous year. Sell-through revenue
<PAGE>
was $8.9 million in fiscal 1995 as compared to $5.7 million in fiscal 1994, an
increase of $3.2 million, or 58 percent.
Royalty revenue from Rentrak Japan increased to $1.8 million during fiscal
1995. There was no royalty revenue in the prior year. Included in fiscal
1995's royalty revenue was a nonrecurring payment of $1.0 million.
Cost of sales in fiscal 1995 rose to $66.4 million from $49.7 million the
prior year, an increase of $16.7 million, or 34 percent. This change parallels
the change in total revenues. In fiscal 1995, the gross profit margin decreased
to 21 percent from 22 percent the previous year. The decrease reflects an
increase in major motion picture studio product, which traditionally has a lower
gross margin.
Selling, general and administrative expenses were $15.5 million in fiscal
1995 compared to $14.9 million in fiscal 1994. This increase of $0.6 million,
or 4 percent, was primarily due to continued efforts to assure system integrity
and the strengthening of the management team. In addition, the Company incurred
additional expense related to reserves on long-term investments and receivables.
As a percentage of total revenue, selling, general and administrative expenses
decreased to 18 percent at year-end from 23 percent the previous year.
Other income increased from $0.5 million in fiscal 1994 to $3.5 million for
fiscal 1995, an increase of $3.0 million. This increase was due to the sale of
certain investment securities held for sale for a gain of $2.8 million.
For the year ended March 31, 1995, Domestic PPT Operations recorded a
pre-tax profit of $6.2 million, or 7 percent of total revenue, compared to a
pre-tax profit of less than $0.1 million, or less than 1 percent of total
revenue, in fiscal 1994.
Included in the amounts above are the results from Other Subsidiaries which
are primarily comprised of a software development company and other video retail
and wholesale operations. Total revenue from Other Subsidiaries increased to
$4.8 million in fiscal 1995 from $2.0 million in fiscal 1994, an increase of
$2.8 million, or 143 percent. Cost of sales was $1.9 million, an increase of
$1.6 million over the $0.3 million recorded in fiscal 1994. Selling, general
and administrative expenses increased to $3.1 million in fiscal 1995 from $1.8
million in fiscal 1994, an increase of $1.3 million, or 70 percent. As a
percentage of total revenue, selling, general and administrative expenses
decreased to 65 percent at year-end from 92 percent a year earlier.
For the year ended March 31, 1995, Other Subsidiaries recorded a pre-tax
loss of $0.2 million, or 5 percent of total revenue. This compares with a
pre-tax loss of $0.1 million, or 6 percent of total revenue, in fiscal 1994.
DISCONTINUED OPERATIONS - PRO IMAGE
For the fiscal year ended February 28, 1995, Pro Image recorded total
revenue of $26.4 million, a gross margin of $9.5 million (36 percent), and a
pre-tax profit of $0.1 million (less than 1 percent of revenue). Comparisons to
the fiscal year ended February 28, 1994, are not meaningful because of the
acquisition of Team Spirit, Inc. in fiscal 1995. Pro Image results for fiscal
1995 include those for Team Spirit from September 1994 through February 1995.
Pro Image's net income for fiscal 1995 was negatively impacted by increased
operating expenses associated with advertising, market research, promotion and
store design expenses, as well as reserves for doubtful accounts and inventory.
These expenses, totaled approximately $2 million. In addition, Pro Image
recorded approximately $0.7 million in amortization of goodwill associated with
the acquisition of Pro Image and Team Spirit.
<PAGE>
DISCONTINUED OPERATIONS - BLOWOUT
Total revenue from BlowOut increased to $1.3 million in fiscal 1995 from
$0.9 million in fiscal 1994, an increase of $0.4 million, or 44 percent. Cost
of sales was $0.3 million, an increase of $0.1 million over the $0.2 million
recorded in fiscal 1994. Selling, general and administrative expenses increased
to $1.4 million in fiscal 1995 from $1.1 million in fiscal 1994, an increase of
$0.3 million, or 25 percent. As a percentage of total revenue, selling, general
and administrative expenses decreased to 112 percent at year-end from 129
percent a year earlier. During fiscal 1994, BlowOut operated approximately 7
stores.
For the year ended March 31, 1995, BlowOut recorded a pre-tax loss of $0.5
million, or 37 percent of total revenue. This compares with a pre-tax loss of
$0.5 million, or 54 percent of total revenue, in fiscal 1994.
CONSOLIDATED BALANCE SHEET
At March 31, 1995, total assets were $64.8 million, an increase of $20.2
million from the $44.6 million of a year earlier. A substantial portion of the
increase was due to the acquisition of Team Spirit, which added approximately
$10 million to total assets. Accounts receivable grew to $14.7 million at the
end of fiscal 1995 from $9.4 million at the end of fiscal 1994, a $5.3 million
increase. Most of this increase was due to a rise in domestic PPT revenue
levels. Inventory at year-end equaled $6.3 million, up $5.5 million from $0.8
million at the end of fiscal 1994. Of this increase, approximately $3.6 million
was related to the Team Spirit acquisition, and the rest was due to the opening
of additional Pro Image company stores. As of March 31, 1995, property and
equipment had increased $2.1 million to $4.9 million from $2.8 million a year
earlier. Of this increase, approximately $2.1 million was related to the Team
Spirit acquisition. At year-end, intangibles had risen to $11.0 million from
$6.8 million at the end of fiscal year 1994, an increase of $4.2 million. Most
of this amount was related to the acquisitions of Team Spirit and other
acquisitions. All warrants which the Company issued in fiscal 1995, have been
valued by an outside valuation firm using standard warrant valuation models.
The value of the warrants of $3.5 million has been recorded in the equity
section and will be amortized over the associated periods to be benefited by
each group of warrants. For fiscal 1995, expense associated with the warrants
is $0.5 million.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and other liquid investments of
$3.0 million, compared to $10.7 million at March 31, 1995. At year-end, the
Company's current ratio (current assets/current liabilities) declined to .70
from 1.53 a year earlier. This decline was primarily due to expenditures of
cash to fund the growth of BlowOut and the accrual of losses estimated to be
incurred by BlowOut and Pro Image through the expected disposal date and other
costs associated with the dispositions such as professional fees and the write
down of the assets to their estimated realizable value. These amounts totalled
$12.1 million at March 31, 1996 and are included in net current liabilities of
discontinued operations in the Company's consolidated balance sheet.
The Company has an agreement for a line of credit in an amount not to
exceed the lesser of $10 million or the sum of (a) 70 percent of the net amount
of eligible accounts receivable as defined in the agreement plus (b) certain
certificates of deposits and treasury bills as defined in the agreement. The
line of credit expires on October 27, 1996. Interest is payable monthly at the
bank's prime rate plus 1.5 percent (9.75 percent at March 31, 1996). The lender
has been granted an option to purchase 10,000 unregistered shares of common
stock of the Company at $7 per share, which exceeded market value at the date of
grant. The line is secured by substantially all of the Company's assets
(excluding Pro Image assets). The terms of the agreement require, among other
things, a minimum amount of tangible net worth, minimum current ratio and
minimum total liabilities to tangible net worth. The agreement also restricts
the amount of net losses, loans and indebtedness and limits the payment of
dividends on the Company's stock. The Company was in
<PAGE>
compliance with these covenants or had obtained waivers of noncompliance as of
March 31, 1996. At March 31, 1996, the Company had $2.7 million outstanding
borrowings under this agreement. The Company borrowed an additional $3.0
million in April, 1996. As of May 31, 1996, available borrowing capacity
totaled .7 million.
In April 1994, Pro Image entered into a $2.0 million line of credit
arrangement with a financial institution. Borrowings are collateralized by Pro
Image's accounts receivable and inventory and require monthly payments of
principal and accrued interest. The line of credit agreement contains various
positive and negative covenants, among which is the requirement to maintain
various trading and debt to net worth ratios. In January 1995, the available
borrowings under this agreement were increased to the lesser of $4.0 million or
the amount of the borrowing base as defined in the agreement. In September
1995, the available borrowings under this agreement were again increased to the
lesser of $5.0 million or the amount of the borrowing base as defined in the
agreement. Pro Image may borrow an additional $1.0 million under the line of
credit agreement, subject to a dollar for dollar cash infusion from Rentrak.
Interest under the revised agreement is accrued at the financial institution's
prime rate (8.25 percent at February 29, 1996) plus .25 percent. The credit
agreement expires on July 31, 1997. At May 31, 1996, $2.5 million was
outstanding under the line of credit and available borrowing capacity totaled
$.4 million.
In December 1989, the Company entered into a definitive agreement with
Culture Convenience Club Co., Ltd. (CCC)-Rentrak's joint-venture partner in
Rentrak Japan-to develop Rentrak's PPT distribution and information processing
business in certain markets throughout the world. On June 16, 1994, the Company
and CCC entered into an amendment to the definitive agreement (the "agreement").
Pursuant to this agreement, the Company will receive a royalty of 1.67 percent
for all sales up to $47.9 million plus 0.5 percent of sales greater than $47.9
million in each royalty year which is June 1 - May 31. In addition, the Company
will receive a onetime royalty of $2.0 million payable $1.0 million in fiscal
1995 and $1.0 million no later than March 31, 1999. The payment for fiscal 1995
has been received. Rentrak Japan received additional territories in which to
market PPT. In addition, the Company sold 34 shares of Rentrak Japan to CCC for
6.8 million Yen ($68,068), reducing the Company's ownership in Rentrak Japan to
25 percent from 33 1/3 percent. The term of the agreement was extended from the
year 2001 to the year 2039.
On July 22, 1994, the Company entered into a long-term distribution
agreement with Buena Vista Pictures Distribution ("Buena Vista"). In connection
with the agreement, The Walt Disney Company has received warrants from Rentrak
to purchase up to 2,673,500 shares of Rentrak common stock at an exercise price
of $7.13 per share subject to the meeting of certain conditions.
In connection with the signing of Buena Vista, the Company issued a warrant
to another Program Supplier to acquire 423,750 shares of Rentrak common stock at
an exercise price of $7.13.
The Company has established a retailer financing program whereby the
Company will provide, on a selective basis, financing to video retailers who the
Company believes have the potential for substantial growth in the industry. In
connection with these financings, the Company typically makes a loan to and/or
an equity investment in the retailer. In some cases, a warrant to purchase
stock may be obtained. As part of such financing, the retailer typically agrees
to cause all of its current and future retail locations to participate in the
PPT system for a designated period of time. Under these agreements, retailers
are typically required to obtain all of their requirements of cassettes offered
under the PPT system or obtain a minimum amount of cassettes based on a
percentage of the retailer's revenues. Notwithstanding the long term nature of
such agreements, both the Company and the retailer may, in some cases, retain
the right to terminate such agreement upon 30-90 days prior written notice.
These financings are highly speculative in nature and involve a high degree of
risk, and no assurance of a satisfactory return on investment can be given. The
amounts the Company could ultimately receive could differ materially in the near
term from the amounts assumed in establishing reserves.
The Board of Directors has authorized up to $14 million to be used in
connection with the Company's retailer financing program. As of May 1996, the
Company has invested in, or made commitments to loan to or invest in, various
video retailers in amounts representing substantially
<PAGE>
all of the $14 million authorized. The loans, investments or commitments are to
various retailers and individually range from $0.2 million to $1.6 million. The
gross notes receivable at March 31, 1996 of $2,500,000 are due as follows:
$1,400,000 - 1998; $400,000 - 1999; $600,000 - 2000; $100,000 - 2001. Interest
rates on the various loans range from the prime rate plus 1 percent to the prime
rate plus 2 percent. As the financings are made, and periodically throughout
the terms of the agreements, the Company assesses the likelihood of
recoverability of the amounts invested or loaned based on the financial position
of each retailer. This assessment includes reviewing available financial
statements and cash flow projections of the retailer and discussions with
retailers' management.
As of March 31, 1996, the Company has invested or loaned approximately $7.3
million under the program. Because of the financial condition of a number of
these retailers, the Company significantly increased its reserves to
approximately $6.0 million of the original loan or investment amount. Of the
$1.3 million which has not been reserved at March 31, 1996, $1 million of it was
received by the Company subsequent to fiscal year end.
The Company is currently either negotiating extensions of its existing
credit facilities or negotiating new credit facilities with its existing
financial institution. If not obtained or extended, the Company would seek
alternative financing. If alternative financing is not obtained, this could
have a material adverse impact on the business. While no absolute assurance can
be given that the credit facilities will be extended or new ones obtained, it is
management's belief that adequate financing will be obtained.
Both Pro Image and BlowOut have experienced significant losses from
operations and have used significant amounts of cash to fund operations during
their most recent fiscal year. Pro Image is currently operating with minimal
cash and has developed a new business plan which incorporates certain store
closures, staff reductions, and other measures.
BlowOut is essentially a start-up company and is experiencing rapid growth
requiring additional financing if it is to continue its expansion and to support
operations of recently opened stores. BlowOut is currently pursuing financing
from several sources and the Company has agreed to guarantee up to $7 million of
outside financing to BlowOut.
The Company's exposure related to adverse financial and operational
developments at Pro Image and BlowOut is limited to its receivables from an
investment in BlowOut which will be retained after the planned disposition [See
Note 15 of the Notes to the Consolidated Financial Statements], certain
guarantees previously made to BlowOut [See Note 9 of the Notes to the
Consolidated Financial Statements] and any funding covered by the financing
guarantee discussed above. The Company believes it will be able to fulfill
these obligations and does not believe that the issues faced by Pro Image and
BlowOut will have a material adverse effect on the Company.
The Company's sources of liquidity include its cash balance, cash generated
from operations and its available credit facilities (assuming such facilities
are extended or new ones obtained). Although its operations generated negative
cash flow during fiscal 1996 and substantial losses from discontinued
operations, the sources of liquidity referred to above, along with the
flexibility that the Company has in adjusting operating levels, are expected to
be sufficient to fund the Company's operations for the year ending March 31,
1997.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Item Page
---- ----
Report of Independent Public 24
Accountants
Consolidated Balance Sheets as of March 31, 1996 25
and 1995
Consolidated Statements of Operations for Years 26
Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity 28
for Years Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for Years 29
Ended March 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements 30
Financial Statement Schedules
Schedule II 52
Schedules not included have been omitted because they are
not applicable or the required information is shown in the
financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rentrak Corporation:
We have audited the accompanying consolidated balance sheets of Rentrak
Corporation and subsidiaries, as of March 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1996. These consolidated
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rentrak
Corporation and subsidiaries as of March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the consolidated financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Portland, Oregon,
June 3, 1996
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1995
ASSETS
1996 1995
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $2,683,128 $10,709,405
Investment securities available for sale 344,500 -
Accounts receivable, net of allowance for doubtful
accounts of $627,895 and $642,580 15,116,203 14,711,439
Accounts receivable - affiliate 3,227,006 -
Advances to program suppliers 1,462,875 2,683,710
Inventory 1,737,695 6,291,032
Deferred tax asset 1,353,226 915,404
Other current assets 3,343,389 2,112,021
------------ -----------
Total current assets 29,268,022 37,423,011
------------ -----------
PROPERTY AND EQUIPMENT, net 1,466,177 4,924,122
INTANGIBLES, net of accumulated amortization of
$3,399,678 and $3,472,783 347,137 11,011,121
NOTES RECEIVABLE, net - 3,035,787
NOTE RECEIVABLE, affiliate 2,800,000 -
OTHER INVESTMENTS, net 3,477,105 2,919,919
DEFERRED TAX ASSET 2,918,838 1,926,673
OTHER ASSETS 1,225,331 3,577,035
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 14,749,248 -
------------ -----------
$ 56,251,858 $64,817,668
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 2,700,000 $ -
Accounts payable 21,795,843 17,799,146
Accrued liabilities 2,163,325 3,301,513
Accrued compensation 1,240,543 2,016,820
Deferred revenue 2,004,865 1,408,076
Net current liabilities of discontinued operations 11,942,858 -
------------ -----------
Total current liabilities 41,847,434 24,525,555
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; authorized:
10,000,000 shares - -
Common stock, $.001 par value; authorized: 30,000,000
shares; issued and outstanding: 12,138,216 shares in
1996 and 11,277,246 shares in 1995 12,138 11,277
Capital in excess of par value 49,583,514 44,598,939
Net unrealized gain (loss) on investment securities 567,508 (170,747)
Accumulated deficit (33,366,162) (1,080,493)
Less- Deferred charge - warrants (2,392,574) (3,066,863)
------------ -----------
14,404,424 40,292,113
------------ -----------
$ 56,251,858 $64,817,668
------------ -----------
------------ -----------
The accompanying notes are an integral part of these balance sheets.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------ ------ ------
REVENUES:
PPT $108,073,429 $79,793,584 $62,005,968
Other 5,192,891 4,754,315 2,070,544
------------ ----------- -----------
113,266,320 84,547,899 64,076,512
------------ ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 95,167,529 66,374,471 49,697,063
Selling and administrative 20,859,923 15,526,912 14,007,731
Suspension of European operations - - 900,563
------------ ----------- -----------
116,027,452 81,901,383 64,605,357
------------ ----------- -----------
Income (loss) from operations (2,761,132) 2,646,516 (528,845)
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 1,078,798 695,190 566,301
Interest expense (208,307) - (28,257)
Gain on sale of investments 62,091 2,826,849 -
Other (251,911) - -
------------ ----------- -----------
------------ ----------- -----------
680,671 3,522,039 538,044
------------ ----------- -----------
Income (loss) from continuing
operations before income tax
provision (benefit) and
minority partner interests (2,080,461) 6,168,555 9,199
INCOME TAX (PROVISION) BENEFIT 594,792 (768,045) 763,919
------------ ----------- -----------
Income (loss) from continuing
operations before minority
partner interests (1,485,669) 5,400,510 773,118
LOSSES ATTRIBUTABLE TO MINORITY PARTNER
INTERESTS - - 130,918
------------ ----------- -----------
Income (loss) from continuing
operations (1,485,669) 5,400,510 904,036
(continued)
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ----------- -----------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
subsidiaries (less applicable income
tax provision (benefit) of
$(2,500,000), $(40,814) and $0 for
1996, 1995 and 1994, respectively) $(18,700,000) $ (286,987) $ (90,971)
Loss on disposal of subsidiaries
including provision of $4,800,000 for
operating losses during phaseout
periods (less applicable income tax
benefit of $0) (12,100,000) - -
------------ ----------- -----------
Net income (loss) $(32,285,669) $ 5,113,523 $ 813,065
------------ ----------- -----------
------------ ----------- -----------
NET INCOME (LOSS) PER SHARE
EARNINGS (LOSS) PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
Continuing operations $ (.12) $ .43 $ .09
Discontinued operations (2.56) (.02) (.01)
------------ ----------- -----------
Net income (loss) $(2.68) $ .41 $ .08
------------ ----------- -----------
------------ ----------- -----------
EARNINGS (LOSS) PER COMMON SHARE AND COMMON
EQUIVALENT SHARE - assuming issuance
of all dilutive contingent shares:
Continuing operations $ (.12) $ .42 $ .09
Discontinued operations (2.56) (.02) (.01)
------------ ----------- -----------
Net income (loss) $(2.68) $ .40 $ .08
------------ ----------- -----------
------------ ----------- -----------
The accopanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock (Accumulated Net Unrealized
-------------- Capital in Deficit) Cumulative Gains (Losses)
Number of Excess of Retained Translation on Investment
Shares Amount Warrants Per Value Earnings Adjustment Securities Total
----------- -------- ---------- ------------ ----------- ----------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993 9,474,894 $9,475 $ - $29,635,765 $(7,007,081) $ 83,866 $ - $22,722,025
Repurchase of common stock (83,963) (84) - (444,544) - - - (444,628)
Issuance of common stock
for acquisition 776,200 776 - 4,957,828 - - - 4,958,604
Issuance of common stock
under employee stock
option plan 56,846 57 - 123,214 - - - 123,271
Net income - - - - 813,065 - - 813,065
Cumulative translation
adjustment - - - - - (63,866) - (63,866)
Net unrelized gain on
investment securities - - - - - - 1,434,182 1,434,182
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
BALANCE AT MARCH 31, 1994 10,224,057 10,224 - 34,272,263 (6,194,016) - 1,434,182 29,522,653
Repurchase of common stock (38,300) (38) - (189,512) - - - (189,550)
Issuance of common stock 364,445 364 - 1,549,257 - - - 1,549,621
Issuance of common stock
for acquistions 639,561 640 - 5,110,526 - - - 5,111,166
Issuance of common stock
under employee stock
option plan 87,483 87 - 322,428 - - - 322,515
Net income - - - - 5,113,523 - - 5,113,523
Change in net unrealized
gains (losses) on
investment securities - - - - - - (1,604,929) (1,604,929)
Issuance of warrants - - (3,533,977) 3,533,977 - - - -
Amortization of warrants - - 467,114 - - - - 467,114
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
BALANCE AT MARCH 31, 1995 11,277,246 11,277 (3,066,863) 44,598,939 (1,080,493) - (170,747) 40,292,113
Repurchase of common stock (69,300) (69) - (341,631) - - - (341,700)
Issuance of common stock 883,000 883 - 5,230,577 - - - 5,231,460
Issuance of common stock
under employee stock
option plan 47,270 47 - 95,629 - - - 95,676
Net loss - - - - (32,285,669) - - (32,285,669)
Change in net unrealized
gains (losses) on
investment securities - - - - - - 738,255 738,255
Amortization of warrants - - 674,289 - - - - 674,289
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
BALANCE AT MARCH 31, 1996 12,138,216 $12,138 $(2,392,574) $49,583,514 $(33,366,162) $ - $ 567,508 $ 14,404,424
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
----------- -------- ---------- ------------ ----------- ----------- -------------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(32,285,669) $5,113,523 $813,065
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operations-
Loss on disposal of discontinued
operations 12,100,000 - -
Loss (gain) on asset and investment
sales 426,827 (2,826,849) 893,116
Depreciation 5,034,493 1,441,872 769,748
Amortization and write-off of
intangibles 11,545,750 1,242,564 678,588
Amortization of warrants 674,289 467,114 -
Provision for doubtful accounts 523,315 (582,386) (43,160)
Retailer financing program reserves 2,789,701 2,974,912 -
Reserves on advances to program
suppliers 1,345,406 572,300 -
Losses attributable to minority
partner interests - - (130,918)
Deferred income taxes (4,966,997) (2,737,426) -
Cumulative translation adjustments - - (83,866)
Change in specific accounts, net of
effects in 1996, 1995 and 1994
from purchase of businesses:
Accounts receivable (2,138,592) (4,726,871) 796,241
Inventories (5,638,802) (1,490,480) -
Advances to program suppliers 1,025,835 659,348 (1,278,411)
Other current assets (1,641,277) (1,244,614) (958,020)
Accounts payable 7,156,983 4,746,922 (641,559)
Accrued liabilities and
compensation 2,403,732 1,420,639 1,117,287
Deferred revenue 1,073,929 1,408,076 -
----------- ----------- -----------
Net cash provided (used) by
operating activities (571,077) 6,438,644 1,932,111
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and
inventory (10,143,322) (1,273,080) (1,758,893)
Investments in retailer financing
program (2,183,000) (8,930,618) -
Cash paid for purchases of businesses,
net of cash acquired (377,848) - (1,342,352)
Purchases of other assets - 309,849 (1,198,989)
Purchases of investments (344,500) (4,400,253) (8,271,811)
Maturities of investments - 4,400,253 19,596,118
Proceeds from sale of investment 951,394 3,027,540 134,982
Purchase of other assets and intangibles (242,176) (973,319) (364,979)
Proceeds from retailer financing program 1,199,005 - -
Proceeds from sale of assets 1,100,000 - -
----------- ----------- -----------
Net cash provided (used) by
investing activities (10,040,447) (7,839,620) 6,794,076
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of long-term debt 2,537,844 (3,259,724) -
Borrowing on notes payable 3,501,971 - -
Cash received from minority partner - - 50,000
Repurchase of common stock (341,700) (189,550) (444,628)
Issuance of common stock 114,011 1,743,937 123,271
----------- ----------- -----------
Net cash provided (used) by
financing activities 5,812,126 (1,705,337) (271,357)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,799,398) (3,106,313) 8,454,830
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 10,709,405 13,815,718 5,360,888
CASH AND CASH EQUIVALENTS INCLUDED IN NET
CURRENT LIABILITIES OF DISCONTINUED
OPERATIONS 3,226,879 - -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $2,683,128 $10,709,405 $13,815,718
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
<PAGE>
RENTRAK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. BUSINESS OF THE COMPANIES, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
OTHER ITEMS:
INTRODUCTION
Rentrak Corporation (the Company) (an Oregon corporation) is principally engaged
in the distribution of prerecorded video cassettes to the home video market
throughout the United States and Canada using its Pay-Per-Transaction (PPT)
revenue sharing program.
Under its PPT program, which is the Company's primary continuing operation, the
Company enters into contracts with program suppliers to distribute video
cassettes which are then leased to retailers (producers of motion pictures and
licensees and distributors of home video cassettes), for a percentage of the
rentals charged by the retailers.
PLANNED DIVESTITURES
During the quarter ended March 31, 1996, the Company assessed its overall
business strategy and decided to divest two subsidiary units -- The Pro Image,
Inc. (TPI) and BlowOut Entertainment, Inc. (BlowOut). The Company's Board of
Directors has approved the spin-off of TPI and BlowOut. Thus, the operations of
TPI and BlowOut are reflected as discontinued operations in the accompanying
statements of operations. Refer to Note 15 for discussion of divestiture plans,
reserves established by the Company related to the discontinued operations, and
the nature of management's estimates used in determining the reserves.
TPI, a wholly owned subsidiary of the Company, franchises retail outlets
and operates Company-owned retail stores. TPI also operates a wholly owned
subsidiary, Team Spirit, Inc. (Team Spirit), which was acquired during the
year ended March 31, 1995 (see Note 8). TPI and Team Spirit Stores sell
sports-oriented products and apparel featuring products licensed by college
and professional sports teams. As of March 31, 1996, TPI franchised
approximately 167 retail outlets in 43 states, Canada, Germany, Mexico,
Japan, Korea and Indonesia. Including Team Spirit, TPI operates 66
Company-owned retail stores in 28 states throughout the country.
BlowOut, a 93 percent owned subsidiary of the Company, is engaged in the
business of operating "store within a store" retail video outlets which
rent and sell motion picture videocassettes, video games, computer games
and programs on CD-ROMs in Wal-Mart Super Centers, Super Kmart Centers and
Ralph's grocery stores. BlowOut was formed by the merger of an existing
subsidiary with two entities which were acquired during the year (see
Note 8). As of March 31, 1996, the Company operated 187 stores.
<PAGE>
EFFECT OF DIVESTITURES ON THE COMPANY
Both TPI and BlowOut have experienced significant losses from operations and
have used significant amounts of cash to fund operations during their most
recent fiscal year. TPI is currently operating with minimal cash and has
developed a new business plan which incorporates certain store closures, staff
reductions, and other measures.
BlowOut is essentially a start-up company and is experiencing rapid growth
requiring additional financing if it is to continue its expansion and to support
operations of recently opened stores. BlowOut is currently pursuing financing
from several sources and the Company has agreed to guarantee up to $7 million of
outside financing to BlowOut.
The Company's exposure related to adverse financial and operational developments
at TPI and BlowOut is limited to its receivables from and investment in BlowOut
which will be retained after the planned spin-off (see Note 15), certain
guarantees previously made to BlowOut (see Note 9) and any funding covered by
the financing guarantee discussed above. The Company believes it has the
wherewithal to fulfill these obligations and does not believe that the issues
faced by TPI and BlowOut will have a material adverse effect on the Company.
RENTRAK JAPAN
In December 1989, the Company entered into a definitive agreement with Culture
Convenience Club Co., Ltd. (CCC), Rentrak's joint venture partner in Rentrak
Japan, to develop Rentrak's PPT distribution and information processing business
in certain markets throughout the world. On June 16, 1994, the Company and CCC
amended the agreement. Pursuant to this amendment, the Company will receive a
royalty of 1.67 percent for all sales of up to $47,905,000, plus one-half of
1 percent (0.5%) of sales greater than $47,905,000 in each fiscal year. In
addition, the Company received a one-time royalty of $2 million payable $1
million in fiscal 1995, which has been received; and $1 million no later than
March 31, 1999. The payment of $1 million due on March 31, 1999 has not been
recognized as revenue by the Company due to uncertainty of collection. Rentrak
Japan will receive additional territories to market PPT. In addition, the
Company sold 34 shares of Rentrak Japan to CCC for 6,800,000 Yen ($68,068),
reducing the Company's ownership in Rentrak Japan from 33-1/3 percent to
25 percent. The term of the Agreement was extended from the year 2001 to the
year 2039.
Minority interest represents the minority shareholders' proportionate share of
the equity of certain ventures. The minority shareholders' proportionate share
of losses in excess of their equity in the entities is recorded in the Company's
accompanying statement of operations.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its
majority owned subsidiaries, and those subsidiaries in which the Company has a
controlling interest after elimination of all intercompany accounts and
transactions. Investments in affiliated companies owned 20 to 50 percent are
accounted for by the equity method.
TPI and Team Spirit's year-ends are the last day of February. As there are no
intervening events which materially affect the financial position or results of
operations, the consolidated financial statements include TPI's balance sheet as
of February 29, 1996 and February 28, 1995 and the statements of operations,
stockholders' equity and cash flows for the 12-month periods ending February 29,
<PAGE>
1996 and February 28, 1995 and the 4-1/2 month period ending February 28,
1994. Team Spirit's balance sheet as of February 29, 1996 and February 28,
1995 and the statements of operations, stockholder's equity and cash flows
for the 12-month period ending February 29, 1996 and the 6-month period
ending February 28, 1995 are included in the consolidated financial
statements. These periods are based on the acquisition dates of the
respective entities.
BlowOut's balance sheet as of March 31, 1996 and 1995 and the statements of
operations, stockholders' equity and cash flows for the years ended March 31,
1996, 1995 and 1994 are included in the consolidated financial statements.
Subsequent to March 31, 1996, the Company approved plans to discontinue the
operations of TPI and BlowOut (see Note 15). Accordingly, the financial results
of these entities are reflected as discontinued operations in the March 31, 1996
financial statements, and the previous years' statements of operations have been
restated to reflect these entities as discontinued. The 1995 balance sheet and
all cash flow periods have not been restated.
MANAGEMENT ESTIMATES
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.
These estimates include reserves on retailer financing program investments (see
Note 4) and estimated losses on disposal of discontinued operations (see
Note 15). Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
INVESTMENT SECURITIES
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115)" requires the Company to
classify and account for its security investments as trading securities,
securities available for sale or securities held to maturity depending on the
Company's intent and ability to hold or trade the securities at time of
purchase. Securities available for sale are stated on the balance sheet at
their fair market value with an adjustment to stockholders' equity to reflect
net unrealized gains and losses, net of tax. Securities held to maturity are
stated at amortized cost.
Detail of the proceeds from the sales of available for sale securities and
realized gains and losses on sales of equity securities are as follows:
Proceeds Gross Gains Gross Losses
---------- ------------- --------------
1994 $ 134,982 $ 84,982 $ -
1995 3,027,548 2,856,716 (25,767)
1996 951,394 150,288 (88,197)
<PAGE>
FINANCIAL INSTRUMENTS
A financial instrument is cash or a contract that imposes or conveys, a
contractual obligation or right, to deliver, or receive, cash or another
financial instrument. The estimated fair value of all material financial
instruments, including retail financing program notes receivable, approximated
their carrying values at March 31, 1996 and 1995.
INVENTORY
Inventory consists of videocassettes held for sale and is carried at the lower
of cost (first-in, first-out method) or market value.
PROPERTY AND EQUIPMENT
Depreciation of fixed assets is computed on the straight-line method over
estimated useful lives of three to five years. Leasehold improvements are
amortized over the lives of the underlying leases or the service lives of the
improvements, whichever is shorter.
INTANGIBLES
The Company reviews its intangible assets for asset impairment at the end of
each quarter, or more frequently when events or changes in circumstances
indicate that the carrying amount of intangibles may not be recoverable. To
perform that review, the Company estimates the sum of expected future
undiscounted preinterest expense net cash flows from the operating activities.
If the estimated net cash flows are less than the carrying amount of
intangibles, the Company will recognize an impairment loss in an amount
necessary to write down intangibles to a fair value as determined from expected
discounted future cash flows.
During fiscal years 1996, 1995 and 1994, the Company paid cash and issued stock
for approximately $21,000, $11,000 and $206,000, respectively, for licensing
agreements with product and service suppliers. These agreements are being
amortized on the straight-line method over one to ten years.
In connection with the acquisition of TPI in 1994, the Company purchased certain
intangible assets totaling $6,269,050. These assets include customer and dealer
lists, a covenant not to compete, franchise agreements and goodwill. In
connection with the acquisitions of Team Spirit and then Image Makers, Inc. and
Barenz-Runia, Inc., the Company purchased goodwill totaling approximately
$4.1 million and $557,000, respectively. Prior to March 31, 1996, these assets
were being amortized on the straight-line method over a 12-year period based on
the factors influencing the acquisition decision. The Company believed the
above useful lives were appropriate based on the factors influencing acquisition
decisions. These factors included store location, profitability and general
industry outlook. The Company analyzes the realizability of all costs in excess
of the fair values of net assets acquired related to acquisitions to determine
if any write-down is necessary. Prior to the fourth quarter of 1996, the
Company's analysis determined that no write-down was necessary. Due to events
which occurred during the fourth quarter such as continuation of operating
losses and the decision to dispose of TPI (including subsidiaries) the Company's
analysis determined that intangible assets of approximately $9,300,000 were not
recoverable. Thus, the assets were written off to their estimated fair value of
$0. These write-offs are reflected in losses from discontinued operations.
<PAGE>
REVENUE RECOGNITION
The PPT agreements provide for a one-time initial handling fee and continuing
transaction fees based on a percentage of rental revenues earned by the retailer
upon renting the video cassettes to their customers. The Company recognizes
handling fees as revenue when the video cassettes are shipped to the retailers
and recognizes transaction fees when the video cassettes are rented to the
consumers.
When the Company's revenue is fixed and determinable at time of shipment of
video cassettes to the retailers, deferred revenue is recorded and recognized as
revenue in the statement of operations when the video cassettes are rented to
the consumers. The corresponding liability to video program suppliers for their
share of the fees is recorded to cost of sales when the revenue is recognized
with a corresponding amount to accounts payable. The Company also charges
retailers a processing fee upon admission to the PPT program. This fee is
recognized as PPT revenue when the application to participate in the PPT program
is approved.
Stockholders and directors, or their families, own interests in several stores
participating in the PPT program. The Company realized revenues from these
stores of $255,568, $426,102 and $422,053 during 1996, 1995 and 1994,
respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under
the liability method specified by SFAS 109, deferred tax assets and liabilities
are determined based on the temporary differences between the financial
statement basis and tax basis of assets and liabilities as measured by the
enacted tax rates for the years in which the taxes are expected to be paid.
NET INCOME (LOSS) PER SHARE
Loss per common share and common equivalent share for 1996 was computed based on
the weighted average number of shares of common stock and common equivalent
shares outstanding, which was 12,019,273.
At March 31, 1995, primary earnings per share are based on the weighted average
number of shares outstanding and the assumed exercise of common stock equivalent
options and warrants regardless of whether the market price of the common stock
exceeded the exercise price of the options and warrants. The number of treasury
shares assumed to be purchased with the proceeds from the exercise of the
options and warrants was limited to 20 percent of the outstanding shares at
period-end. Those purchases were assumed to have been made at the average
market price of the Company's common stock during the year. Proceeds from
exercise of the options and warrants in excess of those used to purchase
treasury shares were assumed to have been invested in government securities with
the resultant interest income, adjusted for appropriate tax effects, added to
net income for purposes of calculating earnings per share. For the 1995 primary
earnings per share calculation, 13,397,951 common shares and common share
equivalents were assumed outstanding and $394,249 of assumed interest income,
net of tax, was added to the Company's net income for purposes of computing
earnings per share.
<PAGE>
Fully diluted earnings per share at March 31, 1995 are based on the weighted
average number of shares outstanding and the assumed exercise of common stock
equivalent options and warrants regardless of whether the market price of the
common stock exceeded the exercise price of the options and warrants. In
addition, contingent warrants were assumed to have been exercised. The number
of treasury shares assumed to be purchased with the proceeds from the exercise
of the options and warrants was limited to 20 percent of the outstanding shares
at period-end. Those purchases were assumed to have been made at the greater of
the average or ending market price of the Company's common stock during the
year. Proceeds from exercise of the options and warrants in excess of those
used to purchase treasury shares were assumed to have been invested in
government securities with the resultant interest income, adjusted for
appropriate tax effects, to be added to net income for purposes of calculating
earnings per share. For the 1995 fully diluted earnings per share calculation,
14,317,380 common shares and common share equivalents were assumed outstanding
and $582,494 of assumed interest income, net of tax, was added to the Company's
net income for purposes of computing earnings per share.
Earnings per common share and common equivalent share for 1994 were computed by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the year. The number of common
shares was increased by the number of shares issuable on the exercise of options
and warrants when the market price of the common stock exceeded the exercise
price of the options and warrants. This increase in the number of common shares
was reduced by the number of common shares that are assumed to have been
repurchased with the proceeds from the exercise of the options and warrants.
Those repurchases were assumed to have been made at the average price of the
common stock during the year. Weighted average shares outstanding used in both
the primary and fully diluted earnings per share calculation are 10,162,461.
FOREIGN OPERATIONS
Foreign currency assets and liabilities are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date. Results of operations are
translated at average exchange rates during the period for revenue and expenses.
Translation gains and losses resulting from fluctuations in the exchange rates
are accumulated as a separate component of stockholders' equity. Translation
gains or losses were not material for any period presented.
ADVERTISING EXPENSE
Advertising expense, net of cooperative advertising reimbursements, totaled
$1,472,702, $(95) and $290,603 for the years ended March 31, 1996, 1995 and
1994, respectively.
<PAGE>
Statement of Cash Flows
The Company made the following cash payments for the years ended March 31:
1996 1995 1994
------ -------- -------
INTEREST $ 326,870 $ 35,979 $ 3,905
INCOME TAXES 236,545 3,288,189 62,127
NONCASH FINANCING AND INVESTING
ACTIVITIES:
Issuance of warrants - 3,533,977 -
Addition to other assets through
issuance of common stock - 128,199 -
Acquisition of businesses through
issuance of stock 5,213,125 5,111,166 5,542,639
Changes in net unrealized gains
(losses) on investment securities
through adjustments to
stockholders' equity 738,255 (1,604,929) 1,434,182
RECENT PRONOUNCEMENTS
During May 1993, the Financial Accounting Standards Board issued Statement
No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan," which
requires the Company to evaluate the collectibility of both contractual interest
and contractual principal of all receivables when assessing the need for a loss
accrual. The Company has adopted the provisions of SFAS 114 (see Note 4).
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset might not be recoverable. In certain
situations, an impairment loss would be recognized. The Company has adopted the
provisions of SFAS 121 which did not have a material effect on the Company's
financial statements.
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which establishes
a fair value-based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies that elect not to adopt the
new method of accounting. The Company will continue to account for employee
purchase rights and stock options under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS 123 disclosures will be effective for fiscal
years beginning after March 31, 1996.
<PAGE>
2. INVESTMENT SECURITIES:
The carrying value and estimated fair value of marketable securities at March 31
were as follows:
Unrealized Unrealized
Cost Gross Gain Gross Loss Fair Value
------- ---------- ---------- ----------
As of March 31, 1996:
Available for sale-
Current:
Corporate securities $207,125 $ 137,375 $ - $ 344,500
------- ---------- ---------- ----------
------- ---------- ---------- ----------
Noncurrent:
Corporate securities $680,672 $1,118,462 $(340,499) $1,458,635
------- ---------- ---------- ----------
------- ---------- ---------- ----------
As of March 31, 1995:
Available for sale-
Noncurrent:
Corporate securities $389,065 $ - $(275,398) $ 113,667
------- ---------- ---------- ----------
------- ---------- ---------- ----------
Investment securities which have limited marketability are classified as
noncurrent as management does not believe that they will be sold within one
year.
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of:
March 31,
-------------------------
1996 1995
----------- -----------
Furniture and fixtures $4,101,822 $5,932,263
Machinery and equipment 399,897 1,247,352
Leasehold improvements 849,534 3,666,333
----------- -----------
5,351,253 10,845,948
Less accumulated depreciation (3,885,076) (5,921,826)
----------- -----------
$1,466,177 $4,924,122
----------- -----------
----------- -----------
<PAGE>
4. RETAILER FINANCING PROGRAM:
The Company has established a retailer financing program whereby on a selective
basis the Company will provide financing to video retailers which the Company
believes have the potential for substantial growth in the industry. In
connection with these financings, the Company typically makes a loan and/or
equity investment in the retailer. In some cases, a warrant to purchase stock
may be obtained. As part of such financings, the retailer typically agrees to
cause all of its current and future retail locations to participate in the PPT
System for a designated period of time. These financings are speculative in
nature and involve a high degree of risk and no assurance of a satisfactory
return on investment can be given. The amounts the Company could ultimately
receive could differ materially in the near-term from the amounts assumed in
establishing the reserves.
The Board of Directors has authorized up to $14 million to be used in connection
with the Company's retailer financing program. As of May 1996, the Company has
invested or made oral or written commitments to loan to or invest substantially
all of the $14 million authorized in various video retailers. The loans,
investments or commitments are to various retailers and individually range from
$200,000 to $1,600,000. The investments are stated on the balance sheet at
their fair market value in accordance with SFAS 115. The notes, which have
payment terms that vary according to the individual loan agreements, are due
1997 through 2001. Interest rates on the various loans range from the prime
rate plus 1 percent to the prime rate plus 2 percent. Due to the speculative
nature of these loans, interest income is not recognized until received.
The loans are reviewed for impairment in accordance with SFAS 114. A valuation
allowance has been established for the amount by which the recorded investment
in the loan exceeds the measure of the impaired loan. As the financings are
made, and periodically throughout the terms of the agreements, the Company
assesses the recoverability of the amounts based on the financial position of
each retailer.
As of March 31, 1996, the Company has approximately $7,300,000 in loans and
investments outstanding under the program. Because of the financial condition
of a number of these retailers, which became apparent during the year ended
March 31, 1996, the Company significantly increased its reserves to
approximately $6,000,000 of the total original loan or investment amount. At
March 31, 1995, the Company had invested or loaned approximately $9,200,000
under the program and had provided reserves of approximately $3,200,000.
The activity in the total reserves for the retailer financing program are as
follows for the years ended March 31:
1996 1995
---------- -----------
Beginning balance $3,242,850 $ -
Provision 2,789,701 3,242,850
---------- -----------
Ending balance $6,032,551 $3,242,850
---------- -----------
---------- -----------
<PAGE>
5. LINE OF CREDIT:
The Company has an agreement for a line of credit in an amount not to exceed the
lesser of $10,000,000 or the sum of (a) 70 percent of the net amount of eligible
accounts receivable as defined in the agreement plus (b) certain certificates of
deposits and treasury bills as defined in the agreement. The line of credit
expires on October 27, 1996.
Interest is payable monthly at the bank's prime rate plus 1.5 percent
(8.75 percent at March 31, 1996). The lender has been granted the option to
purchase 10,000 unregistered shares of common stock of the Company at $7 per
share, which exceeded market value at the date of grant. The line is secured by
substantially all of the Company's assets (excluding TPI and BlowOut assets).
The terms of the agreement require, among other things, a minimum amount of
tangible net worth, minimum current ratio and minimum total liabilities to
tangible net worth. The agreement also restricts the amount of net losses,
loans and indebtedness and limits the payment of dividends on the Company's
stock. The Company is in compliance with these covenants or has obtained
waivers of noncompliance as of March 31, 1996. At March 31, 1996, the Company
had $2,700,000 outstanding under this agreement.
6. INCOME TAXES:
The provision (benefit) for income taxes from continuing operations is as
follows for the years ended March 31:
1996 1995 1994
-------- -------- --------
Current tax provision
Federal $1,663,070 $1,887,414 $ 21,949
State 324,606 338,067 91,081
---------- ---------- ---------
1,987,676 2,225,481 113,030
Deferred tax benefit (2,582,468) (1,457,436) (876,949)
---------- ---------- ---------
Income tax provision (benefit) $ (594,792) 768,045 $(763,919)
---------- ---------- ---------
---------- ---------- ---------
The reported provision (benefit) for income taxes differs from the amount
computed by applying the statutory federal income tax rate of 34 percent to
income before provision (benefit) for income taxes as follows for the years
ended March 31:
1996 1995 1994
-------- -------- --------
Provision (benefit) computed at statutory
rates $(707,357) $ 2,097,309 $ 3,128
State taxes, net of federal benefit (214,240) 256,331 91,081
Utilization of foreign loss carryforwards - (1,143,876) -
Change in valuation allowance - (953,470) -
Alternative minimum tax - - 18,821
Benefit of recognition of deferred tax assets - - (876,949)
Amortization of warrants 236,058 - -
Utilization of foreign tax credit (100,000) - -
Other 190,747 511,751 -
-------- -------- --------
$(594,792) $ 768,045 $(763,919)
-------- -------- --------
-------- -------- --------
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 10 is incorporated by reference from the Company's definitive
Proxy Statement for its 1996 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Election of Directors" and
"Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 11 is incorporated by reference from the Company's definitive
Proxy Statement for its 1996 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 12 is incorporated by reference from the Company's definitive
Proxy Statement for its 1996 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Security Ownership of Certain
Beneficial Owners and Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this item 13 is incorporated by reference from the Company's definitive
Proxy Statement for its 1996 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. See "Compensation Committee
Interlocks And Insider Participation" and Certain Relationships And
Transactions".
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following documents are filed as part of the Report:
CONSOLIDATED FINANCIAL STATEMENTS: The consolidated financial
statements of the Company are included in Item 8 of this Report:
Report of Independent Public
Accountants
Consolidated Balance Sheets as of March 31, 1996
and 1995
Consolidated Statements of Operations for Years
Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity
for Years Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for Years Ended
March 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES: The following
consolidated financial statement schedule has been included in Item 8
of this Report:
Schedule II - Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.
(a)(3) EXHIBITS(1): The exhibits required to be filed pursuant to Item 601
of Regulation S-K are set forth in the Exhibit Index.
(b) FORM 8-K REPORTS. During the fourth quarter of fiscal 1995, the Company
filed no reports on Form 8-K.
(c) Exhibits (See Exhibit Index)
- ---------------------------
(1) A shareholder may obtain a copy of any exhibit included in this Report
upon payment of a fee to cover the reasonable expenses of furnishing such
exhibits by written request to F. Kim Cox, Executive V.P/Chief Financial
Officer, or Carolyn Pihl, Chief Accounting Officer, Rentrak Corporation, 7227
N.E. 55th Avenue, Portland, Oregon 97218
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RENTRAK CORPORATION
By /S/ Ron Berger
--------------------------------------
Ron Berger, President
Date June 28, 1996
------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and the dates indicated.
Principal Executive Officer:
By /S/ Ron Berger June 28, 1996
---------------------------------------
Ron Berger, President/CEO
Principal Financial Officer:
By /S/ F. Kim Cox June 28, 1996
---------------------------------------
F. Kim Cox, Executive Vice President/
Chief Financial Officer
Principal Accounting Officer:
By /S/ Carolyn Pihl June 28, 1996
---------------------------------------
Carolyn A. Pihl, Chief Accounting Officer
Majority of Board of Directors:
By /S/ Ron Berger June 28, 1996
---------------------------------------
Ron Berger, Chairman
By /S/ Peter Dal Bianco June 28, 1996
---------------------------------------
Peter Dal Bianco, Director
By /S/ James P. Jimirro June 28, 1996
---------------------------------------
James P. Jimirro, Director
By /S/ Bill LeVine June 28, 1996
---------------------------------------
Bill LeVine, Director
By /S/ Muneaki Masuda June 28, 1996
---------------------------------------
Muneaki Masuda, Director
By /S/ Stephen Roberts June 28, 1996
---------------------------------------
Stephen Roberts, Director
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith or, if followed by a number in
parentheses, are incorporated herein by reference from the corresponding exhibit
filed in the report or registration statement identified in the footnotes
following this index:
Exhibit Number Exhibit Page
- -------------- ------- ----
3.1 a) Amended and Restated Articles of
Incorporation and amendments thereto (1)
3.2 1995 Restated Bylaws, as amended to date (10)
4.1 Articles of Incorporation,
as amended to date (incorporated by reference
to Exhibit 3.1)
4.2 Articles II and V of the 1995
Restated Bylaws (incorporated
by reference to Exhibit 3.2).
9 Common Stock Purchase
Agreement dated
December 20, 1989 (2)
Executive Compensation Plans
and Arrangements (10.1-10.13)
10.1 1986 Second Amended and Restated Stock
Option Plan and Forms of Stock Options
Agreements (13)
10.3 Employment Agreement with 59
Michael R. Lightbourne dated
January 1, 1995
10.4 Stock Option Agreement with
Ron Berger, dated April 18, 1990 (4)
10.5 Stock Option Agreement with
Ron Berger, dated December 20, 1994 (5)
10.7 Employment Agreement with
Ron Berger dated
June 1, 1994 (11)
10.8 Agreement with F. Kim Cox dated
April 20, 1995 66
10.9 Employment Agreement with
Ed Barnick dated
January 1, 1994 (11)
<PAGE>
Exhibit Number Exhibit Page
- -------------- ------- ----
10.10 Rentrak Corporation Amended and
Restated Directors Stock Option Plan (7)
10.11 Rentrak's 401-K Plan (8)
10.12 Employment Agreement with Jim Weiss
dated October 3, 1994 (6)
10.13 Amended and Restated 1992 Employee
Stock Purchase Plan of Rentrak Corporation (14)
10.16 Subordinated Note and Common
Stock Warrant Purchase Agreement,
dated March 13, 1990 (3)
10.17 Joint Development Agreement with
CCC dated August 6, 1993 (9)
10.18 Business Loan Agreement with Silicon
Valley Bank dated October 12, 1993 (11)
10.19 Business Loan Modification Agreement
with Silicon Valley Bank dated
June 6, 1994 (11)
10.21 Second Amendment to Business
Cooperation Agreement between Rentrak
Corporation, Culture Convenience Club
Co., Ltd., and Rentrak Japan dated
June 16, 1994 (11)
10.22 Stock Purchase Agreement dated
as of July 31, 1994, among Rentrak
Corporation, Team Spirit, Edwin D.
Schoening, John M. Dixon, Daniel E.
Dixon, Terrance A. Hogan and Deborah
K. Hogan and the Principal exhibits
thereto (12)
10.23 Business Loan Modification Agreement 72
with Silicon Valley Bank dated May 17, 1996
10.24 Asset Purchase Agreements, date as of
August 25, 1995, among Rentrak Corporation,
Supercenter Entertainment Corporation and
Jack Silverman, and the principal exhibits
thereto (the "Asset Purchase
Agreement") (15)
11 Statement of Computation of Per 76
Share Earnings
<PAGE>
Exhibit Number Exhibit Page
- -------------- ------- ----
22 List of Subsidiaries of Registrant 77
23 Consent of Arthur Andersen LLP 78
99 Financial Statements of K.K. Rentrak Japan 80
(1) Filed in S-3 Registration Statement, File # 338511 as filed on November 21,
1994.
(2) Filed as Exhibit 34 to Form 10-K filed on June 25, 1990.
(3) Report on Form 8-K filed on April 24, 1990.
(4) Filed as Exhibit 10.9 to 1991 Form 10-K filed on May 6, 1991.
(5) Filed as Exhibit 10.5 to 1995 Form 10-K filed on June 29, 1995.
(6) Filed as Exhibit 10.12 to Form 10-K filed on June 29, 1995.
(7) Filed as Exhibit B to 1994 Proxy Statement dated July 11, 1994.
(8) Filed as Exhibit 10.1 to Form 10-K filed on June 28, 1993.
(9) Filed as Exhibit 10.5 to Form 10-K filed on June 28, 1993.
(10) Filed as Exhibit to Form 8-K filed on June 5, 1995.
(11) Filed as Exhibit to 1994 Form 10-K filed on June 29, 1994.
(12) Filed as Exhibit to Form 8-K filed on September 15, 1994.
(13) Filed as Exhibit A to 1994 Proxy Statement dated July 11, 1994.
(14) Filed as Exhibit 10.13 to Form 10-K filed on June 29, 1995
(15) Filed as Exhibit to Form 8-K filed on September 1, 1995
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (hereinafter referred to as the "Employment
Agreement"), made and entered into effective January 1, 1995, by and between
RENTRAK HOME ENTERTAINMENT, a division of RENTRAK CORPORATION, an Oregon
corporation (hereinafter referred to as "Employer"), and MICHAEL R. LIGHTBOURNE
(hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is principally engaged in the business of distributing
prerecorded video cassettes to video stores and other retailers through it
innovative distribution system known as pay-per-transaction; and
WHEREAS, Employer desires to employ Employee in the position of Senior Vice
President of Marketing, and Employee desires to be so employed.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, the recitals set forth hereinabove which by this
reference are incorporated herein, and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT
1.01 POSITION AND TITLE. Employer shall employ and engage the services
of Employee, in the position of Senior Vice President of Marketing, for the term
of this Agreement as defined in Section 2, INFRA, pursuant to the terms and
conditions set forth in this Agreement.
1.02 DUTIES AND PLACE OF EMPLOYMENT. Employee shall be responsible for,
and perform duties associated with his position as Senior Vice President of
Marketing and other duties as may be directed by the Employer, from time to
time. Employee shall: (i) devote his full business time during normal business
hours to the business and affairs of Employer; (ii) use his best efforts to
promote the interests of Employer; and (iii) perform faithfully and efficiently
his responsibilities. Employee shall perform his duties at Employer's principal
executive offices which are currently located at 7227 N.E. 55th Avenue,
Portland, Oregon 97218, or such other locations as may be required from time to
time. Subject to the terms of this Agreement, Employee shall comply promptly and
faithfully with all of Employer's policies, instructions, directions, requests,
rules and regulations.
SECTION 2. TERM AND TERMINATION
2.01 STATED TERM. Employment shall commence on the effective date of this
Agreement and shall continue until March 31, 2000, or until Employee's
employment under this Agreement is
<PAGE>
terminated pursuant to Section 2.02, Section 2.03, or Section 2.04, INFRA
("Term").
2.02 AT WILL TERMINATION. Notwithstanding anything herein to the
contrary, Employee's employment may be terminated at any time with or without
reason, by Employer upon written notice to Employee, or by Employee upon forty-
five (45) days written notice to Employer. Additional terms concerning this
Section 2.02 are contained in that certain First Addendum to Employment
Agreement of even date hereof ("Addendum") the form of which is attached hereto
as Exhibit A, and which by this reference is incorporated herein.
2.03 FOR CAUSE TERMINATION. Employee's employment may be terminated by
Employer without notice for "cause." Termination for "cause" is defined for
purposes of this subsection as termination for: (i) material failure of Employee
to substantially perform the reasonable and attainable instructions of Employer
as to his duties hereunder; or (ii) an act or acts of misconduct by Employee
which is determined by the Employer to be materially injurious to Employer
monetarily or otherwise; or (iii) material violation by Employee of any
provision of this Agreement. For purposes of this subsection, termination for
"cause" shall not include any act or failure to act on Employee's part if done
or omitted to be done by him in demonstrable good faith and with the reasonable
belief that his act or omission was in the best interest of the Employer or
pursuant to an express policy of Employer at the time of such act or omission.
2.04 DISABILITY OR DEATH. Employee's employment shall be terminable
immediately upon Employee's death or disability. "Disability" is defined for
purposes of this subsection as absence from Employee's full time duties with
Employer as a result of Employee's incapacity due to physical or mental illness
for ninety (90) days calculated on a cumulative basis over any two year period
during the term of this Agreement. Nothing in this Section 2.04 is intended to
violate any Oregon State law regarding parental or family leave policies or any
other applicable law.
SECTION 3. COMPENSATION
3.01 BASE SALARY. Commencing January 1, 1995, through December 31, 1995,
Employee shall be paid an annual base salary in the amount of One hundred fifty
thousand dollars ($150,000.00); commencing January 1, 1996, through December 31,
1996, Employee shall be paid an annual base salary in the amount of One hundred
fifty seven thousand, five hundred dollars ($157,500.00); commencing January 1,
1997, through December 31, 1997 Employee shall be paid an annual base salary in
the amount of One hundred sixty seven thousand, five hundred dollars
($167,500.00); commencing January 1, 1998, through December 31, 1998, Employee
shall be paid an annual base salary in the amount of One hundred seventy five
thousand dollars ($175,000.00); commencing January 1, 1999, through December 31,
1999, Employee shall be paid an annual base salary in the amount of One hundred
eighty five thousand dollars ($185,000.00); and commencing
<PAGE>
January 1, 2000, through March 31, 2000, Employee shall be paid a quarterly
base salary in the amount of Forty six thousand five hundred dollars
($46,500.00) ("Base Salary"). The Base Salary shall be paid to Employee in equal
semi-monthly installments in arrears on the seventh (7th) and twenty-second
(22nd) day of each month, commencing as of the month following the effective
date of this Agreement. Should the seventh (7th) or the twenty-second (22nd) day
of any month not be a business day, Employee's semi-monthly installment of the
Base Salary otherwise due on such date shall be paid to Employee on the business
day closest to the date such semi-monthly installment is due (i.e., if the
seventh (7th) day of the month falls on a Saturday, the semi-monthly installment
shall be paid on the preceding business day or if the seventh (7th) day of the
month falls on a Sunday, the semi-monthly installment shall be paid on the next
following business day). Employee's Base Salary may be increased in the
discretion of Employer during the Term of this Agreement.
3.02 BONUS COMPENSATION. Nothing herein shall preclude the Employer
from authorizing the payment of additional compensation to Employee over and
above the Base Salary at any time payable to him under his Agreement, whether as
a bonus or otherwise. The payment of such additional compensation shall not
operate as an amendment obligating Employer to make any similar payment or to
pay additional compensation at any future time or for any future period, or be
deemed to affect Employee's Base Salary in any manner. Additional terms
concerning this Section 3.02 are contained in the Addendum attached hereto.
3.03 STOCK OPTIONS. Provided this Agreement is executed, Employer has
authorized a grant to Employee of two hundred thousand (200,000) options for
Employer's stock as of December 13, 1994. To the extent allowed under the
Internal Revenue Code of 1986, as amended ("Code"), the stock options will be
granted pursuant to that certain Incentive Stock Option Agreement, a copy of
which is attached to this Agreement as Exhibit B. The remaining options not
allowed as incentive stock options under the Code will be granted pursuant to
that certain Nonstatutory Stock Option Agreement, a copy of which is attached to
this Agreement as Exhibit C. The option price shall be the mean of the high and
low price reported by the WALL STREET JOURNAL on December 12, 1994.
3.04 BENEFITS.
3.04A VACATION AND HOLIDAY PAY. Employee
shall be entitled to vacation and paid holidays as
provided under Employer's then current policies and
procedures. As of the effective date of this Agreement,
Employee will be entitled to: (i) accrue vacation time
at the rate of one hundred twenty (120) hours per year;
and (ii) will be eligible to receive pay for Employer-
paid holidays including: (i) New Years Day (ii) Memorial
Day (iii) Independence Day (iv) Labor Day (v)
Thanksgiving Day (vi) Friday following
<PAGE>
Thanksgiving Day (vii) Christmas Eve and (viii)
Christmas Day.
3.04B INSURANCE. Employee shall be entitled to
medical, life, worker's compensation, disability, social
security and state unemployment insurance benefits as
provided under Employer's then current terms, policies
and procedures.
3.04C TUITION REIMBURSEMENT. Employee shall be
entitled to reimbursement for all tuition, enrollment
fee, and books pursuant to Employer's education
assistance program. Employee shall comply with all
Employer's terms, policies and procedures regarding its
education assistance program.
3.04D MISCELLANEOUS BENEFITS. In addition to any
other compensation or benefits to be received by
Employee pursuant to the terms of this Agreement, and
the Addendum, Employee shall be entitled to participate
in any employee benefits which Employer may from time to
time provide its employees generally.
SECTION 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT
4.01 TERMINATION FOR CAUSE. In the event of the termination of Employee's
employment by Employer for cause as defined in Section 2.03, SUPRA, or in the
event of termination of Employee's employment by Employee, Employer shall pay to
Employee the amount of compensation accrued to Section 3.01, SUPRA, as of the
date of termination.
4.02 TERMINATION FOR DEATH OR DISABILITY. In the event of the
termination of Employee's employment due to his health or disability, Employer
shall pay to Employee or Employee's estate or legal representative as the case
may be, the amount of compensation accrued pursuant to Section 3.01, SUPRA, as
of the date of termination plus a lump sum severance payment equal to twenty-
five (25) percent of the Base Salary in effect for the twelve (12) months
preceding such death or disability.
4.03 OTHER TERMINATION. In the event of the termination of Employee's
employment by Employer other that as provided in Section 4.01 or 4.02, SUPRA, or
in the event Employee terminates his employment with Employer within one hundred
eighty (180) days following a change in control of Employer, including the
termination for any reason of Ron Berger's employment by Rentrak Corporation,
Employer shall pay Employee the amount of compensation accrued pursuant to
Section 3.01, SUPRA, as of the date of termination plus severance payments
calculated as the lesser of the Base Salary (including benefits) which would
have been due to Employee during the immediately succeeding twelve months or the
unexpired term of the Agreement, payable in installments as if still employed;
subject however, to Employee
<PAGE>
demonstrating that he is using his best efforts to find employment. For the
purposes of this Agreement, "employment" shall be defined to include self-
employment and the offering of consulting services. In the event Employee does
not use, or cannot demonstrate that he is using, his best efforts to obtain
other employment or if Employee does use his best efforts to obtain other
employment and is successful in obtaining such employment, severance payments
shall be reduced by the amount of any remuneration received from such
employment. For the purposes of this Agreement, "remuneration" shall be defined
to include cash payments, the face value of any promissory notes issued to
Employee regardless of the terms of payment or whether payments are ever
received, stock or stock options valued as the day granted, or any other
compensation given in any form whatsoever.
4.04 OTHER COMPENSATION AND BENEFITS. Except as set forth in this Section
4, no other compensation or benefits shall be due or payable to Employee upon
termination of his employment.
SECTION 5. PERSONAL NATURE
This Agreement is personal, and is being entered into based upon the
singular skill, qualifications and experience of Employee. Employee shall not
assign this Agreement or any rights hereunder without the express written
consent of Employer which may be withheld with or without reason. Employee
hereby grants to Employer the right to use Employee's name, likeness and/or
biography in connection with the services performed by Employee hereunder and in
connection with the advertising or exploitation of any project with respect to
which Employee performs services hereunder.
SECTION 6. NOTICES
Any and all notices or other communications required or permitted by this
Agreement or by law shall be deemed duly served and given when personally
delivered to the party to whom such notice or communication is directed or, in
lieu of such personal service, when deposited in the United States mail,
certified, return receipt requested, first class postage prepaid, addressed as
follows:
EMPLOYER: Rentrak Home Entertainment
7227 N.E. 55th Avenue
P.O. Box 18888
Portland, Oregon 97218
Attn: Ron Berger
EMPLOYEE Michael R. Lightbourne
745 N.W. Mawcrest Drive
P.O. Box 510
Gresham, Oregon 97030
Each party may change its address for purposes of this Section by giving
written notice of such change in the manner provided for in this Section.
<PAGE>
SECTION 7. MISCELLANEOUS PROVISIONS.
7.01 ATTORNEYS' FEES. In the event that it should be become necessary
for any party to bring an action, including arbitration, either at law or in
equity, to enforce or interpret the terms of this Agreement, each party shall
pay its own legal fees in connection with such action.
7.02 APPLICABLE LAW AND VENUE. This Agreement is executed and intended
to be performed in the State of Oregon and the laws of such State shall govern
its interpretation and effect. If suit is instituted by any party hereto or by
any other party for any cause or matter arising from or in connection with the
respective rights or obligations of the parties hereunder, the sole jurisdiction
and venue for such action shall be the Circuit Court of the State of Oregon in
and for the County of Multnomah.
7.03 INTEGRATION. Employee has simultaneously executed an Addendum
(attached hereto as Exhibit A, an Incentive Stock Option Agreement (attached
hereto as Exhibit B), a Nonstatutory Stock Option Agreement (attached hereto as
Exhibit C) and has previously executed an Employee Confidentiality and
Noncompetition Agreement (a copy of which is attached hereto as Exhibit D) which
remain in effect and are incorporated into the terms and conditions of
employment under this Agreement. Except as set forth in the preceding sentence,
this Agreement constitutes the entire agreement of the parties with respect to
the subject matter of this Agreement and supersedes all prior agreements,
negotiations, or understandings, whether oral or written, between the parties
with respect thereto.
7.04 HEIRS and ASSIGNS. Subject to any restriction on assignment
contained herein, this Agreement shall be binding upon and shall inure to the
benefit of the respective party's heirs, successors and assigns.
7.05 SEVERABILITY. Any provision of this Agreement which is, by
competent judicial authority, declared illegal, invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity or unenforceability without invalidating the
remaining provisions hereof or affecting the legality, validity or
enforceability or such provision in any other jurisdiction. The parties hereto
agree to negotiate in good faith to replace any illegal, invalid or
unenforceable provision that, to the extent possible, will preserve the
economic bargain of this Agreement, or otherwise to amend this Agreement,
including the provision relating to choice of law, to achieve such result.
7.06 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and the counterparts shall together
constitute one and the same agreement, notwithstanding that all of the parties
are not signatory to the original or the same counterpart.
7.07 CAPTIONS. The headings and captions herein are inserted solely
for the purpose of convenience of reference and
<PAGE>
are not intended to govern, limit, or aid in the construction of any term or
provision hereof.
7.08 EXECUTION. Each of the parties hereto shall execute, acknowledge
and deliver any instrument necessary to carry out the provisions of this
Agreement.
7.09 CONSTRUCTION. This Agreement has been prepared by legal counsel
for Employer. Employee has been advised and by his execution hereof
acknowledges, that he has the right to and should have this Agreement reviewed
by his own separate legal counsel. This Agreement has been negotiated at arms'
length with the benefit of or opportunity to seek legal counsel and,
accordingly, shall not be construed against any of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on September
14, 1995.
EMPLOYER: EMPLOYEE:
RENTRAK CORPORATION, I acknowledge that I have read
an Oregon Corporation and agree to the foregoing
Agreement including, without
limitation, the provision
By /s/ Ron Berger allowing termination of my
----------------------- employment "at will" by
Ron Berger, President Employer in Section 2.01,
SUPRA.
Michael R. Lightbourne
/s/ Michael R. Lightbourne
--------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as the "Agreement") is
made and entered into effective April 20, 1995, by and between RENTRAK
CORPORATION, an Oregon corporation (hereinafter referred to as "Employer"), and
F. KIM COX (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is a publicly held corporation which, in turn, owns one
hundred percent of several subsidiary companies including, but not limited to
Rentrak Home Entertainment, The Pro Image, Inc., Streamlined Solutions, Inc.
also conducting business as Streamlined Information Systems, Dover Aggregates,
Inc., BlowOut Video, Inc., and Mortco, Inc.; and
WHEREAS, Employer desires to employ Employee in the position of Executive
Vice President, and Employee desires to be so employed.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, the recitals set forth hereinabove which by this
reference are incorporated herein, and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. EMPLOYMENT
1.01 POSITION AND TITLE. Employer shall employ and engage the services
of Employee, in the position of Executive Vice President for the term of this
Agreement as defined in Section 2, INFRA, pursuant to the terms and conditions
set forth in this Agreement.
1.02 DUTIES AND PLACE OF EMPLOYMENT. Employee shall be responsible for,
and perform duties associated with his position as Executive Vice President and
other duties as may be directed by the Employer, from time to time. Employee
shall: (i) devote his full business time during normal business hours to the
business and affairs of Employer; (ii) use his best efforts to promote the
interests of Employer; and (iii) perform faithfully and efficiently his
responsibilities. Employee shall perform his duties at the Employer's principal
executive offices which are currently located at 7227 N.E. 55th Avenue,
Portland, Oregon 97218, or such other locations as may be reasonably directed by
Employer from time to time. Subject to the terms of this Agreement, Employee
shall comply promptly and faithfully with all of Employer's policies,
instructions, directions, requests, rules and regulations.
SECTION 2. TERM AND TERMINATION
2.01 STATED TERM. Employment shall commence on the effective date of
this Agreement and shall continue for a period of five (5) years ending on April
19, 1999 or until Employee's employment under this Agreement is terminated
pursuant to Section 2.02, Section 2.03, or Section 2.04, INFRA ("Term").
2.02 AT WILL TERMINATION. Notwithstanding anything herein to the
contrary, Employee's employment may be terminated at any time with or without
reason, by Employer upon thirty (30) days written notice to Employee, or by
Employee upon thirty (30) days written notice to Employer.
2.03 FOR CAUSE TERMINATION. Employee's employment may be terminated by
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
Employer without notice for "cause." Termination for "cause" is defined for
purposes of this subsection as termination upon: (i) the final conviction of
Employee for a felony involving willful conduct materially injurious, harmful or
detrimental to Employer; or (ii) the final adjudication of Employee in a civil
proceeding for acts or omissions to act involving willful conduct materially
injurious, harmful or detrimental to Employer. For the purposes of this
subsection, "final conviction" and "final adjudication" shall be and mean a
conviction or and adjudication, as the case may be, that is no longer appealable
due to the passage of time or otherwise, and with respect to which a final
judgment has been entered on the judgment roles of the court in which the action
was commenced. Further, for the purposes of this subsection, no act or omission
to act on Employee's part shall be considered "willful" unless done, or omitted
to be dome, by Employee in bad faith and without reasonable belief that
Employee's act of omission was in the best interest of Employer.
2.04 DISABILITY OR DEATH. Employee's employment shall be terminable
immediately upon Employee's death or disability. "Disability" is defined for
purposes of this subsection as absence from Employee's full time duties with
Employer as a result of Employee's incapacity due to physical or mental illness
for ninety (90) days calculated on a cumulative basis during any two (2) year
period during the term of this Agreement. Nothing in this Section 2.04 is
intended to violate any Oregon State law regarding parental or family leave
policies or any other applicable law.
SECTION 3. COMPENSATION
3.01 BASE SALARY. Commencing December 15, 1994, through June 30, 1995
Employee shall be paid an annual base salary in the amount of one hundred forty
thousand dollars ($140,000.00); commencing July 1, 1995 Employee shall be paid
an annual base salary in the amount of one hundred sixty thousand dollars
($160,000)("Base Salary"). The Base Salary shall be paid to Employee in equal
semi-monthly installments in arrears on the seventh (7th) and twenty-second (n)
day of each month, commencing as of the first semi-monthly pay period following
the effective date of this Agreement. Should the seventh (7th) or the twenty-
second (n) day of any month not be a business day, Employee's semi-monthly
installment of the Base Salary otherwise due on such date shall be paid to
Employee on the business day closest to the date such semi-monthly installment
is due (i.e., if the seventh (7th) day of the month falls on a Saturday, the
semi-monthly installment shall be paid on the preceding business day or if the
seventh (7th) day of the month falls on a Sunday, the semi-monthly installment
shall be paid on the next following business day). Employee's Base Salary may
be increased in the discretion of Employer during the Term of this Agreement.
3.02 BONUS COMPENSATION. Nothing herein shall preclude the Employer from
authorizing the payment of additional compensation to Employee over and above
the Base Salary at any time payable to him under his Agreement, whether as a
bonus or otherwise. The payment of such additional compensation shall not
operate as an amendment obligating Employer to make any similar payment or to
pay additional compensation at any future time or for any future period, or be
deemed to affect Employee's Base Salary in any manner. Employee will
participate in whatever bonus plan is adopted by Employer including any cash
bonus pools established from time to time by Employer for Corporate Executives.
3.03 STOCK OPTIONS. Upon the commencement of the Term of this Agreement,
Employer shall grant Employee one hundred thirty thousand (130,000) options for
Employer's stock. To the extent allowed under the Internal Revenue Code of 1986
("Code"), the stock options will be granted pursuant to that certain Incentive
Stock Option Agreement, a copy of which is attached to this Agreement as Exhibit
A. The remaining options, if any, not allowed
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
as incentive stock options under the Code will be granted as nonqualified
options, copies of which are attached hereto as Exhibit B.
3.04 BENEFITS.
3.04A VACATION AND HOLIDAY PAY. As of the effective date of this
Agreement, Employee will be entitled to: (i) accrue vacation time at
the rate of four (4) weeks of paid vacation during each year of
employment; and (ii) will be eligible to receive pay for
Employer-paid holidays.
3.04B INSURANCE. Employee shall be entitled to medical, life,
worker's compensation, social security and state unemployment
insurance benefits as provided under Employer's then current terms,
policies and procedures, except that the ninety day waiting period
for such insurance benefits shall be waived.
3.04C TUITION REIMBURSEMENT. Employee shall be entitled to
reimbursement for all tuition, enrollment fees, and books pursuant
to Employers education assistance program. Employee shall comply
with all Employer's terms, policies and procedures regarding its
education assistance program.
3.04D MISCELLANEOUS BENEFITS. In addition to any other
compensation or benefits to be received by Employee pursuant to the
terms of this Agreement, Employee shall be entitled to participate
in any employee benefits which Employer may from time to time
provide its employees or its corporate officers generally.
SECTION 4. PAYMENTS UPON TERMINATION OF EMPLOYMENT
4.01 TERMINATION FOR CAUSE. In the event of the termination of
Employee's employment by Employer for cause as defined in Section 2.03, SUPRA,
or in the event of termination of Employee's employment by Employee, Employer
shall pay to Employee only the amount of compensation accrued pursuant to
Section 3.01, SUPRA, through and including the date of termination.
4.02 TERMINATION FOR DEATH OR DISABILITY. In the event of the
termination of Employee's employment due to his death or disability, Employer
shall pay to Employee or Employee's estate or legal representative, as the case
may be, the amount of compensation accrued pursuant to Section 3.01, SUPRA, as
of the date of termination plus a lump sum severance payment equal to one
hundred eighty (180) days Base Salary in effect as of the date of termination.
4.03 OTHER TERMINATION. In the event of termination of Employee's
employment by Employer other than as provided in Section 4.01 or 4.02, SUPRA,
Employer shall pay Employee the amount of compensation accrued pursuant to
Section 3.01, SUPRA, as of the date of termination plus severance payments in an
amount equal to one years Base Salary in effect as of the date of termination,
payable in installments as if still employed; subject however, to Employee
demonstrating that he is using his best efforts to find employment of comparable
status within one hundred (100) miles of wherever last located. For purposes of
this Agreement, "employment" shall be defined to include self-
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
employment and the offering of consulting services. In the event Employee does
not use, or cannot demonstrate that he is using, his best efforts to obtain
other employment severance payments shall cease. If Employee does use his best
efforts to obtain other employment and is successful in obtaining such
employment, severance payments shall be reduced by the amount of any
remuneration received from such employment. For the purposes of this Agreement,
"remuneration" shall be defined to include cash payments, the face value of any
promissory notes issued to Employee regardless of the terms of payment or
whether payments are ever received, stock or stock options valued as of the day
granted, or any other compensation given in any form whatsoever.
4.04 OTHER COMPENSATION. Except as set forth in this Section 4, no other
compensation shall be due or payable to Employee upon termination of his
employment.
SECTION 5. PERSONAL NATURE
This Agreement is personal, and is being entered into based upon the
singular skill, qualifications and experience of Employee. Employee shall not
assign this Agreement or any rights hereunder without the express written
consent of Employer which may be withheld with or without reason. Employee
hereby grants to Employer the right to use Employee's name, likeness and/or
biography in connection with the services performed by Employee hereunder and in
connection with the advertising or exploitation of any project with respect to
which Employee performs services hereunder.
SECTION 6. NOTICES
Any and all notices or other communications required or permitted by this
Agreement or by law shall be deemed duly served and given when personally
delivered to the party to whom such notice or communication is directed or, in
lieu of such personal service, when deposited in the United States mail,
certified, return receipt requested, first class postage prepaid, addressed as
follows:
EMPLOYER: Rentrak Corporation
7227 N.E. 55th Avenue
P.O. Box 18888
Portland, Oregon 97218
Attn: Ron Berger
//
//
//
COPY TO: Andrea Bushnell
Corporate Director of Legal and Business
Affairs
7227 N.E. 55th Avenue
P.O. Box 18888
Portland, Oregon 97218
EMPLOYEE: F. Kim Cox
8036 S.E. 141st Court
Portland, Oregon 97236
Each party may change its address for purposes of this Section by giving
written notice of such change in the manner provided for in this Section.
SECTION 7. MISCELLANEOUS PROVISIONS.
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
7.01 ATTORNEYS' FEES. In the event that it should be become necessary for
any party to bring an action, including arbitration, either at law or in equity,
to enforce or interpret the terms of this Agreement, each party shall pay its
own attorneys' fees including those incurred in resolving the dispute prior to
initiation of any litigation and at trial and on any appeal.
7.02 APPLICABLE LAW AND VENUE. This Agreement is executed and intended
to be performed in the State of Oregon and the laws of such State shall govern
its interpretation and effect. If suit is instituted by any party hereto or by
any other party for any cause or matter arising from or in connection with the
respective rights or obligations of the parties hereunder, the sole jurisdiction
and venue for such action shall be the Circuit Court of the State of Oregon in
and for the County of Multnomah.
7.03 INTEGRATION. Employee has simultaneously executed an Incentive
Stock Option Agreement (a copy of which is attached hereto as Exhibit A), a
Nonqualified Stock Option Agreement (a copy of which is attached hereto as
Exhibit B) and has previously executed an Employee Confidentiality and
Noncompetition Agreement (a copy of which is attached hereto as Exhibit C) which
remain in effect and are incorporated into the terms and conditions of
employment under this Agreement. Except as set forth in the preceding sentence,
this Agreement constitutes the entire agreement of the parties with respect to
the subject matter of this Agreement and supersedes all prior agreements,
negotiations, or understandings, whether oral or written, between the parties
with respect thereto.
7.04 HEIRS AND ASSIGNS. Subject to any restriction on assignment
contained herein, this Agreement shall be binding upon and shall inure to the
benefit of the respective party's heirs, successors and assigns.
7.05 SEVERABILITY. Any provision in this Agreement which is, by
competent judicial authority, declared illegal, invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such illegality, invalidity or unenforceability without invalidating the
remaining provisions hereof or affecting the legality, validity or
enforceability or such provision in any other jurisdiction. The parties hereto
agree to negotiate in good faith to replace any illegal, invalid or
unenforceable provision that, to the extent possible, will preserve the economic
bargain of this Agreement, or otherwise to amend this Agreement.
7.06 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and the counterparts shall together
constitute one and the same agreement, notwithstanding that all of the parties
are not signatory to the original or the same counterpart.
7.07 CAPTIONS. The headings and captions herein are inserted solely for
the purpose of convenience of reference and are not intended to govern, limit,
or aid in the construction of
any term or provision hereof.
7.08 EXECUTION. Each of the parties hereto shall execute, acknowledge
and deliver any instrument necessary to carry out the provisions of this
Agreement.
7.09 CONSTRUCTION. This Agreement has been prepared by legal counsel for
Employer. Employee has been advised and by his execution hereof acknowledges,
that he has the right to and should have this Agreement reviewed by his own
separate legal counsel. This Agreement has been negotiated at arms' length with
the benefit of or opportunity to seek legal counsel and, accordingly, shall
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
not be construed against any of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EMPLOYER: EMPLOYEE:
RENTRAK CORPORATION, I acknowledge that I have
an Oregon Corporation read and agree to the foregoing
Agreement including, without
By:/s/ Ron Berger limitation, the provision
Ron Berger, President allowing termination of my employment
"at will" by Employer in Section 2.01,
SUPRA.
/s/ F. Kim Cox
F. Kim Cox
<PAGE>
LOAN MODIFICATION AGREEMENT
AMONG: Rentrak Corporation ("Borrower"), whose address is 7227 N.E. 55th
Avenue, Portland, Oregon 97218;
AND: Silicon Valley Bank ("Silicon") whose address is 3003 Tasman Drive,
Santa Clara, California 95054;
DATE: May 17, 1996.
This Loan Modification Agreement is entered into on the above date by
Borrower and Silicon.
1. BACKGROUND. Borrower entered into a loan and security agreement with
Silicon dated as of October 12, 1993, which was subsequently modified (as
amended, the "Loan Agreement"). Capitalized terms used in this Loan
Modification Agreement shall, unless otherwise defined in this Agreement, have
the meaning given to such terms in the Loan Agreement.
Silicon and Borrower are entering into this Agreement to state the terms
and conditions of certain modifications to the Loan Agreement and the Schedule,
as modified prior to the date of this Agreement.
2. MODIFICATIONS TO LOAN AGREEMENT AND SCHEDULE.
(a) The Schedule attached to this Loan Modification Agreement is a
revised and restated Schedule, which modifies certain terms contained in the
Schedule attached to the Loan Agreement. The Schedule attached to this Loan
Modification supersedes in its entirety the Schedule attached to the Loan
Agreement.
(b) Section 3.7 of the Loan Agreement is deleted and replaced with
the following:
"3.7 FINANCIAL CONDITION AND STATEMENTS. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared
in conformity with generally accepted accounting principles and now
and in the future will completely and accurately reflect the financial
condition of the Borrower, at the times and for the periods therein
stated. Since the last date covered by any such statement there has
been no material adverse change in the financial condition or business
of the Borrower. The Borrower is now and will continue to be solvent.
The Borrower will provide Silicon: (i) within 50 days after the end of
each quarter (except the fourth fiscal quarter), a quarterly financial
statement (consisting of company-prepared 10Q reports), including
consolidated financial statement details as determined by Silicon to
support calculations of the financial covenants contained in the
Schedule as prepared by the Borrower and certified as correct to the
best knowledge and belief by the Borrower's chief financial officer or
other officer or person acceptable to Silicon; (ii) within 20 days
after the end of each month, an accounts receivable report and an
accounts payable report in such form as Silicon shall reasonably
specify; (iii) within 20 days after the end of each month, a Borrowing
Base Certificate in the form attached to this Agreement as Exhibit A,
as Silicon may reasonably modify such Certificate from time to time,
signed by the Chief Financial Officer of the Borrower; (iv) within 50
days after the end of the first three calendar quarters of each year
and within 95 days after the end of the last calendar quarter of each
year, a
<PAGE>
Compliance Certificate in such form as Silicon shall reasonably
specify, signed by the Chief Financial Officer of the Borrower,
certifying that throughout such quarter the Borrower was in full
compliance with all of the terms and conditions of this Agreement, and
setting forth calculations showing compliance with the financial
covenants set forth on the Schedule hereto and such other information
as Silicon shall reasonably request; and (v) within 95 days following
the end of the Borrower's fiscal year, complete annual CPA audited
financial statements, such audit being conducted by independent
certified public accountants reasonably acceptable to Silicon."
(c) Section 4.5 of the Loan Agreement is deleted in its entirety and
replaced with the following:
"4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable
times, Silicon, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy the Borrower's accounting
books, records, ledgers, journals, or registers and the Borrower's
books and records relating to the Collateral. Silicon shall take
reasonable steps to keep confidential all information obtained in any
such inspection or audit, but Silicon shall have the right to disclose
any such information to its auditors, regulatory agencies and
attorneys, and pursuant to any subpoena or other legal process. The
foregoing audits shall be at Silicon's expense, except that the
Borrower shall reimburse Silicon for up to $1,000.00 per audit for
Silicon's reasonable out-of-pocket costs for semi-annual accounts
receivable audits, and Silicon may debit the Borrower's deposit
accounts with Silicon for the cost of such accounts receivable audits
(up to the limit stated above), in which event Silicon shall send
notification thereof to the Borrower. Notwithstanding the foregoing,
during the continuation of an Event of Default all audits shall be at
the Borrower's expense.
3. THE PRO IMAGE/BLOWOUT ENTERTAINMENT. Borrower has informed Silicon
that Borrower intends to spin out The Pro Image, Inc. and Blowout Entertainment
(formerly known as Entertainment One, Inc.) to Borrower's shareholders. Silicon
will grant its consent to this restructuring and will release the stock of The
Pro Image, Inc. that is currently pledged to Silicon, provided that the
restructuring does not obligate Borrower to take any action that is prohibited
under the Loan Agreement. In addition, Silicon will, from time to time,
subordinate its liens on specific assets of Blowout Entertainment to the liens
of other lenders to Blowout Entertainment on such assets, by executing and
delivering to Borrower UCC-3 subordination filings referring to such assets.
4. NO OTHER MODIFICATIONS. Except as expressly modified by this Loan
Modification Agreement, the terms of the Loan Agreement and Schedule, as amended
prior to the date of this Agreement, shall remain unchanged and in full force
and effect. Silicon's agreement to modify the Loan Agreement pursuant to this
Loan Modification Agreement shall not obligate Silicon to make any future
modifications to the Loan Agreement or any other loan document. Nothing in this
Loan Modification Agreement shall constitute a satisfaction of any indebtedness
of any Borrower to Silicon. It is the intention of Silicon and Borrower to
retain as liable parties all makers and endorsers of the Loan Agreement or any
other loan document. No maker, endorser, or guarantor shall be released by
virtue of this Loan Modification Agreement. The terms of this paragraph shall
apply not only to this Loan Modification Agreement, but also to all subsequent
loan modification agreements.
5. REPRESENTATIONS AND WARRANTIES.
<PAGE>
(a) The Borrower represents and warrants to Silicon that the execution,
delivery and performance of this Agreement are within the Borrower's corporate
powers, and have been duly authorized and are not in contravention of law or the
terms of the Borrower's charter, bylaws or other incorporation papers, or of any
undertaking to which the Borrower is a party or by which it is bound.
(b) The Borrower understands and agrees that in entering into this
Agreement, Silicon is relying upon the Borrower's representations, warranties
and agreements as set forth in the Loan
Agreement and other loan documents. Borrower hereby reaffirms all
representations and warranties in the Loan Agreement, all of which are true as
of the date of this Agreement.
BORROWER:
RENTRAK CORPORATION
By: /s/ F. Kim Cox
------------------------------------
Title: V.P./Secretary
----------------------------------
SILICON:
SILICON VALLEY BANK
By: /s/ Tim Hardin
-------------------------------------
Title: Vice President
-----------------------------------
<PAGE>
ACKNOWLEDGMENT OF GUARANTORS
The undersigned guarantors (1) consent to the modifications to the Loan
Agreement and Schedule stated in the Loan Modification Agreement between Silicon
and the Borrower identified therein, and (2) ratify the provisions of the
guaranties executed by such guarantors for the benefit of Silicon and confirm
that all provisions of such guaranties are in full force and effect and apply to
all indebtedness of any type owed to Silicon by Rentrak Corporation under any
loan agreement, promissory note, or any other agreement.
Blow Out Video, Inc.
By: /s/ F. Kim Cox
---------------------------------------------
Title: Secretary
------------------------------------------
Entertainment One, Inc.
By: /s/ F. Kim Cox
---------------------------------------------
Title: Secretary
-------------------------------------------
<PAGE>
Rentrak Corporation
Computation of Net Income (Loss) Per Share
For the Year Ended March 31, 1995
<TABLE>
<CAPTION>
Primary Fully Diluted
---------- -------------
<S> <C> <C>
Weighted average number of shares of
common stock outstanding 10,721,558 10,721,558
Dilutive effect of exercise of stock options 2,356,734 2,356,734
Dilutive effect of exercise of stock warrants 2,500,197 3,419,626
Less: purchase of treasury shares, up to
20% of shares outstanding at period end (2,180,538) (2,180,538)
------------ -----------
Weighted average number of shares of common
stock and common stock equivalents $ 13,397,951 $14,317,380
------------ -----------
------------ -----------
Net Income (Loss) from Continuing Operations 5,113,523 5,113,523
Plus: interest income from investments
assumed purchased with proceeds from
exercise of stock options and warrants in
excess of proceeds used to purchase
treasury stock. 394,249 582,494
------------ -----------
Net Income for purposes of computing
earnings per share from continuing operations. $ 5,507,772 $ 5,696,017
------------ -----------
------------ -----------
Net Income (Loss) per Share from Continuing Operations $0.41 $0.40
------------ -----------
------------ -----------
Net Income (Loss) from Discontinued Operations (286,987) (286,987)
Plus: interest income from investments
assumed purchased with proceeds from
exercise of stock options and warrants in
excess of proceeds used to purchase
treasury stock. - -
------------ -----------
Net Income for purposes of computing
earnings per share from discontinued operations. ($286,987) ($286,987)
------------ -----------
------------ -----------
Net Income (Loss) per Share from Discontinued Operations ($0.02) ($0.02)
------------ -----------
------------ -----------
</TABLE>
The computation of net income (loss) per share for the years ended March 31,
1994 and 1996 is not provided since it can be clearly determined form the
material contained in footnote 1 of the financial statements.
<PAGE>
Exhibit 22
Subsidiaries of Registrant
/ / Dover Aggregates, Inc., a Delaware corporation doing business as BlowOut
Video.
/ / Pro Image Inc., a Utah Corporation doing business as Pro Image and Team
Spirit.
/ / Streamlined Solutions, Inc., an Oregon corporation doing business as
Streamlined Solutions, Inc. and Streamlined Information Systems.
/ / BlowOut Entertainment, a Delaware corporation.
/ / BlowOut Video, Inc., an Oregon corporation, doing business as BlowOut
Video.
/ / Mortco Inc., an Oregon corporation.
/ / Attitude 2 Travel, Inc. an Oregon corporation.
/ / WOne Incorporated, an Oregon corporation.
/ / KOne Incorporated, an Oregon corporation.
/ / RTK Kelly Limited a foreign corporation.
/ / PDF, Inc., an Oregon corporation.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements: (1) Registration Statement File number
33-40472 on Form S-8 of the 1986 Stock Option Plan, the 1985 Stock Incentive
Plan, the 1985 Key Employee Incentive Stock Option Plan and the Individual
Written Compensation Plan dated May 10, 1991, (2) Registration Statement File
number 33-44865 on Form S-8 of the 1986 Restated and Amended Stock Option Plan
and Directors' Stock Option Plan dated January 8, 1992, (3) Registration
Statement on Form S-8 of the 1992 Employee Stock Purchase Plan dated June 16,
1992, (4) Registration Statement File Number 33-86548 on Form S-3 dated
November 21, 1994 and (5) Registration Statement File Number 33-65463 on form
S-3 dated December 28, 1995 as amended on February 9, 1996.
ARTHUR ANDERSEN LLP
Portland, Oregon,
June 26, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
K.K. RENTRAK JAPAN:
We have audited the accompanying balance sheet of K.K. RENTRAK JAPAN (a
Japanese corporation) as of March 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended,
expressed in Japanese yen. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of K.K. RENTRAK JAPAN as of March
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles in the United
States of America.
Also, in our opinion, the translated amounts in the accompanying financial
statements translated into U.S. dollars have been computed on the basis set
forth in Note 2.
Osaka, Japan
May 24, 1996
/s/ Arthur Andersen
<PAGE>
K.K. RENTRAK JAPAN
BALANCE SHEETS
MARCH 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
----------------------------------------------
1996 1995 1996
------------ --------------- -------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents Y 654,468 Y 854,391 $ 6,174,226
Accounts receivable, less allowance for
doubtful accounts of Y68,297 ($644,311)
and Y8,800, respectively 2,232,416 1,448,771 21,060,529
Inventories 263,057 226,509 2,481,670
Video tapes for PPT 247,926 748,885 2,338,924
Deferred income taxes 150,291 - 1,417,840
Other current assets 68,899 178,863 649,990
----------- ----------- ------------
Total current assets 3,617,057 3,457,419 34,123,179
----------- ----------- ------------
Property and equipment, at cost:
Leasehold improvements 105,598 21,865 996,207
Equipment and fixtures 338,298 272,960 3,191,491
----------- ----------- ------------
443,896 294,825 4,187,698
Less-Accumulated depreciation (184,829) (103,018) (1,743,670)
----------- ----------- ------------
259,067 191,807 2,444,028
----------- ----------- ------------
Other assets:
Intangible assets 150,382 121,236 1,418,698
Deferred income taxes 36,103 - 340,594
Long-term deposits 209,663 73,168 1,977,953
Other 170,740 95,256 1,610,755
----------- ----------- ------------
566,888 289,660 5,348,000
----------- ----------- ------------
Total assets Y 4,443,012 Y 3,938,886 $ 41,915,207
=========== =========== ============
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
----------------------------------------------
1996 1995 1996
------------ --------------- -------------
(Unaudited)
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings Y 629,134 Y 1,183,600 $ 5,935,226
Current portion of long-term debt 187,500 131,150 1,768,868
Accounts payable - trade and other 2,067,271 2,141,269 19,502,557
- affiliates 558,552 349,920 5,269,358
Accrued income taxes 274,835 11,344 2,592,783
Accrued liabilities 206,985 38,803 1,952,689
Other current liabilities 44,409 5,311 418,953
----------- ----------- ------------
Total current liabilities 3,968,686 3,861,397 37,440,434
----------- ----------- ------------
Long-term debt 318,568 360,931 3,005,358
Other long-term liabilities 138,046 8,371 1,302,321
Commitments and contingent liabilities
Stockholders' equity/(deficit):
Common stock, par value Y50,000
($472)per share; 20,000 20,000 188,679
For both periods -
Authorized - 1,600 shares
Issued - 400 shares
Accumulated deficit (2,288) (311,813) (21,585)
----------- ----------- ------------
17,712 (291,813) 167,094
----------- ----------- ------------
Total liabilities and stockholders' equity Y 4,443,012 Y 3,938,886 $ 41,915,207
=========== =========== ============
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
<PAGE>
K.K. RENTRAK JAPAN
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
------------------------------------ --------------
1996 1995 1994 1996
---------- -------- --------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
PPT Y10,108,230 Y7,491,101 Y6,007,343 $95,360,660
Other 2,178,452 1,103,028 - 20,551,434
----------- ---------- ---------- ------------
12,286,682 8,594,129 6,007,343 115,912,094
----------- ---------- ---------- ------------
Costs and expenses:
PPT operations 8,192,876 5,869,052 4,732,789 77,291,283
Other operations 1,702,496 990,578 - 16,061,283
Selling, general and
administrative expenses 1,902,780 1,793,207 1,384,538 17,950,755
----------- ---------- ---------- ------------
11,798,152 8,652,837 6,117,327 111,303,321
----------- ---------- ---------- ------------
Operating income (loss) 488,530 (58,708) (109,984) 4,608,773
----------- ---------- ---------- ------------
Other income (expenses):
Interest income 2,325 1,880 1,631 21,934
Dividend income 274 24 - 2,585
Interest expense (52,208) (62,572) (41,478) (492,528)
Other, net (20,427) 57,275 (1,959) (192,708)
----------- ---------- ---------- ------------
(70,036) (3,393) (41,806) (660,717)
----------- ---------- ---------- ------------
Income (loss) before income taxes 418,494 (62,101) (151,790) 3,948,056
Provision for income taxes:
Current 295,363 18,900 15,154 2,786,443
Deferred (186,394) - - (1,758,434)
----------- ---------- ---------- ------------
108,969 18,900 15,154 1,028,009
----------- ---------- ---------- ------------
Net income (loss) Y309,525 Y(81,001) Y(166,944) $2,920,047
=========== ========== ========== ============
Per share of common stock:
Net income (loss) Y774 Y(203) Y(417) $7,300
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
K.K. RENTRAK JAPAN
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock (Accumulated
---------------------
Number of (Yen in Deficit)
------------------
Shares thousands) (Yen in thousands)
--------- ---------- ------------------
<S> <C> <C> <C>
BALANCE AT MARCH 31, 1993 (Unaudited) 400 Y 20,000 Y (63,868)
Net loss (Unaudited) - - (166,944)
----- -------- ----------
BALANCE AT MARCH 31, 1994 (Unaudited) 400 20,000 (230,812)
Net loss (Unaudited) - - (81,001)
----- -------- ----------
BALANCE AT MARCH 31, 1995 (Unaudited) 400 20,000 (311,813)
Net income - - 309,525
----- -------- ----------
BALANCE AT MARCH 31, 1996 400 Y20,000 Y(2,288)
===== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Common Stock (Accumulated
-------------------------
Number of Deficit)
--------------
Shares (U.S. dollars) (U.S. dollars)
--------- -------------- --------------
<S> <C> <C> <C>
BALANCE AT MARCH 31, 1995 (Unaudited) 400 $188,679 $(2,941,632)
Net income - - 2,920,047
------ ---------- ---------
BALANCE AT MARCH 31, 1996 400 $188,679 $ (21,585)
====== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
K.K. RENTRAK JAPAN
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
------------------------------------ --------------
1996 1995 1994 1996
---------- --------- --------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) Y309,525 Y(81,001) Y(166,944) $2,920,047
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 223,855 91,327 62,879 2,111,840
Deferred income taxes (186,394) - - (1,758,434)
Change in specific operating accounts:
Increase in accounts receivable (843,142) (646,083) (310,059) (7,954,170)
(Increase) decrease in inventories
and video tapes for PPT 409,789 (616,307) (262,705) 3,865,934
Increase in accounts payable 266,810 920,209 730,467 2,517,075
Increase (decrease) in accrued income taxes 263,491 (2,790) 5,732 2,485,764
Increase (decrease) in accrued liabilities 168,182 (33,381) 60,123 1,586,623
Other, net 48,702 (38,318) (184,956) 459,453
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 660,818 (406,344) (65,463) 6,234,132
---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisitions of property and equipment (149,071) (7,415) (6,258) (1,406,331)
Acquisitions of intangible assets (171,191) (85,799) (40,000) (1,615,009)
---------- ---------- ---------- ----------
Net cash used in
investing activities (320,262) (93,214) (46,258) (3,021,340)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Increase (decrease) in
short-term borrowings (554,466) 939,040 217,064 (5,230,811)
Proceeds from long-term debt 188,279 342,000 - 1,776,217
Payments of long-term debt (174,292) (70,341) (65,524) (1,644,264)
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities (540,479) 1,210,699 151,540 (5,098,858)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (199,923) 711,141 39,819 (1,886,066)
Cash and cash equivalents
at beginning of year 854,391 143,250 103,431 8,060,292
---------- ---------- ---------- ----------
Cash and cash equivalents at end of year Y654,468 Y854,391 Y143,250 $6,174,226
========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
------------------------------------ --------------
1996 1995 1994 1996
---------- --------- --------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest Y52,208 Y62,572 Y41,478 $492,528
Income taxes 31,933 26,219 4,530 301,255
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
K.K. RENTRAK JAPAN
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
INFORMATION IN THESE NOTES RELATING TO THE YEARS
ENDED MARCH 31, 1994 AND 1995 IS UNAUDITED.
1. COMPANY ORGANIZATION AND BUSINESS
K.K. RENTRAK JAPAN (the "Company") ( a Japanese corporation) was established
in December 1989 under the Joint Venture Agreement between Rentrak
Corporation ("Rentrak USA") (an Oregon corporation) and Culture Convenience
Club Co., Ltd. ("CCC") (a Japanese corporation) with the original ownership
of 33 1/3% and 66 2/3%, respectively. In June 1994, Rentrak USA sold 34
shares of the Company to CCC. CCC also sold its shares of the Company to
the president of the Company in June 1995, and to CCC's shareholder company,
Tsutaya Shoten Co., Ltd. ("Tsutaya") (a Japanese corporation), in March
1996. The Company is currently owned 25% by Rentrak USA, 72.5% by Tsutaya
and 2.5% by the president of the Company.
The Company is principally engaged in the distribution of prerecorded video
cassettes to the home video market in Japan using Pay-Per-Transaction (PPT)
revenue sharing program, licensed by Rentrak USA under the Joint Venture
Agreement. Stores participating in PPT include CCC franchise stores. The
number of the stores participating in PPT are as follows:
As of March 31,
1996 1995
---- ----
CCC franchise stores 777 657
Other franchise or independent stores 665 377
------- -------
Total 1,442 1,034
------- -------
As of March 31, 1996, the Company also operates three stores for sales and
rental of video cassettes and music CDs.
Under the Joint Venture agreement, the Company was to pay a royalty of 1.67%
of revenue to Rentrak USA and 3.33% of revenue to CCC beginning February
1994. In June, 1994, Rentrak USA, CCC and the Company amended the
agreement. Pursuant to the amended agreement, the Company is to pay a
royalty of 1.67% of PPT revenue of up to $47,905,000, plus 0.5% of PPT
revenue greater than $47,905,000 in each fiscal year to Rentrak USA. CCC is
entitled to receive royalties from the
1
<PAGE>
Company for the amount equal to the amount of the royalties paid to Rentrak
USA. Under the amended agreement, the Company pays a one-time royalty of $2
million to Rentrak USA in consideration for amending the agreement; $500
thousand was paid in February 1994 and another $500 thousand was paid in
July 1994. The remaining $1 million, which is payable by March 31, 1999,
was accrued as a long-term liability and the equal amount was recognized as
an other asset in the accompanying balance sheet as of March 31, 1996.
2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(a) Basis of presenting financial statements
The accounts and the financial statements of the Company are maintained
in Japanese yen. For the convenience of the reader, the accompanying
financial statements as of March 31, 1996 , and for the year then ended
are also presented in U.S. dollars by arithmetically translating all yen
amounts by using the approximate exchange rate at March 31, 1996 of Yen
106 to US $1.
The Company maintains its books of account and prepares its financial
statements in conformity with accounting practices and tax laws in
Japan. The accompanying financial statements reflect certain
adjustments, not recorded in the books of the Company which, in the
opinion of the management, are appropriate to present the financial
position, results of operations and cash flows in conformity with
generally accepted accounting principles in the United States of
America. These adjustments consist principally of capitalization of
certain leased equipment, allowance for minimum guarantees, and
provision of deferred income taxes.
(b) Inventories
Inventories consist primarily of video cassettes, music CDs and
accessories for sale at retail stores. Inventories are stated at the
lower of average cost or market.
(c) Video tapes for PPT
The Company occasionally purchases movie tapes to promote and support
its PPT program as certain titles were not made available by video
program suppliers. These movie tapes are amortized ratably over their
expected related revenue stream, mostly over a year, and charged to
cost of sales.
(d) Depreciation
Depreciation of property and equipment is computed using the declining-
balance method over estimated useful lives.
Estimated useful lives are as follows:
Leasehold improvements 15 years
Equipment and fixtures 3-15 years
2
<PAGE>
Certain equipment, primarily computer equipment and store equipment,
were acquired under capital leases and are being amortized over the term
of the related leases agreements.
(e) Intangible assets
Included in intangibles are video film exhibition rights and goodwill.
Film exhibition rights are amortized using the straight-line method over
their estimated useful lives, generally ranging from 2 to 7 years.
Goodwill represents the excess of the cost of purchased stores over the
fair value of their net assets. Goodwill acquired in 1995 for Yen
80,000 thousand was fully written off in 1996 when the store was closed.
Amortization expense was Yen 64,000 thousand ($603,774) in 1996, and Yen
16,000 thousand in 1995.
(f) Revenue recognition
Under its PPT program, the Company enters into contracts to distribute
video cassettes leased by retailers from video program suppliers
(producers of motion pictures and licensees and distributors of home
video cassettes), for a percentage of the fees charged to the retailers.
The lease agreements provide for a one-time initial handling fee and
continuing transaction fees based on a percentage of rental revenues
earned by the retailer upon renting the video cassettes to their
customers. The Company recognizes handling fees as revenue when the
video cassettes are shipped to the retailers and recognizes transaction
fees when the video cassettes are rented to customers. The
corresponding liability to video program suppliers for their share of
the fees is recorded to cost of sales when the revenue is recognized
with a corresponding amount to accounts receivable. The Company also
charges retailers a processing fee upon admission to the PPT program.
This fee is recognized as PPT revenue when the application to
participate in the PPT program is approved.
(g) Income taxes
The Company recognizes deferred taxes for the expected future tax
consequences of events that have been recognized in the financial
statements or tax returns under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
(h) Foreign currency translation
Payables and long term liabilities denominated in foreign currencies
have been translated into Japanese yen, using the current exchange rate
in effect at the balance sheet date, and the resulting transaction gains
or losses are included in the determination of net income for the
period.
3
<PAGE>
(i) Statement of cash flows
For purposes of the statement of cash flows, cash and cash equivalents
include cash on hand and deposits placed with banks on demand or with a
maturity of three months or less.
(j) Use of estimates
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.
3. CAPITALIZED LEASES
The Company leases computer hardware and certain store equipment under
noncancelable long-term leases agreements.
Future minimum payments under capital leases at March 31, 1996 were as
follows:
(Yen in thousands) (U.S. dollars)
------------------ --------------
1997 Y88,323 $833,236
1998 76,122 718,132
1999 12,431 117,274
2000 3,252 30,679
2001 584 5,509
2002 49 462
--------- ------------
Total minimum lease payments 180,761 1,705,292
Less amount representing interest (21,973) (207,292)
--------- ------------
Present value of net minimum
lease payments 158,788 1,498,000
Less current maturities (72,568) (684,604)
-------- ------------
Long-term obligation Y86,220 $813,396
======== ============
4
<PAGE>
4. TRANSACTIONS WITH RELATED PARTIES
The following amounts were due from and to related parties as of March 31,
1996 and 1995:
(Yen in thousands) (U.S. dollars)
------------------ --------------
1996 1995 1996
---- ---- ----
(Unaudited)
CCC:
Accounts payables Y123,281 Y42,559 $1,163,028
Rentrak USA:
Accounts payables 4,990 - 47,075
Accrued liabilities 59,608 - 562,340
Long-term liabilities 106,000 - 1,000,000
JRSS (subsidiary of Tsutaya):
Accounts receivable 453 189,276 4,274
Accounts payable 430,281 307,361 4,059,255
CCC estate (subsidiary of CCC):
Other non-current assets 28,000 28,000 264,151
Expenses with related parties for the years ended march 31, 1996, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
--------------------------------- --------------
1996 1995 1994 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Rentrak USA:
Royalty fees Y85,922 Y161,309 - $810,585
CCC:
Royalty fees 36,254 2,167 - 342,019
Processing charges 118,518 160,585 267,822 1,118,094
Rental fees 57,957 36,405 8,033 546,764
System usage fees - - 23,301 -
Promotion charges 24,678 20,499 3,135 232,811
Other 14,365 38,122 23,560 135,519
JRSS:
Purchase of tapes 1,495,114 1,076,547 1,064,204 14,104,849
Purchase other 3,702 6,595 8,824 34,925
Warehouse rent 22,272 18,931 14,330 210,113
Packaging charges 25,850 24,970 21,226 243,868
Other 67,619 21,981 8,268 637,915
</TABLE>
5. INCOME TAXES
The Company is subject to income taxes based on earnings which, in the
aggregate, result in a statutory tax rate of approximately 51.5%.
5
<PAGE>
Deferred tax assets as of March 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
------------------ --------------
1996 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Current-
Reserve for minimum guarantee Y58,544 Y16,869 $552,302
Accrual of royalty to Rentrak USA 30,698 - 289,604
Allowance for doubtful accounts 73,872 - 696,905
Accrued enterprise tax and expenses 31,857 105,509 300,538
Other 29,192 7,395 275,396
------- -------- ----------
224,163 129,773 2,114,745
------- -------- ----------
Non-current-
Depreciation and amortization 1,131 11,858 10,670
One-time royalty payment made
to Rentrak USA 34,972 41,046 329,924
Other 7,210 - 68,019
------- -------- ----------
43,313 52,904 408,613
------- -------- ----------
Total deferred tax assets 267,476 182,677 2,523,358
------- -------- ----------
Less- valuation allowance (81,082) (182,677) (764,924)
------- -------- ----------
Total deferred tax assets, net of
valuation allowance 186,394 - 1,758,434
Deferred tax liabilities - - -
--------- --------- ----------
Net deferred tax assets Y186,394 - $1,758,434
========= ========= ==========
</TABLE>
The net change in the valuation allowance for deferred tax assets in 1996
relates to the fact that, based on the Company's earnings generated in 1996,
management believes it is more likely than not that the Company will realize
the benefit of the net deferred tax assets existing at March 31, 1996.
6
<PAGE>
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
------------------ --------------
1996 1995 1994 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income tax expense (benefit)
at statutory rate Y215,524 Y(41,716) Y(85,976) $2,033,245
Permanently nondeductible
expenses 14,942 2,843 2,530 140,962
Change in valuation allowance (101,595) 44,513 99,549 (958,443)
Other (19,902) 13,260 (949) (187,755)
-------- -------- --------
Total income tax provision Y108,969 Y18,900 Y15,154 $1,028,009
======== ======== ======== ==========
</TABLE>
The significant components of deferred income tax expense (benefit) for the
year ended March 31, 1996 are as follows:
(Yen in thousands) (U.S. dollars)
------------------ --------------
Reserve for minimum guarantee Y(41,675) $(393,160)
Accrual of royalty to Rentrak USA (30,698) (289,604)
Allowance for doubtful accounts (73,872) (696,906)
Accrued enterprise tax and expenses 73,652 694,830
Depreciation and amortization 10,727 101,198
One-time royalty payment made to
Rentrak USA 6,074 57,302
Net change in valuation allowance (101,595) (958,443)
Other, net (29,007) (273,651)
--------- -----------
Total deferred income tax benefit Y(186,394) $(1,758,434)
========= ===========
6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings consist of bank borrowings. As of March 31, 1996 and
1995, the average interest rates were 1.77% and 3.14%, respectively.
Short-term bank borrowings as of March 31, 1996 were secured by bank
deposits of Yen 20,738 thousand ($195,642) as revolving collateral.
7
<PAGE>
Long-term debt as of March 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollar)
------------------ -------------
1996 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
1.74 % to 5.5% unsecured loans from banks Y136,080 Y63,539 $1,283,773
Unsecured loan, 2.125% in 1996 and 3.25% in
1995 from an unrelated party due 2000 211,200 262,000 1,992,453
Capital lease obligations (See Note 3) 158,788 166,541 1,498,000
--------- ---------- ----------
506,068 492,080 4,774,226
Less-current maturities included in
current liabilities (187,500) (131,150) (1,768,868)
--------- ---------- ----------
Y318,568 Y360,931 $3,005,358
========= ========== ==========
</TABLE>
CCC provides guarantees for Yen 541,200 thousand ($5,105,660) for a certain
portion of short-term borrowings and the unsecured loan payable to an
unrelated party as of March 31, 1996.
The aggregate annual maturities of long-term debt outstanding as of March
31, 1996 were as follows:
Year ending March 31
(Yen in thousands) (U.S. dollars)
1998 Y170,810 $1,611,415
1999 91,136 859,774
2000 55,980 528,113
2001 593 5,594
2002 49 462
-------- ----------
Y318,568 $3,005,358
======== ==========
7. PENSION PLAN
The Company has a trusteed noncontributory pension plan covering all
full-time employees under which, employees who terminate with at least 20
years of service are entitled to receive benefits for ten years. The plan
also provides for lump-sum benefit payments payable upon earlier termination
(less than 20 years of service) for employees with at least 3 years of
service. The benefits are determined on the basis of length of service at
the time of retirement or termination. Payments of the benefits are made
under a noncontributory funded plan which was established under an alliance
of subsidiaries of Tsutaya on October 1, 1990. Pension assets contributed
by each
8
<PAGE>
participating employer may be used to provide benefits to all employees of
all participating employers and are not segregated into individual
participants' accounts. Under the plan, the Company is annually required to
contribute to the funded plan, its proportionate share of the amounts
required to maintain sufficient assets to provide for its proportionate
share of the benefits.
The Company's proportionate share of the funded status of the pension plan
as of March 31, 1996 is as follows:
<TABLE>
<CAPTION>
(Yen in thousands) (U.S. dollars)
------------------ --------------
<S> <C> <S>
Actuarial present value of benefit obligation:
Accumulated benefit obligation Y5,310 $50,094
======= ========
Projected benefit obligation for service
rendered to date 5,310 50,094
Proportional share of the plan assets at fair value (4,737) (44,689)
------- --------
Projected benefit obligation in excess
of plan assets 573 5,406
======= ========
</TABLE>
Net pension cost for the year ended March 31, 1996 consisted of the following:
(Yen in thousands) (U.S. dollars)
------------------ --------------
Service cost Y1,543 $14,557
Interest cost 257 2,425
Actual return on assets (224) (2,113)
------ -------
Net pension cost Y1,576 $14,868
====== =======
The expected long-term rate of return on assets and the discount rate were
5.5 percent, respectively.
8. STOCKHOLDERS' EQUITY
The Japanese Commercial Code provides that an amount equal to at least 10%
of cash dividends paid and other cash outlays resulting from appropriation
of retained earnings with respect to each fiscal period be transferred to
the legal reserve until such reserve equals 25% of the issued capital.
This reserve and additional paid-in capital are not available for dividends
but may be used to reduce a deficit by resolution of the stockholders or
may be capitalized by resolution of the Board of Directors. The Company
has not declared any dividends or any other cash outlays since its
incorporation.
9
<PAGE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has entered into several guarantee contracts with program
suppliers providing titles for distribution under the PPT system. In
general, these contracts guarantee the suppliers minimum payments per
title. In some cases these guarantees were paid in advance. Any advance
payments that the Company has made are amortized to cost of sales as
revenues are generated from the related cassettes.
The Company, using empirical data, estimates the projected revenue stream
to be generated under these guarantee arrangements and accrues for
projected losses or reduces the carrying amount of advances to program
suppliers for any guarantee that it estimates will not be fully recovered
through future revenues. Total commitments under guarantees as of March
31, 1996, were approximately Yen 1,309,627 thousand ($12,354,972) of which
Yen 869,536 thousand ($8,203,170) had been earned. As of March 31, 1996,
the Company has recorded Yen 113,677 thousand ($1,072,425) for potential
losses under such guarantee arrangements.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,709,405
<SECURITIES> 0
<RECEIVABLES> 15,354,019
<ALLOWANCES> 642,580
<INVENTORY> 6,291,032
<CURRENT-ASSETS> 37,423,011
<PP&E> 10,845,948
<DEPRECIATION> 5,921,826
<TOTAL-ASSETS> 64,817,668
<CURRENT-LIABILITIES> 24,525,555
<BONDS> 0
0
0
<COMMON> 11,277
<OTHER-SE> 40,280,836
<TOTAL-LIABILITY-AND-EQUITY> 64,817,668
<SALES> 84,547,899
<TOTAL-REVENUES> 84,547,899
<CGS> 66,374,471
<TOTAL-COSTS> 81,901,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,168,555
<INCOME-TAX> (768,045)
<INCOME-CONTINUING> 5,400,510
<DISCONTINUED> (286,987)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,113,523
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,683,128
<SECURITIES> 344,500
<RECEIVABLES> 18,971,104
<ALLOWANCES> 627,895
<INVENTORY> 1,737,695
<CURRENT-ASSETS> 29,268,022
<PP&E> 5,351,253
<DEPRECIATION> 3,885,076
<TOTAL-ASSETS> 56,251,858
<CURRENT-LIABILITIES> 41,847,434
<BONDS> 0
0
0
<COMMON> 12,138
<OTHER-SE> 14,392,286
<TOTAL-LIABILITY-AND-EQUITY> 56,251,858
<SALES> 113,266,320
<TOTAL-REVENUES> 113,266,320
<CGS> 95,167,529
<TOTAL-COSTS> 116,027,452
<OTHER-EXPENSES> 251,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208,307
<INCOME-PRETAX> (2,080,461)
<INCOME-TAX> 594,792
<INCOME-CONTINUING> (1,485,669)
<DISCONTINUED> (30,800,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,285,669)
<EPS-PRIMARY> (2.68)
<EPS-DILUTED> (2.68)
</TABLE>
