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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, 1997
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, 1997: 617,045
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CENTRAL RENTS, INC.
FORM 10-Q
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Condensed Balance Sheets at June 30, 1997 and December 31, 1996 ........................................ 1
Condensed Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996 ........... 2
Condensed Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 ..................... 3
Notes to Condensed Financial Statements ............................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 6
PART II. OTHER INFORMATION
Item 5. Other Information .....................................................................................10
Item 6. Exhibits and Reports on Form 8-K .......................................................................10
Signatures ........................................................................................................11
</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,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ 883
Short-term investments 10,950 11,925
Receivables and prepaid expenses 1,725 2,348
Income tax receivable - related party 830 1,871
Rental merchandise, net 33,625 34,381
Property and equipment, net 3,693 2,527
Deferred financing costs, net 1,738 1,957
Non-compete agreement, net -- 1,275
Excess of cost over net assets acquired, net 6,736 6,861
Deferred income taxes, net 8,656 8,156
Other assets 129 279
-------- --------
Total assets $ 68,082 $ 72,463
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 2,982 $ 5,332
Accrued expenses 6,218 5,682
Due to related parties 423 237
Accrued interest 322 322
Long-term notes 58,231 58,094
-------- --------
Total liabilities 68,176 69,667
-------- --------
Commitments and contingencies Stockholders' equity (deficit):
Preferred stock, $0.01 par value,
100 shares authorized; no shares issued -- --
Common stock, $0.01 par value, 2,000,000 shares authorized;
617,045 and 551,045 shares issued and outstanding in 1997
and 1996, respectively 6 6
Additional paid-in capital 22,944 22,944
Retained deficit (23,044) (20,154)
-------- --------
Total stockholder equity (deficit) (94) 2,796
-------- --------
Total liabilities and stockholders' equity (deficit) $ 68,082 $ 72,463
======== ========
</TABLE>
See notes to condensed financial statements.
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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,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 26,394 $ 27,767 $ 53,130 $ 56,167
Costs and expenses:
Selling, general and administrative 15,314 15,445 30,996 30,826
Cost of merchandise sold 866 912 1,965 1,979
Depreciation and amortization -
Rental merchandise 7,789 8,082 15,449 16,730
Property and equipment 409 398 776 802
-------- -------- -------- --------
24,378 24,837 49,186 50,337
-------- -------- -------- --------
Income before interest, taxes and
amortization of intangibles 2,016 2,930 3,944 5,830
-------- -------- -------- --------
Amortization of intangibles 594 1,599 1,411 3,497
-------- -------- -------- --------
Income from operations 1,422 1,331 2,533 2,333
Interest expense, net 2,009 1,875 3,923 3,815
-------- -------- -------- --------
Loss before income taxes (587) (544) (1,390) (1,482)
Income tax benefit 211 175 500 495
-------- -------- -------- --------
Net loss $ (376) $ (369) $ (890) $ (987)
======== ======== ======== ========
Per share data:
Net loss per common share $ (.61) $ (.67) $ (1.49) $ (1.79)
======== ======== ======== ========
Weighted average common shares outstanding 617 551 596 551
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
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CENTRAL RENTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1997 1996
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Cash flows from operating activities:
Net loss $ (890) $ (987)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation of rental merchandise 15,449 16,730
Depreciation and amortization of property and equipment 776 802
Amortization of intangibles 1,411 3,497
Amortization of debt discount 137 137
Amortization of deferred financing costs 219 165
Increase in deferred income taxes (500) (400)
Changes in operating assets and liabilities:
Decrease in receivables, prepaid expenses and other assets 762 1,353
Increase in rental merchandise (14,693) (13,016)
Decrease in income tax receivable - related party 1,041 600
Decrease in accounts payable (2,350) (7,367)
Increase (decrease) in due to related parties 186 (457)
Increase in accrued expenses 536 733
-------- --------
Net cash provided by operating activities 2,084 1,790
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,942) (574)
Sale (purchase) of short-term investments 975 (594)
-------- --------
Net cash used by investing activities (967) (1,168)
-------- --------
Cash flows from financing activities:
Dividends paid (2,000) (2,000)
-------- --------
Net cash used in financing activities (2,000) (2,000)
-------- --------
Net decrease in cash and cash equivalents (883) (1,378)
Cash and cash equivalents, beginning of period 883 1,560
-------- --------
Cash and cash equivalents, end of period $ 0 $ 182
======== ========
Cash paid during the period for:
Interest $ 3,920 $ 3,911
Income taxes 472 459
</TABLE>
See notes to condensed financial statements.
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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 only 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. These interim financial statements
should be read in conjunction with the Form 10-K for the year ended December
31, 1996, 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 reclassifications have been made to previously reported amounts to
conform with the current quarter financial presentation.
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.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) and Statement of
Financial Accounting Standards No. 129, "Disclosure of Information About
Capital Structure" (SFAS 129) in fiscal year 1997. The Company does not expect
that the adoption of SFAS 128 and SFAS 129 will have a material effect on its
financial position or its results of operations for the year ended December
31, 1997.
C. Amortization of Intangibles
In connection with the Acquisition, one of the sellers entered into a
non-compete agreement with the Company. The non-compete agreement was
amortized over a period of 3 years. Amortization of the non-compete agreement
was 50% in year one, 35% in year two and 15% in year three. At June 30, 1997
the agreement was fully amortized.
The excess of cost over net assets acquired, which relates primarily to
the Acquisition of RTO and WBC and other stores in 1995, 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, pursuant to Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."
D. Long-term Notes and Revolving Line of Credit
The Company funded the purchase price for the Acquisition from the
proceeds of an offering of units (the "Offering"), consisting of $60,000,000
principal of 12 7/8% Senior Notes due 2003 (the "Notes") and Warrants (the
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"Warrants") to purchase 60,000 shares of common stock of the Company, at an
exercise price of $0.01 per share. The Offering was made in reliance upon
exemptions from the registration requirements of the Securities Act of 1933,
as amended and applicable state securities laws. Additional Warrants to
purchase 6,000 shares of common stock of the Company, at an exercise price of
$0.01 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. On or before
February 28, 1997, all Warrant holders exercised their option to convert the
Warrants into the Company's common stock.
The Notes bear interest at the rate of 12 7/8% per annum payable
semi-annually on June 15 and December 15. 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 10, 1997, the Company canceled a $25,000,000 revolving line of
credit agreement with Wells Fargo Bank (the "Line of Credit") which was
entered into on May 10, 1995. In November 1996, the Company and Wells Fargo
amended the Line of Credit in order to reduce the available borrowings under
the Line of Credit to $12,500,000. The Line of Credit was 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 was collateralized by substantially all of the
rental merchandise of the Company and bore interest at prime plus 1%. The Line
of Credit included various financial and other covenants which, among other
things, provided that borrowings could not exceed an amount equal to 50% of
the aggregate book value of the Company's rental merchandise.
E. 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, 1997, the Company purchased $385,700 worth of
merchandise from Banner in connection with the Administrative Services
Agreement. The Company has not incurred any material common costs during the
six months ended June 30, 1997 or 1996 in connection wit the Administrative
Services Agreement.
The Company and G.M. Cypres & Co., a related party of the Company through
common ownership, 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 under
the terms of the Consulting Agreement totaled $187,500 for the six months
ended June 30, 1997 and 1996.
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, 1997 and
1996 totaled $60,000.
F. Dividends
On January 7, 1997 the Company declared a cash dividend of $3.24 per share
on its common stock which was paid on March 5, 1997.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
This discussion and analysis highlights the results of operations of the
Company during the three and six months ended June 30, 1997 and 1996.
The revenue, store operating profit, field and corporate general and
administrative expenses, income before interest taxes and amortization of
intangibles, net loss and number of stores of the Company were as follows for
the three and six months ended June 30, 1997 and 1996 ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................ $ 26.4 100% $ 27.8 100% $ 53.1 100% $ 56.2 100%
Store operating profit .......... 4.4 16.7 5.7 20.5 8.9 16.8 11.3 20.1
Field and corporate general and
administrative expenses ....... 2.4 9.1 2.8 10.1 5.0 9.4 5.5 9.8
Income before interest, taxes and
amortization of intangibles ... 2.0 7.6 2.9 10.4 3.9 7.3 5.8 10.3
Net loss ........................ (0.4) (1.5) (0.4) (1.4) (0.9) (1.7) (1.0) (1.8)
Number of stores (at end of period) 167 167 167 167
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED JUNE 30, 1996.
Revenues. Total revenues decreased $1.4 million or 5.0% to $26.4 million
for the three months ended June 30, 1997 from $27.8 million for the three
months in 1996. The decrease in revenues is primarily the result of a decrease
in units on rent. The impact of the decrease in units on rent is partially
offset by an increase in the average revenue per unit resulting from a move
toward higher end products and improved collections. Management believes the
decline in the portfolio of units on rent is a result of the continued
weakness in the consumer electronics and appliances marketplace coupled with
increased competition, primarily in its operations in the eastern and central
states. In addition, consolidation within the rental-purchase industry over
the last several years, especially in the eastern and central states, has
significantly increased the competitive climate in those states and
contributed to the general deterioration in the number of units on rent and
resultant revenue declines.
Store Operating Profit. Store operating profit decreased $1.3 million or
22.8% to $4.4 million for the three months ended June 30, 1997 from $5.7
million for the three months in 1996. 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, 1997
as compared to 1996. Total store operating expenses as a percentage of revenue
increased to 52.5% of revenues in the three months ended June 30, 1997 from
49.9% for the three months in 1996. Store operating expenses increased
slightly in 1997 as compared to 1996 primarily due to increased advertising
costs offset by decreased customer related costs and lower depreciation
expense. Store operating profit as a percentage of revenue decreased to 16.7%
of revenues for the three months ended June 30, 1997 from 20.5% for the same
period in 1996. Management has taken steps to reduce labor and other operating
costs in the stores as a result of the decline in the portfolio of units on
rent. However, due to the relatively small physical size of the Company's
operating units and relatively small number of personnel in each location,
significant reductions in labor and other operating costs have been difficult
to achieve.
Comparable Stores. Comparable store revenues decreased $1.0 million or
3.7%, to $25.9 million for the three months ended June 30, 1997 from $27.4
million for the three months in 1996. The decrease in comparable store
revenues was
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primarily the result of a decrease in units on rent for the three months ended
June 30, 1997 as compared to the same period in 1996. Comparable store
operating profit decreased $0.9 million or 16.1%, to $4.7 million for the
three months ended June 30, 1997 from $5.7 million for the same period in
1996. The decrease in comparable store operating profit was primarily the
result of a decrease in same store gross profit as a result of fewer units on
rent in 1997.
Field and Corporate General and Administrative Expenses. Field and
corporate general and administrative expenses decreased by $0.4 million or
14.3%, to $2.4 million for the three months ended June 30, 1997 from $2.8
million for the three months in 1996. Field and corporate general and
administrative expenses for the three months ended June 30, 1997 as a
percentage of revenue decreased to 9.1% from 10.1% for the same period in
1996. The decrease in expenses is primarily due to lower payroll, benefits and
travel costs.
Income Before Interest, Taxes and Amortization of Intangibles. Income
before interest, taxes and amortization of intangibles decreased $0.9 million
or 31.0%, to $2.0 million for the three months ended June 30, 1997 from $2.9
million for the three months in 1996. 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, 1997 as compared
to the same period in 1996. Income before interest, taxes and amortization of
intangibles as a percentage of revenue decreased to 7.6% for the three months
ended June 30, 1997 from 10.4% for the same period in 1996.
Net loss. There was no dollar or percentage change in net loss for the
three months ended June 30, 1997 compared to the same period in 1996. Net loss
as a percentage of revenue decreased to 1.5% for the three months ended June
30, 1997 from 1.4% for the three months in 1996. This decrease was primarily
due to a reduction in the amortization expense of customer rental agreements
and the non-compete agreement offset by a decrease in store operating profit.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1996.
Revenues. Total revenues decreased $3.1 million or 5.5%, to $53.1 million
for the six months ended June 30, 1997 from $56.2 million for the six months
in 1996. The decrease in revenues is primarily the result of a decrease in
units on rent. The impact of the decrease in units on rent is partially offset
by an increase in the average revenue per unit resulting from a move toward
higher end products and improved collections. Management believes the decline
in the portfolio of units on rent is a result of the continued weakness in the
consumer electronics and appliances marketplace coupled with increased
competition, primarily in its operations in the eastern and central states. In
addition, consolidation within the rental-purchase industry over the last
several years, especially in the eastern and central states, has significantly
increased the competitive climate in those states and contributed to the
general deterioration in the number of units on rent and resultant revenue
declines.
Store Operating Profit. Store operating profit decreased $2.4 million or
21.2%, to $8.9 million for the six months ended June 30, 1997 from $11.3
million for the six months in 1996. The decrease in store operating profit was
primarily the result of a decrease in gross profit of approximately $2.1
million as a result of lower revenues in the six months ended June 30, 1997 as
compared to 1996 with an increase of $0.3 million in store operating expenses.
Total store operating expenses as a percentage of revenue increased to 52.3%
of revenues in the six months ended June 30, 1997 from 49.0% for the six
months in 1996. The increase in store operating expenses was largely due to an
increase in advertising and occupancy costs. Store operating profit as a
percentage of revenue decreased to 16.8% of revenues for the six months ended
June 30, 1997 from 20.1% for the same period in 1996. Management has taken
steps to reduce labor and other operating costs in the stores as a result of
the decline in the portfolio of units on rent. However, due to the relatively
small physical size of the Company's operating units and relatively small
number of personnel in each location, significant reductions in labor and
other operating costs have been difficult to achieve.
Comparable Stores. Comparable store revenues decreased $2.5 million or
4.6%, to $52.0 million for the six months ended June 30, 1997 from $54.7
million for the six months in 1996. The decrease in comparable store revenues
was primarily the result of a decrease in units on rent for the six months
ended June 30, 1997 as compared to the same period in 1996. Comparable store
operating profit decreased $2.0 million or 17.9%, to $9.2 million for the six
months ended June 30, 1997 from $11.2 million for the same period in 1996. The
decrease in comparable store operating profit was primarily the result of a
decrease in same store gross profit as a result of fewer units on rent in 1997
with an increase in store operating expenses as previously discussed.
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Field and Corporate General and Administrative Expenses. Field and
corporate general and administrative expenses decreased by $0.5 million or
9.1%, to $5.0 million for the six months ended June 30, 1997 from $5.5 million
for the six months in 1996. Field and corporate general and administrative
expenses for the six months ended June 30, 1997 as a percentage of revenue
decreased 9.4% from 9.8% for the same period in 1996. The decrease is
primarily due to reduced compensation and benefit costs.
Income Before Interest, Taxes and Amortization of Intangibles. Income
before interest, taxes and amortization of intangibles decreased $1.9 million
or 32.8%, to $3.9 million for the six months ended June 30, 1997 from $5.8
million for the six months in 1996. 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, 1997 as compared
to the same period in 1996. Income before interest, taxes and amortization of
intangibles as a percentage of revenue decreased to 7.3% for the six months
ended June 30, 1997 from 10.3% for the same period in 1996.
Net loss. Net loss decreased $0.1 million or 10% to $0.9 million for the
six months ended June 30, 1997 from $1.0 million for the three months in 1996.
Net loss as a percentage of revenue decreased from 1.8% to 1.7%.
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 $17.1 million
during the six months ended June 30, 1997. 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 June 30, 1997 totaled $1.8 million primarily due to
new stores, emphasis on remodeling existing stores and computer upgrades.
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 1995 and bear interest
at the rate of 12 7/8% per annum payable semi-annually on June 15 and December
15. 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 10, 1997 the Company canceled a $25,000,000 revolving line of
credit with Wells Fargo Bank (the "Line of Credit") entered into May 11, 1995.
In November 1996, the Company and Wells Fargo amended the Line of Credit to
reduce the available borrowings under the Line of Credit to $12,500,000. The
Line of Credit was 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 was
collateralized by substantially all of the rental merchandise of the Company
and bore interest at prime plus 1%. The Line of Credit included various
financial and other covenants which, among other things, provided that
borrowings by the Company could not exceed an amount equal to 50% of the
aggregate book value of the Company's rental merchandise.
On January 7, 1997 the Company declared a cash dividend on its common
stock to be paid to the holders of record of the Company's common stock as of
February 28, 1997 payable on March 5, 1997. On or before February 28, 1997,
all Warrant holders exercised their option to convert the Warrants into the
Company's common stock.
On March 5, 1997, the Company paid a total cash dividend of $2.0 million
to the holders of its common stock.
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 had been using the income forecast 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. The Company received permission from the
IRS and converted to the MACRS method of depreciation for tax accounting
purposes only, effective January 1, 1996. Management believes that the
Company's conversion to MACRS will not significantly impact the Company's
financial condition or results of operations.
The Company's primary sources of liquidity are expected to be its cash
flow from operations and short-term investments currently available.
Management intends to expand its operations through acquisitions and new store
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openings. The Company has continued to consolidate 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 has
opened four new stores in the three months ended June 30, 1997. Additional
expansion is planned for the remainder of 1997 in several strategic geographic
regions to strengthen the Company's market position. The Company does not have
any mandatory debt amortization requirements until the year 2003.
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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***
10.7 First Amendment to Credit Agreement by and between Central Rents,
Inc. as borrower and Wells Fargo Bank National Association as
Bank, dated November 4, 1996****
27 Financial Data Schedule
(b) Reports
No reports on Form 8-K were required to be filed by the Company
during the three months ended June 30, 1997.
- ------------
* 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
**** Incorporated by reference from the Company's From 10-Q for the quarterly
period ended September 30, 1996
10
<PAGE> 13
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 14, 1997 /s/ GARY M. CYPRES
-----------------------
Gary M. Cypres
Chairman
August 14, 1997 /s/ DEREK S. STAMPER
-----------------------
Derek S. Stamper
President
August 14, 1997 /s/ A. KEITH WALL
-----------------------
A. Keith Wall
Vice President
Chief Financial Officer
11
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<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***
10.7 First Amendment to Credit Agreement by and between Central Rents,
Inc. as Borrower and Wells Fargo Bank National Association as
Bank, dated November 4, 1996****
27 Financial Data Schedule
</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.
**** Incorporated by reference from the Company's Form 10-Q for the quarterly
period ended September 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,725
<ALLOWANCES> 0
<INVENTORY> 33,625
<CURRENT-ASSETS> 0
<PP&E> 3,693
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,082
<CURRENT-LIABILITIES> 0
<BONDS> 58,231
0
0
<COMMON> 6
<OTHER-SE> (100)
<TOTAL-LIABILITY-AND-EQUITY> 68,082
<SALES> 0
<TOTAL-REVENUES> 53,130
<CGS> 1,965
<TOTAL-COSTS> 49,186
<OTHER-EXPENSES> 1,411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,923
<INCOME-PRETAX> (1,390)
<INCOME-TAX> 500
<INCOME-CONTINUING> (890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (890)
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
