1
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: September 30, 2000
[ ] 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 34-1512520
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
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 September 30, 2000: 5,925,735
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RAINBOW RENTALS, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of 3
September 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Income - for the
three and nine months ended September 30, 2000
and 1999 4
Condensed Consolidated Statements of
Shareholders' Equity as of September 30, 2000 and
December 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows -
for the nine months ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
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RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
ASSETS
Current assets
Cash $ -- $ 440
Rental-purchase merchandise, net 34,571 33,042
Income tax receivable 251 --
Prepaid expenses and other current assets 1,328 1,423
-------- --------
Total current assets 36,150 34,905
Property and equipment, net 5,416 4,352
Deferred income taxes 1,462 1,312
Goodwill, net 10,104 8,205
Other assets, net 1,474 1,550
-------- --------
Total assets $ 54,606 $ 50,324
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of obligations under capital leases $ -- $ 21
Accounts payable 2,440 1,679
Accrued income taxes -- 432
Accrued compensation and related costs 1,253 1,622
Other liabilities and accrued expenses 1,388 1,510
Deferred income taxes 3,273 2,673
-------- --------
Total current liabilities 8,354 7,937
Long-term debt 11,090 10,398
Obligations under capital leases, excluding current installments -- 103
-------- --------
Total liabilities 19,444 18,438
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 26,030 22,754
Treasury stock, 466,875 common shares at cost (1,907) (1,907)
-------- --------
Total shareholders' equity 35,162 31,886
-------- --------
Total liabilities and shareholders' equity $ 54,606 $ 50,324
======== ========
See accompanying notes to condensed consolidated financial statements.
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RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
------------------------- --------------------------
Revenues
Rental revenue $ 22,096 $ 19,150 $ 63,959 $ 55,205
Fees 762 671 2,126 1,952
Merchandise sales 669 490 2,290 1,770
---------- ---------- ---------- ----------
Total revenues 23,527 20,311 68,375 58,927
Operating expenses
Merchandise costs 7,851 6,765 22,531 19,560
Store expenses
Salaries and related 5,948 4,537 16,298 13,298
Occupancy 2,071 1,510 5,402 4,367
Advertising 1,059 814 3,121 2,730
Other expenses 3,195 2,831 8,868 7,587
---------- ---------- ---------- ----------
Total store expenses 12,273 9,692 33,689 27,982
---------- ---------- ---------- ----------
Total merchandise costs and
store expense 20,124 16,457 56,220 47,542
General and administrative expenses 1,874 1,390 5,203 4,125
Amortization 172 130 438 312
---------- ---------- ---------- ----------
Total operating expenses 22,170 17,977 61,861 51,979
---------- ---------- ---------- ----------
Operating income 1,357 2,334 6,514 6,948
Interest expense 266 191 662 491
Other expense, net 105 47 299 319
---------- ---------- ---------- ----------
Income before income taxes 986 2,096 5,553 6,138
Income taxes 407 869 2,277 2,547
---------- ---------- ---------- ----------
Net income $ 579 $ 1,227 $ 3,276 $ 3,591
========== ========== ========== ==========
EARNINGS PER COMMON SHARE:
Basic earnings per share $ 0.10 $ 0.21 $ 0.55 $ 0.61
========== ========== ========== ==========
Diluted earnings per share $ 0.10 $ 0.21 $ 0.55 $ 0.60
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 5,925,735 5,925,735 5,925,735 5,925,735
---------- ---------- ---------- ----------
Diluted 5,969,609 5,935,861 5,935,846 5,944,289
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
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RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK TOTAL
------------ RETAINED TREASURY SHAREHOLDERS'
NUMBER COST EARNINGS STOCK EQUITY
--------- --------- --------- --------- ---------
Balance at December 31, 1998 5,925,735 11,039 17,706 (1,907) 26,838
Net income -- -- 5,048 -- 5,048
--------- --------- --------- --------- ---------
Balance at December 31, 1999 5,925,735 11,039 22,754 (1,907) 31,886
Net income -- -- 3,276 -- 3,276
--------- --------- --------- --------- ---------
Balance at September 30, 2000
(unaudited) 5,925,735 $ 11,039 $ 26,030 $ (1,907) $ 35,162
========= ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
----------- -----------
Cash flows from operating activities
Net income $ 3,276 $ 3,591
Reconciliation of net income to net cash provided by operating
activities
Depreciation of property and equipment and
amortization of intangibles 1,971 1,812
Depreciation of rental-purchase merchandise 18,146 15,871
Deferred income taxes 450 500
Gain on disposal of property and equipment (115) (101)
Purchases of rental-purchase merchandise (22,759) (20,957)
Rental-purchase merchandise disposed, net 4,416 3,854
(Increase) decrease in
Income tax receivable (251) --
Prepaid expenses and other current assets 95 (1,126)
Increase (decrease) in
Accounts payable 399 1,312
Accrued income taxes (432) 84
Accrued compensation and related costs (369) 518
Other liabilities and accrued expenses (122) (72)
-------- --------
Net cash provided by operating activities 4,705 5,286
-------- --------
Cash flows from investing activities
Purchase of property and equipment, net (2,118) (1,778)
Proceeds on the sale of property and equipment 141 231
Acquisitions (3,736) (11,687)
-------- --------
Net cash used in investing activities (5,713) (13,234)
-------- --------
Cash flows from financing activities
Proceeds from long-term debt borrowings 23,542 29,330
Current installments and repayments of long-term debt (22,850) (21,122)
Loan origination fees paid -- (37)
Principal payments under capital lease obligations (124) (50)
-------- --------
Net cash provided by financing activities 569 8,121
-------- --------
Net increase (decrease) in cash (440) 173
Cash at beginning of period 440 --
-------- --------
Cash at end of period $ -- $ 173
======== ========
Supplemental cash flow information:
Net cash paid during the period for
Interest $ 651 $ 971
Income taxes 2,600 950
See accompanying notes to condensed consolidated financial statements.
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RAINBOW RENTALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. Basis of Presentation
Rainbow Rentals, Inc. (Company) is engaged in the rental and sale of
home electronics, furniture, appliances, and computers to the general public.
The Company operates 110 rental-purchase stores in 11 states: Connecticut,
Massachusetts, Michigan, New York, North Carolina, Ohio, Pennsylvania, Rhode
Island, South Carolina, Tennessee and Virginia. The Company's corporate
headquarters are located in Canfield, Ohio.
The condensed consolidated 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 generally accepted accounting principles, 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
condensed consolidated 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, 1999.
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.
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Numerator:
Net income available to common shareholders $ 579 $ 1,227 $ 3,276 $ 3,591
Denominator:
Basic weighted average shares 5,925,735 5,925,735 5,925,735 5,925,735
Effect of dilutive stock options 43,874 10,126 10,111 18,554
---------- ---------- ---------- ----------
Diluted weighted average shares 5,969,609 5,935,861 5,935,846 5,944,289
========== ========== ========== ==========
Basic earnings per share $ 0.10 $ 0.21 $ 0.55 $ 0.61
========== ========== ========== ==========
Diluted earnings per share $ 0.10 $ 0.21 $ 0.55 $ 0.60
========== ========== ========== ==========
3. Acquisitions
On February 1, 1999, the Company acquired certain assets of Rental Mart
of PA, Inc. ("Rental Mart") for approximately $1.3 million in cash. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, all identifiable assets were recorded at their estimated fair value
at the date of acquisition. The excess of the acquisition cost over the
estimated fair value of the net assets acquired ("goodwill" of $0.8 million) is
being amortized on a straight-line basis over twenty years. Assets acquired,
other than goodwill, consisted primarily of rental-purchase merchandise and a
non-compete agreement.
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On March 1, 1999, the Company acquired certain assets of Blue Ribbon
Rentals, Inc., and Blue Ribbon Rentals II, Inc. ("Blue Ribbon") for
approximately $10.4 million in cash. The acquisition was accounted for using the
purchase method of accounting. Accordingly, all identifiable assets were
recorded at their estimated fair value at the date of acquisition. The excess of
the acquisition cost over the estimated fair value of the net assets acquired
("goodwill" of $6.9 million) is being amortized on a straight-line basis over
twenty years. Assets acquired, other than goodwill, consisted primarily of
rental-purchase merchandise of $3.1 million, property and equipment of $0.3
million and a non-compete agreement of $0.3 million.
On June 1, 2000, the Company acquired certain assets of Best Value
Rentals of Erie, Inc., a Pennsylvania competitor, for approximately $0.3 million
in cash. The acquisition was accounted for using the purchase method of
accounting. Accordingly, all identifiable assets were recorded at their
estimated fair value at the date of acquisition. Goodwill of $0.1 million is
being amortized on a straight-line basis over twenty years. Assets acquired,
other than goodwill, consisted primarily of rental-purchase merchandise and a
non-compete agreement.
On July 1, 2000, the Company acquired certain assets and assumed
certain liabilities of Rental Corp. of America for approximately $2.6 million in
cash. The acquisition was accounted for using the purchase method of accounting.
Accordingly, all identifiable assets and liabilities were recorded at their
estimated fair value at the date of acquisition. The excess of the acquisition
cost over the estimated fair value of the net assets acquired ("goodwill" of
$1.6 million) is being amortized on a straight-line basis over twenty years.
Assets acquired, other than goodwill, consisted primarily of rental-purchase
merchandise of $1.0 million, property and equipment of $0.2 million and a
non-compete agreement of $0.2 million.
On August 1, 2000, the Company acquired certain assets of NDM
Enterprises, Inc. for approximately $0.8 million in cash. The acquisition was
accounted for using the purchase method of accounting. Accordingly, all
identifiable assets were recorded at their estimated fair value at the date of
acquisition. The excess of the acquisition cost over the estimated fair value of
the net assets acquired ("goodwill" of $0.4 million) is being amortized on a
straight-line basis over twenty years. Assets acquired, other than goodwill,
consisted primarily of rental-purchase merchandise of $0.3 million and a
non-compete agreement of $0.1 million.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
At September 30, 2000 the Company operated 110 rental-purchase stores
in 11 states, providing quality, name brand, durable merchandise, including home
electronics, furniture, appliances and computers. 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 third quarter, the Company completed two acquisitions which
added seven store locations in Virginia and South Carolina. On July 1, 2000, the
Company purchased from Rental Corp. of America the assets of nine stores located
in Virginia. Following the acquisition, four of the stores were consolidated
into existing Company locations. On August 1, 2000, the Company purchased from
NDM Enterprises, Inc. the assets of three stores located in South Carolina.
Following the acquisition, one of the stores was consolidated into an existing
Company location. In addition to the two acquisitions, the Company opened two
new stores, both in existing markets.
The number and timing of new store openings have a dramatic impact on
the comparability of financial results. The Company opened 11 new stores in the
first nine months of 2000 compared to only seven in the comparable 1999 period.
The results for the third quarter of 2000 reflect approximately 29 new store
months compared to only 15 in 1999 resulting in higher new store losses in
aggregate. In addition, due to five of the seven stores opening after the first
half of 1999, the expenses of the 1999 stores as a group remain high as a
percentage of revenue.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Statements of Income data as a percentage of total revenue.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
----- ----- ----- -----
STATEMENT OF INCOME DATA:
Revenues
Rental revenue 93.9 % 94.3 % 93.5 % 93.7 %
Fees 3.2 3.3 3.1 3.3
Merchandise sales 2.9 2.4 3.4 3.0
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Operating expenses
Merchandise costs 33.4 33.3 33.0 33.2
Store expenses
Salaries and related 25.3 22.4 23.8 22.6
Occupancy 8.8 7.4 7.9 7.4
Advertising 4.5 4.0 4.6 4.6
Other expenses 13.5 13.9 13.0 12.9
----- ----- ----- -----
Total store expenses 52.1 47.7 49.3 47.5
----- ----- ----- -----
Total merchandise costs and store
expenses 85.5 81.0 82.3 80.7
General and administrative expenses 8.0 6.8 7.6 7.0
Amortization 0.7 0.7 0.6 0.5
----- ----- ----- -----
Total operating expenses 94.2 88.5 90.5 88.2
----- ----- ----- -----
Operating income 5.8 11.5 9.5 11.8
Interest expense 1.1 0.9 1.0 0.8
Other expense, net 0.5 0.3 0.4 0.6
----- ----- ----- -----
Income before income taxes 4.2 10.3 8.1 10.4
Income taxes 1.7 4.3 3.3 4.3
----- ----- ----- -----
Net income 2.5% 6.0% 4.8% 6.1%
===== ====== ===== ======
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COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
For the three months ended September 30, 2000, total revenues
increased to $23.5 million from $20.3 million, an increase of 15.8% over the
comparable 1999 period. Revenue from comparable stores (stores in operation on
July 1, 1999) accounted for 30.7% of the Company's total increase in revenue, or
$1.0 million, primarily as a result of the growth of the stores opened in 1998
and in the first half of 1999 and an increase in the average price per unit.
Revenue from comparable stores increased to $21.3 million from $20.3 million, an
increase of 4.9% over the comparable 1999 period. Revenues from the seven stores
acquired during the quarter totaled $0.9 million and accounted for 29.4% of the
increase. Revenue from the eleven stores opened in 2000 accounted for 21.6% of
the increase, or $0.7 million. The inclusion of a full three months' results
from the four stores opened in the last half of 1999 accounted for 18.3% of the
increase, or $0.6 million.
For the three months ended September 30, 2000, merchandise costs
increased to $7.9 million from $6.8 million, an increase of 16.1% over the
comparable 1999 period. The increase in costs was primarily due to merchandise
costs associated with stores opened and acquired in 2000 and 1999. As a
percentage of total revenues, merchandise costs increased slightly to 33.4% from
33.3%.
For the three months ended September 30, 2000, total store expenses
increased to $12.3 million from $9.7 million, an increase of 26.6% over the
comparable 1999 period. The increase in total store expenses was primarily from
the stores opened and acquired in 2000. Store expenses of the 18 stores opened
and acquired in 2000 accounted for 60.3% of the increase, or $1.6 million. Store
expenses of comparable stores increased to $10.3 million from $9.6 million, an
increase of 6.8% over the comparable 1999 period. The increase was mainly due to
store expenses related to the growth of stores opened in the first half of 1999
and 1998 as well as an increase in salaries and group insurance for stores
opened prior to 1998. As a percentage of total revenues, total store expenses
increased to 52.1% from 47.7%. The percentage increase was primarily related to
the increased number of new store openings in 2000 compared to 1999. Also
contributing to the percentage increase were expenses of the stores acquired
during the third quarter, which totaled $0.9 million and 92.3% of its revenues.
The high percentage was a result of leveraging the Company's operations expense
structure over a much smaller acquired-store revenue base.
For the three months ended September 30, 2000, general and
administrative expenses increased to $1.9 million from $1.4 million, an increase
of 34.8% over the comparable 1999 period and as a percentage of total revenues
increased to 8.0% from 6.8%. The increase was primarily due to the addition of
three regional managers, additional corporate personnel as well as training
costs associated with the Company's growth of nearly 60% in store-fronts since
1998.
For the three months ended September 30, 2000, operating income
decreased to $1.4 million from $2.3 million, a decrease of 41.8% over the
comparable 1999 period and, as a percentage of total revenues, decreased to 5.8%
from 11.5%. The decrease is attributable to the factors discussed above.
For the three months ended September 30, 2000, interest expense
increased to $0.3 million from $0.2 million in the comparable 1999 period. The
increase was attributable to the increased indebtedness related to acquisitions
made in the third quarter of 2000.
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For the three months ended September 30, 2000, the Company's effective
tax rate decreased to 41.0% from 41.5% due to lower effective state tax rates.
For the three months ended September 30, 2000, net income decreased to
$0.6 million from $1.2 million, a decrease of 52.8% over the comparable 1999
period, and as a percentage of total revenues decreased to 2.5% from 6.0% due to
the factors discussed above.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
For the nine months ended September 30, 2000, total revenues increased
to $68.4 million from $59.0 million, an increase of 16.0% over the comparable
1999 period. Revenue from the nine stores opened in 1999 accounted for 33.4% of
the increase, or $3.2 million. Revenue from comparable stores (stores in
operation on January 1, 1999) accounted for 24.6% of the increase, or $2.3
million, primarily as a result of the growth of stores opened in 1998 and an
increase in the average price per unit. Revenue from the comparable stores
increased to $54.9 million from $52.6 million, an increase of 4.4% over the
comparable 1999 period. The inclusion of a full nine months' results from the 13
stores acquired during the first quarter of 1999 accounted for 21.7% of the
Company's total increase in revenue or $2.0 million. Revenue from the 18 stores
opened and acquired in 2000 accounted for 20.3% of the total increase in
revenue, or $1.9 million.
For the nine months ended September 30, 2000, merchandise costs
increased to $22.5 million from $19.6 million, an increase of 15.2% over the
comparable 1999 period primarily due to merchandise costs associated with stores
opened and acquired in 1998, 1999 and 2000. As a percentage of total revenues,
merchandise costs decreased to 33.0% from 33.2% as a result of improved pricing,
primarily of pre-rented merchandise, as well as an increase in the rentals of
higher margin merchandise.
For the nine months ended September 30, 2000, total store expenses
increased to $33.7 million from $28.0 million, an increase of 20.4% over the
comparable 1999 period. The increase in total store expenses was primarily due
to the inclusion of a full nine months' results from the 13 stores acquired in
the first quarter of 1999 and from the nine stores added in 1999. This increase
accounted for 50.9% of the total increase, or $2.9 million. Store expenses from
the 18 stores opened and acquired in 2000 accounted for 37.8% of the increase,
or $2.2 million. Store expenses of comparable stores accounted for 11.3% of the
increase, or $0.6 million. As a percentage of total revenues, total store
expenses increased to 49.3% from 47.5% mainly due to the number and timing of
new store openings in 1999 and 2000 and to a lesser extent, the seven stores
acquired in the third quarter of 2000. Total store expenses of comparable
stores, however, decreased as a percentage of revenue to 45.4% from 46.2%
primarily from the growth and profitability of stores opened in 1998. Salaries
and related expenses increased as a percentage of revenue to 23.8% from 22.6%.
In addition to the increase from the timing of new store openings in 1999 and
2000 and the 2000 acquisitions, salaries and related expenses of comparable
stores increased as a percentage of revenue to 22.4% from 21.9% due to increased
turnover.
For the nine months ended September 30, 2000, general and
administrative expenses increased to $5.2 million from $4.1 million, an increase
of 26.1% over the comparable 1999 period and as a percentage of total revenues
increased to 7.6% from 7.0%. The increase was primarily due to the expansion of
the regional management team and other corporate personnel and increases in
training costs and travel expenses, all of which were necessitated by the
Company's current and anticipated growth.
For the nine months ended September 30, 2000, operating income
decreased to $6.5 million from $6.9 million, a decrease of 6.2% over the
comparable 1999 period and, as a percentage of total revenues, decreased to 9.5%
from
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11.8% due to the factors discussed above.
For the nine months ended September 30, 2000, interest expense
increased to $0.7 million from $0.5 million in the comparable 1999 period. The
increase was due to the inclusion of nine months of interest expense
attributable to the indebtedness related to the Blue Ribbon acquisition on March
1, 1999 and, to a lesser extent, interest expense from the indebtedness related
to acquisitions made in the third quarter of 2000.
For the nine months ended September 30, 2000, the Company's effective
tax rate decreased to 41.0% from 41.5% due to lower effective state tax rates.
For the nine months ended September 30, 2000, net income decreased to
$3.3 million from $3.6 million, a decrease of 8.8% over the comparable 1999
period, and as a percentage of total revenues decreased to 4.8% from 6.1% due to
the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of purchasing
additional and replacement rental-purchase merchandise, expenditures related to
new store openings, acquisitions and working capital requirements for new and
existing stores. For the nine months ended September 30, 2000 and 1999,
purchases of rental merchandise (excluding acquisitions) amounted to $22.8
million and $21.0 million, respectively. The increase is attributable to the
stores opened and acquired in 1999 and 2000.
For the nine months ended September 30, 2000, cash provided by operating
activities decreased to $4.7 million from $5.3 million for the comparable 1999
period. The decrease was due to an increase in inventory and decreases in
accrued expenses. Cash used in investing activities decreased to $5.7 million
from $13.2 million due to larger acquisitions made in 1999. Cash provided by
financing activities decreased to $0.6 million from $8.1 million for the
comparable 1999 period.
The Company currently has a $16.0 million Credit Facility (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 acquisition transactions and make capital
expenditures (excluding the purchase of rental merchandise) in excess of a
specified amount. Availability under the Company's Credit Facility as of
November 13, 2000 was approximately $5.0 million.
The Company plans to open approximately 12 new stores in 2001, beginning
late in the first quarter. The Company further believes that 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 Company. To provide any additional funds necessary for the continued pursuit
of its growth strategies, the Company may use cash flow from operations, borrow
additional amounts under its Credit Facility, 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.
ACCOUNTING PRONOUNCEMENT
In December 1999, The Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB 101 does
not change existing accounting literature on revenue recognition, but rather
explains the SEC staff's general framework for revenue recognition. The Company
is currently evaluating the impact, if any, on the Registrant's results of
operations. The Company does not believe that the adoption of SAB 101 will have
a material impact on the current manner in which the Company recognizes revenue.
FORWARD- LOOKING STATEMENTS
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Such risks and uncertainties include,
but are not limited to, (i) the ability of the Company to execute effectively
its expansion program and (ii) changes in the government's regulation of the
industry. The Company undertakes no obligation to publicly update or
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revise any of these forward-looking statements, whether as a result of new
information, future events or circumstances, or otherwise. There can be no
assurance that the events described in these forward-looking statements will
occur. 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.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
A. EXHIBIT NO.
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27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K
None
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)
/e/ WAYLAND J. RUSSELL
-------------------------------------
Wayland J. Russell, Chairman and
Chief Executive Officer
/e/ MICHAEL A. PECCHIA
----------------------
Michael A. Pecchia,
Chief Financial Officer
Date: November 14, 2000
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