<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-81370
CENTRAL RENTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4476294
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5480 East Ferguson Drive
Commerce, California 90022
----------------------------------------
(Address of principal executive offices)
(213) 720-8700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports 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______
Number of shares outstanding as of August 13, 1996: 551,045.
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CENTRAL RENTS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Condensed Balance Sheets at June 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . 1
Condensed Statements of Operations for the
Three and Six Months Ended June 30,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . 2
Condensed Statement of Cash Flows for the Six
Months Ended June 30, 1996 and 1995 . . . . . . . . . 3
Notes to Condensed Financial Statements . . . . . . . 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 7
PART II. OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CENTRAL RENTS, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
A S S E T S
<S> <C> <C>
Cash and cash equivalents $ 182 $ 1,560
Short-term investments 13,586 12,992
Receivables and prepaid expenses 800 2,062
Income tax receivable - related party 450 1,050
Rental merchandise, net 30,694 34,583
Property and equipment, net 3,144 3,372
Deferred financing costs, net 2,122 2,287
Noncompete agreement, net 2,775 5,975
Customer rental agreements, net 71 246
Excess of cost over net assets acquired, net 6,984 6,931
Deferred income taxes 8,949 8,549
Other assets 239 330
------- -------
Total assets $69,996 $79,937
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,856 $10,223
Accrued expenses 6,909 6,176
Due to related parties 303 760
Accrued interest 322 322
Long-term notes 57,957 57,820
------- -------
Total liabilities 68,347 75,301
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Stockholders' equity:
Preferred stock, $.01 par value,
100 shares authorized; no shares issued - -
Common stock, $.01 par value, 2,000,000 shares authorized;
551,045 shares issued and outstanding 6 6
Additional paid-in capital 22,944 22,944
Retained earnings (deficit) (21,301) (18,314)
------- -------
Total stockholders' equity 1,649 4,636
------- -------
Total liabilities and stockholders' equity $69,996 $79,937
======= =======
</TABLE>
See notes to condensed financial statements.
1
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CENTRAL RENTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C>
Revenues $27,767 $30,514 $56,167 $60,697
Costs and expenses:
Selling, general and administrative 15,445 15,484 30,826 31,069
Depreciation and amortization -
Rental merchandise 8,082 9,324 16,730 18,480
Property and equipment 398 390 802 753
Other 912 879 1,979 1,658
------- ------- ------- -------
24,837 26,077 50,337 51,960
------- ------- ------- -------
Income before interest, taxes and
amortization of intangibles 2,930 4,437 5,830 8,737
------- ------- ------- -------
Amortization of intangibles:
Amortization of customer rental agreements 88 2,511 175 6,062
Amortization of noncompete agreement 1,450 2,275 3,200 4,775
Amortization of excess of cost over net assets acquired 61 84 122 168
------- ------- ------- -------
1,599 4,870 3,497 11,005
------- ------- ------- -------
Income (loss) from operations 1,331 (433) 2,333 (2,268)
Interest income (expense), net (1,875) (1,874) (3,815) (3,719)
------- ------- ------- -------
Loss before income taxes (544) (2,307) (1,482) (5,987)
Income tax benefit 175 850 495 2,200
------- ------- ------- -------
Net loss $ (369) $(1,457) $ (987) $(3,787)
======= ======= ======= =======
Per share data:
Net loss per common share $ (0.67) $ (2.73) $(1.79) $ (7.09)
======= ======= ======= =======
Weighted average common shares outstanding 551 534 551 534
======= ======= ======= =======
See notes to condensed financial statements.
</TABLE>
2
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CENTRAL RENTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (987) $ (3,787)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation of rental merchandise 16,730 18,480
Depreciation and amortization of property and equipment 802 753
Amortization of intangibles 3,497 11,005
Amortization of debt discount 137 137
Amortization of deferred financing costs 165 140
Proceeds from sale of rental merchandise 2,869 3,105
Gain on sale of rental merchandise and other (938) (1,464)
Deferred income taxes (400) (2,200)
Changes in operating assets and liabilities, net of the effect of
businesses acquired:
Decrease in receivables, prepaid expenses and other assets 1,353 567
Decrease in income tax receivable - related party 600 -
Purchase of rental merchandise (14,947) (21,179)
Decrease in accounts payable (7,367) (2,035)
Decrease in amounts due to related parties (457) (194)
Increase in accrued expenses 733 513
Increase in accrued interest - 17
-------- --------
Net cash provided by operating activities 1,790 3,858
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (574) (674)
Proceeds from sale of stores - 515
Increase in short-term investments (594) (334)
Acquisition related costs - (3,127)
-------- --------
Net cash used in investing activities (1,168) (3,620)
-------- --------
Cash flows from financing activities:
Dividends paid (2,000) -
-------- --------
Net cash used by financing activities (2,000) -
-------- --------
Net increase (decrease) in cash and cash equivalents (1,378) 238
Cash and cash equivalents, beginning of period 1,560 3,543
-------- --------
Cash and cash equivalents, end of period $182 $3,781
======== ========
Cash paid during the period for:
Interest $3,911 $3,930
Income taxes 459 969
</TABLE>
See notes to condensed financial statements.
3
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CENTRAL RENTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying condensed financial statements of Central Rents, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the Company's financial condition and
operating results for the interim periods presented have been included.
Operating results for the quarter are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. These interim
financial statements should be read in conjunction with the Form 10-K for the
year ended December 31, 1995, including the financial statements and notes
contained therein, filed with the Securities and Exchange Commission.
On March 17, 1994, the Company was incorporated in Delaware. The
Company is a wholly owned subsidiary of Central Rents Holding, Inc. which is a
wholly owned subsidiary of Banner Holdings, Inc. ("Banner"). On June 3, 1994,
the Company acquired all of the outstanding stock of RTO Enterprises, Inc.,
("RTO") and WBC Holdings, Inc. ("WBC") for a purchase price of approximately
$60,000,000 in cash (the "Acquisition"), in a transaction accounted for as a
purchase. On April 28, 1995 RTO and WBC were merged into the Company pursuant
to a statutory merger effected in accordance with the provisions of the
Delaware General Corporation Laws.
Certain reclassification have been made to previously reported amounts
to conform with the current quarter presentation in 1996.
B. Earnings Per Common Share
Earnings per common share have been computed on the basis of the
weighted average number of common shares outstanding. There were no common
stock equivalents for the periods presented, as they were antidilutive.
C. Rental Merchandise, Depreciation and Revenue Recognition
Rental merchandise is rented by customers through rental-purchase
agreements providing for weekly or monthly payments. The agreements
automatically renew with each payment. Rent is collected in advance, is
nonrefundable and is recognized as revenue when collected. Ownership of the
rental items passes to the customer when the customer makes the requisite
number of rental payments stipulated by the agreement (generally 78 weekly or
18 monthly payments). Revenues also include cash received for outright sales
of previously rented merchandise and final rental payments immediately
preceding the passage of title to the respective customers.
Rental merchandise is recorded at cost with lives ranging primarily
from 12 to 27 months.
D. Amortization of Intangibles
In connection with the Acquisition, one of the sellers entered into a
noncompete agreement with the Company. The noncompete agreement is amortized
over a period of 3 years. Amortization of the noncompete agreement is 50% in
year one, 35% in year two and 15% in year three.
The excess of cost over net assets acquired, which relates to the
Acquisition of RTO and WBC, is currently being amortized on a straight-line
basis over a period of 30 years. The purchase allocation may change upon the
resolution of certain issues with the seller. The Company periodically reviews
the excess of cost over net assets acquired to assess recoverability.
Impairment would be recognized in operating results if a permanent diminution
in value were to occur.
4
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CENTRAL RENTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
E. Long-term Notes and Revolving Line of Credit
The Company funded the purchase price of the Acquisition from the
proceeds of an offering of units (the "Offering"), consisting of $60,000,000
principal amount of 12 7/8% Senior Notes due 2003 (the "Notes") and warrants to
purchase 60,000 shares of common stock of the Company, at an exercise price of
$.01 per share. The Offering was made in reliance upon exemptions from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws. Additional warrants to
purchase 6,000 shares of common stock of the Company, at an exercise price of
$.01 per share, were issued to Jefferies & Company, Inc., the initial purchaser
of the Notes. Of the total proceeds, $57,389,000 was allocated to Notes and
$2,200,000 was allocated to the issuance of warrants.
The Notes bear interest at the rate of 12 7/8% per annum payable
semi-annually on December 15 and June 15. The Notes are not redeemable prior
to June 15, 1999, except that prior to June 15, 1997, the Company may redeem at
its option, with any new proceeds received by the Company from an initial
public offering of common stock of the Company or a parent company of the
Company up to one-third of the initial aggregate principal amount of the Notes,
provided that at least two-thirds of the initial aggregate principal amount of
the Notes remains outstanding immediately after the occurrence of such
redemption, at the redemption price as defined plus accrued and unpaid
interest to the date of redemption. On or after June 15, 1999, the Notes will
be redeemable at the option of the Company, in whole or in part, at the
redemption prices as defined, plus accrued and unpaid interest to the date of
redemption.
On May 11, 1995, the Company entered into a three year $25,000,000
revolving line of credit agreement with Wells Fargo Bank (the "Line of
Credit"). The Line of Credit is subject to an annual commitment fee payable to
the bank on a quarterly basis of 0.5% of the unused borrowings. The Line of
Credit is collateralized by substantially all of the rental merchandise of the
Company and bears interest at prime plus 1%. The Line of Credit includes
various financial and other covenants which, among other things, provides that
borrowings cannot exceed the greater of $15.0 million or an amount equal to 50%
of the aggregate book value of the Company's rental merchandise. There are no
borrowings under the Line of Credit.
F. Related Party Transactions
The Company has entered into an Administrative Services Agreement (the
"Administrative Services Agreement") with Banner pursuant to which Banner or
one of the other Banner subsidiaries, other than the Company, provides
purchasing, advertising, accounting, insurance, health and other benefits, real
estate, management information systems, and other services to the Company. The
Company is required to reimburse Banner for its allocable share of direct and
overhead costs determined on the basis of the Company's percentage utilization
of the applicable services contemplated by the Administrative Services
Agreement. The Administrative Services Agreement can be automatically extended
for successive one-year terms through June 3, 2004 unless the Company gives at
least 30 days prior notice at the end of the then current term that the
Administrative Services Agreement will terminate. As long as Banner or any
other Banner subsidiary beneficially owns more than 50% of the voting stock of
the Company, the Administrative Services Agreement shall not be terminable by
Banner or any other Banner subsidiary as a result of any breach of the
Administrative Services Agreement by the Company. During the six months ended
June 30, 1996, the Company purchased $200,000 of merchandise from Banner in
connection with the Administrative Services Agreement which sum is included in
amounts due to related parties at June 30, 1996. The Company has not incurred
any material common costs or expenses to be allocated during the six months
ended June 30, 1996 in connection with the Administrative Services Agreement.
The Company and G.M. Cypres & Co. entered into an agreement (the
"Consulting Agreement") pursuant to which G.M. Cypres & Co. or its designee
provides consulting, investment banking or similar services to the Company in
consideration for the payment of certain fees and expenses, including an annual
management fee (the "Management Fee"). Under the terms of the indenture
entered into by the Company in connection with the issuance of the Notes, the
fees and expenses payable under the Consulting Agreement must be reasonable and
customary, and the Management Fee shall not exceed $375,000 per year.
Management Fees paid under the terms of the Consulting Agreement totalled
$187,500 for the six months ended June 30, 1996.
5
<PAGE> 8
CENTRAL RENTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
F. Related Party Transactions (continued)
Effective January 1, 1995, the Company entered into a triple net lease
agreement with BCE Properties II, Inc., a related party of the Company through
common ownership, for office space at the Company's corporate headquarters.
The lease provides, among other things, for monthly rent of $10,000 through
December 31, 2005. Rent expense for the six months ended June 30, 1996
totalled $60,000.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
This discussion and analysis highlights the results of operations of
the Company during the three and six months ended June 30, 1996 and 1995.
The revenue, store operating profit, field and corporate general and
administrative expenses, income before interest, taxes and amortization of
intangibles, net loss and number of stores of the Company were as follows for
the three and six months ended June 30, 1996 and 1995 ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $27.8 100% $30.5 100% $56.2 100% $60.7 100%
Store operating profit . . . . . . . . 5.7 20.5 7.0 23.0 11.3 20.1 14.2 23.4
Field and corporate general and
administrative expenses . . . . . . 2.8 10.1 2.6 8.5 5.5 9.8 5.5 9.1
Income before interest, taxes and
amortization of intangibles . . . . . 2.9 10.4 4.4 14.4 5.8 10.3 8.7 14.3
Net loss . . . . . . . . . . . . . . . (0.4) (1.4) (1.5) (4.9) (1.0) (1.8) (3.8) (6.3)
Number of stores (at end of period) 167 171 167 171
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED JUNE 30, 1995.
Revenues. Total revenues decreased $2.7 million or 8.9%, to $27.8 million
for the three months ended June 30, 1996 from $30.5 million for the three
months in 1995. Approximately $2.1 million of the net decrease in revenues is
primarily the result of a decrease in units on rent, offset by an increase in
revenues of $0.4 million from acquired and new stores in operation less than
one year. The remaining $0.6 million of the revenue decrease for the three
months ended June 30, 1996 was primarily due to fewer stores in operation in
California during this period in 1996 as compared to the same period in 1995.
Store Operating Profit. Store operating profit decreased $1.3 million
or 18.6%, to $5.7 million for the three months ended June 30, 1996 from $7.0
million for the three months in 1995. The decrease in store operating profit
was primarily the result of a decrease in gross profit of approximately $1.2
million as a result of lower revenues in the three months ended June 30, 1996
as compared to 1995 without a corresponding decrease in store operating
expenses. Total store operating expenses as a percentage of revenue increased
to 49.9% of revenues in the three months ended June 30, 1996 from 44.9% for the
same period in 1995. This increase was largely due to increases in store
payroll, fringe benefits and occupancy costs as a percentage of revenue. Store
operating profit as a percentage of revenue decreased to 20.5% of revenues for
the three months ended June 30, 1996 from 23.0% for the same period in 1995.
7
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Comparable Stores. Comparable store revenues decreased $2.5 million
or 8.4%, to $27.4 million for the three months ended June 30, 1996 from $29.9
million for the three months in 1995. The decrease in comparable store
revenues was primarily the result of a decrease in units on rent for the three
months ended June 30, 1996 as compared to the same period in 1995. Comparable
store operating profit decreased $1.3 million or 18.6%, to $5.7 million for the
three months ended June 30, 1996 from $7.0 million for the same period in 1995.
The decrease in comparable store operating profit was primarily the result of a
decrease in same store gross profit as a result of lower units on rent in 1996
without a corresponding decrease in store operating expenses as previously
discussed.
Field and Corporate General and Administrative Expenses. Field and
corporate general and administrative expenses increased by $0.2 million or
7.7%, to $2.8 million for the three months ended June 30, 1996 from $2.6
million for the three months in 1995. Field and corporate general and
administrative expenses for the three months ended June 30, 1996 as a
percentage of revenue increased to 10.1% from 8.5% for the same period in 1995.
Income Before Interest, Taxes and Amortization of Intangibles. Income
before interest, taxes and amortization of intangibles decreased $1.5 million
or 34.1%, to $2.9 million for the three months ended June 30, 1996 from $4.4
million for the three months in 1995. The decrease in income before interest,
taxes and amortization of intangibles is primarily the result of the decrease
in store operating profit for the three months ended June 30, 1996 as compared
to the same period in 1995. Income before interest, taxes and amortization of
intangibles as a percentage of revenue decreased to 10.4% for the three months
ended June 30, 1996 from 14.4% for the three months in 1995.
Net Loss. Net loss decreased $1.1 million or 73.3% to $0.4 million
for the three months ended June 30, 1996 from $1.5 million for the three months
in 1995. Net loss as a percentage of revenue decreased to 1.4% for the three
months ended June 30, 1996 from 4.9% for the three months in 1995. This
decrease was primarily due to a reduction in amortization expense of customer
rental agreements and the noncompete agreement offset by a decrease in store
operating profit.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1995.
Revenues. Total revenues decreased $4.5 million or 7.4%, to $56.2
million for the six months ended June 30, 1996 from $60.7 million for the six
months in 1995. Approximately $2.6 million of the net decrease in revenues is
primarily the result of a decrease in units on rent, offset by an increase in
revenues of $1.4 million from acquired and new stores in operation less than one
year. The remaining $1.9 million of the revenue decrease for the six months
ended June 30, 1996 was primarily due to fewer stores in operation in California
during this period in 1996 as compared to the same period in 1995.
Store Operating Profit. Store operating profit decreased $2.9 million
or 20.4%, to $11.3 million for the six months ended June 30, 1996 from $14.2
million for the six months in 1995. The decrease in store operating profit
was primarily the result of a decrease in gross profit of approximately $2.8
million as a result of lower revenues in the six months ended June 30, 1996 as
compared to 1995 without a corresponding decrease in store operating expenses.
Total store operating expenses as a percentage of revenue increased to 49.0% of
revenues in the six months ended June 30, 1996 from 45.1% for the same period
in 1995. This increase was largely due to an increase in store payroll,
fringe benefits and occupancy costs as a percentage of revenue. Store
operating profit as a percentage of revenue decreased to 20.1% of revenues for
the six months ended June 30, 1996 from 23.4% for the same period in 1995.
Comparable Stores. Comparable store revenues decreased $4.0 million
or 6.8%, to $54.7 million for the six months ended June 30, 1996 from $58.7
million for the six months in 1995. The decrease in comparable store revenues
was primarily the result of a decrease in units on rent for the six months
ended June 30, 1996 as compared to the same period in 1995. Comparable store
operating profit decreased $3.0 million or 21.1%, to $11.2 million for the six
months ended June 30, 1996 from $14.2 million for the same period in 1995. The
decrease in comparable store operating profit was primarily the result of a
decrease in same store gross profit as a result of lower units on rent in 1996
without a corresponding decrease in store operating expenses as previously
discussed.
Field and Corporate General and Administrative Expenses. Field and
corporate general and administrative expenses were $5.5 million for the six
months ended June 30, 1996 and 1995. Field and corporate general and
administrative expenses for the six months ended June 30, 1996 as a percentage
of revenue increased to 9.8% from 9.1% for the same period in 1995.
8
<PAGE> 11
Income Before Interest, Taxes and Amortization of Intangibles. Income
before interest, taxes and amortization of intangibles decreased $2.9 million
or 33.3%, to $5.8 million for the six months ended June 30, 1996 from $8.7
million for the six months in 1995. The decrease in income before interest,
taxes and amortization of intangibles is primarily the result of the decrease
in store operating profit for the six months ended June 30, 1996 as compared to
the same period in 1995. Income before interest, taxes and amortization of
intangibles as a percentage of revenue decreased to 10.3% for the six months
ended June 30, 1996 from 14.3% for the six months in 1995.
Net Loss. Net loss decreased $2.8 million or 73.7% to $1.0 million
for the six months ended June 30, 1996 from $3.8 million for the six months in
1995. Net loss as a percentage of revenue decreased to 1.8% for the six months
ended June 30, 1996 from 6.3% for the six months in 1995. This decrease was
primarily due to a reduction in amortization expense of customer rental
agreements and the noncompete agreement offset by a decrease in store operating
profit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital expenditures are purchases of rental
merchandise throughout the year to replace rental merchandise which has been
sold or charged-off. Total purchases of rental merchandise were $14.9 million
during the six months ended June 30, 1996. The Company's other capital
expenditures consist of purchases of property, fixtures and office equipment,
including store improvements. Total combined capital expenditures on these
items for the six months ended June 30, 1996 totalled $0.6 million.
The Company's long-term notes (the "Notes") of $60,000,000 were issued
in connection with the acquisition of RTO and WBC in June 1994 and bear
interest at the rate of 12 7/8% per annum payable semiannually on December 15
and June 15. The Notes are not redeemable prior to June 15, 1999, except that
prior to June 15, 1997, the Company may redeem at its option, with the net
proceeds received by the Company from an initial public offering of common
stock of the Company or a parent company of the Company up to one-third of the
initial aggregate principal amount of the Notes, provided that at least
two-thirds of the initial aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption, at the
redemption price as defined plus accrued and unpaid interest to the date of
redemption. On or after June 15, 1999, the Notes will be redeemable at the
option of the Company, in whole or in part, at the redemption prices as
defined, plus accrued and unpaid interest to the date of redemption.
On May 11, 1995, the Company entered into a three year $25,000,000
revolving line of credit with Wells Fargo Bank (the "Line of Credit"). The
Line of Credit is subject to an annual commitment fee payable to the bank on a
quarterly basis of 0.5% of the unused borrowings. The Line of Credit is
collateralized by substantially all of the rental merchandise of the Company
and bears interest at prime plus 1%. The Line of Credit includes various
financial and other covenants which, among other things, provides that
borrowings by the Company may not exceed the greater of $15.0 million or an
amount equal to 50% of the aggregate book value of the Company's rental
merchandise. There are no borrowings under the Line of Credit at June 30,
1996.
On July 14, 1995, an outside institutional investor purchased 17,045
shares of common stock of the Company at a price of $44.00 per share for an
aggregate purchase price of $750,000. The shares were issued pursuant to the
terms of a letter agreement which places certain restrictions on the
purchaser's ability to transfer the issued shares of stock.
In August 1996, the Company rescinded the $2.0 million dividend it
declared and paid on January 16, 1996. The Company's parent company has
returned the dividend payment it previously received.
The Internal Revenue Service (the "IRS") published a revenue ruling in
July 1995 providing that the Modified Accelerated Cost Recovery System
("MACRS") is the appropriate depreciation method for rental-purchase
merchandise. The Company has used the income forecasting method of
depreciation for tax accounting, and management believes that this method has
been widely used throughout the rental-purchase industry prior to the
publication of this revenue ruling. Effective January 1, 1996, the Company
intends to convert to the MACRS method of depreciation for tax accounting
purposes only. The Company filed an application to change its method of
depreciation for tax purposes with the IRS and received the IRS's consent to
implement the change. Management believes that the Company's conversion to
MACRS will not significantly impact the Company's financial condition and
results of operations.
9
<PAGE> 12
The Company's primary sources of liquidity are expected to be its cash
flow from operations and the excess cash and short-term investments currently
available. Management intends to use the Company's excess cash balances and
Line of Credit to expand its operations through acquisitions and new store
openings. Since the acquisition of RTO and WBC, the Company has consolidated
stores that operated in overlapping geographic markets and sold certain other
stores that were not located within the Company's targeted geographic markets.
The Company is evaluating several strategic geographic regions in which it
could strengthen its market position for further expansion during 1996 and in
subsequent years through new store openings and acquisitions. The Company does
not have any mandatory debt amortization requirements until the year 2003.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of Central
Rents, Inc.*
4.1 Purchase Agreement dated June 3, 1994*
4.2 Registration Rights Agreement dated June 3, 1994*
4.3 Indenture dated June 3, 1994*
4.4 Form of Series A Note (Included in Exhibit 4.3)*
4.5 Form of Series B Note (Included in Exhibit 4.3)*
4.6 Warrant Agreement dated June 3, 1994*
10.1 Tax Sharing Agreement*
10.2 Administrative Services Agreement*
10.3 Consulting Agreement*
10.4 Central Rents, Inc. Vehicle Lease Agreement**
10.5 Central Rents, Inc. 1994 Stock Option Plan**
10.6 Credit Agreement by and between Central Rents, Inc. as
Borrower and Wells Fargo Bank National Association, as Bank,
dated May 11, 1995***
(b) Reports
No reports on Form 8-K were required to be filed by the
Company during the three months ended June 30, 1996.
- ---------------------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (No. 33-81370)
** Incorporated by reference from the Company's Form 10-K for the fiscal
year ended December 31, 1994
*** Incorporated by reference from the Company's Form 10-Q for the
quarterly period ended March 31, 1995
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL RENTS, INC.
August 13, 1996 /s/ DEREK S. STAMPER
---------------------------------------
Derek S. Stamper
President
August 13, 1996 /s/ A. KEITH WALL
---------------------------------------
A. Keith Wall
Chief Financial Officer
(Principal Accounting Officer)
12
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------ ----------- --------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Central Rents, Inc.*
4.1 Purchase Agreement dated June 3, 1994*
4.2 Registration Rights Agreement dated June 3, 1994*
4.3 Indenture dated June 3, 1994*
4.4 Form of Series A Note (Included in Exhibit 4.3)*
4.5 Form of Series B Note (Included in Exhibit 4.3)*
4.6 Warrant Agreement dated June 3, 1994*
10.1 Tax Sharing Agreement*
10.2 Administrative Services Agreement*
10.3 Consulting Agreement*
10.4 Central Rents, Inc. Vehicle Lease Agreement**
10.5 Central Rents, Inc. 1994 Stock Option Plan**
10.6 Credit Agreement by and between Central Rents, Inc. as Borrower and Wells
Fargo Bank National Association, as Bank, dated May 11, 1995***
</TABLE>
- ----------------------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (No. 33-81370)
** Incorporated by reference from the Company's Form 10-K for the fiscal
year ended December 31, 1994
*** Incorporated by reference from the Company's Form 10-Q for the
quarterly period ended March 31, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,768
<SECURITIES> 0
<RECEIVABLES> 1,250
<ALLOWANCES> 0
<INVENTORY> 30,694<F1>
<CURRENT-ASSETS> 0
<PP&E> 3,144
<DEPRECIATION> 0
<TOTAL-ASSETS> 69,996
<CURRENT-LIABILITIES> 0
<BONDS> 57,957
0
0
<COMMON> 6
<OTHER-SE> 1,643
<TOTAL-LIABILITY-AND-EQUITY> 69,996
<SALES> 0
<TOTAL-REVENUES> 56,167
<CGS> 0
<TOTAL-COSTS> 50,337
<OTHER-EXPENSES> 3,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,815
<INCOME-PRETAX> (1,482)
<INCOME-TAX> (495)
<INCOME-CONTINUING> (987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (987)
<EPS-PRIMARY> (1.79)
<EPS-DILUTED> (1.79)
<FN>
Rental merchandise has been classified as inventory for purposes of this
schedule and has been shown net of accumulated depreciation. PP&E has been
presented net of accumulated depreciation. The financial statements are
presented with an unclassified balance sheet.
</FN>
</TABLE>
