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, 2001 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]
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 7, 2001
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Common Stock, $.50 Par Value 16,082,661
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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2001 2000
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(In thousands, except share data)
ASSETS
Cash $ 94 $ 95
Accounts Receivable 23,402 23,637
Rental Merchandise 383,009 381,930
Less: Accumulated Depreciation (115,563) (114,217)
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267,446 267,713
Property, Plant and Equipment, Net 67,227 63,174
Prepaid Expenses and Other Assets 27,595 25,760
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Total Assets $ 385,764 $ 380,379
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LIABILITIES & SHAREHOLDERS' EQUITY
Accounts Payable and Accrued Expenses $ 34,367 $ 34,693
Dividends Payable 399
Deferred Income Taxes Payable 24,779 20,986
Customer Deposits and Advance Payments 12,669 10,994
Bank Debt 94,950 100,000
Other Debt 4,200 4,769
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Total Liabilities 170,965 171,841
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 53,661 53,662
Retained Earnings 193,111 185,782
Accumulated Other Comprehensive Loss (1,076)
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257,512 251,260
Less: Treasury Shares at Cost,
Common Stock, 2,229,826 Shares
at March 31, 2001 and 2,230,446 Shares
at December 31, 2000 (28,477) (28,486)
Class A Common Stock, 1,532,255 Shares at
March 31, 2001 and December 31, 2000 (14,236) (14,236)
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Total Shareholders' Equity 214,799 208,538
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Total Liabilities & Shareholders' Equity $ 385,764 $ 380,379
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See Notes to Consolidated Financial Statements
3
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
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March 31,
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2001 2000
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(in thousands, except per share amounts)
REVENUES:
Rentals and Fees $ 102,068 $ 87,514
Retail Sales 17,276 17,305
Non-Retail Sales 17,946 16,830
Other 4,127 3,723
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141,417 125,372
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COSTS AND EXPENSES:
Retail Cost of Sales 12,222 12,233
Non-Retail Cost of Sales 16,729 15,493
Operating Expenses 66,554 56,415
Depreciation
of Rental Merchandise 32,482 28,263
Interest 1,628 1,227
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129,615 113,631
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EARNINGS BEFORE
TAXES 11,802 11,741
INCOME TAXES 4,473 4,463
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NET EARNINGS $ 7,329 $ 7,278
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EARNINGS PER SHARE $ .37 $ .37
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EARNINGS PER SHARE
ASSUMING DILUTION .37 .36
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CASH DIVIDENDS DECLARED
PER SHARE
Common Stock $ -- $ --
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Class A Common Stock -- --
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WEIGHTED AVERAGE
SHARES OUTSTANDING 19,870 19,900
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WEIGHTED AVERAGE
SHARES OUTSTANDING
ASSUMING DILUTION 20,074 20,091
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See Notes to Consolidated Financial Statements
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AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Three Months Ended
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March 31,
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2001 2000
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(in thousands)
OPERATING ACTIVITIES
Net Earnings $ 7,329 $ 7,278
Depreciation and Amortization 36,063 31,166
Deferred Income Taxes 3,793 384
Change in Accounts Payable and
Accrued Expenses (1,402) 2,587
Change in Accounts Receivable 235 (3,934)
Other Changes, Net 1,094 6,276
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Cash Provided by Operating Activities 47,112 43,757
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INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (8,357) (4,471)
Book Value of Property Retired or Sold 1,158 1,006
Additions to Rental Equipment (66,243) (66,403)
Book Value of Rental Equipment Sold 37,225 29,746
Contracts and Other Assets Acquired (4,886)
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Cash Used by Investing Activities (41,103) (40,122)
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FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 103,228 43,695
Repayments on Revolving Credit Agreement (108,278) (44,920)
Decrease in Other Debt (569) (535)
Dividends Paid (399) (399)
Acquisition of Treasury Stock (2,582)
Issuance of Stock Under Stock Option Plan 8 1,103
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Cash Used by Financing Activities (6,010) (3,638)
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Decrease in Cash (1) (3)
Cash at Beginning of Year 95 99
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Cash at End of Period $ 94 $ 96
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See Notes to Consolidated Financial Statements
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AARON RENTS, INC. AND SUBSIDIARIES
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 subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The Consolidated Balance Sheet as of March 31, 2001, and the Consolidated
Statements of Earnings and Cash Flows for the quarter ended March 31, 2001 and
2000, 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, 2001 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, 2000. The results of
operations for the period ended March 31, 2001 are not necessarily indicative of
the operating results for the full year. Certain amounts in the 2000 segment
information have been reclassified to conform to the 2001 presentation.
Derivatives and Hedging Activities. In June 1998, the Financial Accounting
Standards Board issued FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (FAS 133). The statement establishes standards for recording
derivative financial instruments and the recognition of gains or losses
resulting from the changes in fair values of those instruments. The cumulative
effect of the adoption of FAS 133 on January 1, 2001 resulted in no significant
impact to income in the consolidated statement of earnings, and a comprehensive
loss of $0.5 million reported in shareholders' equity.
NOTE B: ACCUMULATED OTHER COMPREHENSIVE LOSS AND COMPREHENSIVE INCOME
The following is a summary of the accumulated other comprehensive loss for the
three months period ended March 31, 2001:
December 31, 2000
Cumulative effect of the adoption of FAS 133 on
January 1, 2001, net of income taxes (497)
Unrealized loss on the fair market value of interest
rate swap agreements, net of income taxes (579)
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(1,076)
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Comprehensive income for the three month period ended March 31, 2001 totaled
$6,253,000. There were no differences between comprehensive income and net
income in the three month period ended March 31, 2000.
NOTE C: SEGMENT INFORMATION
THREE MONTHS ENDED
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MARCH 31
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2001 2000
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(in thousands)
Revenues from external customers:
Sales & Lease Ownership $ 95,551 $ 77,226
Rent-to-Rent 43,291 45,572
Franchise 3,448 2,930
Other 1,073 824
Manufacturing 12,625 17,448
Elimination of intersegment revenues (12,748) (17,493)
Cash to accrual adjustments (1,823) (1,135)
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Total revenues from external customers $ 141,417 $ 125,372
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Earnings before income taxes:
Sales & Lease Ownership $ 7,360 $ 6,566
Rent-to-Rent 4,530 4,773
Franchise 2,169 1,694
Other (740) (297)
Manufacturing (81) 712
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Earnings before income taxes for reportable 13,238 13,448
segments
Elimination of intersegment profit 268 (615)
Cash to accrual adjustments (1,704) (1,067)
Other allocations and adjustments (25)
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Total earnings before income taxes $ 11,802 $ 11,741
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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, 2000, 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, 2001 VERSUS QUARTER ENDED MARCH 31, 2000:
Total revenues for the first quarter of 2001 increased $16.0 million (12.8%) to
$141.4 million compared to $125.4 million in 2000 due primarily to a $14.6
million (16.6%) increase in rentals and fees revenues, plus a $1.1 million
(3.2%) increase in sales. Of this increase in rentals and fees revenues, $16.0
million was attributable to the Aaron's Sales & Lease Ownership division.
Rentals and fees revenues from the Company's rent-to-rent operations decreased
$1.4 million due to a reduction of the number of stores open.
Revenues from retail sales decreased slightly $29,000 (0.2%) remaining virtually
unchanged at $17.3 million for the first quarter of 2001 and 2000. This slight
decrease was primarily due to a $732,000 decrease in sales of rental return
merchandise and new sales in the Company's rent-to rent operations partially
offset by a $703,000 increase in rental return merchandise and new sales in the
sales and leasing division. Non-retail sales, which primarily represent
merchandise sold to Aaron's Sales & Lease Ownership franchisees, increased $1.1
million (6.6%) to $17.9 million compared to $16.8 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 2001 increased $404,000 (10.9%) to $4.1
million compared to $3.7 million in 2000. This increase was attributable to fees
and royalties from franchise operations increasing $577,000 (20.3%) to $3.4
million compared to $2.8 million last year, reflecting a net increase of 28
franchised stores since the end of the first quarter of 2000 and increasing
operating revenues of maturing franchise stores.
Cost of sales from retail sales decreased slightly $11,000 (0.1%) remaining
virtually unchanged at $12.2 million for the first quarter of 2001 and 2000.
Cost of sales as a percentage of retail sales remained unchanged at 70.7%. Cost
of sales from non-retail sales increased $1.2 million (8.0%) to $16.7 million
from $15.5 million, and as a percentage of sales, increased to 93.2% from 92.1%.
Operating expenses increased $10.1 million (18.0%) to $66.6 million from $56.4
million. As a percentage of total revenues, operating expenses were 47.1% in
2001 and 45.0% in 2000. Operating expenses increased as a percentage of total
revenues between quarters primarily due to costs associated with the acquisition
of 26 store locations formerly operated by one of the nation's largest furniture
retailers along with other new store openings.
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Depreciation of rental merchandise increased $4.2 million (14.9%) to $32.5
million, from $28.3 million, and as a percentage of total rentals and fees,
decreased to 31.8% from 32.3%. The decrease as a percentage of revenues is
primarily due to the higher margins in the Aaron's Sales & Lease Ownership
division.
Interest expense increased $401,000 (32.7%) to $1.6 million compared to $1.2
million. As a percentage of total revenues, interest expense was 1.2% in 2001
compared to 1.0% in 2000. The increase in interest expense as a percentage of
total revenues was due to higher debt levels in the first quarter of 2001.
Income tax expense increased $10,000 (0.2%) remaining virtually unchanged at 4.5
million. The Company's effective tax rate was 37.9% for the first quarter of
2001 compared to 38.0% in 2000.
As a result, net earnings increased $51,000 (0.7%) to $7.3 million. As a
percentage of total revenues, net earnings were 5.2% in the current quarter as
compared to 5.8% for the same period last year.
The weighted average number of shares outstanding during the first quarter of
2001 was 19,870,000 compared to 19,900,000 (20,074,000 versus 20,091,000
assuming dilution) for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES:
During the first quarter of 2001, the Company paid a semi-annual dividend that
was declared on November 9, 2000 of $.02 per share on both Common Stock and
Class A Common Stock. On May 1, 2001, the Company declared a semi-annual
dividend payable on July 6, 2001 of $.02 per share on both Common Stock and
Class A Common Stock.
Cash flow from operations for the quarter ended March 31, 2001 and 2000 was
$47.1 million and $43.8 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 Sales & Lease Ownership 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. On March 30, 2001 the Company
entered into a new $110.0 million revolving credit agreement that includes an
$8.0 million credit line to fund daily working capital requirements. At March
31, 2001, an aggregate of $95.0 million was outstanding under this facility,
bearing interest at an average rate of 6.11%. The Company uses interest rate
swap agreements as part of its overall long-term financing program. At March 31,
2001, 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 has issued $4,200,000 of industrial development corporation revenue
bonds issued in the fourth quarter of 2000 to finance the purchase of a
manufacturing facility. The borrowing rate on these bonds at March 31, 2001 was
3.65%. No principal payments are due on the bonds until maturity in 2015.
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 the
foreseeable future.
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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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10(a) Revolving Credit Agreement among Aaron Rents, Inc. as borrower, Aaron Rents Inc.
Puerto Rico as co-borrower and SunTrust Bank as Administrative Agent dated March
30, 2001.
10(b) Loan Facility Agreement and Guaranty by and among Aaron Rents Inc., SunTrust
Bank, as servicer and each of the Participants Party Hereto dated March 30,
2001.
(b) No reports on Form 8-K were filed by the Registrant during the
three months ended March 31, 2001.
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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, 2001 /s/ Gilbert L. Danielson
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Gilbert L. Danielson
Executive Vice President
Chief Financial Officer
Date - May 11, 2001 /s/ Robert P. Sinclair, Jr.
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Robert P. Sinclair, Jr.
Vice President
Corporate Controller