FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of l934
March 31, 1996 0-12385
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For Quarter Ended Commission File No.
AARON RENTS, INC.
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(Exact name of registrant as
specified in its charter)
GEORGIA 58-0687630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
309 EAST PACES FERRY ROAD, N.E.
ATLANTA, GEORGIA 30305-2377
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(Address of principal executive offices) (Zip Code)
(404) 231-0011
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(Registrant's telephone number, including area code)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER
FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether registrant (l) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
l934 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 ____
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares Outstanding as of
Title of Each Class May 10, 1996
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Class A Common Stock, $.50 Par Value 3,826,406
Common Stock, $.50 Par Value 5,705,820
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
1996 1995
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(in thousands)
ASSETS:
Cash $ 97 $ 98
Accounts Receivable 7,310 8,136
Rental Merchandise 182,740 176,751
Less: Accumulated Depreciation (55,099) (54,440)
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127,641 122,311
Property, Plant and Equipment, Net 24,812 23,492
Prepaid Expenses and Other Assets 2,895 4,608
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Total Assets $ 162,755 $ 158,645
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 19,037 $ 19,304
Dividends Payable 365
Deferred Income Taxes Payable 4,299 3,781
Customer Deposits and Advance Payments 7,014 6,622
Bank Debt 37,966 37,260
Other Debt 1,300 219
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Total Liabilities 69,616 67,551
Shareholders' Equity:
Common Stock, Class A, Par Value $.50 Per
Share-Authorized 25,000,000 shares:
5,361,761 Shares Issued 2,681 2,681
Common Stock, Class B, Par Value $.50 Per
Share-Authorized 25,000,000 shares:
6,636,761 Shares Issued 3,318 3,318
Additional Paid in Capital 15,401 15,370
Retained Earnings 90,525 86,365
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111,925 107,734
Less: Treasury Shares at Cost,
Class A Common Stock, 1,535,355 Shares
at March 31, 1996 and 1,427,588
Shares at December 31, 1995 (13,605) (11,451)
Class B Common Stock, 930,941 Shares
at March 31, 1996 and 932,031 Shares at
December 31, 1995 (5,181) (5,189)
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Total Shareholders' Equity 93,139 91,094
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Total Liabilities and
Shareholders' Equity $ 162,755 $ 158,645
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See Notes to Consolidated Financial Statements
2
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
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March 31
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1996 1995
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(in thousands,
except per share amounts)
REVENUES:
Rentals and Fees $ 49,481 $ 45,213
Sales 14,507 13,780
Other 705 558
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64,693 59,551
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COSTS AND EXPENSES:
Cost of Sales 10,523 9,924
Operating Expenses 32,070 29,564
Depreciation
of Rental Merchandise 14,592 13,796
Interest 717 848
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57,902 54,132
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EARNINGS BEFORE TAXES 6,791 5,419
INCOME TAXES 2,632 2,081
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NET EARNINGS $ 4,159 $ 3,338
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EARNINGS PER SHARE $ .42 $ .34
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WEIGHTED AVERAGE
SHARES OUTSTANDING 9,922 9,932
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See Notes to Consolidated Financial Statements
3
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Three Months Ended
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March 31,
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1996 1995
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OPERATING ACTIVITIES
Net Earnings $ 4,159 $ 3,338
Depreciation and Amortization 16,272 15,448
Deferred Income Taxes 518 (13)
Change in Accounts Payable and
Accrued Expenses (267) 2,750
Change in Accounts Receivable 826 1,661
Other Changes, Net 2,105 (643)
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Cash Provided by Operating Activities 23,613 22,541
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INVESTING ACTIVITIES
Additions to Property, Plant and
Equipment (3,230) (2,687)
Book Value of Property Retired or Sold 251 692
Additions to Rental Equipment (31,242) (26,734)
Book Value of Rental Equipment Sold 11,300 11,057
Contracts and Other Assets Acquired (328)
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Cash (Used) by Investing Activities (22,921) (18,000)
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FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 16,448 16,965
Repayments on Revolving Credit Agreement (15,742) (21,471)
Increase of Other Debt 1,081 771
Dividends Paid (365) (362)
Acquisition of Treasury Stock (2,220) (1,693)
Issuance of Stock Under Stock Option Plan 105 1,252
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Cash (Used) by Financing Activities (693) (4,538)
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(Decrease) Increase in Cash (1) 3
Cash at Beginning of Year 98 92
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Cash at End of Period $ 97 $ 95
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See Notes to Consolidated Financial Statements
4
AARON RENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Principles of Consolidation:
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The consolidated financial statements include the accounts of Aaron Rents,
Inc. ("the Company") and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Interim Financial Statements:
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The Consolidated Balance Sheet as of March 31, 1996, and the Consolidated
Statements of Earnings and Cash Flows for the three months ended March 31, 1996
and 1995, have been prepared without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1996 and for all periods presented have
been made.
During 1995, the Company changed its fiscal year end from March 31 to
December 31. Interim financial statements for the comparable periods during 1995
of the fiscal year ending December 31, 1996 have been presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the nine months ended December 31, 1995. The results of
operations for the period ended March 31, 1996, are not necessarily indicative
of the operating results for the full year.
Accounting Changes:
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Depreciation:
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At December 31, 1995, approximately 20% of the Aaron's Rental Purchase
Division's merchandise on rent was fully depreciated. On January 1, 1996, the
Company prospectively changed its depreciation method on rental purchase
merchandise acquired after December 31, 1995 from generally 14 months straight-
line with a 5% salvage value to a method that depreciates the merchandise over
the contract period, when on rent generally 12 months, and 36 months when not on
rent to a 0% salvage value. This new method is similar to a method referred to
as the income forecasting method in the rental purchase industry. The Company
adopted the new method because management believes that it provides a more
systematic and rational allocation of the cost of rental purchase merchandise
over its useful life. The effect for the quarter ended March 31, 1996 of the
change in the depreciation method on merchandise purchased after December 31,
1995 was to decrease net income by approximately $300,000 ($.03 per share). In
addition, based on an analysis of the average composite life of the division's
rental purchase merchandise on rent or on hand at December 31, 1995, the Company
extended the depreciable lives of that merchandise from generally 14 months to
18 months, and made other refinements to depreciation rates on rental and rental
purchase merchandise. The effect of such change in depreciable lives and other
refinements was to increase net income for the quarter ended March 31, 1996 by
approximately $400,000 ($.04 per share). It is not expected that such change in
estimates will have a significant effect on net income for the year ending
December 31, 1996.
5
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
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FIRST QUARTER ENDED MARCH 31, 1996, COMPARED TO THE QUARTER ENDED
MARCH 31, 1995:
Total revenues for the first quarter of fiscal year 1996 increased $5.1 million
(8.6%) to $64.7 million compared to $59.6 million for the same period a year
ago. This increase in revenues was primarily due to a $4.3 million (8.6%)
increase in rentals and fees revenue. Of this increase in rental revenues, $3.7
million was attributable to Aaron's Rental Purchase stores, which increased
18.0% to $23.9 million compared to $20.2 million last year. Rental revenues from
the Company's rent-to-rent operations increased $475,000 (1.9%) during the same
period.
Revenues from sales increased $727,000 (5.3%) to $14.5 million from $13.8
million for the same period last year. This increase was due to an increase in
sales for the rental purchase division of $1.6 million offset by a $842,000
decrease for the rent-to-rent division due to the closure of two rent-to-rent
clearance centers and a realignment of MacTavish Furniture away from outside
sales to the supply of furniture internally.
Other revenue increased $147,000 (29.7%) to $705,000 compared to $558,000 last
year. This increase was entirely due to an increase of $164,000 in franchise
and royalty fee income due to a net increase of 12 franchise stores as well as
older franchise stores gaining in revenue. This income for the current quarter
was $458,000 compared with $294,000 for the same period last year.
Cost of sales increased $598,000 (6.0%) to $10.5 million compared to $9.9
million and as a percentage of sales increased to 72.5% from 72.0% primarily
due to increases in product costs.
Operating expenses increased $2.5 million (8.5%) to $32.1 million from $29.6
million. As a percentage of total revenues, operating expenses were essentially
unchanged at 49.6% for both periods.
Depreciation of rental merchandise increased $797,000 (5.8%) to $14.6 million
and, as a percentage of total rentals and fees, decreased to 29.5% from 30.5%.
This decrease is due to the change in depreciation method in the rental purchase
division.
Interest expense decreased $131,000 (-15.5%) to $717,000 compared to $848,000.
As a percentage of total revenue, interest decreased to 1.1% from 1.4% due to a
lower average bank debt balance and stability of interest rates during the
quarter.
Income tax expense increased $551,000 (26.5%) to $2.6 million compared to $2.1
million, and the Company's effective tax rate was 38.8% for the quarter versus
38.4% for the same period in 1995.
As a result, net earnings increased $822,000 (24.6%) to $4.2 million in first
quarter of fiscal year 1996 compared to $3.3 million for the same period in
1995. As a percentage of total revenues, net earnings increased to 6.4% in the
current quarter as compared to 5.6% for the same period last year.
The weighted average number of shares outstanding during the first quarter of
fiscal year 1996 was 9,922,000 compared to 9,932,000 for the same period last
year.
6
LIQUIDITY AND CAPITAL RESOURCES:
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During the first quarter of 1996 the Company paid a semi-annual dividend
that was declared in December 1995 of .02 per share on Class A Common Stock and
.05 per share on Class B Common Stock.
On May 7, 1996, the Company declared a semi-annual dividend payable on July
8, 1996 of $.02 per share on both Common Stock and Class A Common Stock.
Management believes its expected cash flow from operations, proceeds from
the sale of rental return merchandise, bank borrowings, and vendor credit are
adequate to supply short-term capital needs, and that it has the ability to
obtain additional long-term capital if needed.
7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The following is a description of the matters submitted to a vote at the
May 7, 1996 Annual Shareholders meeting and the results of that vote.
(1) The election of ten directors to constitute the Board of Directors
until the next annual meeting and until their successors are elected and
qualified:
For: 3,143,209 Withheld: 185,003
(2) The approval of a proposal to amend the Company's articles of
incorporation to change the designation of the Company's Class B Common Stock to
"Common Stock";
For: 3,103,792 Against: 215,634
Abstain: 2,786 Broker non-votes: 6,000
(3) The approval of the Aaron Rents, Inc. 1996 Stock Option and Incentive
Award Plan:
For: 2,954,941 Against: 364,242
Abstain: 3,029 Broker non-votes: 6,000
Item 5. Other Information
On May 7, 1996, the Company's Board of Directors declared a stock
dividend as described in Exhibit 99.
Item 6. Exhibits and Reports on Form 8-K:
(a) The following exhibits are furnished herewith:
Exhibit
Number Description of Exhibit Page No.
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3 Amended and Restated Articles of Incorporation
11 Computation of Earnings Per Share
18 Letter Re Change in Accounting Principles
27 Financial Data Schedule
99 Press Release
(b) No reports on Form 8-K were filed by the Registrant during the
three months ended March 31, 1996
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AARON RENTS, INC.
(Registrant)
Date- May 14, 1996 /s/ GILBERT L. DANIELSON
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Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date- May 14, 1996 /s/ ROBERT P. SINCLAIR, JR.
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Robert P. Sinclair, Jr.
Controller
9