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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 September 30, 2003
 
    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 checkmark 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 by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934). Yes [  ]    No [x]

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

     
CLASS
Common stock, no par value		   SHARES OUTSTANDING AT OCTOBER 31, 2003
5,929,319

 

 

RAINBOW RENTALS, INC.
INDEX

             
PART I.
  
 
  
FINANCIAL INFORMATION
  
Page No.
 
  
 
  
 
  
 
 
  
Item 1.
  
Financial Statements
  
 
 
  
 
  
 
  
 
 
  
 
  
Balance Sheets
  
3
 
  
 
  
 
  
 
 
  
 
  
Statements of Income
  
4
 
  
 
  
 
  
 
 
  
 
  
Statements of Shareholders’ Equity
  
5
 
  
 
  
 
  
 
 
  
 
  
Statements of Cash Flows
  
6
 
  
 
  
 
  
 
 
  
 
  
Notes to Financial Statements
  
7
 
  
 
  
 
  
 
 
  
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
9
 
  
 
  
 
  
 
 
  
Item 3.
  
Quantitative and Qualitative Disclosures About Market Risk
  
13
 
  
 
  
 
  
 
 
  
Item 4. 
  
Disclosure Controls and Procedures
  
13
 
  
 
  
 
  
 
PART II.
  
 
  
OTHER INFORMATION
  
 
 
  
 
  
 
  
 
 
  
Item 6. 
  
Exhibits and Reports on Form 8-K
  
14
 
  
 
  
 
  
 
SIGNATURES
  
 
  
 
  
15

2

 

RAINBOW RENTALS, INC.
BALANCE SHEETS
(Dollars in thousands)

                         
            (unaudited)    
            September 30,   December 31,
            2003   2002
           
 
Assets                
Current assets
                
 
Cash and cash equivalents
   $ 251     $ 1,080  
 
Rental-purchase merchandise, net
     38,634       39,342  
 
Income tax receivable
     190       939  
 
Prepaid expenses and other current assets
     2,239       1,926  
 
    
     
 
       
Total current assets
     41,314       43,287  
 
                
Property and equipment, net
     6,156       5,558  
Deferred income taxes
     2,124       1,989  
Goodwill, net
     9,236       9,236  
Other assets, net
     443       843  
 
    
     
 
       
Total assets
   $ 59,273     $ 60,913  
 
    
     
 
Liabilities and Shareholders’ Equity
                
Current liabilities
                
 
Deferred revenue
   $ 992     $ 1,215  
 
Accounts payable
     2,855       2,175  
 
Accrued compensation and related costs
     2,326       2,402  
 
Other liabilities and accrued expenses
     2,556       2,403  
 
Deferred income taxes
     7,293       6,343  
 
    
     
 
       
Total current liabilities
     16,022       14,538  
 
                
Long-term debt
     3,500       7,550  
 
    
     
 
       
Total liabilities
     19,522       22,088  
 
                
Commitments and contingencies
                
 
                
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 5,929,319 outstanding at
                
     
September 30, 2003 and December 31, 2002
     11,039       11,039  
 
Additional paid-in capital
     4       4  
 
Retained earnings
     30,600       29,674  
 
Treasury stock, at cost, 463,291 shares at
                
   
September 30, 2003 and December 31, 2002
     (1,892 )     (1,892 )
 
    
     
 
   
Total shareholders’ equity
     39,751       38,825  
 
    
     
 
   
Total liabilities and shareholders’ equity
   $ 59,273     $ 60,913  
 
    
     
 

See accompanying notes to financial statements.

3

 

RAINBOW RENTALS, INC.
STATEMENTS OF INCOME
(Dollars in thousands, except per share amount)

                                       
          (unaudited)   (unaudited)
          For the three months ended   For the nine months ended
          September 30,   September 30,
         
 
          2003   2002   2003   2002
         
 
 
 
Revenues
                                
 
Rental revenue
   $ 24,017     $ 22,921     $ 72,474     $ 69,523  
 
Fees
     681       699       1,996       2,052  
 
Merchandise sales
     739       724       2,487       2,570  
 
    
     
     
     
 
     
Total revenues
     25,437       24,344       76,957       74,145  
Operating expenses
                                
 
Merchandise costs
     8,347       8,355       25,101       25,562  
 
Store expenses
                                
   
Salaries and related
     6,674       6,055       19,801       17,863  
   
Occupancy
     2,481       2,539       7,458       7,090  
   
Advertising
     1,324       1,310       4,800       4,586  
   
Other expenses
     3,875       3,318       10,965       10,123  
 
    
     
     
     
 
     
Total store expenses
     14,354       13,222       43,024       39,662  
 
    
     
     
     
 
     
Total merchandise costs and store expenses
     22,701       21,577       68,125       65,224  
 
General and administrative expenses
     2,138       1,962       6,561       5,794  
 
Amortization of intangible assets
     45       45       135       130  
 
    
     
     
     
 
     
Total operating expenses
     24,884       23,584       74,821       71,148  
 
    
     
     
     
 
     
Operating income
     553       760       2,136       2,997  
Interest expense
     137       135       434       487  
Other expense
     57       57       171       171  
 
    
     
     
     
 
     
Income from continuing operations, before income taxes
     359       568       1,531       2,339  
Income tax expense
     142       207       605       924  
 
    
     
     
     
 
     
Income from continuing operations
     217       361       926       1,415  
 
                                
Discontinued operations
                                
 
Loss from operations of discontinued store, net of tax
     —       (26 )     —       (76 )
 
    
     
     
     
 
     
Net income
   $ 217     $ 335     $ 926     $ 1,339  
 
    
     
     
     
 
 
                                
Basic earnings per common share:
                                
 
Basic earnings per share from continuing operations
   $ 0.04       0.06     $ 0.16     $ 0.24  
 
Basic loss per share from discontinued operations
     —       —       —       (0.01 )
 
    
     
     
     
 
     
Basic earnings per share
   $ 0.04     $ 0.06     $ 0.16     $ 0.23  
 
    
     
     
     
 
 
                                
Diluted earnings per common share:
                                
 
Diluted earnings per share from continuing operations
   $ 0.04     $ 0.06     $ 0.16     $ 0.24  
 
Diluted loss per share from discontinued operations
     —       —       —       (0.01 )
 
    
     
     
     
 
     
Diluted earnings per share
   $ 0.04     $ 0.06     $ 0.16     $ 0.23  
 
    
     
     
     
 
 
                                
Weighted average common shares outstanding:
                                
 
Basic
     5,929,319       5,929,319       5,929,319       5,927,564  
 
    
     
     
     
 
 
Diluted
     5,938,185       5,932,648       5,933,255       5,944,081  
 
    
     
     
     
 
See accompanying notes to financial statements
                                

4

 

RAINBOW RENTALS, INC.
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)

                                                   
                                              Total
      Common Stock   Additional   Retained   Treasury   Shareholders’
      Shares   Cost   Paid-in Capital   Earnings   Stock   Equity
 
Balance at December 31, 2001
     5,925,735     $ 11,039     $ —     $ 28,033     $ (1,907 )   $ 37,165  
 
Exercise of stock options
     3,584       —       4       —       15       19  
 
Net income
     —       —       —       1,641       —       1,641  
 
    
     
     
     
     
     
 
Balance at December 31, 2002
     5,929,319       11,039       4       29,674       (1,892 )     38,825  
 
Net income (unaudited)
     —       —       —       926       —       926  
 
    
     
     
     
     
     
 
Balance at September 30, 2003 (unaudited)
     5,929,319     $ 11,039     $ 4     $ 30,600     $ (1,892 )   $ 39,751  
 
    
     
     
     
     
     
 
See accompanying notes to financial statements
                                                

5

 

RAINBOW RENTALS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)

                       
          (unaudited)
          For the nine months ended
          September 30,
          2003   2002
         
 
Cash flows from operating activities
                
 
Income from continuing operations
   $ 926     $ 1,415  
 
Reconciliation of income from continuing operations to net cash provided by operating activities of continuing operations
                
     
Depreciation of property and equipment and amortization of intangibles
     1,845       1,844  
     
Depreciation and write-down of rental-purchase merchandise
     20,058       20,674  
     
Purchases of rental-purchase merchandise
     (24,579 )     (22,117 )
     
Rental-purchase merchandise disposed, net
     5,230       4,969  
     
Deferred income taxes
     815       2,677