1
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, 2000 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 executive offices) (Zip Code)
(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 8, 2000
------------------- -----------
Common Stock, $.50 Par Value 15,997,441
Class A Common Stock, $.50 Par Value 3,829,506
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AARON RENTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
---------- ----------
(In thousands, except share data)
ASSETS
Cash $ 96 $ 99
Accounts Receivable 24,964 21,030
Rental Merchandise 325,326 316,294
Less: Accumulated Depreciation (97,101) (96,463)
---------- ----------
228,225 219,831
Property, Plant and Equipment, Net 56,630 55,918
Prepaid Expenses and Other Assets 16,232 21,530
---------- ----------
Total Assets $ 326,147 $ 318,408
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts Payable and Accrued Expenses $ 39,528 $ 36,941
Dividends Payable 399
Deferred Income Taxes Payable 14,794 14,410
Customer Deposits and Advance Payments 10,911 10,180
Bank Debt 71,000 72,225
Other Debt 535
---------- ----------
Total Liabilities 136,233 134,690
Commitments & Contingencies
Shareholders' Equity
Common Stock, Par Value $.50 Per Share;
Authorized: 25,000,000 Shares;
Shares Issued: 18,270,987 9,135 9,135
Class A Common Stock, Par Value $.50 Per Share;
Authorized: 25,000,000 Shares;
Shares Issued: 5,361,761 2,681 2,681
Additional Paid-in Capital 53,770 54,181
Retained Earnings 166,591 159,313
---------- ----------
232,177 225,310
Less: Treasury Shares at Cost,
Common Stock, 2,206,446 Shares
at March 31, 2000 and 2,177,956 Shares
at December 31, 1999 (28,027) (27,356)
Class A Common Stock, 1,532,255 Shares at
March 31, 2000 and December 31, 1999 (14,236) (14,236)
---------- ----------
Total Shareholders' Equity 189,914 183,718
---------- ----------
Total Liabilities & Shareholders' Equity $ 326,147 $ 318,408
========== ==========
See Notes to Consolidated Financial Statements
3
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
-----------------------------
March 31,
-----------------------------
2000 1999
-----------------------------
(in thousands, except per share amounts)
REVENUES:
Rentals and Fees $ 87,514 $ 77,261
Retail Sales 17,305 16,463
Non-Retail Sales 16,830 7,971
Other 3,723 2,608
---------- ----------
125,372 104,303
---------- ----------
COSTS AND EXPENSES:
Retail Cost of Sales 12,233 11,858
Non-Retail Cost of Sales 15,493 7,362
Operating Expenses 56,415 48,721
Depreciation
of Rental Merchandise 28,263 24,769
Interest 1,227 814
---------- ----------
113,631 93,524
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EARNINGS BEFORE
TAXES 11,741 10,779
INCOME TAXES 4,463 4,100
---------- ----------
NET EARNINGS $ 7,278 $ 6,679
========== ==========
EARNINGS PER SHARE $ .37 $ .33
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EARNINGS PER SHARE
ASSUMING DILUTION .36 .33
---------- ----------
CASH DIVIDENDS DECLARED
PER SHARE
Common Stock $ -- $ --
---------- ----------
Class A Common Stock $ -- $ --
---------- ----------
WEIGHTED AVERAGE
SHARES OUTSTANDING 19,900 20,215
========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING
ASSUMING DILUTION 20,091 20,444
========== ==========
See Notes to Consolidated Financial Statements
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AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Three Months Ended
-----------------------------
March 31,
-----------------------------
2000 1999
-----------------------------
(in thousands)
OPERATING ACTIVITIES
Net Earnings $ 7,278 $ 6,679
Depreciation and Amortization 31,166 27,413
Deferred Income Taxes 384 2,653
Change in Accounts Payable and
Accrued Expenses 2,587 5,270
Change in Accounts Receivable (3,934) 964
Other Changes, Net 6,276 1,042
---------- ----------
Cash Provided by Operating Activities 43,757 44,021
---------- ----------
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (4,471) (10,366)
Book Value of Property Retired or Sold 1,006 8,385
Additions to Rental Equipment (66,403) (45,064)
Book Value of Rental Equipment Sold 29,746 19,885
Contracts and Other Assets Acquired (5,281)
---------- ----------
Cash Used by Investing Activities (40,122) (32,441)
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FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 43,695 29,374
Repayments on Revolving Credit Agreement (44,920) (32,739)
Decrease in Other Debt (535) (912)
Dividends Paid (399) (415)
Acquisition of Treasury Stock (2,582) (6,891)
Issuance of Stock Under Stock Option Plan 1,103
---------- ----------
Cash Used by Financing Activities (3,638) (11,583)
---------- ----------
Decrease in Cash (3) (3)
Cash at Beginning of Year 99 95
---------- ----------
Cash at End of Period $ 96 $ 92
========== ==========
See Notes to Consolidated Financial Statements
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AARON RENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A: PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Aaron Rents, Inc.
("the Company") and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
The Consolidated Balance Sheet as of March 31, 2000, and the Consolidated
Statements of Earnings and Cash Flows for the quarter ended March 31, 2000 and
1999, 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, 2000 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, 1999. The results of
operations for the period ended March 31, 2000 are not necessarily indicative of
the operating results for the full year. Certain amounts in the 1999 segment
information have been reclassified to conform to the 2000 presentation.
NOTE B: COMPREHENSIVE INCOME
There were no differences between net income and comprehensive income for the
quarter ended March 31, 2000 and 1999.
NOTE C: SEGMENT INFORMATION
THREE MONTHS ENDED
-----------------------------
MARCH 31
-----------------------------
2000 1999
-----------------------------
(in thousands)
Revenues from external customers:
Rental Purchase $ 77,226 $ 58,106
Rent-to-Rent 45,572 44,769
Franchise 2,930 2,088
Other 824 (49)
Manufacturing 17,448 14,343
Elimination of intersegment revenues (17,493) (14,296)
Cash to accrual adjustments (1,135) (658)
-----------------------------
Total revenues from external customers $ 125,372 $ 104,303
=============================
Earnings before income taxes:
Rental Purchase $ 6,566 $ 5,469
Rent-to-Rent 4,773 5,258
Franchise 1,694 1,225
Other (297) (631)
Manufacturing 712 52
-----------------------------
Earnings before income taxes for reportable segments 13,448 11,373
Elimination of intersegment profit (615) 49
Cash to accrual adjustments (1,067) (702)
Other allocations and adjustments (25) 59
-----------------------------
Total earnings before income taxes $ 11,741 $ 10,779
=============================
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Special Note Regarding Forward-Looking Information: Except for historical
information contained herein, the matters set forth in this Form 10-Q are
forward-looking statements. The Company notes that the forward-looking
statements set forth involve a number of risks and uncertainties that could
cause actual results to differ materially from any such statements, including
the risks and uncertainties discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 1999, filed with the Securities and
Exchange Commission, under the caption "Certain Factors Affecting Forward
Looking Statements," which discussion is incorporated herein by this reference.
RESULTS OF OPERATIONS:
QUARTER ENDED MARCH 31, 2000 VERSUS QUARTER ENDED MARCH 31, 1999:
Total revenues for the first quarter of 2000 increased $21.1 million (20.2%) to
$125.4 million compared to $104.3 million in 1999 due primarily to a $10.3
million (13.3%) increase in rentals and fees revenues, plus a $9.7 million
(39.7%) increase in sales. Of this increase in rentals and fees revenues, $9.0
million was attributable to the Aaron's Rental Purchase division. Rentals and
fees revenues from the Company's rent-to-rent operations increased $1.3 million.
Revenues from retail sales increased $842,000 (5.1%) to $17.3 million in 2000,
from $16.5 million for the same period last year. This increase was primarily
due to increased sales of new and rental return merchandise in the Company's
rental purchase operations. Non-retail sales, which primarily represent
merchandise sold to Aaron's Rental Purchase franchisees, increased $8.9 million
(111.1%) to $16.8 million compared to $8.0 million for the same period last
year. The increased sales are due to the growth of the franchise operations.
Other revenues for the first quarter of 2000 increased $1.1 million (42.8%) to
$3.7 million compared to $2.6 million in 1999. This increase was attributable to
fees and royalties from franchise operations increasing $796,000 (37.9%) to $2.9
million compared to $2.1 million last year, reflecting a net increase of 28
franchised stores since the end of the first quarter of 1999 and increasing
operating revenues of maturing franchise stores.
Cost of sales from retail sales increased $375,000 (3.2%) to $12.2 million
compared to $11.9 million last year, and as a percentage of retail sales,
decreased slightly to 70.7% from 72.0%. Cost of sales from non-retail sales
increased $8.1 million (110.4%) to $15.5 million from $7.4 million, and as a
percentage of sales, decreased slightly to 92.1% from 92.4%.
Operating expenses increased $7.7 million (15.8%) to $56.4 million from $48.7
million. As a percentage of total revenues, operating expenses were 45.0% in
2000 and 46.7% in 1999. Operating expenses decreased as a percentage of total
revenues between quarters primarily due to increased revenues in the Aaron's
Rental Purchase division.
Depreciation of rental merchandise increased $3.5 million (14.1%) to $28.3
million, from $24.8 million, and as a percentage of total rentals and fees,
increased slightly to 32.3% from 32.1%. The increase as a percentage of revenues
is primarily due to a greater percentage of the Company's
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rentals and fees coming from the Aaron's Rental Purchase division, which
depreciates its rental merchandise at a faster rate than the Rent-to-Rent
division.
Interest expense increased $413,000 (50.7%) to $1.2 million compared to
$814,000. As a percentage of total revenues, interest expense was 1.0% in 2000
compared to 0.8% in 1999. The increase in interest expense as a percentage of
total revenues was due to slightly higher interest rates and higher debt levels
in the first quarter of 2000.
Income tax expense increased $363,000 (8.9%) to $4.5 million for 2000 compared
to $4.1 million for the same period in 1999. The Company's effective tax rate
was 38.0% for both the first quarter of 2000 and 1999.
As a result, net earnings increased $599,000 (9.0%) to $7.3 million in the first
quarter of 2000 compared to $6.7 million for the same period in 1999. As a
percentage of total revenues, net earnings were 5.8% 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
2000 was 19,900,000 compared to 20,215,000 (20,091,000 versus 20,444,000
assuming dilution) for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES:
During the first quarter of 2000, the Company paid a semi-annual dividend that
was declared on November 3, 1999 of $.02 per share on both Common Stock and
Class A Common Stock. On May 2, 2000, the Company declared a semi-annual
dividend payable on July 6, 2000 of $.02 per share on both Common Stock and
Class A Common Stock.
Cash flow from operations for the quarter ended March 31, 2000 and 1999 was
$43.8 million and $44.0 million, respectively. Such cash flows include profits
on the sale of rental return merchandise. The Company's primary capital
requirements consist of acquiring rental merchandise for both rent-to-rent
stores and Company-operated Aaron's Rental Purchase stores. As the Company
continues to grow, the need for additional rental merchandise will continue to
be the Company's major capital requirement. These capital requirements
historically have been financed through a revolving credit agreement, cash flow
from operations, trade credit, proceeds from the sale of rental return
merchandise, and stock offerings. The revolving credit agreement provides for
unsecured borrowings up to $90.0 million which includes a $6.0 million credit
line to fund daily working capital requirements. At March 31, 2000, an aggregate
of $71.0 million was outstanding under this facility, bearing interest at an
average rate of 6.58%. The Company uses interest rate swap agreements as part of
its overall long-term financing program. At March 31, 2000, the Company had swap
agreements with notional principal amounts of $40.0 million which effectively
fixed the interest rates on an equal amount under the Company's revolving credit
agreement at 6.93 %.
The Company believes that the expected cash flows from operations, proceeds from
the sale of rental return merchandise, bank borrowings and vendor credit, will
be sufficient to fund the Company's capital and liquidity needs for at least the
next 24 months.
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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
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27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed by the Registrant during the three
months ended March 31, 2000.
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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 11, 2000 /s/ Gilbert L. Danielson
------------ -------------------------
Gilbert L. Danielson
Executive Vice President
Chief Financial Officer
Date - May 11, 2000
------------ /s/ Robert P. Sinclair, Jr.
---------------------------
Robert P. Sinclair, Jr.
Vice President
Corporate Controller