Rainbow Rentals (RBOW) 10-Q 2001 Q2 Quarterly report

TABLE OF CONTENTS

FORM 10-Q
		CONDENSED BALANCE SHEETS
		CONDENSED STATEMENTS OF INCOME
		CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
		CONDENSED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED FINANCIAL STATEMENTS
	Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3: Quantitative and Qualitative Disclosures About Market Risk
PART II — OTHER INFORMATION
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(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, 2001
	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 No. 0-24333

RAINBOW RENTALS, INC.

(Exact name of Registrant as specified in its charter)

Ohio
(State of Incorporation) 34-1512520
(IRS Employer Identification No.)

3711 Starr Centre Drive
Canfield, Ohio 44406
(Address of principal executive offices)

330-533-5363
(Registrant’s telephone number)

(Former name, former address and former fiscal year,
if changed since last report)

      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         

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

CLASS	SHARES OUTSTANDING AT JULY 31, 2001
Common stock, no par value	5,925,735

1

RAINBOW RENTALS, INC.
INDEX

PART I		FINANCIAL INFORMATION	Page No.
	Item 1.	Financial Statements
		Condensed Balance Sheets	3
		Condensed Statements of Income	4
		Condensed Statements of Shareholders’ Equity	5
		Condensed Statements of Cash Flows	6
		Notes to Condensed Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
PART II		OTHER INFORMATION
	Item 4.	Submission of Matters to a Vote of Security Holders	13
	Item 6.	Exhibits and Reports on Form 8-K	13
SIGNATURES			14

2

RAINBOW RENTALS, INC.

CONDENSED BALANCE SHEETS
(Dollars in thousands)

					(unaudited)
					June 30,			December 31,
					2001			2000
				Assets
Current assets
	Cash				$	1,664		$	1,426
	Rental-purchase merchandise, net					35,747			36,545
	Income tax receivable					640			778
	Prepaid expenses and other current assets					1,877			1,709
		Total current assets				39,928			40,458
Property and equipment, net						5,265			5,259
Deferred income taxes						1,460			1,460
Goodwill, net						9,355			9,887
Other assets, net						1,217			1,365
		Total assets			$	57,225		$	58,429
			Liabilities and Shareholders’ Equity
Current liabilities
	Short-term debt				$	8,623		$	—
	Accounts payable					3,126			2,410
	Accrued compensation and related costs					1,394			1,525
	Other liabilities and accrued expenses					3,164			2,485
	Deferred income taxes					3,978			3,678
		Total current liabilities				20,285			10,098
Long-term debt						—			12,340
		Total liabilities				20,285			22,438
Shareholders’ equity
	Serial preferred stock, no par value; 2,000,000 shares authorized      none issued					—			—
	Common stock, no par value; 10,000,000 shares authorized,      6,392,610 issued and 5,925,735 outstanding					11,039			11,039
	Retained earnings					27,808			26,859
	Treasury stock, 466,875 common shares at cost					(1,907	)		(1,907	)
		Total shareholders’ equity				36,940			35,991
		Total liabilities and shareholders’ equity			$	57,225		$	58,429

See accompanying notes to condensed financial statements.

3

RAINBOW RENTALS, INC.

CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)

				(unaudited)				(unaudited)
				For the three months ended				For the six months ended
				June 30,				June 30,
				2001		2000		2001		2000
Revenues
	Rental revenue			$	22,211	$	21,101	$	44,677	$	41,863
	Fees				698		693		1,383		1,364
	Merchandise sales				680		592		1,818		1,621
			Total revenues		23,589		22,386		47,878		44,848
Operating expenses
	Merchandise costs				8,041		7,173		16,430		14,680
	Store expenses
		Salaries and related			5,522		5,215		11,232		10,350
		Occupancy			2,069		1,713		4,161		3,332
		Advertising			1,520		1,015		3,043		2,061
		Other expenses			3,145		2,813		6,489		5,674
			Total store expenses		12,256		10,756		24,925		21,417
			Total merchandise costs and store expenses		20,297		17,929		41,355		36,097
	General and administrative expenses				1,965		1,713		3,820		3,330
	Amortization of goodwill and noncompete agreements				174		134		349		266
			Total operating expenses		22,436		19,776		45,524		39,693
			Operating income		1,153		2,610		2,354		5,155
Interest expense					188		197		413		395
Other expense, net					262		120		347		193
			Income before income taxes		703		2,293		1,594		4,567
Income taxes					285		938		645		1,870
			Net income	$	418	$	1,355	$	949	$	2,697
Earnings per common share:
	Basic and diluted earnings per share			$	0.07	$	0.23	$	0.16	$	0.46
Weighted average common shares outstanding:
	Basic				5,925,735		5,925,735		5,925,735		5,925,735
	Diluted				5,932,146		5,925,735		5,934,057		5,925,735

See accompanying notes to condensed financial statements.

4

RAINBOW RENTALS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)

		Common Stock									Total
						Retained		Treasury			Shareholders'
		Shares		Cost		Earnings		Stock			Equity
Balance at December 31, 1999			5,925,735	$	11,039	$	22,754	$	(1,907	)	$	31,886
	Net income		—		—		4,105		—			4,105
Balance at December 31, 2000			5,925,735		11,039		26,859		(1,907	)		35,991
	Net income (unaudited)		—		—		949		—			949
Balance at June 30, 2001 (unaudited)			5,925,735	$	11,039	$	27,808	$	(1,907	)	$	36,940

See accompanying notes to condensed financial statements.

5

RAINBOW RENTALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

					(unaudited)
					For the six months ended
					June 30,
					2001			2000
Cash flows from operating activities
	Net income				$	949		$	2,697
	Reconciliation of net income to net cash provided
	by operating activities
			Depreciation of property and equipment and
			amortization of intangibles			1,473			1,400
			Depreciation of rental-purchase merchandise			13,293			11,708
			Loss on write-down of rental purchase merchandise			46			—
			Write-off of goodwill from sale of store			260			—
			Deferred income taxes			300			300
			(Gain) loss on disposal of property and equipment			11			(97	)
			Gain on sale of store assets			(110	)		—
			Purchases of rental-purchase merchandise			(15,716	)		(15,225	)
			Rental-purchase merchandise disposed, net			3,155			2,900
			Increase (decrease) in
				Income tax receivable		138			—
				Prepaid expenses and other current assets		(168	)		(177	)
				Accounts payable		814			(253	)
				Accrued compensation and related costs		(131	)		(184	)
				Other liabilities and accrued expenses		679			(89	)
				Net cash provided by operating activities		4,993			2,980
Cash flows from investing activities
	Purchase of property and equipment, net					(1,046	)		(1,565	)
	Proceeds from sale of property and equipment					31			176
	Proceeds from sale of store assets					272			—
	Acquisitions					(245	)		(351	)
				Net cash used in investing activities		(988	)		(1,740	)
Cash flows from financing activities
	Proceeds from long-term debt					11,225			15,367
	Current installments and repayments of long-term debt					(14,942	)		(16,493	)
	Loan origination fees paid					(50	)		—
	Principal payments under capital lease obligations					—			(118	)
				Net cash used in financing activities		(3,767	)		(1,244	)
Net increase (decrease) in cash						238			(4	)
Cash at beginning of period						1,426			440
Cash at end of period					$	1,664		$	436
Supplemental cash flow information
	Net cash paid during the period for
		Interest				449			393
		Income taxes				278			1,956

See accompanying notes to condensed financial statements.

6

RAINBOW RENTALS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

1. Basis of Presentation

      Rainbow Rentals, Inc. (“Rainbow” or “Company”) is engaged in the rental and sale of home electronics, furniture, appliances and computers to the general public. Rainbow currently operates 109 stores in eleven states: Connecticut, Massachusetts, Michigan, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee and Virginia. Rainbow’s corporate headquarters is located in Canfield, Ohio.

      The financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, certain information and disclosures, normally required with financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. In the opinion of management, the financial statements contain all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company. The results of operations for the periods presented are not necessarily indicative of the results for the entire year. It is suggested these financial statements be read in conjunction with the financial statements and notes included in the Company’s Annual Report for fiscal year ended December 31, 2000.

2. Earnings Per Share

      Basic earnings per common share are computed using net income available to common shareholders divided by the weighted average number of common shares outstanding. For computation of diluted earnings per share, the weighted average number of common shares outstanding is increased to give effect to stock options considered to be common stock equivalents.

      The following table shows the amounts used in computing earnings per share. Dollars are in thousands, except per share amounts.

		For the three months ended				For the six months ended
		June 30,				June 30,
		2001		2000		2001		2000
Numerator:
	Net income available to common shareholders	$	418	$	1,355	$	949	$	2,697
Denominator:
	Basic weighted average shares		5,925,735		5,925,735		5,925,735		5,925,735
	Effect of diluted stock options		6,411		—		8,322		—
	Diluted weighted average shares		5,932,146		5,925,735		5,934,057		5,925,735
Basic earnings per share		$	0.07	$	0.23	$	0.16	$	0.46
Diluted earnings per share		$	0.07	$	0.23	$	0.16	$	0.46

3. Acquisitions

      The Company has recently made acquisitions of stores, rental purchase merchandise and rental purchase agreements. All acquisitions made were accounted for using the purchase method of accounting. Accordingly, all identifiable assets were recorded at their estimated fair market value at the date of acquisition. The excess of the acquisition cost over the estimated fair value of the net assets acquired (“goodwill”) is being amortized on a straight-line basis over periods ranging from 18 to 20 years. Assets acquired, other than goodwill, consisted primarily of rental-purchase merchandise, property and equipment

7

and non-compete agreements. The aggregate purchase price of acquisitions for the six months ended June 30, 2001 and the year ended December 31, 2000 were $245 and $3,385, respectively.

Item 2: Management’s Discussion and Analysis of Financial Condition and
Results of Operations

General

      Generally, rental-purchase merchandise is rented to individuals under flexible agreements that allow customers to own the merchandise after making a specified number of rental payments (ranging from 12 to 24 months). Customers have the option to return the merchandise at any time without further obligation, and also have the option to purchase the merchandise at any time during the rental term.

      During the current second quarter, Rainbow closed two stores and consolidated them into other nearby Rainbow locations. In addition, Rainbow sold an under-performing store to a competitor and recorded a net loss of $89,000, or $.02 per diluted share. The net loss was the result of writing off the unamortized goodwill associated with the sold store. At June 30, 2001, Rainbow operated 109 stores compared to 101 stores at June 30, 2000.

New Store Openings

      Rainbow’s primary method of growth is through the opening of new store locations. New store openings are dilutive to earnings generally for the first nine to twelve months as they build a customer base and develop a recurring revenue stream. Generally, new stores have a maturation period of approximately three years. The timing of new store openings and the number of stores in various stages of the three-year maturation process will have an effect on quarterly comparisons. Currently, Rainbow is planning four new store openings by the end of the next quarter.

8

Results of Operations

      The following table sets forth, for the periods indicated, certain Statements of Income data as a percentage of total revenues.

				(unaudited)						(unaudited)
				For the three months ended						For the six months ended
				June 30,						June 30,
				2001			2000			2001			2000
Revenues
	Rental revenue				94.2	%		94.3	%		93.3	%		93.3	%
	Fees				2.9			3.1			2.9			3.1
	Merchandise sales				2.9			2.6			3.8			3.6
			Total revenues		100.0			100.0			100.0			100.0
Operating expenses
	Merchandise costs				34.1			32.1			34.3			32.7
	Store expenses
		Salaries and related			23.4			23.3			23.4			23.1
		Occupancy			8.8			7.6			8.7			7.4
		Advertising			6.5			4.5			6.4			4.6
		Other expenses			13.3			12.6			13.6			12.7
			Total store expenses		52.0			48.0			52.1			47.8
			Total merchandise costs and store expenses		86.1			80.1			86.4			80.5
	General and administrative expenses				8.3			7.7			8.0			7.4
	Amortization of goodwill and noncompete agreements				0.7			0.5			0.7			0.6
			Total operating expenses		95.1			88.3			95.1			88.5
			Operating income		4.9			11.7			4.9			11.5
Interest expense					0.8			0.9			0.9			0.9
Other expense, net					1.1			0.5			0.7			0.4
			Income before income taxes		3.0			10.3			3.3			10.2
Income taxes					1.2			4.2			1.3			4.2
			Net income		1.8	%		6.1	%		2.0	%		6.0	%

Comparison of the Three and Six Months Ended June 30, 2001 and 2000

      Total revenues increased $1.2 million, or 5.4%, to $23.6 million for the three months ended June 30, 2001 compared to $22.4 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, total revenues increased $3.0 million, or 6.8%, to $47.9 million compared to $44.9 million for the six months ended June 30, 2000. Revenues from stores opened and acquired in 2000 increased $2.0 million comparing the three months ended June 30, 2001 and 2000, and $4.6 million comparing the six months ended June 30, 2001 and 2000. However, partially offsetting these increases were declines in revenues of comparable stores (excluding divestitures) totaling $0.8 million comparing the three months ended June 30, 2001 and 2000, and $1.6 million comparing the six months ended June 30, 2001 and 2000. Comparable store revenue totaled $21.4 million and $22.2 million, respectively, for the three months ended June 30, 2001 and 2000, and $42.7 million and $44.3 million, respectively, for the six months ended June 30, 2001 and 2000. The decrease in comparable store revenue for the three- and six-month periods was due to a decline in the number of customers per store. Management believes the decline in customers was due to increased competition and other market factors.

9

      Merchandise costs increased $0.9 million, or 12.1%, to $8.0 million for the three months ended June 30, 2001 compared to $7.1 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, merchandise costs increased $1.7 million, or 11.9%, to $16.4 million compared to $14.7 million for the six months ended June 30, 2000. The increase in merchandise costs comparing the three- and six-month periods was primarily attributable to new stores opened and acquired in 2000. Merchandise costs totaled 34.1% and 32.1% of revenues, respectively, for the three months ended June 30, 2001 and 2000, and 34.3% and 32.7% of revenues, respectively, for the six months ended June 30, 2001 and 2000. The increases in merchandise costs as a percentage of revenue comparing the three- and six-month periods were primarily due to increased rentals of older, pre-rented merchandise at reduced rental rates in order to decrease the amount of pre-rented merchandise accumulated during 2000. To a lesser extent, promotional merchandise and special offers contributed to the increased merchandise costs as a percentage of revenues.

      Store expenses increased $1.5 million, or 13.9%, to $12.3 million for the three months ended June 30, 2001 compared to $10.8 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, store expenses increased $3.5 million, or 16.4%, to $24.9 million compared to $21.4 million for the six months ended June 30, 2000. Approximately 80% of the increases in store expenses for the comparable three- and six-month periods were attributable to stores opened and acquired during 2000. Store expenses totaled 52.0% and 48.0% of revenues, respectively, for the three months ended June 30, 2001 and 2000, and 52.1% and 47.8% of revenues, respectively, for the six months ended June 30, 2001 and 2000. The increases in store expenses as a percentage of revenue comparing the three- and six- month periods were primarily attributable to the decline in comparable store revenue mentioned above in addition to an increased number of store openings in 2000 when compared to 1999.

      General and administrative expenses increased $0.3 million, or 14.7% to $2.0 million for the three months ended June 30, 2001 compared to $1.7 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, general and administrative expenses increased $0.5 million, or 14.7%, to $3.8 million compared to $3.3 million for the six months ended June 30, 2000. The increases in general and administrative expenses comparing the three- and six-month periods were primarily due to expanding the Company’s regional management team, adding key support personnel and increased consulting fees in an effort to facilitate the Company’s anticipated growth.

Liquidity and Capital Resources

      The Company’s primary requirements for capital consist of purchasing additional and/or replacement rental-purchase merchandise, expenditures related to new store openings, acquisitions and working capital requirements for new and existing stores. The primary sources of liquidity and capital are from operations and borrowings.

      For the six months ended June 30, 2001 and 2000, purchases of rental merchandise (excluding acquired inventory) amounted to $15.7 million and $15.2 million, respectively.

      For the six months ended June 30, 2001, cash provided by operations totaled $5.0 million compared to $3.0 million for the six months ended June 30, 2000. Cash used in investing activities decreased $0.7 million and totaled $1.0 million and $1.7 million, respectively, for the six months ended June 30, 2001 and 2000. The decrease was primarily due to a decline in property and equipment purchases as a result of less store openings in 2001 compared to 2000. Cash used in financing activities increased $2.6 million and totaled $3.8 million and $1.2 million, respectively, for the six months ended June 30, 2001 and 2000. Due to the decline in the number of store openings in 2001 compared to 2000, the Company used cash to reduce its debt.

      The Company currently has a $14.0 million revolving loan agreement with a lending institution (the “Credit Facility”) with a maturity date of March 1, 2002. The Credit Facility includes certain cash flow, net worth and idle inventory requirements, as well as covenants which limit the ability of the Company to incur additional indebtedness, grant liens, transfer assets outside the ordinary course of business, pay dividends, engage in certain acquisition transactions and make capital expenditures (excluding the purchase of rental merchandise) in excess of specified amounts. Availability under the Company’s Credit Facility as of August 10, 2001 was approximately $7.0 million. The Company is seeking new long-term debt financing with other institutional lenders to replace its current Credit Facility and management expects such financing will be obtained before the maturity of the current Credit Facility.

      The Company plans to open approximately four stores during the next quarter. The Company believes it will continue to have the opportunity to increase the number of its stores and rental-purchase agreements through selective acquisitions. Potential acquisitions may vary in size and the Company may consider larger acquisitions that could be material to the

10

Company. To provide any additional funds necessary for the continued pursuit of its growth strategies, the Company may use cash flow from operations, seek to obtain additional debt or equity financing, or use its own equity securities, the availability of which will depend upon market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to the Company.

New Accounting Pronouncements

      In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141,Business Combinations,and Statement No. 142,Goodwill and Other Intangible Assets.Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.

      The Company is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to adoption of Statement 142.

      Statement 141 will require upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after the adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, Statement 142 will require the Company to perform an assessment of whether there is an indication that goodwill [and equity method goodwill] is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption.

As of the date of the adoption, the Company expects to have unamortized goodwill in the amount of $9.1 million all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $486,000 and $267,000 for the year ended December 31, 2000 and the six months ended June 30, 2001, respectively. Non-compete agreements and the related amortization are not subject to the provisions of Statements 141 and 142.

Forward-Looking Statements

      When used in this Form 10-Q, or, in future filings by Rainbow Rentals, Inc. with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including, but not limited to, (i) the ability of the Company to execute effectively its expansion program, (ii) the ability to attract and retain quality store personnel, (iii) the ability of the Company to obtain additional financing and (iv) changes in the government’s regulation of the industry, that could cause actual results to differ materially from historical

11

earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above and other factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. For further information, please refer to the Company’s filings with the Securities and Exchange Commission, including specifically the Risk Factors contained in the Company’s prospectus dated June 4, 1998.

      The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

      There were no material changes in information about market risk from that provided in the 2000 Annual Report to Shareholders.

12

PART II — OTHER INFORMATION
RAINBOW RENTALS, INC.
JUNE 30, 2001

Item 4. Submission of Matters to a Vote of Security Holders

(a)	The Company’s annual meeting of shareholders was held on May 17, 2001.
(b)	At the annual meeting, the Company’s shareholders elected Wayland J. Russell, Lawrence S. Hendricks, Michael J. Viveiros, Brian L. Burton, Ivan J. Winfield and Robert A. Glick as directors for a one-year term which expires at the annual meeting of shareholders in 2002.
	The following tabulation represents voting for the directors:

	For		Withheld Authority
Wayland J. Russell		5,543,015		352,175
Lawrence S. Hendricks		5,892,660		2,530
Michael J. Viveiros		5,892,660		2,530
Brian L. Burton		5,892,660		2,530
Ivan J. Winfield		5,892,660		2,530
Robert A. Glick		5,892,660		2,530

(c) At the annual meeting, the Company’s shareholders ratified the appointment of KPMG LLP as auditors of the Company for 2001. The holders of 5,892,190 shares of the Company’s common stock voted to ratify the appointment. No shares were voted against the ratification and 3,000 shares abstained.

Item 6. Exhibits and Reports on Form 8-K

A.	Exhibits: None
B.	Reports on Form 8-K:   None

13

SIGNATURES

      In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

RAINBOW RENTALS, INC.
(Registrant)

/s/ WAYLAND J. RUSSELL
Wayland J. Russell, Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 2001

/s/ MICHAEL A. PECCHIA
Michael A. Pecchia,
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 10, 2001

14