FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
For Quarter Ended: Commission file number: 0-15159
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 no.)
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
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Sgcurities
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 ( )
As of February 6, 1996, the Registrant had 12,134,164 shares of
Common Stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following unaudited financial statements of RENTRAK CORPORATION
(the "Company"), have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The results of operations for the three month and nine
month periods ended December 31, 1995 are not necessarily indicative
of the results to be expected for the entire fiscal year ending March
31, 1996.
Consolidated Statements of Operations for the three month
periods ended December 31, 1995 and December 31, 1994
Consolidated Statements of Operations for the nine month periods
ended December 31, 1995 and December 31, 1994
Consolidated Balance Sheets as of December 31, 1995 and
March 31, 1995
Consolidated Statements of Cash Flows for the nine month periods
ended December 31, 1995 and December 31, 1994
Notes to Consolidated Financial Statements
<TABLE>
RENTRAK CORPORATION
STATEMENTS OF INCOME
<CAPTION>
(Unaudited)
Three Months Ended Dec 31,
1995 1994
<S> <C> <C>
REVENUES:
Rentrak Home Entertainment - PPT $ 31,493,052 $ 21,101,704
Pro Image - Sports Apparel 12,599,118 10,326,579
BlowOut Entertainment & Other 6,306,080 236,411
50,398,250 31,664,694
OPERATING COSTS AND EXPENSES:
Cost of sales 36,087,493 23,426,419
Selling and administrative 13,552,993 6,885,087
49,640,486 30,311,506
INCOME FROM OPERATIONS 757,764 1,353,188
OTHER INCOME (EXPENSE):
Interest income 376,058 151,035
Interest expense (190,337) (14,416)
Other 314,475 -
500,196 136,619
INCOME BEFORE INCOME TAXES 1,257,960 1,489,807
INCOME TAX PROVISION 698,094 231,659
NET INCOME $ 559,866 $ 1,258,148
PRIMARY EARNINGS PER COMMON
SHARE AND COMMON EQUIVALENT
SHARE (Note C) $ 0.05 $ 0.10
SHARES USED IN PER SHARE CALCULATION
(Note C) 12,419,974 14,157,806
FULLY DILUTED EARNINGS PER COMMON
SHARE AND COMMON EQUIVALENT
SHARE (Note C) $ 0.05 $ 0.09
SHARES USED IN PER SHARE CALCULATION
(Note C) 12,419,974 15,420,849
The accompanying notes are an integral
part of these statements.
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Nine Months Ended Dec 31,
1995 1994
<S> <C> <C>
REVENUES:
Rentrak Home Entertainment - PPT $ 77,867,510 $ 54,238,892
Pro Image - Sports Apparel 26,802,665 15,452,257
BlowOut Entertainment & Other 14,462,198 4,659,511
119,132,373 74,350,660
OPERATING COSTS AND EXPENSES:
Cost of sales 87,710,708 54,823,831
Selling and administrative 32,765,627 17,986,768
120,476,335 72,810,599
INCOME (LOSS) FROM OPERATIONS (1,343,962) 1,540,061
OTHER INCOME (EXPENSE):
Interest income 925,342 452,409
Interest expense (434,897) (14,416)
Other 754,207 2,826,849
1,244,652 3,264,842
INCOME (LOSS) BEFORE INCOME TAXES (99,310) 4,804,903
INCOME TAX PROVISION (BENEFIT) (96,156) 960,980
NET INCOME (LOSS) $ (3,154) $ 3,843,923
PRIMARY EARNINGS (LOSS) PER COMMON
SHARE AND COMMON EQUIVALENT
SHARE (Note C) $ (0.00) $ 0.31
SHARES USED IN PER SHARE CALCULATION
(Note C) 11,947,010 13,035,094
FULLY DILUTED EARNINGS (LOSS) PER COMMON
SHARE AND COMMON EQUIVALENT
SHARE (Note C) $ (0.00) $ 0.30
SHARES USED IN PER SHARE CALCULATION
(Note C) 12,005,253 13,778,467
The accompanying notes are an integral
part of these statements.
RENTRAK CORPORATION
BALANCE SHEETS
ASSETS
<CAPTION>
(Unaudited)
Dec 31, March 31,
1995 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,218,757 $ 10,709,405
Accounts receivable, net of
allowance for doubtful accounts
of $218,650 at Dec 31, 1995
and $642,580 at March 31, 1995 20,660,811 14,711,439
Advances to program suppliers
(Note E) 3,547,945 2,683,710
Inventory 9,758,916 5,480,793
Deferred tax asset 519,532 915,404
Other current assets 5,323,800 2,112,021<PAGE>
Total current assets 46,029,761 36,612,772
VIDEO CASSETTE RENTAL INVENTORY, net 7,394,373 810,239
PROPERTY AND EQUIPMENT, net 8,752,831 4,924,122
INTANGIBLES, net 15,863,325 11,011,121
NOTES RECEIVABLE, net (Note I) 1,200,000 3,035,787
OTHER INVESTMENTS, net (Note I) 5,107,902 2,601,693
DEFERRED TAX ASSET 1,487,890 1,926,673
OTHER ASSETS 765,277 3,577,035
$ 86,601,359 $ 64,499,442
The accompanying notes are an integral
part of these statements.
RENTRAK CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
Dec 31, March 31,
1995 1995
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 594,573 $ -
Borrowings on line of credit (Note J) 5,826,285 -
Accounts payable 23,378,671 17,799,146
Accrued liabilities 5,120,668 3,301,513
Accrued compensation 1,653,956 2,016,820
Deferred revenue 3,399,704 1,408,076
Total current liabilities 39,973,857 24,525,555
LONG TERM DEBT, less current portion 575,890 -
COMMITMENTS AND CONTINGENCIES (Note K)
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: 12,134,166 shares
at December 31, 1995 and 11,277,246 shares at
March 31, 1995 12,134 11,277
Capital in excess of par value 49,565,909 44,598,939
Net unrealized gain (loss) on investment
securities (Note D) 436,588 (170,747)
Accumulated deficit (1,401,873) (1,398,719)
Less- Deferred charge - warrants (2,561,146) (3,066,863)
46,051,612 39,973,887
$ 86,601,359 $ 64,499,442
The accompanying notes are an integral
part of this balance sheet.
RENTRAK CORPORATION
STATEMENT OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine Months Ended Dec 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss) $ (3,154) $ 3,843,923
Adjustments to reconcile
income (loss) to net
cash provided (used) in operations
Gain on investment/asset sales (236,964) (2,826,849)
Depreciation 1,992,367 1,464,413
Amortization of intangibles 952,408 335,595
Amortization of warrants 505,717 -
Provision for doubtful accounts (423,930) (242,607)
Retailer financing program reserves (878,098) 2,825,806
Deferred income taxes 463,291 -
Studio advance reserves 350,000 377,300
Change in specific accounts, net of
effects of purchase of business:
Accounts receivable (5,295,567) (3,612,999)
Advance to program suppliers (1,214,235) 1,336,998
Inventory (4,278,123) (7,233,633)
Other current assets (2,644,999) (556,469)
Accounts payable 6,204,338 3,054,720
Accrued liabilities and compensation 1,183,651 3,021,116
Deferred revenue 1,991,628 -
Net cash (used) provided by continuing
operations (1,331,670) 1,787,314
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,812,768) (3,763,943)
Payment for purchase of business,
net of cash acquired (377,848) (77,507)
Purchases of other assets
and intangibles 3,275,576 (160,252)
Investment (reduction) in retailer
financing program (2,485,865) (7,885,606)
Proceeds from sale of investments/assets 1,100,000 2,836,849
Purchases of investments - (4,400,253)
Maturity of investments - 5,243,571
Net cash (used) provided by
investing activities (5,300,905) (8,207,141)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt, net 2,387,225 -
Issuance (retirement) of Common Stock (245,298) 1,285,465
Net cash provided
by financing activities 2,141,927 1,285,465
NET DECREASE IN CASH AND CASH
EQUIVALENTS (4,490,648) (5,134,362)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 10,709,405 13,815,718
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 6,218,757 $ 8,681,356
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during period for -
Interest $ 159,762 $ 7,718
Income taxes $ 82,153 $ 117,507
NON-CASH INVESTING ACTIVITIES:
Increase (decrease) in net unrealized gain on
investment securities $ 978,699 $ (1,434,182)
Purchases of businesses through issuance
of common stock $ 5,213,125 $ 4,425,280
</TABLE>
RENTRAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: 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.
The Pro Image's ("TPI") year-end is February 28 (29). As there are
no intervening events which materially affect the financial position
or results of operations, the consolidated statements include TPI's
balance sheet as of November 30, 1995 and February 28, 1995 and the
statements of operations and cash flows for the three month and nine
month periods ended November 30, 1995 and 1994, respectively.
NOTE B: Adjustments to Unaudited Interim Financial Statements
All normal and recurring adjustments have been made to the unaudited
interim financial statements which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods
presented.
NOTE C: Net Income/Loss Per Share
For the three and nine month periods ended December 31, 1995, net
loss per share of common stock is computed on the basis of the
weighted average shares of common stock outstanding plus common
equivalent shares arising from dilutive stock options, using the
treasury stock method. The Company's outstanding warrants were not
dilutive during these periods.
For the three and nine month periods ended December 31, 1994, net
earnings (loss) per share is computed using the "modified" treasury
stock method. Under this method, the number of treasury shares
assumed to be purchased with the proceeds from the exercise of
dilutive stock options and warrants is limited to 20 percent of the
outstanding shares at period end. 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.
NOTE D: Investment Securities
Securities, classified as available for sale, are shown at market
with an adjustment to stockholders' equity to reflect unrealized
gains and losses, net of tax. Short-term investments are recorded at
cost which approximates market and consist of U.S. Treasury
obligations and certificates of deposit.
NOTE E: Guarantees and Advances
The Company has entered into several guarantee contracts with program
suppliers providing titles for distribution under the Pay Per
Transaction ("PPT") revenue sharing system. In general, these
contracts guarantee the suppliers minimum payments. In some cases
these guarantees were paid in advance. Any advance payments which
the Company has made and which will be realized within the current
year are included in advances to program suppliers. The long-term
portion is included in other assets. Both the current and long-term
portion 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. As of December 31, 1995,
the Company has recorded approximately $950,000 for potential losses
under such guarantee arrangements.
NOTE F: Interest in Foreign Corporation
In December 1989, the Company entered into an agreement with a
Japanese Corporation and formed a jointly-owned Japanese corporation,
Rentrak Japan. Rentrak Japan's purpose is to market PPT in the
Pacific Rim. The Company has provided its PPT technology and certain
trademarks and service marks. The Japanese owner has provided
substantially all operating capital. The Company has a one-fourth
interest in Rentrak Japan. The Company accounts for its interest in
Rentrak Japan using the equity method. As of March 31 and December
31, 1995, the Company's investment in Rentrak Japan had been written
down to zero. The Company has provided no guarantees or other
financial commitments for the investee which would require the
recognition of additional losses under the equity method. For the
three month and nine month periods ended December 31, 1995, the joint
venture realized a profit.
Summarized financial data for the joint venture, after translation to
U.S. currency, at December 31, 1995, and for the three month and nine
month periods then ended is as follows:
<TABLE>
<S> <C>
Current assets $ 39,035,491
Noncurrent assets $ 5,282,875
Current liabilities $ 41,750,000
Noncurrent liabilities $ 3,830,219
Shareholders' deficit $ (1,261,853)
For The Three Months Ended
December 31, 1995:
Net sales $ 30,424,704
Cost of sales $ 25,259,492
Net Income $ 274,907
For The Nine Months Ended
December 31, 1995:
Net sales $ 91,087,142
Cost of sales $ 75,655,829
Net Income $ 1,816,905
</TABLE>
NOTE G: Major Suppliers
For the quarter ended December 31, 1995, the Company had one program
supplier whose product generated 29 percent and a second that
generated an additional 10 percent of the Company's revenues. For
the nine month period ended December 31, 1995, the Company had one
program supplier whose product generated 28 percent and a second that
generated an additional 14 percent of the Company's revenues. No
other program supplier provided product which generated more than 10
percent of revenue for either the three month or nine month periods
ended December 31, 1995.
For the quarter ended December 31, 1994, the Company had one program
supplier whose product generated 15 percent and a second that
generated an additional 15 percent of the Company's revenues. For
the nine month period ended December 31, 1994, the Company had one
program supplier whose product generated 21 percent and a second that
generated an additional 11 percent of the Company's revenues. No
other program supplier provided product which generated more than 10
percent of revenue for either the three month or nine month periods
ended December 31, 1994.
NOTE H: BlowOut Entertainment Acquisitions
In a series of acquisitions culminating in May 1995, the Company
acquired a 57 percent interest in Entertainment One, Inc., a Delaware
corporation ("E-1"). E-1 operates "store within a store" retail
video outlets which rent and sell video cassettes, video games,
computer games and programs, and CD-ROMs in Wal-Mart Supercenter
stores under the trade name "Blowout Video". In December 1995, the
Company converted approximately $3.0 million of E-1 debt into E-1
Common Stock, increasing its interest in E-1 to approximately 93
percent. The minority interest has been written down to zero.
Therefore, the Company records 100 percent of assets and liabilities
and the operating results. As of December 31, 1995, E-1 operated 78
video rental departments inside Wal-Mart stores.
The consolidated statements include E-1's Balance Sheet as of
December 31, 1995 and the Statement of Operations and Cash Flows for
the seven month period ended December 31, 1995.
On August 31, 1995 the Company acquired certain assets of SuperCenter
Entertainment Corporation ("SEC") which constitute SEC's retail video
business. As consideration for the acquisition, the Company issued
SEC 878,000 shares of Common Stock of the Company.
As of December 31, 1995, SEC operated 50 video rental departments
inside Wal Mart stores and 25 video rental outlets inside K-Mart and
Super K-Mart stores. As a result of rapid expansion during the past
year, the operations have been unprofitable to date.
Summarized pro forma financial data for the nine month periods ended
December 31, 1995 and 1994, presented as if the SEC acquisition had
occurred at the beginning of each period, is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues $122,594,774 $75,814,777
Net Income (Loss) $ (179,945) $ 3,227,799
Net Income (Loss) per share $ (0.01) $ 0.23
</TABLE>
The Company's consolidated statements include SEC's Balance Sheet as
of December 31, 1995 and the Statement of Operations and Cash Flows
for the four month period ended December 31, 1995.
NOTE I: 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 demonstrated the prospect 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. These loans and investments are 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 $14.0 million to be used in connection with the
Company's retailer financing program and as of December 31, 1995, the
Company had loaned or invested approximately $7.1 million. At this
time, the Company does not anticipate making additional loans or
investments under this program. The loans, investments or
commitments are to various retailers and individually range from $0.2
million to $2.0 million. The investments are accounted for at cost
as all investments represent less than 10 percent of the entity's
equity. The notes, which have payment terms that vary according to
the individual loan agreements, are due in 1995 through 1999.
Interest rates on the various loans range from the prime rate plus 1
percent to the prime rate plus 3 percent. These financings are
speculative in nature and involve a high degree of risk, and no
assurance can be given that the Company will earn a satisfactory
return, if any, from such investments. As the loans or investments
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. Because of the financial
condition of a number of these retailers, as of December 31, 1995,
the Company had reserved approximately 26 percent or $1.9 million of
the original loan or investment amount.
NOTE J: Borrowings On Line of Credit
The Company has an agreement with a financial institution for a line
of credit in the amount of $10.0 million. The agreement expires on
October 27, 1996. Interest is payable monthly at a rate that varies
in relation to the bank's prime rate plus .5 percent. The lender has
been granted a warrant 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 of credit is secured by
substantially all of the Company's assets, excluding TPI's. The
terms of the agreement require, among other things, a minimum amount
of tangible net worth, minimum quick ratio and minimum ratio of 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. During the quarter ended
December 31, 1995, the Company borrowed $4.7 million under the line
of credit and repaid $2.0 million. As of December 31, 1995, $2.7
million remained outstanding under the line of credit.
In July 1995, TPI entered into a $6.0 million line-of-credit
agreement with a financial institution. Interest on borrowings under
this credit agreement accrue at the bank's prime rate plus .25
percent. Borrowings are collateralized by the Company's accounts
receivable and inventory, and require monthly payments of accrued
interest. The available borrowing under this agreement is the lesser
of $6.0 million or the borrowing base as described in the agreement
with the final $1.0 million being available only with a concurrent
cash equity infusion to The Pro Image of an equal dollar amount. The
credit agreement expires on July 31, 1997. As of December 31, 1995,
$3.1 million was borrowed on the line of credit.
NOTE K: Long Term Debt
In connection with the acquisition of E-1, the Company assumed long
term debt of approximately $1.3 million. The debt, which has payment
terms that vary according to the individual loan agreements, is due
in 1995 through 2000. Interest rates on the various loans range from
0 percent to prime rate plus 2.25 percent (10.75 percent as of
December 31, 1995). As of December 31, 1995, $0.6 million of long
term debt is outstanding.
NOTE L: Income Tax Provision/Benefit
The Company's effective income tax rate increased from 20 percent for
the nine month period ended December 31, 1994 to 97 percent for the
nine month period ended December 31, 1995. The increase is primarily
due to the non-deductibility of certain intangible assets for tax
purposes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For a more meaningful analysis, results are presented for four groups
of operations: Rentrak Home Entertainment ("RHE") which includes
North American PPT Operations; Pro Image, Inc. and its subsidiaries
("TPI"); BlowOut Entertainment, which includes E-1.; and the leased
video department operations of SEC and SVI, Inc ("SVI") and Other
Domestic Subsidiaries and Corporate. The following tables break out
these groups for the three month and nine month periods ended
December 31, 1995 and December 31, 1994. All significant
intercompany transactions have been eliminated.
<TABLE>
<CAPTION>
QUARTER ENDED BLOWOUT OTHER SUBS/
DECEMBER 31, 1995 RHE TPI(1) ENTERTAINMENT CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Revenues $31,493,052 $12,599,118 $ 6,306,080 - $50,398,250
Cost of sales 25,584,622 8,280,330 2,222,541 - 36,087,493
Gross profit margin 5,908,430 4,318,788 4,083,539 - 14,310,757
SG&A 2,571,902 4,706,732 5,279,651 994,708 13,552,993
Other income (expense) 231,850 (62,601) 275,708 55,239 500,196
Income (loss) before
taxes $ 3,568,378 $ (450,545) $ (920,404) $ (939,469) $ 1,257,960
Income tax provision 698,094
Net income $ 559,866
<CAPTION>
QUARTER ENDED BLOWOUT OTHER SUBS/
DECEMBER 31, 1994 RHE TPI(2) ENTERTAINMENT CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Revenues $ 20,810,428 $10,326,579 $ 291,276 $ 236,411 $31,664,694
Cost of sales 16,581,062 6,765,034 80,323 - 23,426,419
Gross profit margin 4,229,366 3,561,545 210,953 236,411 8,238,275
SG&A 2,375,974 3,328,830 313,478 866,805 6,885,087
Other income
(expense) (171,095) (27,450) - 335,164 136,619
Income (loss) before
taxes $ 1,682,297 $ 205,265 $ (102,525) $ (295,230) 1,489,807
Income tax provision 231,659
Net income $ 1,258,148
(1) Includes Results of Operations from September 1, 1995 through
November 30, 1995 only.
(2) Includes Results of Operations from September 1, 1994 through
November 30, 1994 only.
<CAPTION>
NINE MONTHS ENDED BLOWOUT OTHER SUBS/
DECEMBER 31, 1995 RHE TPI(1) ENTERTAINMENT CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Revenues $ 81,421,061 $ 26,802,665 $ 10,346,011 $ 563,587 $119,133,324
Cost of sales 66,467,601 17,077,037 4,152,140 13,930 87,710,708
Gross profit margin 14,953,460 9,725,628 6,193,871 549,657 31,422,616
SG&A 8,495,119 12,152,923 8,846,592 3,271,944 32,766,578
Other income (expense) 236,484 (92,151) 870,534 229,785 1,244,652
Income (loss) before
taxes $ 6,694,825 $ (2,519,446) $(1,782,187) $(2,492,502) $ (99,310)
Income tax benefit 96,156
Net loss $ (3,154)
<CAPTION>
NINE MONTHS ENDED BLOWOUT OTHER SUBS/
DECEMBER 31, 1994 RHE TPI(2) ENTERTAINMENT CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C> <C>
REVENUES $ 57,298,517 $ 15,452,257 $ 924,639 $ 675,247 $ 74,350,660
Cost of sales 44,252,803 10,329,424 241,604 - 54,823,831
Gross profit margin 13,045,714 5,122,833 683,035 675,247 19,526,829
SG&A 7,274,639 5,305,892 1,145,707 4,260,530 17,986,768
Other income (expense) 2,310,677 (11,912) - 966,077 3,264,842
(expense)
Income (loss) before
taxes $ 8,081,752 $ (194,971) $ (462,672) $(2,619,206) 4,804,903
Income tax provision 960,980
Net income $ 3,843,923
(1) Includes Results of Operations from March 1, 1995 through
November 30, 1995 only.
(2) Includes Results of Operations from March 1, 1994 through
November 30, 1994 only.
</TABLE>
Rentrak Home Entertainment
For the quarter ended December 31, 1995, total revenue from RHE
increased $10.7 million, or 51 percent, rising to $31.5 million from
$20.8 million in the quarter ended December 31, 1994. For the nine
month period ended December 31, 1995, total revenue from RHE
increased $24.1 million, or 42 percent, rising to $81.4 million from
$57.3 million in the nine months ended December 31, 1994.
The increase in total revenue was primarily due to the growth in (i)
the number of retailers approved to lease Cassettes 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 quarter-end, the
number of Participating Retailers had grown 32 percent to 4,500 from
3,422 a year earlier. As of December 31, 1995, there were 3,777
retailers located in the United States and 723 located in Canada.
Cost of sales for the quarter ended December 31, 1995 rose to $25.6
million from $16.6 million the prior year, an increase of $9.0
million, or 54 percent. Cost of sales for the nine months ended
December 31, 1995 rose to $66.5 million from $44.3 million the prior
year, an increase of $22.2 million, or 50 percent. These changes
approximately parallel the changes in total revenues. For the
quarter ended December 31, 1995, the gross profit margin decreased to
19 percent from 20 percent the previous year. For the nine months
ended December 31, 1995, the gross profit margin decreased to 18
percent from 23 percent the previous year. The decrease for the
quarter is primarily due to the inclusion of an additional $168,000
of warrant cost amortization in the quarter ended December 31, 1995.
The decrease for the nine months is primarily due to the inclusion of
the nonrecurring payment of $1.0 million from Rentrak Japan in the
nine months ended December 31, 1994 and the inclusion of an
additional $504,000 of warrant cost amortization in the nine months
ended December 31, 1995. In addition, as compared to the quarter and
nine month periods ended December 31, 1994, the decrease reflects an
increase in major motion picture studio product which traditionally
has a lower gross margin.
Selling, general and administrative expenses were $2.6 million for
the quarter ended December 31, 1995 compared to $2.4 million for the
quarter ended December 31, 1994. Selling, general and administrative
expenses were $8.5 million for the nine months ended December 31,
1995 compared to $7.3 million for the nine months ended December 31,
1994. As a percentage of total revenue, selling, general and
administrative expenses decreased to 8 percent for the quarter ended
December 31, 1995 from 11 percent the previous year. As a percentage
of total revenue, selling, general and administrative expenses were
10 percent for the nine months ended December 31, 1995 and 13 percent
for the nine months ended December 31, 1994.
Other income (expense) increased from an expense of $0.2 million for
the quarter ended December 31, 1994 to income of $0.2 million for the
quarter ended December 31, 1995, an increase of $0.4 million. Other
income decreased from $2.3 million for the nine months ended December
31, 1994 to $0.2 million for the nine months ended December 31, 1995,
a decrease of $2.1 million. This decrease was due to the sale of
certain investment securities for a gain of $2.8 million in the
quarter ended June 30, 1994.
For the quarter ended December 31, 1995, RHE recorded income before
taxes of $3.6 million, or 11 percent of total revenue, compared to
income before taxes of $1.7 million, or 8 percent of total revenue,
for the quarter ended December 31, 1994. For the nine months ended
December 31, 1995, RHE recorded income before taxes of $6.7 million,
or 8 percent of total revenue, compared to income before taxes of
$8.1 million, or 14 percent of total revenue, for the nine months
ended December 31, 1994.
The Pro Image, Inc.
Comparisons to the nine month period ended November 30, 1994, are not
meaningful because the acquisition of Team Spirit, Inc. ("Team
Spirit") occurred on September 1, 1994, but are presented for
informational purposes.
Total revenue from TPI increased to $12.6 million for the quarter
ended November 30, 1995 from $10.3 million for the quarter ended
November 30, 1994, an increase of $2.3 million, or 22 percent. Total
revenue from TPI increased to $26.8 million for the nine months ended
November 30, 1995 from $15.5 million for the nine months ended
November 30, 1994, an increase of $11.3 million, or 73 percent.
Cost of sales was $8.3 million, an increase of $1.5 million (22
percent) over the $6.8 million recorded for the quarter ended
November 30, 1994. Cost of sales was $17.1 million, an increase of
$6.8 million (65 percent) over the $10.3 million recorded for the
nine months ended November 30, 1994.
Selling, general and administrative expenses increased to $4.7
million in the quarter ended November 30, 1995 from $3.3 million for
the quarter ended November 30, 1994, an increase of $1.4 million, or
41 percent. Selling, general and administrative expenses increased
to $12.2 million in the nine months ended November 30, 1995 from $5.3
million for the nine months ended November 30, 1994, an increase of
$6.9 million, or 129 percent. As a percentage of total revenue,
selling, general and administrative expenses increased to 37 percent
for the quarter ended November 30, 1995 from 32 percent a year
earlier. As a percentage of total revenue, selling, general and
administrative expenses increased to 45 percent for the nine months
ended November 30, 1995 from 34 percent a year earlier.
For the quarter ended November 30, 1995, TPI recorded a loss before
taxes of $0.5 million, or 4 percent of total revenue. This compares
with income before taxes of $0.2 million, or 2 percent of total
revenue, for the quarter ended November 30, 1994. For the nine
months ended November 30, 1995, TPI recorded a loss before taxes of
$2.5 million, or 9 percent of total revenue. This compares with a
loss before taxes of $0.2 million, or 1 percent of total revenue, for
the nine months ended November 30, 1994. TPI experienced a difficult
quarter as apparel sales softened and competitive pressures forced
discounting which reduced margins. TPI's results do not include
December as TPI operates on a February 28 (29) year end. As a result
of such competition, sales during the 1995 Christmas holiday season
at retail sports apparel stores owned or franchised by the Company
were lower than sales during such seasons in recent years.
BlowOut Entertainment
In a series of acquisitions culminating in May 1995, the Company
acquired a 57 percent interest in E-1. E-1 operates "store within a
store" retail video outlets which rent and sell video cassettes,
video games, computer games and programs, and CD-ROM's in Wal-Mart
Supercenter stores under the trade name "Blowout Video". In December
1995, the Company converted approximately $3.0 million of E-1 debt
into E-1 common stock, increasing its interest in E-1 to
approximately 93 percent. As of December 31, 1995, E-1 operated 78
stores in Wal-Mart Supercenter stores, all of which are participating
retailers in the Company's PPT System. As of December 31, 1995, only
22 of the E-1 stores had been open for more than a year, and E-1 had
not generated a profit.
On August 31, 1995, the Company acquired certain assets of SEC
consisting of 45 retail video "store within a store" outlets in Wal-
Mart Supercenter stores and 25 retail video outlets in K-Mart and K-
Mart "SuperK" stores. The acquired stores, which will be operated by
the Company under the trade name "BlowOut Video", rent and sell video
cassettes, video games, computer games and programs, and CD-ROM's and
are participating retailers in the Company's PPT System. These
operations were rapidly expanded over the last year and to date have
not generated a profit.
The Company and E-1 are currently the sole operators of the "store
within a store" video outlets in Wal-Mart stores and the Company is
the operator of the single largest number of "store within a store"
video outlets in K-Mart and K-Mart "SuperK" stores. In early 1996,
the Company intends to reorganize its "store within a store" retail
business into a single corporation to be named BlowOut Entertainment,
Inc. ("BlowOut Entertainment"), which following such reorganization
would be owned by the Company and the other current shareholders of
E-1. All references herein to BlowOut Entertainment will be
comprised of SEC, SVI and E-1 and assumes that such reorganization
has been effected.
The predecessor corporations of BlowOut Entertainment have entered
into master leases with both Wal-Mart and K-Mart. Each individual
video outlet lease under the Wal-Mart and K-Mart master leases is for
a five-year term with an option to extend for an additional five
years. The master leases do not require BlowOut Video to open
additional video outlets in either Wal-Mart or K-Mart stores, and do
not obligate Wal-Mart or K-Mart to lease additional video outlets to
BlowOut Entertainment, BlowOut Entertainment has committed to Wal-
Mart to open video outlets within 45 Supercenters in 1996. Wal-Mart
has recently announced that it intends to open 110 Supercenters
during 1996. Assuming Wal-Mart consents to leasing additional video
outlets in such stores and assuming sufficient capital resources are
available, it is currently contemplated that BlowOut Entertainment
would open additional video outlets in many of such Supercenters. It
is anticipated that BlowOut Entertainment would incur substantial
opening and start-up costs in connection with the opening of
additional stores (currently estimated to be $100,000 per store).
BlowOut Entertainment will require substantial capital and management
resources to open each new store, and there can be no assurance that
BlowOut Entertainment will be able to obtain sufficient capital on
reasonable terms or that it will be able to attract and retain a
sufficient number of skilled store managers to implement its growth
strategy. Furthermore, there can be no assurance that BlowOut
Entertainment's "store within a store" video operations will generate
a profit in the foreseeable future.
Comparisons to the three month and nine month periods ended December
31, 1994 are not meaningful because of the acquisition of a
controlling interest in E-1 (May, 1995) and SEC (September, 1995).
Total revenue from BlowOut Entertainment increased to $6.3 million
for the quarter ended December 31, 1995 from $0.3 million for the
quarter ended December 31, 1994, an increase of $6.0 million. Total
revenue from BlowOut Entertainment increased to $10.3 million for the
nine months ended December 31, 1995 from $0.9 million for the nine
months ended December 31, 1994, and increase of $9.4 million.
Cost of sales was $2.2 million, an increase of $2.1 million over the
$0.1 million recorded for the quarter ended December 31, 1994. Costs
of sales was $4.2 million, an increase of $4.0 million over the $0.2
million recorded for the nine months ended December 31, 1994. As a
percentage of total revenue, costs of sales increased to 35 percent
for the quarter ended December 31, 1995 from 28 percent a year
earlier. As a percentage of total revenue, costs of sales increased
to 40 percent for the nine months ended December 31, 1995 from 26
percent a year earlier.
Selling, general and administrative expenses increased to $5.3
million in the quarter ended December 31, 1995 from $0.3 million for
the quarter ended December 31, 1994, an increase of $5.0 million.
Selling, general and administrative expenses increased to $8.8
million in the nine months ended December 31, 1995 from $1.1 million
for the nine months ended December 31, 1994. As a percentage of
total revenue, selling, general and administrative expenses decreased
to 84 percent for the quarter ended December 31, 1995 from 108
percent a year earlier. As a percentage of total revenue, selling,
general and administrative expenses decreased to 86 percent for the
nine months ended December 31, 1995 from 124 percent a year earlier.
For the quarter ended December 31, 1995, BlowOut Entertainment
recorded a loss before taxes of $0.9 million, or 15 percent of total
revenue. This compares with a loss before taxes of $0.1 million, or
35 percent of total revenue, for the quarter ended December 31, 1994.
For the nine months ended December 31, 1995, BlowOut Entertainment
recorded a loss before taxes of $1.8 million or 17 percent of total
revenue. This compares with a loss before taxes of $0.5 million, or
50 percent of total revenue, for the nine months ended December 31,
1994. Changes in revenues, cost of sales, selling and administrative
costs and losses before taxes were due to the inclusion of E-1 as of
June 1, 1995 and the acquisition of SEC as of September 1, 1995.
Other Subsidiaries
Other Subsidiaries is primarily comprised of a software development
company. The software development company ceased operations on
September 30, 1995. Total revenue from Other Subsidiaries was $0.0
million for the quarter ended December 31, 1995 and $0.2 for the
quarter ended December 31, 1994. Total revenue from Other
Subsidiaries, decreased to $0.6 million for the nine months ended
December 31, 1995 from $0.7 million for the nine months ended
December 31, 1994, a decrease of $0.1 million, or 17 percent.
Selling, general and administrative expenses decreased to $0.1
million in the quarter ended December 31, 1995 from $0.2 million for
the quarter ended December 31, 1994, a decrease of $0.1 million, or
51 percent. Selling, general and administrative expenses decreased
to $0.8 million in the nine months ended December 31, 1995 from $0.9
million for the nine months ended December 31, 1994, a decrease of
$0.1 million, or 11 percent. Other income (expense) was income of
$0.1 million for the quarter ended December 31, 1995 and expense of
$0.1 million for the nine months ended December 31, 1995. There was
no other income (expense) for either the quarter or nine months ended
December 31, 1994.
For the quarter ended December 31, 1995, Other Subsidiaries recorded
a loss before taxes of less than $0.1 million. This compares with
net income before taxes of less than $0.1 million for the quarter
ended December 31, 1994. For the nine months ended December 31,
1995, Other Subsidiaries recorded a loss before taxes of $0.4
million. This compares with a loss before taxes of $0.2 million for
the nine months ended December 31, 1994.
Corporate
Selling, general and administrative expenses increased to $0.9
million in the quarter ended December 31, 1995 from $0.6 million in
the quarter ended December 31, 1994, an increase of $0.3 million, or
37 percent. Selling, general and administrative expenses decreased
to $2.5 million in the nine months ended December 31, 1995 from $3.4
million in the nine months ended December 31, 1994, a decrease of
$0.9 million, or 27 percent. Other Income (Expense) decreased to
less than $0.1 million for the quarter ended December 31, 1995 from
$0.3 million in the quarter ended December 31, 1994, a decrease of
$0.3 million, or 103 percent. Other Income (Expense) decreased to
$0.4 million for the nine months ended December 31, 1995 from $1.0
million in the quarter ended December 31, 1994, a decrease of $0.6
million, or 62 percent. The Company recognized a tax provision of
$0.7 million in the quarter ended December 31, 1995, as compared to a
tax provision of $0.2 million in the quarter ended December 31, 1994.
The Company recognized a tax benefit of $0.1 million in the nine
months ended December 31, 1995, as compared to a tax provision of
$1.0 million in the nine months ended December 31, 1994.
Consolidated Balance Sheet
Total assets increased from $64.5 million as of March 31, 1995 to
$86.6 million as of December 31, 1995, an increase of $22.1 million.
As of December 31, 1995, rental inventory had increased $6.6 million
to $7.4 million from $0.8 million as of March 31, 1995. This
increase is primarily due to the consolidation of E-1 and the
acquisition of SEC. As of December 31, 1995, property and equipment
had increased $3.9 million to $8.8 million from $4.9 million at year-
end. Of this increase, approximately $1.7 million was related to the
E-1 acquisition and $1.6 million was related to the SEC acquisition.
At quarter-end, intangibles had risen to $15.9 million from $11.0
million at the end of fiscal year 1995, an increase of $4.9 million.
Most of this amount was related to the acquisition of E-1 and SEC.
All warrants which the Company issued during the quarter ended June
30, 1994, 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 the quarter expense associated with the warrants was
$0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash and other liquid
investments of $6.2 million, compared to $10.7 million at March 31,
1995. At December 31, 1995, the Company's current ratio (current
assets/current liabilities) declined to 1.15 from 1.49 at March 31,
1995. This decline was primarily attributable to the funding of E-
1's operations.
The Company has an agreement with a financial institution for a line
of credit in the amount of $10.0 million. The agreement expires on
October 27, 1996. Interest is payable monthly at a rate that varies
in relation to the bank's prime rate plus .5 percent. The lender has
been granted a warrant 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 of credit is secured by
substantially all of the Company's assets, excluding TPI's. The
terms of the agreement require, among other things, a minimum amount
of tangible net worth, minimum quick ratio and minimum ratio of 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. During the quarter ended
December 31, 1995, the Company borrowed $4.7 million under the line
of credit and repaid $2.0 million. As of December 31, 1995, $2.7
million remained outstanding under the line of credit. The Company
expects to extend the line of credit beyond October 1996.
In July 1995, TPI entered into a $6.0 million line-of-credit
agreement with a financial institution. Interest on borrowings under
this credit agreement accrue at the bank's prime rate plus .25
percent. Borrowings are collateralized by TPI's accounts receivable
and inventory, and require monthly payments of accrued interest. The
available borrowing under this agreement is the lesser of $6.0
million or the borrowing base as described in the agreement with the
final $1.0 million being available only with a concurrent cash equity
infusion to TPI of an equal dollar amount. The credit agreement
expires on July 31, 1997. As of December 31, 1995, $3.1 million was
borrowed on the line of credit.
In August 1994, the Company acquired all of the outstanding stock of
Team Spirit. Team Spirit operated 39 licensed sports apparel stores
in 15 states, most of which are in the Midwest. Simultaneously with
the acquisition, Rentrak transferred all of the assets of Team Spirit
to TPI, and Team Spirit became a wholly owned subsidiary of TPI. As
consideration for the acquisition, the Company issued approximately
557,000 shares of common stock.
Working capital, which may be needed to fund possible increases in
inventory and fixed assets associated with the increase in company-
owned sports apparel stores, is expected to be provided by existing
bank credit agreements.
The Company has established a retailer financing program whereby the
Company will provide financing on a selective basis to certain video
retailers which the Company believes demonstrate prospects for
substantial growth in the industry. In connection with these
financings, the Company typically makes a loan and/or equity
investment in such retailer. Each loan or investment generally
ranges from $0.2 million to $2.0 million. 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. The Board of Directors has authorized up to $14.0
million to be used in connection with the Company's retailer
financing program, and as of December 31, 1995, the Company had
loaned or invested approximately $7.1 million and had made oral or
written commitments for substantially the rest of the authorized
amount. These financings are speculative in nature and involve a
high degree of risk, and no assurance can be given that the Company
will earn a satisfactory return, if any, from such investments. The
investments are accounted for at cost as all investments represent
less than 10 percent of the entity's equity. Notes obtained in
connection with this program have payment terms that vary according
to the individual loan agreements and are due in 1995 through 1999.
Interest rates on the various loans range from the prime rate plus 1
percent to the prime rate plus 3 percent. As the loans or
investments 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 December 31,
1995, the Company had reserved approximately $1.9 million, or 26% of
the total amount the Company had made in loans and investments under
its retailer financing program. In this regard, the Company's
acquisition of its initial interest in E-1 resulted from an
investment made pursuant to its retailer financing program.
In early 1996, the Company and E-1 intend to reorganize the Company's
and E-1's "store within a store" retail business into BlowOut
Entertainment. BlowOut Entertainment will need to obtain additional
equity or debt financing to support its expansion plans and to
continue operating. BlowOut Entertainment is currently exploring the
possibility of obtaining debt and equity financing from various
private investors and is working with investment banking firms to
explore these and other possible equity financings. There can be no
assurance that any such financing will be available on terms
acceptable to BlowOut Entertainment or that BlowOut Entertainment
will be able to acquire such additional financing as quickly as may
be required to successfully implement BlowOut Entertainment's current
growth plans.
The Company currently believes it may be beneficial to operate the
TPI business and the BlowOut Entertainment business independently of
the Rentrak Home Entertainment business. In this regard, the Company
is currently exploring possible alternatives to restructure the TPI
and the BlowOut Entertainment businesses to achieve this end. In
conjunction with any such restructuring, the Company could be
required to take substantial write downs, primarily of intangible
assets.
Subject to the foregoing, the Company believes its existing cash,
cash generated from operations and available credit facilities
(assuming such facilities are extended or new ones obtained) will be
sufficient to meet its cash requirements for at least the next 12
months.
PART II
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 11 - Calculations of Net Income Per Share
(b) Reports on Form 8-K - One
Item 7 - Financial Statement and Exhibits - filed
November 14, 1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated this 13th day of February, 1996
RENTRAK CORPORATION:
/S/ F. Kim Cox
F. Kim Cox
Executive Vice President and
Chief Financial Officer
Signing on behalf of the registrant
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