-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RrV8c8MrEEOdkpNWkwJ9g/9BfgEb0kPm6g6E2rRGNE7++Va1UKJjK0Yz9SzMoJ+8 C+xA1l+g2PxQ85XBlNRJvQ== /in/edgar/work/0000032166-00-000008/0000032166-00-000008.txt : 20001016 0000032166-00-000008.hdr.sgml : 20001016 ACCESSION NUMBER: 0000032166-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO RENT CORP CENTRAL INDEX KEY: 0000032166 STANDARD INDUSTRIAL CLASSIFICATION: [7359 ] IRS NUMBER: 952412961 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09061 FILM NUMBER: 739350 BUSINESS ADDRESS: STREET 1: 6060 SEPULVEDA BLVD CITY: VAN NUYS STATE: CA ZIP: 91411-2512 BUSINESS PHONE: 8187872100 MAIL ADDRESS: STREET 1: 6060 SEPULVEDA BLVD CITY: VAN NUYS STATE: CA ZIP: 91411 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED AUGUST 31, 2000 COMMISSION FILE NUMBER 0-9061 ELECTRO RENT CORPORATION Exact name of registrant as specified in its charter CALIFORNIA 95-2412961 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6060 SEPULVEDA BOULEVARD VAN NUYS, CALIFORNIA 91411-2501 (Address of principal executive offices) (Zip code) (818) 786-2525 (Registrant's telephone number, including area code) 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 At October 11, 2000 registrant had 24,364,672 shares of common stock outstanding. ELECTRO RENT CORPORATION FORM 10-Q AUGUST 31, 2000 TABLE OF CONTENTS Page Part I: FINANCIAL INFORMATION Condensed Consolidated Statements of Income for the Three Months Ended August 31, 2000 and August 31, 1999 3 Condensed Consolidated Balance Sheets at August 31, 2000 and May 31, 2000 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended August 31, 2000 and August 31, 1999 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II: OTHER INFORMATION 10 SIGNATURES 11 Page 2 Part I. FINANCIAL INFORMATION - ----------------------------------- Item 1. Financial Statements ELECTRO RENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (000 omitted except per share data)
Three Months Ended August 31, 2000 1999 --------- --------- Revenues: Rentals and leases $ 46,024 $ 52,540 Sales of equipment and other revenues 11,309 10,213 --------- --------- Total revenues 57,333 62,753 --------- --------- Costs and expenses: Depreciation of equipment 19,006 25,043 Costs of revenues other than depreciation 7,247 8,672 Selling, general and administrative expenses 16,306 16,926 Interest 435 1,687 --------- --------- Total costs and expenses 42,994 52,328 --------- --------- Income before income taxes 14,339 10,425 Income taxes 5,449 3,961 --------- --------- Net income $ 8,890 $ 6,464 ========= ========= Earnings per share: Basic $ 0.36 $ 0.26 Diluted $ 0.36 $ 0.26 Average shares used in per share calculation: Basic 24,389 24,484 Diluted 24,720 24,960 See accompanying notes to condensed consolidated financial statements. Page 3
ELECTRO RENT CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (000 omitted) ASSETS
August 31, May 31, 2000 2000 --------- --------- Cash $ 1,183 $ 1,605 Accounts receivable, net of allowance for doubtful accounts 31,382 29,862 Rental and lease equipment, net of accumulated depreciation 182,981 190,107 Other property, net of accumulated depreciation and amortization 20,195 20,608 Goodwill and intangibles, net of amortization 59,281 59,719 Other 3,945 4,534 --------- --------- $ 298,967 $ 306,435 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Bank borrowings $ 6,100 $ 21,800 Accounts payable 20,708 22,635 Accrued expenses 29,021 24,921 Deferred income taxes 15,468 15,414 --------- --------- Total liabilities 71,297 84,770 --------- --------- Shareholders' equity: Common stock 11,235 11,139 Retained earnings 216,435 210,526 --------- --------- Total shareholders' equity 227,670 221,665 --------- --------- $ 298,967 $ 306,435 ========= ========= See accompanying notes to condensed consolidated financial statements.
Page 4 ELECTRO RENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (000 omitted)
Three Months Ended August 31, 2000 1999 --------- --------- Cash flows from operating activities: Net income $ 8,890 $ 6,464 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,193 26,088 Provision for losses on accounts receivable 341 254 Gain on sale of equipment (4,070) (1,427) Change in operating assets and liabilities: (Increase) decrease in accounts receivable (1,861) 5,155 Decrease in other assets 394 4 Decrease in accounts payable (2,322) (2,596) Increase (decrease) in accrued expenses 4,100 (552) Increase in deferred income taxes 54 39 --------- --------- Net cash provided by operating activities 25,719 33,429 --------- --------- Cash flows from investing activities: Proceeds from sale of equipment 9,781 8,960 Payments for purchase of rental and lease equipment (17,197) (17,634) Payments for purchase of other property (140) (327) --------- --------- Net cash used in investing activities (7,556) (9,001) --------- --------- Cash flows from financing activities: Decrease in short-term bank borrowings (15,700) (28,100) Proceeds from issuance of common stock 96 77 Payment for repurchase of common stock (2,981) - --------- --------- Net cash used in financing activities (18,585) (28,023) --------- --------- Net decrease in cash (422) (3,595) Cash at beginning of period 1,605 4,039 --------- --------- Cash at end of period $ 1,183 $ 444 ========= ========= See accompanying notes to condensed consolidated financial statements.
Page 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 -- Basis of Presentation - ----------------------------------- The unaudited consolidated financial statements are condensed and do not contain all information required by generally accepted accounting principles to be included in a full set of financial statements. The condensed consolidated financial statements include Electro Rent Corporation and the accounts of its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. The information furnished reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the financial position and the results of operations of the Company. All such adjustments are of a normal recurring nature. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 -- Interest and Income Taxes Paid - ------------------------------------------- Total interest paid during the three month periods ended August 31, 2000 and August 31, 1999 was $178,000 and $1,536,000, respectively. Total income taxes paid during the three month period ended August 31, 2000 were $1,235,000 compared to $3,901,000 during the same period in the prior year. Interest and income taxes paid will vary from amounts recorded in the financial statements. Note 3 -- Noncash Investing and Financing Activities - ------------------------------------------------------- The Company acquired equipment totaling $19,552,000 and $19,947,000 as of August 31, 2000 and May 31, 2000, respectively, and $25,126,000 and $14,977,000 as of August 31, 1999 and May 31, 1999, respectively, payable during subsequent quarters. Note 4 -- Capital Leases - ---------------------------- The Company has certain customer leases providing bargain purchase options with a portion of lease revenue deferred until option exercise. At August 31, 2000 investment in sales-type leases of $1,251,000 net of deferred interest of $64,000 is included in other assets. Interest income is recognized over the life of the lease using the interest method. Note 5 -- Derivative Positions - ---------------------------- The Company has entered into an interest rate protection agreement. The Company's exposure under this agreement is limited to the impact of variable interest rate fluctuations and the periodic settlement of amounts due under this agreement if the other party fails to perform. The Company does not anticipate nonperformance by the counterparty, which is a major financial institution. As of August 31, 2000, the Company held one interest rate swap agreement with a notional amount of $25,000,000, interest rate of 5.939% and expiration date of December 2000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion addresses the financial condition of the Company as of August 31, 2000 and the results of operations for the three month period ended August 31, 2000. This discussion should be read in conjunction with the Management's Discussion and Analysis section included in the Company's 2000 Annual Report on Form 10-K (pages 13-15) to which the reader is directed for additional information. Results of Operations Comparison of Three Months Ended August 31, 2000 and August 31, 1999 Total revenues for the three months ended August 31, 2000 decreased 8.8% to $57.3 million from $62.8 million, primarily as a result of continuing attrition of the TMS business acquired in November 1997 and a generally weak PC market during the last twelve months, but partially offset by continuing improvement of test and measurement equipment rentals in the telecommunications segment. Rental and lease revenues decreased 12.4% to $46.0 million, largely for the reasons noted above, and sales of equipment and other revenues increased 10.8% to $11.3 million, primarily reflecting a higher level of test and measurement equipment sales, improved margins and several non-recurring customer settlements. Depreciation of equipment decreased from 47.7% of rental and lease revenues in the first quarter of fiscal 2000 to 41.3% of rental and lease revenues in the first quarter of fiscal 2001. This decrease is primarily due to a large portion of computers acquired from TMS in fiscal 1998 becoming fully depreciated in the last half of fiscal 2000. Costs of revenues other than depreciation primarily includes the cost of equipment sales, which decreased from 84.1% of equipment sales in the first quarter of fiscal 2000 to 58.4% of equipment sales in the first quarter of fiscal 2001. This cost ratio decrease primarily results from the sale of equipment that is generally more depreciated than in the prior fiscal year and several non-recurring customer settlements. Selling, general and administrative expenses totaled $16.3 million for the first quarter of fiscal 2001, or 28.4% of revenues, as compared to $16.9 million, or 27.0% of revenues, for the first quarter of fiscal 2000. This expense ratio increase reflects an 8.8% decline in total revenues, compared with a 3.7% decline in SG&A which resulted from restructuring of the sales organization and closing certain offices and warehouses. As a result of the changes in revenues, operating costs and expenses discussed above, earnings before interest and taxes were $14.8 million or 25.8% of total revenues in the first quarter of fiscal 2001 compared to $12.1 million or 19.3% of total revenues in the first quarter of fiscal 2000. Interest expense decreased to $.4 million in the first quarter of fiscal 2001 from $1.7 million in the first quarter of fiscal 2000. This decrease is primarily due to a reduction of the Company's loans with various banks from $79.4 million at August 31, 1999 to $6.1 million at August 31, 2000, partially offset by higher interest rates. Liquidity and Capital Resources The Company's primary capital requirements are purchases of rental and lease equipment and debt service. The Company purchases equipment throughout each year to replace equipment which has been sold and to maintain adequate levels of rental equipment to meet existing and new customer needs. The market for personal computers has declined during the last twelve months. However, during the first quarter of fiscal 2001, purchases of equipment continued to be made to support some areas of growth for both personal computers and test and measurement equipment, and to keep the equipment pool technologically up-to-date. Even with these purchases, bank borrowings are expected to be completely repaid by the end of the second quarter of fiscal 2001, and cash is then likely to begin accumulating, unless the Company decides to buy back additional shares, finance an acquisition, or pursue other opportunities. During the three months ended August 31, 2000 and August 31, 1999 net cash provided by operating activities was $25.7 million and $33.4 million, respectively. The decrease in fiscal 2001 results mostly from lower depreciation and an increase in accounts receivable. During the three months ended August 31, 2000 and August 31, 1999 net cash used in investing activities was $7.6 million and $9.0 million, respectively. This decrease is primarily attributable to a lower level of payments for equipment purchases, primarily in the data processing area, and increased proceeds from the sale of equipment. During the first three months of fiscal 2001 net cash used in financing activities was $18.6 million, compared to $28.0 million in the first three months of fiscal 2000, reflecting a decline in repayments of bank borrowings, partially offset by the repurchase of $3.0 million of the Company common stock in June 2001. As of August 31, 2000, the Company has available a revolving line of credit of $25.0 million, subject to certain borrowing base restrictions, to meet equipment acquisition needs as well as working capital and general corporate requirements. The Company had borrowings of $6.1 million under the Credit Facility at August 31, 2000. Year 2000 Compliance Many computer programs and microprocessors were designed and developed without consideration of the impact of the transition to the year 2000. As a result, these programs and microprocessors may not be able to differentiate between the year "1900" and "2000"; the year 2000 may be recognized as the two-digit number "00". If not corrected, this could have caused difficulties in obtaining accurate system data and support. The Company has purchased numerous computer systems since its inception. The Company's owned software and hardware is substantially Year 2000 compliant. The costs associated with such compliance were not material to the Company's liquidity or results of operations. Further, the Company's critical third party software was generally Year 2000 compliant, with minor issues, and was capable of functioning after December 31, 1999. Qualitative And Quantitative Market Risk Disclosures Although not currently significant, the Company's primary market risk exposure historically has been interest rate risk, primarily related to its borrowings under its unsecured revolving credit facility. However, a changing interest rate environment does not necessarily impact the Company's margins since the effects of higher or lower borrowing costs may be reflected in the rates on newly rented and leased assets. The Company attempts to reduce this risk by utilizing derivative financial instruments, namely interest rate caps and swaps, pursuant to Company policies. All derivative financial instruments are for purposes other than trading. The table below presents the principal (or notional) amounts of the Company's bank borrowings and derivative financial instruments by expected maturity dates. The table reflects expected maturities as of August 31, 2000 and does not reflect changes which could arise after that time. There are no expected maturities after May 31, 2001. The Company's ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the respective period, the Company's hedging strategies at the time, and actual interest rates.
Year Ended Fair (in thousands except percentages) May 31, 2001 Value Bank Borrowings Principal amount(a) $ 6,100 $ 6,100 Average interest rate(b) VR% Interest Rate SWAP Notional amount(c) $ 25,000 $ 100 Rate to be paid by the Company 5.939% Rate to be received by the Company 3-month Libor
(a) Bank borrowings consist of the Company's unsecured revolving line of credit, which provided for total available credit of $40.0 million at August 31, 2000. Interest on the line of credit is payable in accordance with the applicable London Interbank Offering Rate (LIBOR) agreement or quarterly, and accrues, at the Company's option, either at the LIBOR plus margin (as defined) or the Base Rate (as defined). (b) Variable Rate (VR) based on LIBOR plus margin or Base Rate as defined in the Credit Agreement. (c) In December 1997, the Company entered into one 3-year floating rate to fixed rate interest rate swap agreement in the notional amount of $25.0 million. The Company is also subject to foreign currency rate risk relating to rentals and leases denominated in Canadian dollars. The Company has determined that hedging of these assets is not cost effective and instead attempts to minimize currency exposure risk through working capital management. The Company does not believe that any foreseeable change in currency rates would have a material effect on its financial position or results of operations. Part II. OTHER INFORMATION - ---------------------------- Items 1. through 3. - ---------------------------- Nothing to report. Item 4. Submission of Matters to a Vote of Security Holders (a) On October 12, 2000, the 2000 Annual Meeting of Shareholders of the Registrant was held. Proxies pursuant to Regulation 14A were solicited in connection with the meeting. 22,319,913 shares were present in person or by proxy out of a total of 24,341,611 shares issued and outstanding and eligible to vote on the record date. (b) The meeting involved the election of directors. The following directors were elected by the number of affirmative votes set opposite their respective names: Name Number of Votes Gerald D. Barrone 22,152,122 Nancy Y. Bekavac 22,148,848 Daniel Greenberg 22,227,946 Joseph J. Kearns 22,152,122 S. Lee Kling 22,152,122 Michael R. Peevey 22,152,122 Will Richeson, Jr. 22,148,956 William Weitzman 22,151,388 (c) Other matters submitted to a vote of security holders: The shareholders ratified the appointment of Arthur Andersen LLP as the registrant's independent public accountants for the current year. 22,148,943 shares were voted for, 14,761 were voted against, and 120,659 shares abstained from voting. Item 5. - ---------------------------- Nothing to report. Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------- Nothing to report. 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 thereto duly authorized. ELECTRO RENT CORPORATION DATED: October 12, 2000 /s/ Craig R. Jones Craig R. Jones Vice President and Chief Financial Officer Page 13 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 MAY-31-2001 JUN-1-2000 AUG-31-2000 3-MOS 1,183 0 34,439 3,057 0 0 456,917 253,741 298,967 0 0 0 0 11,235 0 298,967 11,309 57,333 7,247 42,559 0 0 435 14,339 5,449 8,890 0 0 0 8,890 0.36 0.36
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