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 31,1997 0-12385
------------- -------
For Quarter Ended Commission File No.
AARON RENTS, INC.
---------------------
(Exact name of registrant as
specified in its charter)
GEORGIA 58-0687630
------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
309 E. PACES FERRY ROAD, N.E.
ATLANTA, GEORGIA 30305-2377
---------------- ----------
(Address of principal (Zip Code)
executive offices)
(404) 231-0011
--------------
(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 ____
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 9, 1997
------------------- -----------
Common Stock, $.50 Par Value 15,089,446
Class A Common Stock, $.50 Par Value 3,869,506
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
1997 1996
------------ --------------
(in thousands)
ASSETS:
Cash $ 91 $ 84
Accounts Receivable 11,004 10,491
Rental Merchandise 212,195 210,516
Less: Accumulated Depreciation (62,482) (60,532)
------------ --------------
149,713 149,984
Property, Plant and Equipment, Net 31,412 33,267
Prepaid Expenses and Other Assets 3,120 4,277
------------ --------------
Total Assets $ 195,340 $ 198,103
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 24,923 $ 24,999
Dividends Payable 382
Deferred Income Taxes Payable 4,464 2,882
Customer Deposits and Advance Payments 7,276 7,140
Bank Debt 48,337 55,125
Other Debt 240
------------ --------------
Total Liabilities 85,000 90,768
Shareholders' Equity:
Common Stock, Par Value $.50 Per
Share; Authorized: 25,000,000 Shares;
Shares Issued: 16,170,987 8,085 8,085
Common Stock, Class A, Par Value $.50 Per
Share; Authorized: 25,000,000 Shares;
Shares Issued: 5,361,761 2,681 2,681
Additional Paid in Capital 15,445 15,445
Retained Earnings 100,538 96,226
------------ --------------
126,749 122,437
Less: Treasury Shares at Cost,
Common Stock, 499,741 Shares
at March 31, 1997 and 415,941
Shares at December 31, 1996 (3,226) (2,315)
Class A Common Stock, 1,455,255 Shares
at March 31, 1997 and 1,418,855
Shares at December 31, 1996 (13,183) (12,787)
------------ --------------
Total Shareholders' Equity 110,340 107,335
------------ --------------
Total Liabilities and
Shareholders' Equity $ 195,340 $ 198,103
============ ==============
See Notes to Consolidated Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
-----------------------------
March 31,
-----------------------------
1997 1996
-----------------------------
(in thousands, except per share amounts)
REVENUES:
Rentals and Fees $ 57,016 $ 49,481
Retail Sales 15,067 12,914
Non-Retail Sales 2,971 1,593
Other 1,426 705
-------------- ------------
76,480 64,693
-------------- ------------
COSTS AND EXPENSES:
Retail Cost of Sales 11,083 9,034
Non-Retail Cost of Sales 2,783 1,489
Operating Expenses 37,051 32,070
Depreciation
of Rental Merchandise 17,614 14,592
Interest 869 717
-------------- ------------
69,400 57,902
-------------- ------------
EARNINGS BEFORE
TAXES 7,080 6,791
INCOME TAXES 2,768 2,632
-------------- ------------
NET EARNINGS $ 4,312 $ 4,159
============== ============
EARNINGS PER SHARE $ .22 $ .21
-------------- ------------
CASH DIVIDENDS DECLARED
PER SHARE
Common Stock $ - $ -
-------------- ------------
Class A Common Stock $ - $ -
-------------- ------------
WEIGHTED AVERAGE
SHARES OUTSTANDING 19,985 19,844
============== ============
See Notes to Consolidated Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------
March 31,
---------
1997 1996
---------- ---------
(in thousands)
OPERATING ACTIVITIES
Net Earnings $ 4,312 $ 4,159
Depreciation and Amortization 16,566 16,272
Deferred Taxes 2,646 518
Change in Accounts Payable and
Accrued Expenses (76) (267)
Change in Accounts Receivable (513) 826
Other Changes, Net 253 2,105
-------- --------
Cash Provided by Operating Activities 23,188 23,613
-------- --------
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (2,412) (3,230)
Book Value of Property Retired or Sold 2,672 251
Additions to Rental Equipment (32,095) (31,242)
Book Value of Rental Equipment Sold 17,456 11,300
Contracts and Other Assets Acquired (85)
-------- --------
Cash Used by Investing Activities (14,464) (22,921)
-------- --------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 17,970 16,448
Repayments on Revolving Credit Agreement (24,758) (15,742)
(Decrease) Increase of Other Debt (240) 1,081
Dividends Paid (382) (365)
Acquisition of Treasury Stock (1,405) (2,220)
Issuance of Stock Under Stock Option Plan 98 105
-------- --------
Cash Used by Financing Activities (8,717) (693)
-------- --------
Increase (Decrease) in Cash 7 (1)
Cash at Beginning of Year 84 98
-------- --------
Cash at Beginning of Period $ 91 $ 97
======== ========
See Notes to Consolidated Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PRINCIPLES OF CONSOLIDATION:
----------------------------
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:
-----------------------------
The Consolidated Balance Sheet as of March 31, 1997, and the Consolidated
Statements of Earnings and Cash Flows for the three months ended March 31,
1997 and 1996, 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, 1997 and for all
periods presented have been made.
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 Year Ended December 31, 1996.
The results of operations for the period ended March 31, 1997 are not
necessarily indicative of the operating results for the full year.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS:
- ---------------------
THE QUARTER ENDED MARCH 31, 1997, COMPARED TO THE QUARTER ENDED MARCH 31,
1996:
Total revenues for the first quarter of 1997 increased $11.8 million (18.2%) to
$76.5 million compared to $64.7 million for the same period a year ago. This
increase in revenues was primarily due to a $7.5 million (15.2%) increase in
rentals and fees revenues and $2.2 million (16.7%) increase in retail sales. Of
this increase in rental revenues, $5.0 million was attributable to Aaron's
Rental Purchase stores, which increased 21.3% to $28.6 million compared to $23.6
million last year. Rental revenues from the Company's rent-to-rent operations
increased $2.5 million (9.7%) to $28.4 million compared to $25.9 million during
the same period a year ago. The $2.2 million increase in retail sales was due to
an increase in the continued sale of rental return merchandise and the sale of
new office furniture in the rent-to-rent division.
Non-retail sales, which represent wholesale sales to primarily Aaron's Rental
Purchase franchisees, increased $1.4 million (86.5%) to $3.0 million compared to
$1.6 million for the same period last year. The increased sales are due to the
growth of the franchise operations.
Other revenue increased $721,000 (102.3%) to $1.4 million compared to $705,000
last year. Included in other revenues is an increase of $513,000 in franchise
and royalty fee income due to a net increase of 33 franchised stores as well as
older franchised stores gaining in revenues. Franchise and royalty fee income
for the current quarter was $905,000 compared with $392,000 for the same period
last year.
Retail cost of sales increased $2 million (22.7%) to $11 million compared to
$9 million last year, and as a percentage of retail sales, increased to 73.6%
from 70.0% primarily due to the liquidation of rental return merchandise and
product mix.
Non-retail cost of sales increased $1.3 million (86.9%) to $2.8 million from
$1.5 million last year, and as a percentage of sales, increased to 93.7% from
93.5%. The increase in cost of sales as a percentage of sales is due to a larger
percentage of franchise sales in 1997 which are at lower margins than other
miscellaneous non-retail sales.
Operating expenses increased $5.0 million (15.5%) to $37.1 million from $32.1
million last year. As a percentage of total revenues, operating expenses
decreased to 48.4% from 49.6% for the same period a year ago.
Depreciation of rental merchandise increased $3.0 million (20.7%) to $17.6
million compared to $14.6 million last year, and as a percentage of total
rentals and fees, increased to 30.9% versus 29.5% for the same period in 1996.
The increase is primarily due to increased depreciation in the rental purchase
division.
Interest expense increased $152,000 (21.2%) to $869,000 compared to $717,000
last year. As a percentage of total revenue, interest was 1.1% for both periods
due primarily to the stability of interest rates during the quarter.
Income tax expense increased $136,000 (5.2%) to $2.8 million compared to $2.6
million last year, and the Company's effective tax rate was 39.1% for the
quarter versus 38.8% for the same period in 1996 due to higher state income
taxes.
As a result, net earnings increased $153,000 (3.7%) to $4.3 million in the first
quarter of 1997 compared to $4.2 million for the same period in 1996. As a
percentage of total revenues, net earnings decreased to 5.6% in the current
quarter as compared to 6.4% for the same period last year.
The weighted average number of shares outstanding during the first quarter of
1997 was 19,985,000 compared to 19,844,000 for the same period last year. Prior
year weighted average shares outstanding have been restated to reflect the June,
1996 100% stock dividend.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
During the first quarter of 1997, the Company paid a semi-annual dividend that
was declared in December 1996 of $.02 per share on both Common Stock and Class A
Common Stock respectively.
On May 6, 1997, the Company declared a Semi-annual dividend payable on July 8,
1997 of $.02 per share on both Common Stock and Class A Common Stock.
In February of 1997 the Company's Board of Directors authorized the repurchase
of 1,000,000 common shares.
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.
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 6, 1997 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: 3,595,836 Withheld: 17,888
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following exhibits are furnished herewith:
Exhibit
Number Description of Exhibit Page No.
------ ---------------------- --------
11 Computation of Earnings Per Share 10
27 Financial Data Schedule 11
(b) No reports on Form 8-K were filed by the Registrant during the
three months ended March 31, 1997.
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 13, 1997
---------------- /s/ Gilbert L. Danielson
------------------------------
Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date - May 13, 1997
---------------- /s/ Robert P. Sinclair, Jr.
------------------------------
Robert P. Sinclair, Jr.
Corporate Controller