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,
1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from
to
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 Identification no.)
incorporation or organization)
One Airport Center, 7700 NE Ambassador Place, Portland, OR 97220
(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 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 ( )
As of February 6, 1997, the Registrant had 12,173,239 shares of Common
Stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the three
month periods ended December 31, 1996 and December 31,
1995
Consolidated Statements of Operations for the nine
month periods ended December 31, 1996 and December 31,
1995
Consolidated Balance Sheets as of December 31, 1996 and
March 31, 1996
Consolidated Statements of Cash Flows for the nine
month periods ended December 31, 1996 and December 31,
1995
Notes to Consolidated Financial Statements
<TABLE>
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
(Unaudited)
Three Months Ended December 31,
1996 1995
RESTATED
<S> <C> <C>
REVENUES:
PPT $ 24,527,761 $ 30,439,042
Other 1,499,107 1,473,274
26,026,868 31,912,316
OPERATING COSTS AND EXPENSES:
Cost of sales 20,914,570 26,583,700
Selling and administrative 4,459,985 3,566,610
25,374,555 30,150,310
INCOME FROM OPERATIONS 652,313 1,762,006
OTHER INCOME (EXPENSE):
Interest income 237,026 454,948
Interest expense - (248,629)
Other - 200,000
237,026 406,319
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAX PROVISION 889,339 2,168,325
INCOME TAX PROVISION 337,972 610,692
INCOME FROM CONTINUING OPERATIONS 551,367 1,557,633
LOSS FROM OPERATIONS OF DISCONTINUED
SUBSIDIARIES (LESS APPLICABLE INCOME
TAX BENEFIT OF $483,069 in 1995) - (2,328,863)
NET INCOME (LOSS) $ 551,367 $ (771,230)
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
Continuing operations $ 0.05 $ 0.13
Discontinued operations - (0.19)
NET INCOME (LOSS) $ 0.05 $ (0.06)
SHARES USED IN PER SHARE CALCULATION 12,203,547 12,419,974
The accompanying notes are an integral
part of these statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Nine months Ended December 31,
1996 1995
RESTATED
<S> <C> <C>
REVENUES:
PPT $ 77,138,838 $ 79,075,509
Other 8,055,831 4,117,138
85,194,669 83,192,647
OPERATING COSTS AND EXPENSES:
Cost of sales 65,815,874 67,480,609
Selling and administrative 11,765,845 11,767,063
77,581,719 79,247,672
INCOME FROM OPERATIONS 7,612,950 3,944,975
OTHER INCOME (EXPENSE):
Interest income 522,701 925,342
Interest expense (181,950) (341,756)
Other 318,875 1,913
659,626 585,499
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAX PROVISION 8,272,576 4,530,474
INCOME TAX PROVISION 3,168,980 1,295,716
INCOME FROM CONTINUING OPERATIONS 5,103,596 3,234,758
LOSS FROM OPERATIONS OF DISCONTINUED
SUBSIDIARIES (LESS APPLICABLE INCOME
TAX BENEFIT OF $1,962,342 in 1995) - (4,569,009)
NET INCOME (LOSS) $ 5,103,596 $ (1,334,251)
EARNINGS (LOSS) PER COMMON SHARE AND COMMON
EQUIVALENT SHARE
Continuing operations $ 0.36 $ 0.27
Discontinued operations - (0.38)
NET INCOME (LOSS) $ 0.36 $ (0.11)
SHARES USED IN PER SHARE CALCULATION 16,225,002 11,947,010
The accompanying notes are an integral
part of these statements.
</TABLE>
<TABLE>
RENTRAK CORPORATION
BALANCE SHEETS
ASSETS
<CAPTION>
(Unaudited)
December 31, March 31,
1996 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,142,294 $ 2,683,128
Investment securities available
for sale - 344,500
Accounts receivable, net of
allowance for doubtful accounts
of $574,276 and $627,895 15,338,131 15,116,203
Accounts receivable - affiliates - 3,227,006
Advances to program suppliers 1,395,105 1,462,875
Inventory 1,813,534 1,737,695
Deferred tax asset 1,606,928 1,353,226
Other current assets 2,294,964 3,343,389
Total current assets 27,590,956 29,268,022
PROPERTY AND EQUIPMENT, net 1,945,450 1,466,177
INTANGIBLES, net 245,871 347,137
NOTES RECEIVABLE - AFFILIATE - 2,800,000
OTHER INVESTMENTS, net 1,002,380 3,477,105
DEFERRED TAX ASSET 3,002,538 2,918,838
OTHER ASSETS 3,267,564 1,225,331
NET NONCURRENT ASSETS OF
DISCONTINUED OPERATIONS 3,626,736 14,749,248
$ 40,681,495 $ 56,251,858
The accompanying notes are an integral
part of these balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
(Unaudited)
December 31, March 31,
1996 1996
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ - $ 2,700,000
Accounts payable 14,539,443 21,795,843
Accrued liabilities 3,354,585 2,163,325
Accrued compensation 1,901,748 1,240,543
Deferred revenue 2,436,819 2,004,865
Net current liabilities of
discontinued operations 8,606,960 11,942,858
Total current liabilities 30,839,555 41,847,434
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:
11,949,741 shares at
December 31, 1996
and 12,138,216 shares at
March 31, 1996 11,950 12,138
Capital in excess of par value 48,263,352 49,583,514
Net unrealized gain (loss)
on investment securities (246,208) 567,508
Accumulated deficit (36,632,298) (33,366,162)
Less- Deferred charge - warrants (1,554,856) (2,392,574)
9,841,940 14,404,424
$ 40,681,495 $ 56,251,858
The accompanying notes are an integral
part of these balance sheets.
</TABLE>
<TABLE>
RENTRAK CORPORATION
STATEMENT OF CASH FLOWS
<CAPTION>
(Unaudited)
Nine months Ended December 31,
1996 1995
RESTATED
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,103,596 $(1,334,251)
Adjustments to reconcile
income (loss) to net
cash provided (used) in operations
Gain on investment/asset sales (309,852) (236,964)
Depreciation 698,657 1,992,367
Amortization of intangibles 184,057 952,408
Amortization of warrants 340,805 505,717
Provision for doubtful accounts (96,270) (423,930)
Retailer financing program reserves (288,708) (878,098)
Studio advance reserves (138,855) 350,000
Deferred income taxes 161,331 463,291
Change in specific accounts, net of
effects in 1995 of purchase of business:
Accounts receivable (125,658) (5,295,567)
Advance to program suppliers 188,244 (1,214,235)
Inventory (75,839) (3,860,571)
Other current assets 4,278,153 (2,644,999)
Accounts payable (7,056,400) 7,499,252
Accrued liabilities and compensation 1,852,465 613,180
Deferred revenue 431,954 1,991,628
Net Current Liabilities of
Discontinued Operations (272,249) -
Net cash provided (used) by
operations 4,875,431 (1,520,772)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,200,085) (6,868,266)
Payment for purchase of business,
net of cash acquired - (377,848)
Reductions (purchases) of other assets
and intangibles 42,139 3,520,176
Net reduction (increase) in
retailer financing program 1,728,708 (2,485,865)
Proceeds from sale of investments/assets 536,410 1,100,000
Net cash provided (used) by
investing activities 1,107,172 (5,111,803)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under
line of credit (2,700,000) 2,387,225
Net Redemptions of Common Stock (823,437) (245,298)
Net cash provided (used)
by financing activities (3,523,437) 2,141,927
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,459,166 (4,490,648)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 2,683,128 10,709,405
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 5,142,294 $ 6,218,757
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $ 197,642 $ -
Income taxes paid (refunded) $ (314,228)$ 112,559
NON-CASH ACTIVITIES:
Decrease in Net Unrealized
Gain (loss) on Investment Securities $ 813,716 $(1,434,182)
Reduction of Warrants $ 496,913 $ -
Decrease in net non-current assets
of discontinued operations through
reduction in equity $11,122,512 $ -
Decrease in net current
liabilities of discontinued
operations through increase
in equity $(3,063,649)$ -
Decrease in Notes Receivable -
affiliate through increase
in other assets $2,800,000 $ -
</TABLE>
RENTRAK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
(the "Condensed Consolidated Financial Statements") of RENTRAK
CORPORATION (the "Company"), have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC).
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 and
nine month periods ended December 31, 1996 are not necessarily in-
dicative of the results to be expected for the entire fiscal year
ending March 31, 1997. The Condensed Consolidated Financial
Statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's
1996 Annual Report to Shareholders (the "1996 Financial Statements").
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal and recurring
adjustments) necessary to present fairly the Company's financial
position and results of operations.
The Condensed 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.
Pro Image Inc's. ("Pro Image") year-end is February 28. As there are
no intervening events which materially affect the financial position
or results of operations, the Condensed Consolidated Financial
Statements include Pro Image's balance sheet as of November 30, 1996
and February 29, 1996 and Pro Image's statements of operations and
cash flows for the three and nine month periods ended November 30,
1995, which are included in the Condensed Consolidated Financial
Statements as discontinued operations.
BlowOut Entertainment, Inc's ("BlowOut") balance sheet as of March 31,
1996 and BlowOut's statements of operations and cash flows for the
three and nine month periods ended December 31, 1995 are included in
the Condensed Consolidated Financial Statements as discontinued
operations.
Subsequent to March 31, 1996, the Company approved plans to
discontinue the operations of Pro Image and BlowOut (see Note B below
and Note 15 included in the 1996 Financial Statements). At December
31, 1996 and March 31, 1996, the net assets of Pro Image have been
segregated in the Condensed Consolidated Financial Statements. The
net assets of BlowOut have been segregated in the Condensed
Consolidated Financial Statements at March 31, 1996, and are not
reflected in the Condensed Consolidated Financial Statements at
December 31, 1996 because the Distribution of BlowOut common stock
described in Note B below occurred in November 1996. The statements
of operations for the three and nine month periods ended December 31,
1995 in the Condensed Consolidated Financial Statements have been
restated to reflect these entities as discontinued. The 1995 cash
flow statement has not been restated to reflect discontinued
operations.
The financial statements for the quarter and nine months ended
December 31, 1995 included in the Condensed Consolidated Financial
Statements have been revised from those included in the Company's Form
10-Q for the quarter ended December 31, 1995. The revision relates to
additional general and administrative expenses of BlowOut which were
identified subsequent to the filing date but prior to issuance of the
Company's 1996 Financial Statements. As BlowOut is a discontinued
operation, the revision is included in the "discontinued operations"
balances in the Condensed Consolidated Financial Statements.
NOTE B: Divestitures and Planned Divestitures
BlowOut Entertainment
On November 26, 1996, the Company made a dividend distribution (the
"Distribution") to its shareholders of 1,457,343 shares of common
stock (the "BlowOut Common Stock") of BlowOut pursuant to a
Reorganization and Distribution Agreement dated as of November 11,
1996 between the Company and BlowOut. Pursuant to the Distribution,
each holder of common stock of the Company received one share of
BlowOut Common Stock for every 8.34 shares of Rentrak common stock
owned by such holder of record on November 18, 1996. In addition,
fractional shares of BlowOut Common Stock were aggregated and the
resulting 323 shares were sold in the public market. The aggregate
net cash proceeds were distributed to those Rentrak shareholders
entitled to fractional shares, including such shares resulting from
ownership of fewer than 8.34 shares of Rentrak Common Stock. The
distributed shares of BlowOut Common Stock represented approximately
60 percent of the outstanding shares of BlowOut Common Stock. As a
result of the Distribution, the December 31, 1996 Condensed
Consolidated Financial Statements reflect the elimination of the net
assets and liabilities related to BlowOut and the reduction in the
Company's ownership in BlowOut to approximately 9.9 percent of the
outstanding shares of BlowOut common stock. The Distribution resulted
in no significant changes in the reserves which were established at
March 31, 1996. The operations of BlowOut are reflected in the
Condensed Consolidated Financial Statements as discontinued operations
at March 31, 1996 and December 31, 1995.
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. The
Company is the principal creditor of BlowOut. The Company has agreed
to guarantee up to $12 million of indebtedness of BlowOut
("Guarantee"). Pursuant to such guarantee, the Board of Directors of
the Company has authorized the Company to guarantee $7 million. The
Guarantee expires on the earlier of (i) December 31, 1997 or (ii) such
time as the total indebtedness of BlowOut subject to the Rentrak
Guarantee is equal to $12 million. During the term of the Rentrak
Guarantee, and/or so long as any guarantee is thereunder outstanding,
BlowOut has agreed to pay the Company a weekly fee at a rate equal to
.02 percent per week of then-currently outstanding indebtedness
subject to the Rentrak Guarantee. BlowOut has executed a $3 million
note in favor of the Company which accrues interest at 9 percent per
annum and is due in April 1999. At December 31, 1996, the total
outstanding balance of the debt under such note, including accrued
interest, was $3.3 million.
In July 1996, BlowOut obtained a credit facility (the "Credit
Facility") in an aggregate principal amount of $2 million for a five-
year term. Amounts outstanding under the Credit Facility bear
interest at a fixed rate per annum equal to 13.98 percent. Pursuant
to the terms of the Rentrak Guarantee, the Company agreed to guarantee
any amounts outstanding under the Credit Facility until the lender is
satisfied, in its sole discretion, that BlowOut's financial condition
is sufficient to justify the release of the Company's guarantee. As
of December 31, 1996, BlowOut had borrowed approximately $0.9 million
under the Credit Facility.
In August 1996, BlowOut obtained a revolving line of credit (the "Line
of Credit") in a maximum principal amount at one time outstanding of
$5 million. Under the Line of Credit, BlowOut may only draw up to 80
percent of the Orderly Liquidation Value (as defined in the Line of
Credit) of eligible new and used Cassette inventory. Advances under
the Line of Credit bear interest at a floating rate per annum equal to
the Bank of America Reference Rate plus 2.75 percent (11 percent as of
December 31, 1996). The term of the Line of Credit is three years.
The Company has agreed, under certain circumstances in the event of
default under the Line of Credit, to repurchase BlowOut's Cassette
inventory at specified amounts. As of December 31, 1996, BlowOut had
borrowed approximately $2.2 million under the Line of Credit.
Pro Image Inc.
During the quarter ended December 31, 1996, further progress was
achieved with the Company's plans to divest Pro Image. On October 18,
1996, Pro Image terminated certain franchise agreements with a
franchisee for a termination fee of $725,000. On December 9, 1996,
Pro Image sold all of its remaining franchise operations for $1.2
million ($800,000 of which was paid on December 9, 1996 and $400,000
of which was paid on December 23, 1996). In addition, on November 1,
1996 and December 6, 1996, Pro Image sold 7 of its owned retail
outlets for an aggregate of approximately $930,000 in two separate
transactions. Proceeds of the sales were used to pay off Pro Image
bank debt and other current liabilities. As of February 10, 1997 Pro
Image continued to own 3 retail outlets. As previously announced by
Rentrak, Pro Image intends to sell or close all of its remaining
outlets by the end of March 1997. The operations of Pro Image are
reflected as discontinued operations in the accompanying Statements of
Operations.
Note 15 of the Notes to the 1996 Financial Statements described the
reserves established by the Company related to the discontinued
operations and the nature of management's estimates used in
determining the reserves. At December 31, 1996, there have been no
changes in the total reserves which were recorded at March 31, 1996
related to discontinued operations.
The Company's exposure related to adverse financial and operational
developments at Pro Image and BlowOut is limited to its receivables
from the entities and investment in BlowOut which has been retained
after the Distribution, certain guarantees previously made to BlowOut
(see Note 9 of the Notes to the 1996 Financial Statements) and any
funding covered by the financing guarantees discussed above. The
Company does not believe that the issues faced by Pro Image and
BlowOut will have a material adverse effect on the Company.
NOTE C: Net Income/Loss Per Share
For the quarters ended December 31, 1996 and 1995, and for the nine
month period 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 nine month period ended December 31, 1996, net earnings per
share is computed using the "modified" treasury stock method. Under
this method, the number of shares 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 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 used to
repay amounts outstanding under the Company's line of credit and then
any excess to have been invested in government securities with the
resultant net interest income, adjusted for appropriate tax effects,
added to net income for purposes of calculating earnings per share.
NOTE D: 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 Asia. The
Company has provided Rentrak Japan a license to use the Company's PPT
technology and certain trade and service marks. The Japanese owner
has provided Rentrak Japan substantially all operating capital. Until
August 1996, the Company had a 25 percent interest in Rentrak Japan
and accounted for its interest in Rentrak Japan using the equity
method. As of March 31, 1993, the Company's investment in Rentrak
Japan was written down to zero. The Company had provided no
guarantees or other financial commitments for the investee which would
require the recognition of additional losses under the equity method.
In August 1996, the Company sold 60 shares of Rentrak Japan stock to a
Japanese corporation for $110,000. This reduced the Company's
interest in Rentrak Japan from 25 percent to 10 percent. In addition,
the Company received a one-time royalty payment from Rentrak Japan of
$4,390,000 in August, 1996.
NOTE E: Major Suppliers
For the quarter ended December 31, 1996, the Company had one program
supplier whose product generated 47 percent, a second that generated
26 percent, and a third that generated an additional 10 percent of
Rentrak revenues. For the nine month period ended December 31, 1996,
the Company had one program supplier whose product generated 39
percent, a second that generated 26 percent and a third that generated
an additional 14 percent of Rentrak revenues. No other program
suppliers provided product which generated more than 10 percent of
revenue for the three or nine month periods ended December 31, 1996.
For the quarter ended December 31, 1995, the Company had one program
supplier whose product generated 46 percent, a second that generated
16 percent, and a third that generated an additional 13 percent of
Rentrak revenues. For the nine month period ended December 31, 1995,
the Company had one program supplier whose product generated 40
percent, a second that generated 19 percent, and a third that
generated an additional 12 percent of Rentrak revenues. No other
program suppliers provided product which generated more than 10
percent of revenue for the three or nine month periods ended December
31, 1995.
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. Forward-
looking statements can be identified by the uses of forward-looking
words such as "may", "will", "expects", "intends", "anticipates",
"estimates", or "continue" or the negative thereof or variations
thereon or comparable terminology. The following factors are among
the factors that could cause actual results to differ materially from
the forward-looking statements: business conditions and growth in the
video industry and general economics, both domestic and international;
competitive factors, including increased competition, new technology,
and the continued availability of cassettes from Program Suppliers.
Such factors are discussed in more detail in the Company's 1996 Annual
Report to Shareholders.
Results of Operations
As discussed in the Notes to the 1996 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 December 31, 1996 and the March 31,
1996 financial statements, and the previous years Statements of
Operations have been restated to reflect these entities as
discontinued.
For a more meaningful analysis, results are presented for three groups
of operations: Continuing Operations which is comprised primarily of
PPT Operations in the U.S. and Canada ("PPT Operations"); Discontinued
Operations of Pro Image; and Discontinued Operations of BlowOut. 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.
Continuing Operations- PPT Operations andOther Continuing Subsidiaries
For the quarter ended December 31, 1996, total revenue decreased $5.9
million, or 18 percent, to $26 million from $31.9 million in the
quarter ended December 31, 1995. For the nine month period ended
December 31, 1996, total revenue increased $2.0 million, or 2 percent,
rising to $85.2 million from $83.2 million in the nine month period
ended December 31, 1995. 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.
During the quarter ended September 30, 1996, the Company received, and
recognized in other revenue, a $4.4 million one-time royalty payment
from Rentrak Japan. Other than this royalty payment, the increase in
total revenue and the increases described in the following paragraph
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") and (ii) the total number of Cassettes
leased under the PPT system. By December 31, 1996, the number of
Participating Retailers had grown to 5,438 from 4,500 a year earlier,
representing an increase of approximately 21 percent.
Cost of sales for the quarter ended December 31, 1996 decreased to
$20.9 million from $26.6 million the prior year, a decrease of $5.7
million, or 21 percent. Cost of sales for the nine month period ended
December 31, 1996 decreased to $65.8 million from $67.5 million for
the comparable period in the prior year, a decrease of $1.7 million or
2 percent. The decreases were primarily due to the decreases in PPT
revenue noted above.
The gross profit margin increased to 19.6 percent in the quarter ended
December 31, 1996 from 16.7 percent for the comparable period in the
previous year. The gross profit margin increased to 22.7 percent in
the nine month period ended December 31, 1996 from 18.9 percent in the
nine month period ended December 31, 1995. The increase for the nine
month period ended December 31, 1996 was primarily due to the
inclusion of the one-time royalty payment of $4.4 million. Excluding
the $4.4 million royalty payment, the gross margin was 18.5 percent in
the nine month period ended December 31, 1996. The increase for the
three month period ended December 31, 1996 from the previous year
reflects a true up in estimates used to project the margin on a
significant customer.
Selling, general and administrative expenses were $4.5 million for the
quarter ended December 31, 1996 compared to $3.6 million in the
quarter ended December 31, 1995, an increase of $.9 million, or 25
percent. Selling, general and administrative expenses were $11.8
million in each of the nine month periods ended December 31, 1996 and
1995. The increase in the three months ended December 31, 1996 was
primarily due to accruals of costs related to the move in December
1996 to a new corporate headquarters building. As a percentage of
total revenue, selling, general and administrative expenses decreased
from 14.1 percent for the nine month period ended December 31, 1995 to
13.8 percent for the nine month period ended December 31, 1996. These
decreases were primarily due to the $4.4 million in royalty revenue
which had no effect on selling, general and administrative expenses.
Other income (expense) was $0.2 million for the quarter ended December
31, 1996 and $0.4 million for the quarter ended December 31, 1995.
Other income was $0.7 million in the nine month period ended December
31, 1996 and $0.6 million in the nine month period ended December 31,
1995. Other income in the nine month period ended December 31, 1996
includes a gain of $0.3 million on the sale of corporate securities
which includes the sale of 60 shares of Rentrak Japan stock for
$110,000. As a result of the sale of these shares, the Company reduced
its equity ownership in Rentrak Japan from 25 percent to 10 percent.
For the quarter ended December 31, 1996, PPT Operations recorded a
pre-tax profit of $0.9 million, or 3.4 percent of total revenue,
compared to a pre-tax profit of $2.2 million, or 6.8 percent of total
revenue in the quarter ended December 31, 1995. For the nine month
period ended December 31, 1996, Domestic PPT Operations recorded a
pre-tax profit of $8.3 million, or 9.7 percent of total revenue,
compared to a pre-tax profit of $4.5 million, or 5.4 percent of total
revenue, for the nine month period ended December 31, 1995.
Included in the amounts above are the results from Other Subsidiaries
which are primarily comprised of a software development company, video
retail and other operations. For the quarter ended December 31, 1996,
Other Subsidiaries recorded pre-tax income of $0.2 million compared to
pre-tax income of $0.5 million for the quarter ended December 31,
1995. For the nine month period ended December 31, 1996, Other
Subsidiaries recorded pre-tax income of $0.3 million compared to pre-
tax income of $0.1 million for the nine month period ended December
31, 1995.
Discontinued Operations - Pro Image
Subsequent to March 31, 1996, the Board of Directors approved in
principle the disposition of Pro Image. The Company is effecting the
disposition through a series of sales transactions and, in certain
instances, by closing owned retail outlets. On October 18, 1996, Pro
Image terminated certain franchise agreements with a franchisee for a
termination fee of $725,000. On December 9, 1996, Pro Image sold all
of its remaining franchise operations for $1.2 million ($800,000 of
which was paid on December 9, 1996 and $400,000 of which was paid on
December 23, 1996). In addition, on November 1, 1996 and December 6,
1996, Pro Image sold 7 of its owned retail outlets for an aggregate of
approximately $930,000 in two separate transactions. Proceeds of the
sales were used to pay off Pro Image bank debt and other current
liabilities. As of February 10, 1997, Pro Image continued to own 3
retail outlets. As previously announced by Rentrak, Pro Image intends
to sell or close all of its remaining outlets by the end of March
1997. Total revenue from Pro Image decreased to $5.4 million for the
quarter ended November 30, 1996 from $12.6 million for the quarter
ended November 30, 1995. Total revenue from Pro Image decreased to
$19.8 million for the nine months ended November 30, 1996 from $26.8
million for the nine months ended November 30, 1995. For the quarter
ended November 30, 1996, Pro Image recorded a pre-tax loss of $1.1
million. This compares with a pre-tax loss of $0.5 million for the
quarter ended November 30, 1995. For the nine months ended November
30, 1996, Pro Image recorded a pre-tax loss of $3.9 million. This
compares with a pre-tax loss of $2.5 million for the nine months ended
November 30, 1995. The losses related to the three and nine months
ended November 30, 1996 were accrued at March 31, 1996 and are
therefore not reflected in the December 31, 1996 Statements of
Operations.
Discontinued Operations - BlowOut
On November 26, 1996, the Company made a Distribution to its
shareholders of 1,457,343 shares of common stock (the "BlowOut Common
Stock") of BlowOut pursuant to a Reorganization and Distribution
Agreement dated as of November 11, 1996 between he Company and
BlowOut. Pursuant to the Distribution, each holder of common stock of
the Company received one share of BlowOut Common Stock for every 8.34
shares of the Company common stock owned of record by such holder on
November 18, 1996. The distributed shares of BlowOut Common Stock
represented approximately 60 percent of the outstanding shares of
BlowOut Common Stock. As a result of the Distribution, the December
31, 1996 Condensed Consolidated Financial Statements reflect the
elimination of the net assets and liabilities related to BlowOut and
the reduction of the Company's ownership in BlowOut to approximately
9.9 percent of the outstanding BlowOut Shares. The Distribution
resulted in no significant changes in the reserves which were
established at March 31, 1996. The operations of BlowOut are
reflected as discontinued operations in the Condensed Consolidated
Financial Statements.
Total revenue from BlowOut decreased to $5.2 million for the three
month period ended December 31, 1996 from $6.3 million for the quarter
ended December 31, 1995. As BlowOut was distributed in November 1996,
the revenue for the three months ended December 31, 1996 represents
BlowOut's revenue only through the distribution date. Total revenue
from BlowOut increased to $20.5 million for the nine months ended
December 31, 1996 from $10.3 million for the nine months ended
December 31, 1995. For the three months ended December 31, 1996,
BlowOut recorded a pre-tax loss of $1.3 million. This compares with a
pre-tax loss of $2.8 million for the quarter ended December 31, 1995.
For the nine months ended December 31, 1996, BlowOut recorded a pre-
tax loss of $4.0 million. This compares with a pre-tax loss of $3.6
million for the nine months ended December 31, 1995. The losses
related to the three and nine months ended December 31,1996 were
accrued at March 31, 1996 and are therefore not reflected in the
December 31, 1996 Statements of Operations. Comparisons to the three
and nine months ended December 31, 1995, are not meaningful because of
the acquisitions of two entities which occurred in June and September
1995 (See Note 8 to the 1996 Financial Statements) and because of the
Distribution which occurred in November, 1996. As the Distribution
occurred in November, 1996, only the results of operations through the
Distribution date are reflected in the Condensed Consolidated
Financial Statements. (See Note 8 to the 1996 Financial Statements)
Balance Sheet
At December 31, 1996, total assets were $40.7 million, a decrease of
$15.6 million from the $56.3 million at March 31, 1996. As of
December 31, 1996, Other Investments decreased $2.5 million to $1.0
million from $3.5 million at March 31, 1996. A majority of the
decline was due to the repayment of a $1.0 million investment and a
decrease in the market value of investments held at December 31, 1996.
As of December 31, 1996, Accounts Receivable-Affiliates decreased $3.2
million due to repayment from an affiliate of amounts due. Notes
Receivable - Affiliate decreased $2.8 million with an offsetting
increase in Other Assets.
As noted above, the Company discontinued the operations of BlowOut in
November 1996 and has plans to discontinue the operations of Pro Image
by the end of the Company's fiscal year. At December 31, 1996 and
March 31, 1996, the net assets of Pro Image have been segregated in
the Condensed Consolidated Financial Statements. The net assets of
BlowOut have been segregated in the March 31, 1996 Condensed
Consolidated Financial Statements and are not reflected in the
December 31, 1996 Condensed Consolidated Financial Statements as the
Distribution occurred in November 1996.
Net noncurrent assets of Pro Image which are included in net
noncurrent assets of discontinued operations in the accompanying
Condensed Consolidated Financial Statements at December 31, 1996 and
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 Condensed Consolidated Financial Statements at December
31, 1996 and 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 date
of disposition 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 Condensed
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 Condensed 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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash and other liquid
investments of $5.1 million, compared to $3.0 million at March 31,
1996. At December 31, 1996, the Company's current ratio (current
assets/current liabilities) increased to .89 from .70 at March 31,
1996.
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) 80 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 December 18,
1997. Interest is payable monthly at the bank's prime rate plus .5
percent (9.75 percent at December 31, 1996). The lender has been
granted a warrant to purchase 30,000 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 compliance with these
covenants or waivers were obtained as of December 31, 1996. There
were no amounts outstanding on the line at December 31, 1996.
Pro Image had a line of credit arrangement with a financial
institution for the lesser of $5.0 million or the amount of the
borrowing base as defined in the agreement. All amounts outstanding
under the line of credit were paid in full in December 1996 and the
line of credit was terminated.
The Company has established a retailer financing program whereby the
Company provides, on a selective basis, 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 to and/or an 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. 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, 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 ultimately receives could differ materially
from the amounts assumed in establishing reserves.
The loans, investments or commitments made to various retailers
individually range from $0.2 million to $1.6 million. 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 retailers and discussions with retailers'
management.
As of December 31, 1996, the Company had approximately $5.3 million
outstanding in loans and investments under the retailer financing
program, excluding amounts loaned to and invested in BlowOut of
approximately $3.9 million. Because of the financial condition of a
number of these retailers, the Company has reserved approximately $5.1
million of the original loan or investment amount.
The Board of Directors authorized the Company to make additional loans
and investments in retailers up to a maximum of $10 million
outstanding in total, excluding amounts loaned to BlowOut under the
retailer financing program, at any point in time.
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. The
Company is the principal creditor of BlowOut. The Company has agreed
to guarantee up to $12 million of indebtedness of BlowOut
("Guarantee"). Pursuant to such guarantee, the Board of Directors of
the Company has authorized the Company to guarantee $7 million. The
Guarantee expires on the earlier of (i) December 31, 1997 or (ii) such
time as the total indebtedness of BlowOut subject to the Rentrak
Guarantee is equal to $12 million. During the term of the Rentrak
Guarantee, and/or so long as any guarantee is thereunder outstanding,
BlowOut has agreed to pay the Company a weekly fee at a rate equal to
.02 percent per week of then-currently outstanding indebtedness
subject to the Rentrak Guarantee. BlowOut has executed a $3 million
note in favor of the Company which accrues interest at 9 percent per
annum and is due in April 1999. At December 31, 1996, the total
outstanding balance of the debt under such note, including accrued
interest, was $3.3 million.
In July 1996, BlowOut obtained a credit facility (the "Credit
Facility") in an aggregate principal amount of $2 million for a five-
year term. Amounts outstanding under the Credit Facility bear
interest at a fixed rate per annum equal to 13.98 percent. Pursuant
to the terms of the Rentrak Guarantee, the Company agreed to guarantee
any amounts outstanding under the Credit Facility until the lender is
satisfied, in its sole discretion, that BlowOut's financial condition
is sufficient to justify the release of the Company's guarantee. As
of December 31, 1996, BlowOut had borrowed approximately $0.9 million
under the Credit Facility.
In August 1996, BlowOut obtained a revolving line of credit (the "Line
of Credit") in a maximum principal amount at one time outstanding of
$5 million. Under the Line of Credit, BlowOut may only draw up to 80
percent of the Orderly Liquidation Value (as defined in the Line of
Credit) of eligible new and used Cassette inventory. Advances under
the Line of Credit bear interest at a floating rate per annum equal to
the Bank of America Reference Rate plus 2.75 percent (11 percent as of
December 31, 1996). The term of the Line of Credit is three years.
The Company has agreed, under certain circumstances in the event of
default under the Line of Credit, to repurchase BlowOut's Cassette
inventory at specified amounts. As of December 31, 1996, BlowOut had
borrowed approximately $2.2 million under the Line of Credit.
The Company's exposure related to adverse financial and operational
developments at Pro Image and BlowOut is limited to its receivables
from and investment in BlowOut which has been retained after the
Distribution, certain guarantees previously made to BlowOut (see Note
9 of the Notes to the 1996 Financial Statements) and any funding
covered by the financing guarantees discussed above. The Company does
not believe that the issues faced by Pro Image and BlowOut will have a
material adverse effect on the Company.
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. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Calculation of Net Income Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - Two
Item 2 - Acquisition or Disposition of Assets and Item 7
- Financial Statements and Exhibits - dated December 9, 1996
Item 2 - Acquisition or Disposition of Assets and Item 7
- Financial Statements and Exhibits - dated December 31, 1996
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, 1997
RENTRAK CORPORATION:
/s/ Carolyn A. Pihl
Carolyn A. Pihl
Chief Accounting Officer
Signing on behalf of the registrant
<TABLE>
RENTRAK CORPORATION
Computation of Net Income Per Share
For The Period Ended December 31, 1996
<CAPTION>
For the Quarter Ended For the Nine Months Ended
December 31, 1996 December 31, 1996
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
Calculation of Outstanding Shares
Weighted average number of shares of
common stock outstanding 12,133,002 12,133,002 12,137,508 12,137,508
Dilutive effect of exercise of stoc 70,545 70,545 4,829,052 6,502,802
Less: purchase of treasury shares, up to
20% of shares outstanding at period - - (2,415,308) (2,415,308)
Weighted average number of shares of common
stock and common stock equivalents 12,203,547 12,203,547 14,551,252 16,225,002
Calculation of Net Income Per Share
Net Income $551,367 $551,367 $5,103,596 $5,103,596
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. - - 490,214 760,374
Net Income for purposes of computing
earnings per share. $551,367 $551,367 $5,593,810 $5,863,970
Net Income per Share $0.05 $0.05 $0.38 $0.36
The computation of net income (loss) per share for the periods ending December 31, 1995 is not provided
since it can be clearly determined from the material contained in the footnotes to the financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 5,142,294
<SECURITIES> 0
<RECEIVABLES> 15,912,407
<ALLOWANCES> 574,276
<INVENTORY> 1,813,534
<CURRENT-ASSETS> 27,590,956
<PP&E> 6,477,438
<DEPRECIATION> 4,531,988
<TOTAL-ASSETS> 40,681,495
<CURRENT-LIABILITIES> 30,839,555
<BONDS> 0
0
0
<COMMON> 11,950
<OTHER-SE> 9,829,990
<TOTAL-LIABILITY-AND-EQUITY> 40,681,495
<SALES> 85,194,669
<TOTAL-REVENUES> 85,194,669
<CGS> 65,815,874
<TOTAL-COSTS> 77,581,719
<OTHER-EXPENSES> (659,626)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,950
<INCOME-PRETAX> 8,272,576
<INCOME-TAX> 3,168,980
<INCOME-CONTINUING> 5,103,596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,103,596
<EPS-PRIMARY> .38
<EPS-DILUTED> .36
</TABLE>
