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: June 30, 1998
[ ] 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 August 13, 1998: 5,925,735
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RAINBOW RENTALS, INC.
INDEX
PAGE NO.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998 3
Condensed Consolidated Statements of Income - for
the three and six months ended June 30, 1997 and 1998 4
Condensed Consolidated Statements of
Shareholders Equity 5
Condensed Consolidated Statements of Cash Flows -
for the six months ended June 30, 1997 and 1998 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 2. Changes in Securities and Use of Proceeds 13
ITEM 6. Exhibits and Reports on Form 8-K 13
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RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
ASSETS
Current assets
Cash $ 77,095 $ 13,973
Rental-purchase merchandise, net 23,411,079 24,041,630
Prepaid expenses and other current assets 770,089 354,957
Income tax receivable 399,000 52,382
------------ -----------
Total current assets 24,657,263 24,462,942
Property and equipment, net 3,441,884 3,439,581
Deferred income taxes 1,041,000 984,000
Other assets, net 2,100,204 1,840,989
============ ===========
Total assets $ 31,240,351 $30,727,512
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of obligations under capital leases $ 80,000 $ 80,000
Accounts payable 1,000,399 1,741,335
Accrued income taxes 128,947 40,774
Accrued compensation and related costs 1,090,735 1,038,485
Other liabilities and accrued expenses 1,562,381 949,900
Deferred income taxes 1,201,000 1,509,000
------------ -----------
Total current liabilities 5,063,462 5,359,494
Long-term debt 12,463,929 404,666
Notes payable 10,488,035 -
Obligations under capital leases, excluding current installments 171,105 141,586
------------ -----------
Total liabilities 28,186,531 5,905,746
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,
3,675,735 and 5,925,735 issued and outstanding at
December 31, 1997 and June 30, 1998, respectively 60,150 11,039,062
Retained earnings 14,088,286 15,689,232
Treasury stock, 2,716,875 and 466,875 common shares at
December 31, 1997 and June 30, 1998, respectively, at cost (11,094,616) (1,906,528)
------------ -----------
Total shareholders' equity 3,053,820 24,821,766
------------ -----------
Total liabilities and shareholders equity $ 31,240,351 $30,727,512
============ ===========
See accompanying notes to condensed consolidated financial statements.
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4
RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1998 1997 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
---------------------------------- ----------------------------------
Revenues
Rental revenue $12,997,612 $14,763,939 $25,126,378 $28,932,364
Fees 390,421 483,934 721,095 915,981
Merchandise sales 386,100 353,459 886,091 889,008
----------- ----------- ----------- -----------
Total revenues 13,774,133 15,601,332 26,733,564 30,737,353
Operating expenses
Merchandise costs
Depreciation and other merchandise
costs 4,708,075 5,325,757 9,139,928 10,390,978
Store operating expenses
Salaries and related expenses 2,914,794 3,482,331 5,542,295 6,783,041
Occupancy expenses 966,159 1,179,440 1,911,796 2,301,259
Advertising expenses 850,240 920,099 1,614,767 1,740,550
Other store expenses 1,589,477 1,871,611 3,059,212 3,643,157
----------- ----------- ----------- -----------
Total store operating expenses 6,320,670 7,453,481 12,128,070 14,468,007
----------- ----------- ----------- -----------
Total merchandise costs and store
operating expenses 11,028,745 12,779,238 21,267,998 24,858,985
General and administrative expenses 1,040,372 1,155,970 2,085,992 2,352,722
----------- ----------- ----------- -----------
Total operating expenses 12,069,117 13,935,208 23,353,990 27,211,707
----------- ----------- ----------- -----------
Operating income 1,705,016 1,666,124 3,379,574 3,525,646
Interest expense 556,510 372,907 780,621 842,613
Other expense (income), net 38,909 (134,551) 8,555 (100,913)
----------- ----------- ----------- -----------
Income before income taxes 1,109,597 1,427,768 2,590,398 2,783,946
Income taxes 471,577 606,000 1,100,915 1,183,000
=========== =========== =========== ===========
Net income $ 638,020 $ 821,768 $ 1,489,483 $ 1,600,946
=========== =========== =========== ===========
Earnings per common share:
Basic and diluted earnings per share: $ 0.15 $ 0.19 $ 0.28 $ 0.40
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 4,302,706 4,318,592 5,341,885 3,998,939
=========== =========== =========== ===========
Diluted 4,302,706 4,320,133 5,341,885 3,999,714
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
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RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Total
Common Retained Treasury Shareholders'
Stock Earnings Stock Equity
----- -------- ----- ------
Balance at December 31, 1996 $ 60,150 $ 11,407,288 $ - $ 11,467,438
Net income - 2,680,998 - 2,680,998
Acquisition of 2,716,875 common shares - - (11,094,616) (11,094,616)
--------------------------------------------------------------------------------
Balance at December 31, 1997 60,150 14,088,286 (11,094,616) 3,053,820
Net income (unaudited) 1,600,946 1,600,946
Issuance of 2,250,000 common shares 10,978,912 - 9,188,088 20,167,000
================================================================================
Balance at June 30, 1998 (unaudited) $ 11,039,062 $ 15,689,232 $ (1,906,528) $ 24,821,766
================================================================================
See accompanying notes to condensed consolidated financial statements.
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RAINBOW RENTALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30,
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities
Net income $ 1,489,483 $ 1,600,946
Reconciliation of net income to net cash provided
by (used in) operating activities
Depreciation of property and equipment and
amortization of loan fees, noncompete
and consulting agreements 924,045 933,568
Depreciation of merchandise inventory 8,082,291 9,302,787
Deferred income taxes 496,500 365,000
Gain on disposal of property and equipment (109,420) (131,089)
Purchases of merchandise inventory (12,492,050) (10,976,460)
Merchandise inventory disposed, net 1,069,023 1,062,533
(Increase) decrease in
Short-term investments 27,012 -
Prepaid expenses and other current assets 118,698 415,132
Income tax receivable (301,190) 346,618
Increase (decrease) in
Accounts payable (286,817) 740,936
Accrued income taxes (202,716) (88,173)
Accrued compensation and related costs (39,305) (52,250)
Other liabilities and accrued expenses 48,015 (612,481)
------------ ------------
Net cash provided by (used in) operating activities (1,176,431) 2,907,067
------------ ------------
Cash flows from investing activities
Purchase of property and equipment, net (906,483) (745,514)
Proceeds on the sale of property and equipment 159,100 185,142
------------ ------------
Net cash used in investing activities (747,383) (560,372)
------------ ------------
Cash flows from financing activities
Proceeds from long-term debt borrowings 34,036,000 29,650,000
Current installments and repayments of long-term debt (29,686,274) (41,709,263)
Proceeds from stock offering, net of related expenses - 20,167,000
Decrease in notes payable (39,954) (10,488,035)
Loan origination fees paid (147,500) -
Payment in connection with Redemption Agreement (2,699,771) -
Principal payments under capital lease obligations (10,757) (29,519)
------------ ------------
Net cash provided by (used in) financing activities 1,451,744 (2,409,817)
------------ ------------
Net decrease in cash (472,070) (63,122)
Cash at beginning of period 472,070 77,095
============ ============
Cash at end of period $ - $ 13,973
============ ============
Supplemental cash flow information:
Net cash paid during the period for
Interest $ 684,314 $ 925,320
Income taxes 1,108,321 559,555
See accompanying notes to condensed consolidated financial statements.
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RAINBOW RENTALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 66 stores in eight states: Connecticut, Massachusetts,
Michigan, New York, Ohio, Pennsylvania, Rhode Island, and Tennessee. The
Company's corporate headquarters is located in Canfield, Ohio.
The 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 financial statements be read in conjunction with the
financial statements and notes included in the Company's Prospectus.
2. Public Offering of Stock and Stock Option Plan
On June 4, 1998, the Company completed its initial public offering of
2,250,000 shares of Common Stock, without par value, at $10 per share. The net
proceeds of approximately $20.2 million, after deducting underwriters' discounts
and offering expenses, were used to retire approximately $10.9 million of
indebtedness due a former shareholder-officer of the Company. The balance of the
net proceeds were used to reduce borrowings with a lending institution.
Also on June 4, 1998, the Company granted 306,200 options at the initial
public offering price of $10 per share under the provisions of its stock option
plan. A balance of 93,800 shares remain reserved for issuance in the future.
3. 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 potential common stock.
The following table shows the amounts used in computing earnings per share.
For the three months ended For the six months ended
June 30, June 30,
1997 1998 1997 1998
---- ---- ---- ----
Numerator:
Net income available to common shareholders $ 638,020 $ 821,768 $1,489,483 $1,600,946
Denominator:
Basic weighted average shares 4,302,706 4,318,592 5,341,885 3,998,939
Effect of dilutive stock options - 1,541 - 775
========== ========== ========== ==========
Diluted weighted average shares 4,302,706 4,320,133 5,341,885 3,999,714
========== ========== ========== ==========
Basic and diluted earnings per share $ 0.15 $ 0.19 $ 0.28 $ 0.40
========== ========== ========== ==========
4. Subsequent Events
On July 1, 1998, the Company acquired the rental-purchase merchandise and
customer rental agreements of a rental-purchase store located in Elyria, Ohio
for a cash purchase price of approximately $0.5 million. The acquisition will be
accounted for as a purchase with the acquired assets recorded at their estimated
fair values on the date of acquisition.
Effective July 15, 1998, the Company amended its revolving loan agreement
with a lending institution. The amendment decreases the maximum revolving loan
amount to $10.0 million and extends the maturity date of the agreement to July
15, 2001.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
At June 30, 1998 the Company operated 66 rental-purchase stores in
eight 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. Two stores were
opened in the second quarter ended June 30, 1998.
On June 4, 1998, the Company completed its initial public offering
consisting of 2,250,000 shares of common stock at $10.00 per share. Proceeds
from the offering after deducting underwriters' discounts and offering expenses
totaled $20.2 million. The proceeds were used to repay substantially all
outstanding debt.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Statements of Income data as a percentage of total revenues.
For the three months ended For the six months ended
June 30, June 30,
1997 1998 1997 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
-------------------------- ------------------------
Revenues
Rental revenue 94.4% 94.6% 94.0% 94.1%
Fees 2.8 3.1 2.7 3.0
Merchandise sales 2.8 2.3 3.3 2.9
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
Operating expenses
Merchandise costs
Depreciation and other merchandise
costs 34.2 34.1 34.2 33.8
Store operating expenses
Salaries and related expenses 21.2 22.3 20.7 22.1
Occupancy expenses 7.0 7.6 7.2 7.5
Advertising expenses 6.2 5.9 6.0 5.7
Other store expenses 11.5 12.0 11.5 11.8
------ ------ ------ ------
Total store operating expenses 45.9 47.8 45.4 47.1
------ ------ ------ ------
Total merchandise costs and store
operating expenses 80.1 81.9 79.6 80.9
General and administrative expenses 7.5 7.4 7.8 7.6
------ ------ ------ ------
Total operating expenses 87.6 89.3 87.4 88.5
------ ------ ------ ------
Operating income 12.4 10.7 12.6 11.5
Interest expense 4.1 2.4 2.9 2.7
Other expense (income), net 0.3 ( 0.9) 0.0 ( 0.3)
------ ------ ------ ------
Income before income taxes 8.0 9.2 9.7 9.1
Income taxes 3.4 3.9 4.1 3.9
====== ====== ====== ======
Net income 4.6% 5.3% 5.6% 5.2%
====== ====== ====== ======
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COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1998
For the three months ended June 30, 1998, total revenues increased from
$13.8 million to $15.6 million, an increase of 13.3% over the comparable 1997
period. The increase was due to improved comparable store revenue and revenue
from the ten stores opened since April 1, 1997 (including five stores opened in
1998). Revenue from comparable stores increased 5.1% and accounted for 38.4% of
the increase. Revenue from stores opened in 1997 and 1998 accounted for 49.8%
and 11.8% of the increase, respectively.
For the three months ended June 30, 1998 total merchandise costs
increased from $4.7 million to $5.3 million, an increase of 13.1% over the
comparable 1997 period, but remained relatively constant as a percentage of
total revenues.
For the three months ended June 30, 1998, total store operating
expenses increased from $6.3 million to $7.5 million, an increase of 17.9%, and
as a percentage of total revenues increased from 45.9% to 47.8 %. Salaries and
related expenses increased from $2.9 million to $3.5 million, an increase of
19.5%, and as a percentage of total revenues increased from 21.2 % to 22.3%. The
increase was due to additional personnel at the Company's comparable stores
necessitated by the increase in rental-purchase agreements in 1997, as well as
additional personnel at stores, opened since April 1, 1997, operating at revenue
levels below those of core stores. Occupancy expenses increased from $1.0
million to $1.2 million, an increase of 22.1%, and as a percentage of total
revenues increased from 7.0% to 7.6% due to the increase in number of stores
opened. Advertising expenses remained steady at $0.9 million, and as a
percentage of total revenues decreased from 6.2% to 5.9%. Other store expenses
increased from $1.6 million to $1.9 million, an increase of 17.8%, and as a
percentage of total revenues increased from 11.5% to 12.0%. The increase was
primarily due to the opening of stores in 1997 and 1998 and the increase in
rental-purchase agreements at core stores in 1997.
For the three months ended June 30, 1998, general and administrative
expenses increased from $1.0 million to $1.2 million, an increase of 11.1% over
the comparable 1997 period but remained relatively constant as a percentage of
total revenues. The dollar increase was due to the addition of a fifth regional
manager, increased travel expenses and additional administrative personnel.
For the three months ended June 30, 1998, operating income remained
relatively constant at $1.7 million but as a percentage of total revenues
decreased from 12.4% to 10.7%. The decrease was mainly due to newly opened
stores operating at revenue levels below those of core stores and other factors
discussed above.
For the three months ended June 30, 1998, interest expense decreased
from $0.6 million to $0.4 million, a decrease of 33.0%, and as a percentage of
total revenues decreased from 4.1% to 2.4%. The decrease is attributable to the
retirement of substantially all outstanding debt with the proceeds received from
the Company's initial public stock offering on June 4, 1998.
For the three months ended June 30, 1998, other expense (income), net
reflected income of $0.1 million compared to expense of $38,909 in the
comparable 1997 period due primarily to a one-time refund of workers'
compensation premiums of $0.2 million received from the State of Ohio.
For the three months ended June 30, 1998, net income increased from
$0.6 million to $0.8 million, an increase of 28.8% over the comparable 1997
period, and as a percentage of total revenues increased from 4.6% to 5.3% due to
the factors discussed above.
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COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1998
For the six months ended June 30, 1998, total revenues increased from
$26.7 million to $30.7 million, an increase of 15.0% over the comparable 1997
period. The increase was primarily due to an increase in comparable store
revenue and revenue from the seven stores opened during 1997 and, to a lesser
extent, the five stores opened in 1998. Revenue from comparable stores increased
$1.6 million and accounted for 39.5% of the increase, stores opened in 1997
accounted for $2.2 million, or 54.6% of the increase and 1998 new store openings
accounted for $0.2 million, or 5.9% of the increase.
For the six months ended June 30, 1998, total merchandise costs
increased from $9.1 million to $10.4 million, an increase of 13.7% over the
comparable 1997 period, but as a percentage of total revenues decreased from
34.2% to 33.8% due to improved margins.
For the six months ended June 30, 1998, total store operating expenses
increased from $12.1 million to $14.5 million, an increase of 19.3% over the
comparable 1997 period, and as a percentage of total revenues increased from
45.4% to 47.1%. Salaries and related expenses increased from $5.5 million to
$6.8 million, an increase of 22.4%, and as a percentage of total revenues
increased from 20.7 % to 22.1%. The increase was due to additional personnel at
the Company's comparable stores necessitated by the increase in rental-purchase
agreements in 1997, as well as additional personnel at stores, opened in 1997
and 1998, operating at revenue levels below those of core stores. Occupancy
expenses increased from $1.9 million to $2.3 million, an increase of 20.4%, and
as a percentage of total revenues increased from 7.2% to 7.5% due to the
increase in number of stores opened. Advertising expenses increased from $1.6
million to $1.7 million, an increase of 7.8%, but as a percentage of total
revenues, decreased from 6.0% to 5.7%. Other store expenses increased from $3.1
million to $3.6 million, an increase of 19.1%, and as a percentage of total
revenues increased from 11.5% to 11.8%. The increase was primarily due to the
opening of stores in 1997 and 1998.
For the six months ended June 30, 1998, general and administrative
expenses increased from $2.1 million to $2.4 million, an increase of 12.8% over
the comparable 1997 period. The increase was due to the addition of a fifth
regional manager ,increased travel expenses and additional administrative
personnel. As a percentage of total revenues, general and administrative
expenses decreased from 7.8% to 7.6%.
For the six months ended June 30, 1998, operating income increased from
$3.4 million to $3.5 million, an increase of 4.3% over the comparable 1997
period, but as a percentage of total revenues decreased from 12.6% to 11.5%. The
decrease was mainly due to new store openings and factors discussed above.
For the six months ended June 30, 1998, interest expense remained
constant at $0.8 million but as a percentage of total revenues decreased from
2.9% to 2.7%.
For the six months ended June 30, 1998, other expense (income), net
reflected income of $0.1 million compared to expense of $8,555 for the
comparable 1997 period primarily due to a one-time refund of workers'
compensation premiums of $0.2 million received from the State of Ohio, offset by
amortization associated with the shareholder buyout.
For the six months ended June 30, 1998, net income increased from $1.5
million to $1.6 million, an increase of 7.5% over the comparable 1997 period,
and as a percentage of total revenues decreased from 5.6% to 5.2% due to the
factors discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of purchasing
additional and replacement rental-purchase merchandise and expenditures relating
to new store openings. For the six months ended June 30, 1997 and 1998, the
Company purchased merchandise for aggregate amounts of approximately $12.5
million and $11.0 million, respectively.
For the six months ended June 30, 1998, operating activities
provided positive cash flow of $2.9 million compared to negative cash flow of
$1.2 million for the comparable 1997 period primarily due to an improvement in
net income before depreciation and amortization of $1.3 million, a decrease in
purchases of merchandise inventory of $1.5 million, and an increase in accounts
payable of $1.0 million.
On June 4, 1998, the Company completed its initial public
offering of 2,250,000 shares of common stock at $10.00 per share. The net
proceeds, after underwriting discounts and offering expenses, of $20.2 million
were used to retire approximately $10.9 million of indebtedness (including
accrued interest) due a former shareholder-officer of the Company and his
affiliates. The balance of the net proceeds was used to reduce borrowings with
Bank of America National Trust and Savings Association (formerly known as Bank
of America Illinois).
Effective July 15, 1998, the Company amended its Loan and Security
Agreement with Bank of America National Trust and Savings Association (the
"Credit Facility"). The amendment decreases the maximum revolving loan amount
from $16.0 million to $10.0 million, decreases the interest rate from prime plus
0.25% to prime, and extends the maturity of the Credit Facility from May 21,
2000 to July 15, 2001. At June 30, 1998, the Company's outstanding borrowings
under the Credit Facility were $0.4 million.
The Company plans to continue and expand its store opening program. In
1998, the Company expects to incur approximately $500,000 to open and operate
each new store until the store generates a positive cash flow. Included among
the cash requirements for a new store are expenditures of approximately $60,000
for leasehold improvements, furnishings and fixtures and computers;
approximately $425,000 for rental-purchase merchandise and approximately $15,000
to fund initial, anticipated operating losses. These costs do not include any
interest carrying charge or general corporate overhead. Stores generally become
profitable (excluding the store's share of corporate overhead) within 15 months.
Store opening expenses are charged to operations as incurred. The timing of
store openings and the number of stores in the maturation process will have an
effect on quarter-to-quarter comparisons. Each store needs a period of time to
build its customer base and develop a recurring revenue stream from
rental-purchase agreements' continuations and renewals.
In additions to new store openings, the Company may increase its number
of stores or rental-purchase agreements through selective acquisitions.
Management believes there are currently a number of acquisition opportunities in
the rental-purchase industry, and from time to time additional acquisition
opportunities may arise. Potential acquisitions may vary in size and the Company
may consider larger acquisitions that could be material to the Company.
Management believes the cash flow from operations and available borrowings under
the Credit Facility will be adequate to fund its operations and expansion plans
for at least the next 12 months. Should the Company determine to accelerate its
new store openings, or should a large acquisition materialize, the Company may
incur additional bank indebtedness and may issue its equity or debt securities,
the availability and terms of which will depend upon market and other
conditions. There can be no assurance such additional financing will be
available or, if available, will be on terms acceptable to the Company.
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YEAR 2000 CONSIDERATIONS
The Company is assessing its computer systems to ensure they are
capable of processing periods for the year 2000 and beyond. The Company's
assessment of its computer systems will be complete by December, 1998. The
Company does not believe the cost of compliance will have a material adverse
effect on its business, financial condition or results of operations. The
Company anticipates it will be compliant prior to the year 2000.
CAUTIONARY STATEMENT
This Report on Form 10-Q contains certain "forward looking statements"
with respect to the Company's operations, industry, financial condition and
liquidity. These forward-looking statements are subject to risks and
uncertainties, many of which are beyond the Company's control, which could cause
actual results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to, (i) changes in the
government's regulation of the industry and (ii) the ability of the Company to
execute effectively its expansion program.
Undo reliance should not be placed on any forward-looking statements
made by or on behalf of the Company as such statements speak only as of the date
hereof. The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or circumstances or otherwise. There can be no assurance the events described in
these forward-looking statements will occur.
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PART II - OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 4, 1998, the Company's initial Registration Statement
(No. 333-48749) became effective. The Registration Statement related to the
Company's initial public offering of 2,250,000 shares of Common Stock, without
par value. The Shares were sold to the underwriters at $9.30 per share, with the
price to the public at $10.00 per share. An additional 337,500 Shares (Wayland
J. Russell - 182,500 shares, Lawrence S. Hendricks - 91,000 shares, and Michael
J. Viveiros - 64,000 shares) were sold by the Company's shareholder-officers
upon exercise of the underwriters' over-allotment option on June 26, 1998. As a
consequence, all of the 2,587,500 Shares initially registered for sale were sold
in the offering with the aggregate offering price for the Shares totaling
$25,875,000. The offering's managing underwriters were The Robinson-Humphrey
Company, Dain Rauscher Wessels, Inc., and Sun Trust Equitable Securities. The
following table shows the use of proceeds received by the Company:
Gross proceeds $22,500,000
Underwriters' discounts $1,575,000
Other expenses 758,000
----------
Total expenses 2,333,000
===========
Net proceeds, after expenses $20,167,000
===========
Approximately $10.9 million of the net proceeds were used to retire
indebtedness due a former shareholder-officer of the Company and his affiliates.
The balance of the net proceeds was used to reduce borrowings under the
Company's revolving credit facility. The foregoing use of proceeds is consistent
with the statements made in the Prospectus dated June 4, 1998.
ITEM 6 EXHIBITS
A. EXHIBIT NO.
-----------
4.4 Amendment No. 10 to Loan and Security Agreement dated
as of October 5, 1992, by and between Bank of America
National Trust and Savings Association and
Registrant, as amended (Exhibit 4.2 to Registration
Statement), together with Third Amended and Restated
Supplement A
27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K
-------------------
NONE
13
14
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
/S/ MICHAEL A. PECCHIA
-----------------------
Michael A. Pecchia,
Chief Financial Officer
DATE: AUGUST 13, 1998