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
September 30, 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 E. 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
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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 November 11, 1996
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Class A Common Stock, $.50 Par Value 3,790,906
Common Stock, $.50 Par Value 15,264,046
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
1996 1995
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(in thousands)
ASSETS:
Cash $ 99 $ 98
Accounts Receivable 9,901 8,136
Rental Merchandise 201,255 176,751
Less: Accumulated Depreciation (59,335) (54,440)
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141,920 122,311
Property, Plant and Equipment, Net 31,670 23,492
Prepaid Expenses and Other Assets 3,633 4,508
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Total Assets $ 187,223 $ 158,645
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 22,243 $ 19,304
Dividends Payable 0 365
Deferred Income Taxes Payable 2,400 3,781
Customer Deposits and Advance Payments 6,979 6,622
Bank Debt 55,039 37,260
Other Debt 602 219
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Total Liabilities 87,263 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, Par Value $.50 Per
Share-Authorized 25,000,000 shares:
16,170,987 Shares Issued at September 30,
1996 and 6,636,761 Shares Issued at
December 31, 1995 16,170,987 6,636,761
Additional Paid in Capital 15,413 15,370
Retained Earnings 93,076 86,365
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119,255 107,734
Less: Treasury Shares at Cost,
Class A Common Stock, 1,571,855 Shares
at September 30, 1996 and 1,427,588
Shares at December 31, 1995 (14,125) (11,451)
Common Stock, 928,941 Shares
at September 30, 1996 and 932,441 Shares at
December 31, 1995 (5,170) (5,189)
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Total Shareholders' Equity 99,960 91,094
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Total Liabilities and
Shareholders' Equity $ 187,223 $ 158,645
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See Notes to Consolidated Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
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September 30, September 30,
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1996 1995 1996 1995
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(in thousands, except per share amounts)
REVENUES:
Rentals and Fees $ 54,230 $ 45,361 $155,687 $136,264
Sales 15,787 13,132 44,942 39,770
Other 1,207 519 2,898 1,664
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71,224 59,012 203,527 177,698
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COSTS AND EXPENSES:
Cost of Sales 12,016 9,440 33,247 28,478
Operating Expenses 35,377 29,664 101,259 89,252
Depreciation
of Rental Merchandise 16,728 13,926 47,256 41,622
Interest 905 830 2,401 2,428
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65,026 53,860 184,163 161,780
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EARNINGS BEFORE
TAXES 6,198 5,152 19,364 15,918
INCOME TAXES 2,411 1,947 7,504 6,060
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NET EARNINGS $ 3,787 $ 3,205 $ 11,860 $ 9,858
======== ======== ======== ========
EARNINGS PER SHARE $ .19 $ .16 $ .59 $ .49
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CASH DIVIDENDS DECLARED
PER SHARE
Class A Common Stock $ $ $ .02 $ .01
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Common Stock $ $ $ .02 $ .025
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WEIGHTED AVERAGE
SHARES OUTSTANDING 20,027 20,044 19,962 19,994
======== ======== ======== ========
See Notes to Consolidated Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended
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September 30,
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1996 1995
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(in thousands)
OPERATING ACTIVITIES
Net Earnings $ 11,860 $ 9,858
Depreciation and Amortization 48,088 44,313
Deferred Taxes (1,381) (1,101)
Change in Accounts Payable and
Accrued Expenses 2,188 1,705
Change in Accounts Receivable (1,765) 1,482
Other Changes, Net 1,349 (384)
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Cash Provided by Operating Activities 60,339 55,873
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INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (13,319) (6,660)
Book Value of Property Retired or Sold 874 2,815
Additions to Rental Equipment (98,597) (73,347)
Book Value of Rental Equipment Sold 37,645 32,577
Contracts and Other Assets Acquired (1,744) (328)
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Cash Used by Investing Activities (75,141) (44,943)
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FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 63,669 55,067
Repayments on Revolving Credit Agreement (45,890) (63,370)
Increase of Other Debt 383 223
Dividends Paid (747) (729)
Acquisition of Treasury Stock (2,785) (3,487)
Issuance of Stock Under Stock Option Plan 173 1,370
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Cash provided (used) by financing activities 14,803 (10,926)
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INCREASE IN CASH 1 4
Cash at Beginning of Year 98 92
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Cash at Beginning of Period $ 99 $ 96
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See Notes to Consolidated Financial Statements
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 September 30, 1996, and the Consolidated
Statements of Earnings and Cash Flows for the nine months ended September 30,
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 September 30, 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 September 30, 1996, are
not necessarily indicative of the operating results for the full year.
Accounting Changes in Depreciation:
-----------------------------------
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, generally 12 months when on rent 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 of the change in the
depreciation method on merchandise purchased after December 31, 1995 was to
decrease net income by approximately $235,000 ($.01 per share) and $1,005,000
($.05 per share) respectively for the quarter and nine months ended September
30, 1996. 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 decrease net income by
approximately $26,000 ($.00 per share) for the quarter and increase net income
$514,000 ($.03 per share) for the nine months ended September 30, 1996. It is
not expected that such change in estimates will have a significant effect on
net income for the year ending December 31, 1996.
Stock Dividend
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In June 1996 the Company distributed a 100% stock dividend in Common Stock on
the Company's Class A Stock and Common Stock. Such stock dividend resulted in
the issuance of 9,534,226 shares of Common Stock. The stock dividend was
accounted for as an increase in Common Stock at par value and a reduction of
retained earnings.
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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Third quarter ended September 30, 1996, compared to September 30, 1995:
Total revenues for the third quarter of fiscal year 1996 increased $12.2 million
(20.7%) to $71.2 million compared to $59 million for the same period a year ago.
This increase in revenues was primarily due to a $8.9 million (19.6%) increase
in rentals and fees revenues and $2.7 million (20.2%) increase in sales. Of this
increase in rental revenues, $4.1 million was attributable to Aaron's Rental
Purchase stores, which increased 19.3% to $25.5 million compared to $21.4
million last year. Rental revenues from the Company's rent-to-rent operations
increased $4.8 million (19.9%) to $28.7 million compared to $24 million during
the same period last year. This significant increase in the rent-to-rent
division was due to Rentals for the 1996 Summer Olympic Games. The $2.7 million
increase in Sales was due to an increase in sales for the rental purchase
division of $1.3 million and an increase in sales of $1.3 million for the rent-
to-rent division.
Other revenue increased $688,000 (132.3%) to $1.2 million compared to $519,000
last year. Included in other revenues is an increase of $575,000 in franchise
and royalty fee income due to a net increase of 9 franchise stores as well as
older franchise stores gaining in revenue. This income for the current quarter
was $890,000 compared with $315,000 for the same period last year.
Cost of sales increased $2.6 million (27.3%) to $12 million compared to $9.4
million and as a percentage of sales, increased to 76.1% from 71.9% due to
increased lower margin sales of inventory to rental purchase franchisees, and
lower margins on the sale of new furniture.
Operating expenses increased $5.7 million (19.3%) to $35.4 million from $29.7
million. As a percentage of total revenues, operating expenses decreased to
49.7% from 50.3% for the same period a year ago.
Depreciation of rental merchandise increased $2.8 million (20.1%) to $16.7
million compared to $13.9 million and, as a percentage of total rentals and
fees, increased slightly to 30.8% versus 30.7% for the same period in 1995.
Interest expense increased $75,000 (9%) to $904,000 compared to $830,000. As a
percentage of total revenue, interest decreased to 1.3% from 1.4% due to the
stability of interest rates during the quarter.
Income tax expense increased $463,000 (23.8%) to $2.4 million compared to $1.9
million, and the Company's effective tax rate was 38.9% for the quarter versus
37.8% for the same period in 1995 due to higher state income taxes.
As a result, net earnings increased $583,000 (18.2%) to $3.8 million in the
third quarter of fiscal year 1996 compared to $3.2 million for the same period
in 1995. As a percentage of total revenues, net earnings decreased slightly to
5.3% in the current quarter as compared to 5.4% for the same period last year.
The weighted average number of shares outstanding during the third quarter of
1996 was 20,027,000 compared to 20,044,000 for the same period last year. Prior
year weighted average shares outstanding have been restated to reflect the
June, 1996 100% stock dividend.
Nine months ended September 30, 1996, compared to nine months ended September
30, 1995:
Total revenues for the first nine months of 1996 increased $25.8 million (14.5%)
to $203.5 million compared to $177.7 million for the same period a year ago.
This increase in revenues was primarily due to a $19.4 million (14.3%) increase
in rentals and fees revenues and $5.2 million (13%) increase in sales. Of this
increase in rental revenues, $11.9 million was attributable to Aaron's Rental
Purchase stores, which increased 18.9% to $75 million compared to $63.1 million
last year. Rental revenues from the Company's rent-to-rent operations increased
$7.4 million (10.1%) to $80.7 million compared to $73.3 million for the same
period last year. This significant increase in the rent-to-rent division was due
to Rentals for the 1996 Summer Olympic Games. The $5.2 million increase in
sales was due to an increase in sales for the rental purchase division of $4.4
million and an increase in sales of $738,000 for the rent-to-rent division.
Other revenue increased $1.2 million (74.1%) to $2.9 million compared to $1.7
million last year. Included in other revenues is an increase of $1.1 million in
franchise and royalty fee income due to a net increase of 18 franchise stores as
well as older franchise stores gaining in revenue. This income for the nine
month period was $2.0 million compared with $953,000 for the same period last
year.
Cost of sales increased $4.8 million (16.7%) to $33.2 million compared to $28.5
million and as a percentage of sales, increased to 74% from 71.6% primarily due
to increased sales of lower margin inventory to rental purchase franchisees.
Operating expenses increased $12 million (13.5%) to $101.3 million from $89.3
million. As a percentage of total revenues, operating expenses decreased to
49.8% from 50.2% for the same period a year ago.
Depreciation of rental merchandise increased $5.6 million (13.5%) to $47.3
million compared to $41.6 million and, as a percentage of total rentals and
fees, decreased slightly to 30.4% from 30.5% for the same period last year.
Interest expense decreased $27,000 (-1.1%) to $2.4 million. As a percentage of
total revenue, interest decreased to 1.2% from 1.4% due to the stability of
interest rates during the nine months
Income tax expense increased $1.4 million (23.8%) to $7.5 million compared to
$6.1 million, and the Company's effective tax rate was 38.8% for the current
nine month period versus 38.1% for the same period in 1995.
As a result, net earnings increased $2 million (20.3%) to $11.9 million in first
nine months of 1996 compared to $9.9 million for the same period in 1995. As a
percentage of total revenues, net earnings increased to 5.8% in the first nine
months as compared to 5.5% for the same period last year.
The weighted average number of shares outstanding during the first nine months
of 1996 was 19,962,000 compared to 19,994,000 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:
- --------------------------------
On May 7, 1996, Aaron Rents Class B Common stock was renamed Common Stock with
the NASDAQ trading symbol changing from ARONB to ARON. On the same date, a 100%
stock dividend was declared on both the Class A Common Stock (ARONA) as well as
the newly renamed Common Stock. The stockholders of record at the close of
business day May 20, 1996, received one share of Common Stock for each share of
Common Stock and Class A Common Stock held. The aforementioned stock dividend
was distributed on June 3, 1996.
During the third quarter of 1996, the Company paid a semi-annual dividend that
was declared in May 1996 of $.02 per share on both Common Stock and Class A
Common Stock respectively.
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 (now renamed 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.
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 - November 12, 1996
------------------- /S/ Gilbert L. Danielson
--------------------------
Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date - November 12, 1996
------------------- /S/ Robert P. Sinclair Jr.
--------------------------
Robert P. Sinclair, Jr.
Controller
PART II - OTHER INFORMATION
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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10 Third Amendment to Second Amended and Restated
Revolving Credit and Term Loan Agreement
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the
three months ended September 30, 1996