-----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, Wj2Je5YvCFYHY01iNie+GgL/KnZi4sdZ7GAqqYJEMujZCihhy8aQkub196FJ2CWf 6FdXPZyVziPNuXcYBGWPzQ== 0000800458-00-000002.txt : 20000211 0000800458-00-000002.hdr.sgml : 20000211 ACCESSION NUMBER: 0000800458-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENTRAK CORP CENTRAL INDEX KEY: 0000800458 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 930780536 STATE OF INCORPORATION: OR FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15159 FILM NUMBER: 530963 BUSINESS ADDRESS: STREET 1: ONE AIRPORT CTR STREET 2: 7700 N E AMBASSADOR PL CITY: PORTLAND STATE: OR ZIP: 97220 BUSINESS PHONE: 5032847581 MAIL ADDRESS: STREET 1: 7227 NE 55TH AVENUE CITY: PORTLAND STATE: OR ZIP: 97218 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL VIDEO INC DATE OF NAME CHANGE: 19881004 10-Q 1 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, 1999 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 (IRS Employer incorporation or organization) Identification no.) 7700 NE Ambassador Place, Portland, Oregon 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 January 31, 2000, the Registrant had 10,505,137 shares of Common Stock outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 1999 and March 31, 1999 Consolidated Statements of Operations for the three month periods ended December 31, 1999 and December 31, 1998 Consolidated Statements of Income for the nine month periods ended December 31, 1999 and December 31, 1998 Consolidated Statements of Cash Flows for the nine month periods ended December 31, 1999 and December 31, 1998 Notes to Consolidated Financial Statements RENTRAK CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS
(UNAUDITED) December 31, March 31, 1999 1999 CURRENT ASSETS: Cash and cash equivalents $6,891,564 $2,145,963 Accounts receivable, net of allowance for doubtful accounts of $326,205 and $355,241 29,212,096 23,906,398 Advances to program suppliers 2,829,741 2,840,262 Inventory 3,478,284 2,804,983 Deferred tax asset 1,579,637 1,579,637 Income tax receivable 438,334 3,006,502 Other current assets 2,091,227 3,467,473 Total current assets 46,520,883 39,751,218 PROPERTY AND EQUIPMENT, net 2,265,995 1,723,448 OTHER INVESTMENTS, net 596,600 2,014,701 DEFERRED TAX ASSET 2,974,371 2,497,762 OTHER ASSETS 1,976,037 3,469,660 TOTAL ASSETS $54,333,886 $49,456,789 The accompanying notes are an integral part of these consolidated balance sheets.
RENTRAK CORPORATION CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) December 31, March 31, 1999 1999 CURRENT LIABILITIES: Line of credit $4,960,000 $7,925,000 Accounts payable 19,843,226 16,628,294 Accrued liabilities 7,549,601 5,822,574 Accrued compensation 796,836 941,836 Deferred revenue 3,749,951 100,415 Net current liabilities of discontinued operations 112,813 3,746,766 Total current liabilities 37,012,427 35,164,885 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: 10,500,805 shares at December 31, 1999 and 10,439,948 at March 31, 1999 10,501 10,440 Capital in excess of par value 44,374,799 43,644,479 Cumulative other comprehensive income (loss) (639,878) 137,747 Accumulated deficit (25,520,099) (28,751,757) Less - Deferred charge - warrants (903,864) (749,005) 17,321,459 14,291,904 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $54,333,886 $49,456,789 The accompanying notes are an integral part of these consolidated balance sheets.
RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) Three Months Ended December 31, 1999 1998 REVENUES: PPT $19,965,669 $21,568,044 Other 5,819,395 5,438,936 25,785,064 27,006,980 OPERATING COSTS AND EXPENSES: Cost of sales 21,129,291 23,271,818 Selling, general, and administrative 6,016,945 4,182,641 27,146,236 27,454,459 INCOME (LOSS) FROM OPERATIONS (1,361,172) (447,479) OTHER INCOME (EXPENSE): Interest income 61,993 144,094 Interest expense (233,422) (149,207) Other (157,944) (171,429) (163,057) LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT (1,532,601) (610,536) INCOME TAX BENEFIT (546,162) (272,172) NET LOSS ($986,439) ($338,364) EARNINGS (LOSS) PER SHARE: Basic: ($0.09) ($0.03) Diluted: ($0.09) ($0.03) The accompanying notes are an integral part of these consolidated statements.
RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) Nine Months Ended December 31, 1999 1998 REVENUES: PPT $69,374,611 $79,917,052 Other 14,503,091 12,878,387 83,877,702 92,795,439 OPERATING COSTS AND EXPENSES: Cost of sales 67,023,807 78,852,512 Selling, general, and administrative 15,040,717 12,167,661 82,064,524 91,020,173 INCOME FROM OPERATIONS 1,813,178 1,775,266 OTHER INCOME (EXPENSE): Interest income 135,937 375,759 Interest expense (560,683) (243,199) Other (275,712) (424,746) (143,152) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION 1,388,432 1,632,114 INCOME TAX PROVISION 530,277 613,675 INCOME FROM CONTINUING OPERATIONS 858,155 1,018,439 GAIN FROM DISPOSAL OF DISCONTINUED SUBSIDIARIES (PLUS INCOME TAX BENEFIT OF $483,502) 2,373,502 NET INCOME $3,231,657 $1,018,439 EARNINGS PER SHARE: Basic: Continuing operations $0.08 $0.09 Discontinued operations $0.23 $0.00 $0.31 $0.09 Diluted: Continuing operations $0.08 $0.09 Discontinued operations $0.22 $0.00 $0.30 $0.09 The accompanying notes are an integral part of these consolidated statements.
RENTRAK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Nine Months Ended December 31, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $3,231,657 $1,018,439 Adjustments to reconcile income to net cash provided by (used in) in operations Gain on disposal of discontinued operations (2,373,502) 0 Loss on sale of assets 17,607 275,712 Depreciation and Amortization 1,039,530 807,425 Amortization of warrants 389,280 536,758 Provision for doubtful accounts 108,062 72,235 Studio advance reserves 1,593 9,121 Deferred income taxes 0 517,048 Change in specific accounts: Accounts receivable (4,389,966) 2,266,232 Advances to program suppliers 8,928 (3,369,480) Inventory (673,301) (529,271) Income tax receivable 2,568,168 0 Other current assets 1,376,246 (2,459,048) Accounts payable 2,914,932 (3,095,181) Accrued liabilities & compensation 1,582,027 106,153 Deferred revenue 3,649,536 (778,546) Net current liabilities of discontinued operations (1,260,451) (197,309) Net cash provided by (used in) operations 8,190,346 (4,819,712) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, equipment, and inventory (1,140,454) (398,407) Investments in retailer financing program 0 (947,759) Proceeds from sale of investments 361,894 469,339 Disposal (purchase) of other assets & intangibles 112,573 (1,565,071) Net cash used in investing activities (665,987) (2,441,898) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payment) under line of credit (2,965,000) 4,029,289 Repurchase of common stock 0 (1,759,057) Issuance of common stock 186,242 109,797 Net cash provided by (used in) financing activitie (2,778,758) 2,380,029 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,745,601 (4,881,581) CASH AND CASH EQUIVALENTS AT BEGINNING OF THIS PERIOD 2,145,963 6,361,680 CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,891,564 $1,480,099 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for - Interest $286,017 $243,199 Income taxes paid, net of refunds received (2,428,003) 427,155 NON-CASH TRANSACTIONS Increase (decrease) in net unrealized gain on investments securities (777,624) 811,551 Retailer Financing Program Investment through conversion of accounts receivable 74,234 42,669 The accompanying notes are an integral part of these consolidated statements.
RENTRAK CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A: Basis of Presentation The accompanying unaudited 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 month and nine month periods ended December 31, 1999 are not necessarily indicative of the results to be expected for the entire fiscal year ending March 31, 2000. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes thereto included in the Company's 1999 Annual Report to Shareholders. The Condensed Consolidated 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 inter-company accounts and transactions. Investments in affiliated companies owned 20 to 50 percent are accounted for by the equity method. NOTE B: Net Income (Loss) Per Share Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings (loss) per common share is computed on the basis of the weighted average shares of common stock outstanding plus common equivalent shares arising from dilutive stock options and warrants. The weighted average number of shares of common stock equivalents and net income used to compute basic and diluted earnings per share for the three and nine month periods ended December 31, 1999 and 1998 were as follows: Note B: Net Income (Loss) Per Share
3-Months Ended 9-Months Ended December 31, 1999 December 31, 1999 Basic Diluted Basic Diluted Weighted average number of shares of common stock outstanding 10,489,273 10,489,273 10,467,632 10,467,632 Dilutive effect of exercise of stock options - - - 142,715 Weighted average number of shares of common stock outstanding and common stock equivalents 10,489,273 10,489,273 10,467,632 10,610,347 Net Income: Continuing operations ($986,439) ($986,439) $858,155 $858,155 Discontinued operations $0 $0 $2,373,502 $2,373,502 Net income ($986,439) ($986,439) $3,231,657 $3,231,657 Earnings per share: Continuing operations ($0.09) ($0.09) $0.08 $0.08 Discontinued operations $0.00 $0.00 $0.23 $0.22 Earnings per share ($0.09) ($0.09) $0.31 $0.30
3-Months Ended 9-Months Ended December 31, 1998 December 31, 1998 Basic Diluted Basic Diluted Weighted average number of shares of common stock outstanding 10,654,847 10,654,847 10,882,549 10,882,549 Dilutive effect of exercise of stock options - - - 363,247 Weighted average number of shares of common stock outstanding and common stock equivalents 10,654,847 10,654,847 10,882,549 11,245,796 Net Income: Continuing operations ($338,364) ($338,364) $1,018,439 $1,018,439 Discontinued operations $0 $0 $0 $0 Net income ($338,364) ($338,364) $1,018,439 $1,018,439 Earnings per share: Continuing operations ($0.03) ($0.03) $0.09 $0.09 Discontinued operations $0.00 $0.00 $0.00 $0.00 Earnings per share ($0.03) ($0.03) $0.09 $0.09 Options and warrants to purchase approximately 6.7 million and 6.3 million shares of common stock for the quarters ended December 31, 1999 and 1998, respectively, and 5.3 million and 3.9 million for the nine month periods ended December, 1999 and 1998, respectively, were outstanding but were not included in the computation of diluted EPS because the warrants' and options' exercise prices were greater than the average market price of the common shares during the periods. The options and warrants, which expire during fiscal years 2000 through 2009 remain outstanding at December 31, 1999.
NOTE C: Business Segments, Significant Suppliers and Major Customer The Company classifies its services in three segments, PPT, 3PF.COM and other. Non PPT services including operations of BlowOut Video, a video retailers, the Company's internet based fulfillment service provider and amounts received pursuant to royalty agreements. Business Segments
1999 1998 Three Nine Months Three Nine Months Months Ended Months Ended Ended December Ended December December 31, December 31, 31, 31, NET SALES: (1) PPT $20,190,078 $69,998,227 $21,660,697 $80,293,042 3PF.COM(2) 2,763,393 7,211,346 2,894,169 7,516,147 OTHER 3,826,654 9,696,529 2,544,767 5,395,673 $26,780,125 $86,906,102 $27,099,633 $93,204,862 INCOME(LOSS)FROM OPERATIONS (1) PPT ($525,416) $3,663,655 ($760,133) ($181,550) 3PF.COM (2) (585,835) (613,515) 68,630 600,940 OTHER 124,812 181,517 353,139 599,049 ($986,439) $3,231,657 ($338,364) $1,018,439 (1) Total amounts differ from those reported on the consolidated financial statements as intercompany transactions and investments in subsidiaries are not eliminated for segment reporting purposes. (2) 3PF.COM, Inc's revenues related to the shipment of cassettes to PPT Customers was $770,652, $509,210, $2,404,784, and $2,940,033, for the three month periods ended December 31, 1999 and 1998 and the nine month periods ended December 31, 1999 and 1998, respectively.
For the quarter ended December 31, 1999, the Company had one program supplier whose product generated 23 percent, a second that generated 14 percent, and a third that generated 11 percent of Rentrak revenue. For the nine month period ended December 31, 1999, the Company had one program supplier whose product generated 23 percent, a second that generated 21 percent, and a third that generated an additional 14 percent of Rentrak revenue. No other program supplier provided product which generated more than 10 percent of revenue for the three or nine month periods ended December 31, 1999. For the quarter ended December 31, 1998, the Company had one program supplier whose product generated 25 percent, a second that generated 21 percent, and a third that generated an additional 15 percent of Rentrak revenue. For the nine month period ended December 31, 1998, the Company had one program supplier whose product generated 30 percent, a second that generated 26 percent, and a third that generated an additional 16 percent of Rentrak revenue. No other program supplier provided product which generated more than 10 percent of revenue for the three or nine month periods ended December 31, 1998. One customer accounted for 11 percent of the Company's revenues in the three month period ended December 31, 1999. NOTE D: Discontinued Operations On November 26, 1996, the Company made a distribution to its shareholders of 1,457,343 shares of common stock of BlowOut Entertainment, Inc. ("BlowOut"). The operations of BlowOut were reflected as discontinued operations in the March 31, 1996 consolidated financial statements. On March 22, 1999, BlowOut filed for Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. At that same time BlowOut filed a motion to sell substantially all the assets of BlowOut. The sale to a third party video retailer was approved by the Bankruptcy Court on May 10, 1999, and closed on May 17, 1999. The Company was the principal creditor of BlowOut. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut ("Guarantee"). Pursuant to the terms of the Guarantee, the Company agreed to guarantee any amounts outstanding under BlowOut's credit facility. As the proceeds from the sale of the BlowOut assets were not sufficient to cover the amounts due under this facility, the Company, pursuant to the Guarantee, has agreed to a payment plan to fulfill BlowOut's obligation under its credit facility. The amount outstanding at December 31, 1999 is approximately $674,000. The funds remaining, if any, after payment of administrative and cost claims after dismissal of the case may further reduce the amount due under the credit facility. During the quarter ended June 30, 1999, the Company recorded a gain on the disposal of discontinued operations of $1.9 million related to BlowOut , as the liability related to BlowOut contingencies was less than estimated. The Company also reduced the valuation allowance which was recorded against the deferred tax asset related to liabilities of discontinued operations. This reduction of approximately $.5 million in the valuation allowance was recorded as an income tax benefit from discontinued operations in the accompanying consolidated income statement. Net current liabilities of discontinued operations at December 31, 1999, relate to amounts to be paid pursuant to the Guarantee, net of tax benefit. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Forward Looking Statements Certain information included in Management's Discussion and Analysis of Financial Conditions and Results of Operations constitute forward-looking statements that involve a number of risks and uncertainties. Forward looking statements are identified by the use of forward-looking words such as "may", "will", "expects", "intends", "anticipates", "estimates", or "continues" 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: the Company's ability to continue to market the Pay Per Transaction ("PPT") System successfully, the financial stability of participating retailers and their performance of their obligations under the PPT System, non- renewal of the Company's line of credit, business conditions and growth in the video industry and general economics, both domestic and international; competitive factors, including increased competition, expansion of revenue sharing programs other than the PPT System by program suppliers, new technology and the continued availability of prerecorded videocassettes ("Cassettes") from program suppliers. Such factors are discussed in more detail in the Company's 1999 Annual Report to Shareholders. Results of Operations For the quarter ended December 31, 1999, total revenue decreased $1.2 million, or 4.4 percent, to $25.8 million from $27 million in the quarter ended December 31, 1998. For the nine month period ended December 31, 1999, total revenue decreased $8.9 million, or 9.6 percent, to $83.9 million from $92.8 million in the nine month period ended December 31, 1998. Total revenue includes the following fees: application fees generated when retailers are approved for participation in the PPT System; order processing fees generated when Cassettes are ordered by and distributed to retailers; transaction fees generated when retailers rent Cassettes to consumers; sell-through fees generated when retailers sell Cassettes to consumers; buy out fees when retailers purchase Cassettes at the end of the lease term. In addition, total revenue includes royalty payments from Rentrak Japan, charges to customers of the Company's fulfillment business known as 3PF.COM, Inc., formerly ComAlliance, and sale of Cassettes. The decrease in total revenues for the three month and nine month periods ended December 31, 1999 is primarily due to the reduction in (i) the total number of Cassettes leased under the PPT System due in part to program suppliers offering more titles under copy depth programs than historical levels and program suppliers engaging in direct revenue sharing with the larger chains; (ii) the number of titles released to the PPT System; and (iii) a one-time royalty of $1 million from Rentrak Japan which was recorded in September 1998. These reductions in revenue were partially offset by an increase in revenue related to the Company's order processing and fulfillment services. Cost of sales for the quarter ended December 31, 1999 decreased to $21.1 million from $23.3 million in the quarter ended December 31, 1998, a decrease of $2.2 million, or 9.4 percent. Cost of sales for the nine month period ended December 31, 1999 decreased to $67.0 million from $78.9 million the prior year, a decrease of $11.9 million or 15.1 percent. The decrease for the three month and nine month periods ended December 31, 1999 is due to the reduction in revenue as noted above and a decrease in cost of sales as a percentage of revenue due to a decrease in incentives offered by the Company to entice retailers to order more product. The gross profit margin increased to 18.2 percent in the quarter ended December 31, 1999 from 13.7 percent the previous year. The gross profit margin increased to 20.1 percent in the nine month period ended December 31, 1999 from 15.0 percent in the nine month period ended December 31, 1998. These increases are primarily due to a reduction in incentives offered by the Company during 1999 versus 1998. Selling, general and administrative expenses were $6.0 million for the quarter ended December 31, 1999 compared to $4.2 million in the quarter ended December 31, 1998, an increase of $1.8 million, or 42.9 percent. Selling general and administrative expenses were $15.0 million in the nine month period ended December 31, 1999 compared to $12.2 million in the nine month period ended December 31, 1998, an increase of $2.8 million or 23.0 percent. The increase in selling, general and administrative expenses is primarily due to increased legal fees; marketing expenses and compensation related to the Company's order processing and fulfillment services; the added expenses of starting Rentrak International; and expenses incurred as a result of Rentrak becoming the operator of Rentrak UK. For the quarter ended December 31, 1999, the Company recorded a net loss of $1.0 million compared to a net loss of $.3 million in the quarter ended December 31, 1998. This increase in net loss is primarily due to the increase in selling, general and administrative expenses as noted above partially offset by the decrease in cost of sales. For the nine month period ended December 31, 1999, the Company recorded net income of $3.2 million, compared to net income of $1.0 million in the nine month period ended December 31, 1998. This increase in profits is primarily due to the gain from disposal of discontinued operations of $2.4 million recognized in the nine month period ended December 31, 1999, and increases in gross margin dollars offset by increases in selling, general and administrative expenses as noted above. Discontinued Operations On March 22, 1999, BlowOut filed for Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. At that same time BlowOut filed a motion to sell substantially all the assets of BlowOut. BlowOut is not related to the Company's wholly owned subsidiary BlowOut Video, Inc. The sale to a third party video retailer was approved on May 10, 1999 and closed on May 17, 1999. During the quarter ended June 30, 1999, the Company recorded a gain on the disposal of discontinued operations of $1.9 million related to BlowOut as the liability related to BlowOut contingencies was less than anticipated. The Company also reduced the valuation allowance which was recorded against the deferred tax asset related to liabilities of discontinued operations. This reduction of $0.5 million in the valuation allowance was recorded as an income tax benefit from discontinued operations in the accompanying consolidated income statement. Consolidated Balance Sheet At December 31, 1999, total assets were $54.3 million, an increase of $4.8 million from the $49.5 million at March 31, 1999. As of December 31, 1999, cash increased $4.8 million to $6.9 million from $2.1 million at March 31, 1999. Accounts receivable increased $5.3 million from $23.9 million at March 31, 1999 to $29.2 million at December 31, 1999. These increases were offset by a decrease in other current assets of $1.4 million from $3.5 million at March 31, 1999 to $2.1 million at December 31, 1999, an increase in deferred revenue of $3.6 million to $3.7 million at December 31, 1999 from $.1 million at March 31, 1999 and a decrease in income tax receivable from $3.0 million at March 31, 1999 to $.4 million at December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, the Company had cash of $6.9 million compared to $2.1 million at March 31, 1999. At December 31, 1999, the Company's current ratio (current assets/current liabilities) increased to 1.26 from 1.13 at March 31, 1999. The Company has an agreement for a line of credit with a financial institution in an amount not to exceed the lesser of (a) $7.5 million or (b) the sum of 80 percent of the net amount of eligible accounts receivable as defined in the agreement. The line of credit expires on June 30, 2000. Interest is payable monthly at the bank's prime rate plus one percent (9.5 percent at December 31, 1999). The line is secured by substantially all of the Company's 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. As of December 31, 1999, the Company was in compliance with these covenants or waivers have been obtained. The Company had $5 million outstanding under this line at December 31, 1999. 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 financing, the retailer typically agrees to cause all of its current and future retail locations to participate in the PPT System for a designated period of time. Under these agreements, retailers are typically required to obtain some or all of their requirements of Cassettes from those 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 may, 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 could ultimately receive could differ materially in the near term from the amounts assumed in establishing reserves. The Board of Directors has authorized up to $18 million to be used in connection with the Company's retailer financing program. As of December 31, 1999, the Company had invested or loaned approximately $7.3 million in various retailers. The investments individually range from $23,000 to $4.7 million. Interest rates per annum on the various loans range from 5 percent to 10 percent. As each financing is made, and periodically throughout the term of the agreement, the Company assesses the likelihood of recoverability of the amount invested or loaned based on the financial position of each retailer. This assessment includes reviewing available financial statements and cash flow projections of the retailer and discussions with retailers' management. As of December 31, 1999, the Company reserved approximately $4.4 million. The Company was the principal creditor of BlowOut. In 1996, the Company had agreed to guarantee up to $7 million of indebtedness of BlowOut ("Guarantee"). BlowOut had 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 14.525 percent. Pursuant to the terms of the 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 Guarantee. As the proceeds from the sale of the BlowOut assets were not sufficient to cover the amounts due under this facility, the Company, pursuant to the Guarantee, has agreed to a payment plan to fulfill BlowOut's obligation under the Credit Facility. The funds remaining, if any, after payment of administrative and cost claims after dismissal of the case may further reduce the amount due under the Credit Facility. As of December 31, 1999, the balance owing under this obligation is approximately $674,000. Based on the Company's current budgets and projected cash needs, the Company believes that its available sources of liquidity are expected to be sufficient to fund the Company's operations for the fiscal year ending March 31, 2000. Year 2000 Many computer software programs, as well as hardware with embedded software, use a two-digit date field to track and refer to any given year. After, and in some cases prior to, January 1, 2000, these software and hardware systems may interpret the year "00" as "1900," which will cause them to perform faulty calculations or shut down altogether. To the extent that this "Year 2000" problem is present in the Company's internal software and hardware systems, or those of its suppliers or customers, there could be material disruptions in such important functions as the ordering and delivery of Cassettes, the reporting and tracking of Cassette rental and sale transactions, and billing and payment systems. Such difficulties could result in a number of adverse consequences, including but not limited to delayed or lost revenue, diversion of resources, damages to the Company's reputation, increased administrative and processing costs, and liability to suppliers or customers. Any one or a combination of such consequences could have a material adverse effect on the Company's business, operating results, and financial condition. Accordingly, the Company began assessing the scope of the Year 2000 problem both internally and among its suppliers and customers as far back as March 1997, and began implementing remedial measures soon thereafter. The Company's assessment and any required modifications were all completed as of December 31, 1999. The total costs of the Company's assessments, corrective measures, and testing was less than $250,000. As of January 31, 2000, the Company has not and does not anticipate experiencing any significant problems related to the Year 2000 issue that would be material to the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. None. PART II - OTHER INFORMATION Item 1. Legal Proceedings On January 23, 2000, the Company and Hollywood Entertainment Corporation ("Hollywood") settled the case filed by the Company against Hollywood, Franklin Bruce Giesbrecht and Douglas A. Gordon in the Circuit Court of the State of Oregon for the County of Multnomah, Case No. 98-04-02811. Pursuant to the settlement, Hollywood paid the Company $14 million, $10 million of which was paid in cash and $4 million of which was paid by promissory note due within six months of the settlement. In addition, Hollywood issued to the Company 200,000 shares of Hollywood common stock. Furthermore, Hollywood agreed to indemnify the Company against any and all claims and demands made by Universal Studios or Buena Vista Home Entertainment, Inc. arising from the litigation, and the Company agreed to indemnify Hollywood against any and all claims and demands made by Twentieth Century Fox arising from the litigation. Under the settlement, Hollywood is permitted to continue its revenue sharing directly with the studios. Hollywood also agreed to provide the Company with all of Hollywood's rental and sales data on videocassettes and not to interfere with the Company's being retained by an entity to act as a data processor for Hollywood's data. On November 21, 1997, Merle Harmon, individually and as assignee for Merle Harmon Enterprises and Fan Fair Corporation, filed suit against the Company and two of its officers in the U.S. District Court for the Eastern District of Wisconsin. The lawsuit related to the Company's failed attempt to negotiate the purchase of Merle Harmon Enterprises and Fan Fair Corporation. In October 1999, the parties agreed to settle the case, and the Court dismissed the lawsuit. Under the settlement agreement, the Company paid Harmon an amount of cash that is immaterial to the Company's results of operations. The Company's insurer funded most of the settlement. In June 1998, Video Update, Inc. ("Video Update") filed a complaint (the "Video Update Complaint") against the Company entitled Video Update, Inc. v. Rentrak Corp., Civil Action No. 98-286, in the United States District Court for the District of Delaware. The Video Update Complaint alleges various violations of the antitrust laws, including that the Company has monopolized or attempted to monopolize a market for videocassettes leased to retail video stores in violation of Section 2 of the Sherman Act. Video Update further alleges that the Company's negotiation and execution of an exclusive, long-term revenue sharing agreement with Video Update violates Section 1 of the Sherman Act and Section 3 of the Clayton Act. Video Update is seeking unspecified monetary relief, including treble damages and attorneys' fees, and equitable relief, including an injunction prohibiting the Company from enforcing its agreement with Video Update or any exclusivity provision against videocassette suppliers and video retailers. In August 1998, the Court granted the Company's motion to dismiss the Video Update Complaint pursuant to Federal Rules of Civil Procedure Rule 12(b)(3) on the basis of improper venue. In August 1998, Video Update filed a new complaint against the Company in the United States District Court for the District of Oregon (the "Re-Filed Complaint"), Case No. 98- 1013HA. The Re-Filed Complaint is substantially the same as the previous complaint. The Company believes the Re-Filed Complaint lacks merit and intends to vigorously defend against the allegations in the Complaint. The Company has answered the Re-Filed Complaint denying its material allegations and asserting several affirmative defenses. The Company also has counterclaimed against Video Update alleging, among other things, breach of contract, breach of the covenant of good faith and fair dealing, promissory fraud, breach of fiduciary duty, breach of trust, constructive fraud, negligent misrepresentation and intentional interference with business advantage, and seeking damages and equitable relief. In October 1998, the Company filed a motion for summary judgment seeking to dismiss the lawsuit filed against it by Video Update. In January of 1999, the Company filed a separate motion for partial summary judgment on its breach of contract counterclaim seeking to recover more than $4.4 million in fees and interest which the Company claims Video Update owes to it. In response to the Company's motions, Video Update asked the court for time to take discovery before having to file oppositions. The court has given the parties until June 30, 2000 to conduct discovery. The court denied Rentrak's motions without reaching the merits and without prejudice to re-filing the motions after discovery has been conducted. Rentrak expects to re-file its motions after discovery has taken place. On October 21, 1999, the Company amended its counterclaims to add additional breach of contract claims, a claim for trade secret misappropriation and a claim for recovery of personal property. The amended countercomplaint also added Video Update's chairman, Daniel Potter as a defendant to the fraud and negligent misrepresentation claims. In August 1998, the Company filed a complaint (the "Movie Buffs Complaint") against Susan Janae Kingston d/b/a/ Movie Buffs ("Movies Buffs"), entitled Rentrak Corporation v. Susan Janae Kingston, an individual, d/b/a/ Movie Buffs, Case no. CV 98-1004 HA, in the United States District Court for the District of Oregon. This case is described in the Company's 10-Q for the quarter ended September 30, 1999. The Company filed a motion to dismiss the Robinson-Patman Act claims pursuant to Federal Rules of Civil Procedure 12(b)(6), which motion was granted. The court also granted Roadrunner and Movie Buff's request to dismiss their claims against Hollywood without prejudice. In the event of an unanticipated adverse final determination in respect to one or more of the cases discussed above, the Company's consolidated net income for the period in which such determination occurs could be materially affected. The Company is also subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of any ultimate liability with respect to these actions is not expected to materially affect the financial position or results of operations of the Company as a whole. Item 2. Changes in Securities and Use of Proceeds - None Item 3. Defaults upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders- None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K - None 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 10th day of February, 2000 RENTRAK CORPORATION: /s/ Carolyn A. Pihl Carolyn A. Pihl Chief Financial Officer Signing on behalf of the registrant EX-27 2
5 9-MOS MAR-31-2000 DEC-31-1999 6,891,564 0 29,538,301 326,205 3,478,284 46,520,883 8,902,947 6,636,952 54,333,886 37,012,427 0 0 0 10,501 17,310,958 54,333,886 83,877,702 83,877,702 67,023,807 82,064,524 424,746 0 560,683 1,388,432 530,277 858,155 2,373,502 0 0 3,231,657 0.08 0.08
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