SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission File No.
March 31, 1994 0-12385
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 East Paces Ferry Rd.,N.E.
Atlanta, Georgia 30305-2377
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(404) 231-0011
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
Class A Common Stock, $.50 Par Value
Class B Common Stock, $.50 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 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 by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 11, 1994: $21,879,344 See Item 12.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Shares Outstanding as of
Title of Each Class June 11, 1994
Class A Common Stock, $.50 Par Value 4,142,108
Class B Common Stock, $.50 Par Value 5,578,930
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders for the year ended March 31,
1994 are incorporated by reference into Part II of this Form 10-K/A.
Portions of the registrant's definitive proxy statement for the 1994 annual
meeting of shareholders are incorporated by reference into Part III of this Form
10-K/A.
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
Form 8-K
Reference
Page 1994
Form 10-K Annual Report
(a)1.Consolidated Financial Statements
The following financial statements and notes
thereto of Aaron Rents, Inc. and Subsidiaries,
and the related Report of Independent Auditors
are incorporated in Item 8 by reference from the
Company's 1994 Annual Report to Shareholders.
Consolidated Balance Sheets - March 31, 1994 and 1993 16
Consolidated Statements of Earnings - Years Ended
March 31, 1994, 1993 and 1992. 17
Consolidated Statements of Shareholders' Equity - Years Ended
March 31, 1994, 1993 and 1992. 17
Consolidated Statements of Cash Flows - Years Ended
March 31, 1994, 1993 and 1992. 18
Notes to Consolidated Financial Statements 19-22
Report of Independent Auditors 22
2. Consolidated Financial Statement Schedules
Schedule II Amounts receivable from related parties
and underwriters, promoters, and employees
other than related parties. 19
Schedule V - Property, Plant and Equipment 20
Schedule VI - Accumulated Depreciation of Property, Plant
and Equipment 21
Schedule IX - Short-Term Borrowings 22
Schedule X - Supplementary Income Statement Information 23
All other schedules not listed above have been omitted because they are
inapplicable or the required information is included in financial statements or
notes thereto.
3. Exhibits
Exhibit No. Description of Exhibit
3 (a) Amended and Restated Articles of Incorporation of the Company,filed
as Exhibit 2.1.1 to the Company's Registration Statement on Form
8-A filed with the Commission on October 22, 1992 (the "Form 8-A"),
which exhibit is by this reference incorporated herein.
3 (b) By-laws of the Company, filed as Exhibit 2.2 to the Form 8-A, which
exhibit is by this reference incorporated herein.
3 (c) Articles of Amendment to the Company's Amended and Restated
Articles of Incorporation, effective October 30, 1992, filed as
Exhibit A to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, which exhibit is by this
reference incorporated herein.
3 (d) Articles of Amendment to the Company's Amended and Restated
Articles of Incorporation, effective November 11, 1993, filed as
Exhibit 3(d) to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993 (the "December 31, 1993 10-Q),
which exhibit is by this reference incorporated herein.
4 See Exhibit 3(a) through 3(d).
10 (a) Aaron Rents, Inc. Employees Retirement Plan and Trust, filed as
Exhibit 4 (a) to the Company's Registration Statement on Form S-8,
file number 33-62538, filed with the Commission on May 12, 1993,
which exhibit is by this reference incorporated herein.*
10 (b) Aaron Rents, Inc. 1990 Stock Option Plan, filed as Exhibit 4 (a) to
the Company's Registration Statement on Form S-8, file number
33-62536, filed with the Commission on May 12, 1993, which
exhibit is by this reference incorporated herein.*
10 (c) Amended and Restated Revolving Credit and Term Loan Agreement dated
as of May 27, 1992 and First Amendment to Amended and Restated
Revolving Credit and Term Loan Agreement dated as of October 7,
1992, filed as Exhibit 10(c) to the Company's Form 10-K for the
year ended March 31, 1993, which exhibit is by this reference
incorporated herein.
10 (d) Second Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of February 12, 1993, filed as Exhibit
10(d) to the December 31, 1993 10-Q, which exhibit is by this
reference incorporated herein; and Third Amendment to Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of
February 2, 1994, filed as Exhibit 10(d) to the December 31, 1993
10-Q, which exhibit is by this reference incorporated herein.
11 Computation of Earnings Per Share.
13 Aaron Rents, Inc. 1994 Annual Report to Shareholders. With the
exception of information expressly incorporated herein by direct
reference thereto, the 1994 Annual Report to Shareholders is not
deemed to be filed as a part of this Annual Report on Form 10-K.
13 (a) Management's Discussion and Analysis of Financial Condition and
Results of Operations and Consolidated Financial Statements of the
Registrant from Aaron Rents, Inc. 1994 Annual Report to
Shareholders.
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young
99 Aaron Rents, Inc. 1993 Annual Report to Employees Retirement Plan
and Trust (Annual Report on Form 11-K).
*Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to item 14 (c) of this report.
(b) Reports on Form 8-K-none
(c) Exhibits listed in item 14(a)(3) are included elsewhere in this Report.
(d) The financial statement schedules listed in item 14 (a) (2) above are
included elsewhere in this report.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
(Fiscal years 1994 and 1993)
Total revenues for fiscal year 1994 increased $27.6 million (17.5%) to $185.2
million compared to $157.6 million in 1993 due to a $30.3 million (30.2%)
increase in rentals and fees revenue. Of this increase in rental revenues, $21.3
million was attributable to Aaron's Rental Purchase stores which increased 84.3%
to $46.5 million compared to $25.2 million last year. Higher revenues from
existing rental purchase stores contributed to the increase, as well as the
opening of 34 additional rental purchase stores during fiscal year 1994. Rental
revenues from rental purchase stores opened during the year were $7.2 million.
Rental revenues from the Company's rent-to-rent operations increased $9.0
million (12.1%) during the same time period. Included in fiscal year 1994 total
revenues is $4.9 million attributed to the former Looks Furniture Leasing
locations acquired in December, 1993.
Revenues from sales decreased $2.1 million (3.9%) to $53.1 million from $55.3
million. This decrease was primarily due to the June, 1993 sale of the
Company's Ball Stalker subsidiary. If sales recorded by Ball Stalker are
excluded from both periods, sales revenue would have increased $10.9 million
(27.2%). This increase was due to increased sales of rental return merchandise
and $4.3 million of sales of new furniture by the Company's MacTavish Furniture
Industries division to furniture distributors. Sales to furniture distributors
were insignificant in the same period a year ago. Prior to fiscal year 1993, the
MacTavish Furniture Industries division manufactured furniture exclusively for
the Company's own retail outlets.
Other revenue decreased $657,000 (37.8%) to $1.1 million compared to $1.7
million last year, primarily due to the sale of the Ball Stalker subsidiary
during fiscal year 1994. This decrease was offset by an increase of $302,000
from franchise and royalty fee income from franchised operations of Aaron's
Rental Purchase stores. This fee income in fiscal year 1994 was $417,000
compared to $115,000 for the same period last year.
Cost of sales decreased $2.7 million (6.5%) to $38.9 million compared to $41.6
million and as a percentage of sales decreased to 73.2% from 75.2%. The
improvement in gross margins is primarily due to improved margins on the sale of
rental return furniture.
Operating expenses increased $14.1 million (18.1%) to $91.9 million from $77.8
million. As a percentage of total revenues, operating expenses increased
slightly to 49.6% in fiscal year 1994 compared to 49.4% in fiscal year 1993.
This increase was primarily due to increased costs, including personnel and
occupancy costs, associated with the opening of 34 rental purchase stores during
fiscal year 1994. While overall operating expenses increased slightly, Aaron's
Rental Purchase operating costs increased $10.9 million (80.3%) to $24.5 million
from $13.6 million.
Depreciation of rental merchandise increased $11.9 million (46.9%) to $37.3
million compared to $25.4 million, and as a percentage of total rentals and
fees, increased to 28.5% in 1994 from 25.3% in 1993. This increase is primarily
due to the growth of the Company's rental purchase operations, in which
merchandise is depreciated at faster rates to coincide with shorter contract
terms.
Interest expense increased $413,000 (25.0%) to $2.1 million compared to $1.7
million. This increase was primarily the result of higher debt levels during
fiscal year 1994 due to growth of the Company's business.
Income tax expense increased $1.1 million (21.7%) to $6.2 million compared to
$5.1 million, and the Company's effective tax rate was 41.4% in 1994 and 45.7%
in 1993. The decrease in the effective tax rate was due to the result of
permanent differences between book and taxable income resulting from the fiscal
year 1993 $1.4 million write-off of goodwill associated with the 1987 purchase
of Ball Stalker.
As a result, net earnings increased $2.7 million (45.0%) to $8.8 million in 1994
compared to $6.1 million in 1993. As a percentage of total revenues, net
earnings increased to 4.7% in 1994 compared to 3.8% in 1993.
Results of Operations
(Fiscal years 1993 and 1992)
Total revenues for the fiscal year ended March 31, 1993, increased $13.1 million
(9.1%) to $157.6 million from $144.5 million in fiscal year 1992.
This increase was primarily due to an $11.0 million (12.3%) increase in rentals
and fees revenue. Of this increase in rental revenues, $9.5 million was
attributable to Aaron's Rental Purchase stores in which rental revenues
increased 60% to $25.2 million in fiscal year 1993 from $15.7 million in fiscal
year 1992. Higher revenues from existing rental purchase stores contributed to
the increase, as well as the opening of 12 new stores during fiscal year 1993.
Rental revenues from rental purchase stores opened during the year were $2.3
million. Rental revenues from the Company's rent-to-rent operations increased
$1.5 million (2.1%) during the same period.
Revenues from sales increased $2.1 million (4.0%) to $55.3 million from $53.2
million. The improvement in sales was primarily due to $1.9 million of increased
sales at the Company's Ball Stalker subsidiary.
Other revenue was comparable between years and primarily represents installation
revenues related to Ball Stalker furniture sales. Franchise and royalty fee
income from franchised operations which were opened in fiscal year 1993 is also
included in other revenue and was $115,000.
Cost of sales increased $910,000 (2.2%) to $41.6 million from $40.7 million and
as a percentage of sales decreased to 75.2% from 76.5%. The improved margins
were primarily due to better margins on rental return merchandise, which
resulted in part from the more conservative depreciation policies adopted by the
Company over the past several years.
Operating expenses increased $2.2 million (2.9%) to $77.8 million from $75.6
million. The increase was primarily due to increased costs, including personnel
and occupancy costs, of expanding the Company's rental purchase business. As a
percentage of total revenues, operating expenses decreased to 49.4% from 52.3%,
reflecting the Company's sale or closure of unprofitable stores and improved
operating efficiencies on a higher volume of revenues. Fiscal year 1993 included
a $1.4 million write-off of goodwill associated with the purchase of Ball
Stalker and fiscal year 1992 included $1.2 million of additional charges for
future costs anticipated at closed store locations.
Depreciation of rental merchandise increased $4.7 million (22.6%) to $25.4
million from $20.7 million, and increased to 25.3% in 1993 from 23.1% in 1992 as
a percentage of rentals and fees. The increase in depreciation expense was
primarily the result of the Company revising depreciation lives and salvage
values in prior years on certain lines of its merchandise, and the growth of the
rental purchase business in which merchandise is depreciated over shorter terms
than in the rent-to-rent business.
Interest expense decreased $831,000 (33.5%) to $1.7 million from $2.5 million.
This decrease was the result of lower borrowing rates and lower debt levels in
fiscal year 1993 as compared to the prior year.
Income tax expense increased $3.1 million (157.1%) to $5.1 million from $2.0
million, and the Company's effective tax rate increased to 45.7% in fiscal year
1993 from 39.4% in fiscal year 1992. This change was the result of permanent
differences between book and taxable income resulting from the fiscal year 1993
$1.4 million write-off of goodwill associated with the 1987 purchase of Ball
Stalker.
As a result, net earnings increased $3.0 million (98.7%) to $6.1 million in
fiscal year 1993 compared to $3.1 million in fiscal year 1992. As a percentage
of total revenues, net earnings increased to 3.8% in fiscal year 1993 from 2.1%
in fiscal year 1992.
Liquidity and Capital Resources
Cash flow from operations for fiscal years 1994 and 1993 was $55.8 million and
$38.4 million, respectively. Such cash flows include profits on the sale of
rental merchandise. The Company's primary capital requirements consist of
acquiring rental merchandise for Aaron's Rental Purchase stores and replacing
merchandise no longer suitable for rent at all Aaron Rents locations. 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 bank credit, cash flow from
operations, trade credit and proceeds from the sale of rental return
merchandise.
The Company has financed its growth through a revolving credit agreement with
two banks, trade credit and internally generated funds. The rent-to-rent
business has contributed cash which has partially funded the growth of the
rental purchase business. Due to the expansion of the Aaron's Rental Purchase
division during the past year, the Company's borrowings under its revolving
credit agreement have substantially increased. On February 2, 1994, the Company
revised its revolving credit agreement to increase allowable borrowings to $60.0
million from $42.0 million and changed certain covenants in the credit
agreement. The terms and pricing under the credit agreement remained
substantially unchanged. As of March 31, 1994, an aggregate of $51.5 million was
outstanding under this facility, $20.0 million of which was bearing interest at
a fixed rate of 5.76% and the remaining $31.5 million was bearing interest at
the floating rate of 4.9375%. At March 31, 1993 the amount outstanding under the
facility was $31.9 million.
On May 2, 1994, the Company issued through a public offering, 1,275,000 shares
of Class B Common Stock. The net proceeds to the Company after deducting
underwriting discounts and offering expenses were $14.1 million. The net
proceeds were used to reduce bank debt. The reduced debt level, coupled with the
increased availability under its revolving credit agreement, will provide the
Company additional capacity to fund the growth of its operations.
The Company believes that the expected cash flows from operations, proceeds from
the sale of rental return merchandise, bank borrowings and vendor credit,
together with the proceeds of the stock offering, will be sufficient to fund the
Company's capital and liquidity needs for at least the next 24 months.
The Company has paid dividends for eight consecutive years. The dividend was
increased 40% in January 1993 with the payment of $.03 per share on Class A
Common Stock and $.04 per share on Class B Common Stock for a total fiscal year
1993 cash outlay of $506,000. A $.03 per share dividend on Class A Common Stock
and $.04 per share dividend on Class B Common Stock were again paid in July 1993
and January 1994, for a total fiscal year 1994 cash outlay of $591,000. The
Company currently expects to continue its policy of paying dividends.
Consolidated Balance Sheets Aaron Rents, Inc. and Subsidiaries
(In Thousands)
March 31, 1994 1993
Assets
Cash $ 86 $ 81
Accounts Receivable 8,023 5,799
Rental Merchandise 152,289 115,751
Less: Accumulated Depreciation (38,690) (29,289)
113,599 86,462
Property, Plant and Equipment, Net 18,819 13,326
Prepaid Expenses and Other Assets 4,390 2,549
Total Assets $144,917 $108,217
Liabilities and
Shareholders' Equity
Accounts Payable and Accrued Expenses $ 20,891 $ 14,213
Current Income Taxes Payable 504
Deferred Income Taxes Payable 5,216 5,115
Customer Deposits and Advance Payments 5,353 3,607
Bank Debt 51,451 31,945
Other Debt 1,672 1,185
85,087 56,065
Commitments and Contingencies
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; 5,361,761 Shares Issued 2,681 2,681
Additional Paid-In Capital 1,101 1,069
Retained Earnings 66,595 58,385
73,058 64,816
Less Treasury Shares at Cost,
Class A Common Stock, 1,226,653 Shares
at March 31, 1994 and 1,136,344 Shares
at March 31, 1993 (7,329) (6,320)
Class B Common Stock, 1,059,831 Shares
at March 31, 1994 and 1,140,569 Shares
at March 31, 1993 (5,899) (6,344)
59,830 52,152
Total Liabilities and Shareholders' Equity $144,917 $108,217
The accompanying notes are an integral part of the Consolidated Financial
Statements.
Consolidated Statements of Earnings Aaron Rents, Inc. and Subsidiaries
(In Thousands Except Per Share)
Years Ended March 31, 1994 1993 1992
Revenues
Rentals and Fees $130,962 $100,617 $ 89,593
Sales 53,139 55,275 53,161
Other 1,083 1,740 1,795
185,184 157,632 144,549
Costs and Expenses
Cost of Sales 38,879 41,594 40,684
Operating Expenses 91,927 77,816 75,620
Depreciation of Rental Equipment 37,310 25,407 20,728
Interest 2,063 1,650 2,481
170,179 146,467 139,513
Earnings Before Income Taxes 15,005 11,165 5,036
Income Taxes 6,209 5,100 1,984
Net Earnings $ 8,796 $ 6,065 $ 3,052
Earnings Per Share $ 1.01 $ 0.70 $ 0.36
Consolidated Statements
of Shareholders' Equity Aaron Rents, Inc. and Subsidiaries
Additional
Treasury Stock Common Stock Paid-In Retained
(In Thousands) Shares Amount Class A Class B Capital Earnings
Balance, March 31, 1991 (2,270) $(12,598) $2,681 $2,681 $1,059 $50,199
Dividends (425)
Reissued Shares at Cost 6 31 (4)
Net Earnings 3,052
Balance, March 31, 1992 (2,264) (12,567) 2,681 2,681 1,059 52,822
Reacquired Shares (40) (250)
Dividends (506)
Reissued Shares at Cost 27 153 10 4
Net Earnings 6,065
Balance, March 31, 1993 (2,277) (12,664) 2,681 2,681 1,069 58,385
Reacquired Shares (115) (1,151)
Dividends (591)
Reissued Shares at Cost 106 587 32 5
Net Earnings 8,796
Balance, March 31, 1994 (2,286) $(13,228) $2,681 $2,681 $1,101 $66,595
The accompanying notes are an integral part of the Consolidated Financial
Statements.
Consolidated Statements
of Cash Flows Aaron Rents, Inc. and Subsidiaries
(In Thousands)
Years Ended March 31, 1994 1993 1992
Operating Activities
Net Earnings $ 8,796 $ 6,065 $ 3,052
Depreciation and Amortization 41,040 29,392 22,939
Deferred Taxes 101 779 (1,691)
Increase in Accounts Payable
and Accrued Expenses 6,428 2,550 359
(Increase) Decrease in Accounts Receivable (1,159) 563 (154)
Other Changes, Net 585 (967) 251
Cash Provided by Operating Activities 55,791 38,382 24,756
Investing Activities
Additions to Property, Plant and Equipment (9,539) (5,782) (2,441)
Book Value of Property Retired or Sold 590 760 175
Additions to Rental Merchandise (103,164) (77,961) (65,198)
Book Value of Rental Merchandise Sold 48,267 47,150 45,671
Contracts and Other Assets Acquired (10,815) (955) (1,163)
Cash Used by Investing Activities (74,661) (36,788) (22,956)
Financing Activities
Increase (Decrease) in Bank Debt 19,506 48 (2,308)
Increase (Decrease) in Other Debt 487 (1,044) 935
Dividends Paid (591) (506) (425)
Acquisition of Treasury Stock (1,151) (250)
Issuance of Stock Under Stock Option Plan 624 150
Cash Provided (Used) by Financing Activities 18,875 (1,602) (1,798)
Increase (Decrease) in Cash 5 (8) 2
Cash at Beginning of Year 81 89 87
Cash at End of Year $ 86 $ 81 $ 89
Cash Paid During the Year:
Interest $ 2,277 $ 1,139 $ 2,515
Income Taxes 5,123 5,120 2,656
The accompanying notes are an integral part of the Consolidated Financial
Statements.
Notes to Consolidated Financial Statements
At March 31, 1994 and 1993, and for Each of the Three Years in the Period Ended
March 31, 1994
Note A: Summary of Significant Accounting Policies
Principles of Consolidation The consolidated financial statements include the
accounts of the parent, Aaron Rents, Inc., and its wholly owned subsidiaries,
Aaron Enterprises, Inc., formerly Ball Stalker Co., and Aaron Investment
Company. All significant intercompany accounts and transactions have been
eliminated.
Line of Business The Company is engaged in the business of renting and
selling residential and office furniture and other merchandise. The Company
manufactures furniture principally for its rental and sales operations.
Rental Merchandise consists primarily of residential and office furniture and
other merchandise and is recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful life of the merchandise,
principally 1 to 5 years, after allowing for a salvage value of 5% to 60%. The
Company recognizes rental revenues over the rental period and recognizes all
costs of servicing and maintaining merchandise on rent as incurred.
Property, Plant and Equipment are recorded at cost. Depreciation and
amortization are computed on a straight-line basis over the estimated useful
lives of the respective assets, which are 8 to 27 years for buildings and
improvements and 2 to 5 years for other depreciable property and equipment.
Gains and losses related to dispositions and retirements are included in income.
Maintenance and repairs are charged to income as incurred; renewals and
betterments are capitalized.
Deferred Income Taxes arise principally from the use of accelerated methods of
computing depreciation on rental merchandise for tax purposes. During fiscal
year 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. The Company previously accounted
for deferred income taxes under SFAS No. 96. The adoption of the new income tax
standard had no effect on the Company's financial position or results of
operations.
Cost of Sales includes the depreciated cost of rental-return residential and
office merchandise sold and the cost of new residential and office merchandise
sold. It is not practicable to allocate operating expenses between selling and
rental operations.
Goodwill, which entirely related to the acquisition of Ball Stalker Co., in
previous years was amortized on a straight-line basis over a period of forty
years. As a result of preliminary discussions regarding the sale of Ball
Stalker Co. during fiscal year 1993, the Company estimated that the goodwill was
not recoverable and accordingly the then remaining goodwill of $1,429,000 ($.16
per share) was written off and charged to income. The assets of Ball Stalker
were sold in June, 1993.
Note B: Earnings Per Share
Earnings per share are computed by dividing net earnings by the weighted average
number of common shares and common equivalent shares (for stock options using
the treasury stock method) outstanding during the period which was 8,720,209
shares for the year ended March 31, 1994, 8,644,964 shares for the year ended
March 31, 1993 and 8,456,206 shares for the year ended March 31, 1992.
Note C: Property, Plant and Equipment
(In Thousands)
March 31, 1994 1993
Land $ 1,781 $ 1,764
Buildings and Improvements 6,913 5,723
Leasehold Improvements and Signs 9,886 7,929
Fixtures and Equipment 15,068 10,944
Construction in Progress 511 6
34,159 26,366
Less: Accumulated Depreciation
and Amortization (15,340) (13,040)
$18,819 $13,326
Note D: Debt
Bank Debt On February 2, 1994, the Company revised its revolving credit
agreement with two banks to allow borrowings up to $60,000,000 and changed
certain covenants in the credit agreement. The terms and pricing under the
credit agreement remained substantially unchanged. At March 31, 1994,
$51,451,000 was outstanding under this agreement. Amounts borrowed are charged
interest at the lower of the lenders' prime rate or libor plus 1%, or the rate
at which certificates of deposit are offered in the secondary market plus 1%.
The weighted average interest rate of borrowings under the revolving credit
agreement was 5.0% in 1994 and 4.9% in 1993.
In June, 1993, the Company entered into two interest-rate swap agreements to
modify the interest characteristics on $20,000,000 of its outstanding debt under
the revolving credit agreement from a floating to a fixed rate basis. These
agreements involve the receipt of amounts when the floating interest rate
exceeds the fixed rate and payment of amounts when the fixed rate exceeds the
floating rate over the life of the agreements. The differential to be paid or
received is accrued as interest rates change and recognized as an adjustment to
interest expense related to the debt. The related amount payable to or
receivable from counter parties is included in other liabilities or assets. The
fair values of the swap agreements are not recognized in the financial
statements.
The revolving credit agreement may be terminated on ninety days' notice by the
Company or six months' notice by the lenders. The debt is payable within one
year if terminated by the Company, or is payable in 60 monthly installments
following the termination date if terminated by the lenders.
The agreement restricts cash dividend payments and stock repurchases to 25% of
net earnings since April 1, 1991 and places other restrictions on additional
borrowings and requires the maintenance of certain financial ratios. Under the
borrowing arrangement, the Company has pledged as collateral substantially all
of its assets.
Ball Stalker, which was sold in June, 1993, had a revolving credit agreement
with a bank which permitted borrowings up to $4,000,000. At March 31, 1993,
approximately $1,550,000 was outstanding under this agreement. The indebtedness
bore interest at the bank's prime rate (6.0% at March 31, 1993).
Other Debt Other debt of $1,672,000 at March 31, 1994 represents an insurance
premium financing agreement bearing interest at 5.2%. Other debt of $1,185,000
at March 31, 1993 represented notes bearing interest between 6.0% and 8.75%.
Other debt matures in fiscal year 1995.
Note E: Income Taxes
(In Thousands)
Years Ended March 31, 1994 1993 1992
Current Tax Expense:
Federal $5,667 $3,727 $3,423
State 441 594 252
6,108 4,321 3,675
Deferred Tax Expense (Benefit):
Federal 101 781 (1,630)
State (2) (61)
101 779 (1,691)
$6,209 $5,100 $1,984
Components of the 1992 benefit for deferred income taxes are as follows:
(In Thousands)
Year Ended March 31, 1992
Tax Over Book Depreciation $ 3,516
Excess Book Cost of Sales Over That
Recorded for Tax Purposes as a Result
of Accelerated Tax Depreciation (3,982)
Other, Net (1,225)
$(1,691)
Significant components of the Company's deferred tax liabilities and assets are
as follows:
(In Thousands)
March 31, 1994 1993
Deferred Tax Liabilities:
Tax Over Book Depreciation $7,041 $7,422
Other, Net 736
Total Deferred Tax Liabilities 7,777 7,422
Deferred Tax Assets:
Insurance Reserves 725 747
Reserve for Closed Store Locations 601 708
Rent Collected in Advance 1,235 570
Other, Net 282
Total Deferred Tax Assets 2,561 2,307
Net Deferred Tax Liabilities $5,216 $5,115
The Company's actual tax rate differs from the statutory rate as follows:
Years Ended March 31, 1994 1993 1992
Statutory Rate 34.3% 34.0% 34.0%
Increases in Taxes
Resulting From:
Write-off of Goodwill 4.4
State Income Taxes, net of
Federal Income Tax Benefit 2.5 3.5 1.7
Effect of Change in Federal
Income Tax Rate on
Deferred Taxes .9
Other, Net 3.7 3.8 3.7
Effective Tax Rate 41.4% 45.7% 39.4%
Note F: Commitments
The Company leases warehouse and retail store space for substantially all of its
operations under operating leases expiring at various times through 2001. Most
of the leases contain renewal options for additional periods ranging from two to
ten years at rental rates generally adjusted on the basis of the consumer price
index or other factors. The Company also leases transportation equipment and
data processing equipment under operating leases expiring during the next three
years. Management expects that most leases will be renewed or replaced by other
leases in the normal course of business.
Future minimum rental payments required under operating leases that have initial
or remaining non-cancelable terms in excess of one year as of March 31, 1994 are
as follows: $13,367,000 in 1995; $10,153,000 in 1996; $7,625,000 in 1997;
$5,729,000 in 1998; $3,388,000 in 1999; $1,419,000 thereafter.
Rental expense was $12,462,000 in 1994, $10,523,000 in 1993 and $13,480,000 in
1992.
The Company leases three buildings from certain officers of the Company under
leases expiring in the years 1995 and 1999 for current annual rentals
aggregating $435,000.
During the fourth quarter of fiscal year 1992, the Company recorded $1.2 million
of charges for estimated future real estate obligations pertaining to closed
stores.
The Company maintains a 401(k) savings plan for substantially all its full-time
employees with at least one year of service with the Company. The plan allows
employees to contribute up to 6% of their annual compensation with 50% matching
by the Company on the first 4% of compensation. The Company s expense related to
the plan was $219,000, $197,000 and $183,000 in 1994, 1993 and 1992,
respectively.
Note G: Shareholders' Equity
During fiscal year 1993, the Company amended its Articles of Incorporation to
(1) reclassify each outstanding share of the then existing Common Stock as one
share of voting Class A Common Stock and one share of non-voting Class B Common
Stock and (2) increase the number of authorized shares of Common Stock from
10,000,000 to 50,000,000, consisting of 25,000,000 shares of Class A Common
Stock and 25,000,000 shares of Class B Common Stock. The effect of this
reclassification was to increase the total amount of outstanding shares to
8,446,609 at the end of fiscal year 1993 compared to 4,229,588 at the end of
fiscal year 1992. All share and per share data in the Company's financial
statements have been restated to reflect this reclassification.
At March 31, 1994, the Company held a total of 2,286,484 common shares in its
treasury, and is authorized by the Board of Directors to acquire up to an
additional 473,400 shares.
The Company has 1,000,000 shares of preferred stock authorized. The shares are
issuable in series with terms for each series fixed by the Board and such
issuance is subject to approval by the Board of Directors. No preferred shares
have been issued.
In April 1990, the Company established a stock option plan for the benefit of
certain key employees. Under the plan, 1,000,000 shares of the Company's
treasury shares are reserved for issuance when these options are exercised.
During fiscal year 1994, 5,000 options were granted at $9.75 per share and
10,000 options were granted at $10.50 per share. During fiscal year 1993, 10,000
options were granted at $10.25 per share. At March 31, 1994, there was
a total of 639,500 options granted and outstanding. These options are
exercisable two years from date of issuance and expire five years from date of
issuance.
On May 2, 1994, the Company issued, through a public offering, 1,275,000 shares
of Class B Common Stock. The net proceeds to the Company after deducting
underwriting discounts and offering expenses were $14,100,000. The net proceeds
were used to reduce bank debt.
Note H: Quarterly Financial Information (Unaudited)
(In Thousands First Second Third Fourth
Except Per Share) Quarter Quarter Quarter Quarter
Fiscal 1994
Revenues $42,627 $43,441 $45,701 $53,415
Gross Profit 24,253 25,478 26,906 32,358
Earnings Before
Taxes 3,443 3,259 3,667 4,636
Net Earnings 2,002 1,885 2,190 2,719
Earnings Per Share $ .23 $ .22 $ .25 $. 31
Fiscal 1993
Revenues $39,057 $38,686 $37,956 $41,933
Gross Profit 21,579 21,926 22,614 24,512
Earnings Before
Taxes 2,605 2,487 2,867 3,206
Net Earnings 1,555 1,480 1,628 1,402
Earnings Per Share $ .18 $ .17 $ .19 $ .16
Fourth quarter fiscal year 1993 included a $1,200,000 write-down of goodwill
associated with the Company's Ball Stalker subsidiary.
Note I: Sale and Acquisitions
On June 16, 1993, the Company sold substantially all of the assets of its Ball
Stalker subsidiary. Ball Stalker had revenues of $16,242,000 in fiscal year 1993
and $14,168,000 in fiscal year 1992 and did not contribute to earnings in either
year. The sale did not have any significant effect on the Company's results of
operations for fiscal year 1994.
On December 1, 1993, the Company acquired substantially all of the assets of
FLB, Inc. (d/b/a Looks Furniture Leasing), a furniture rental operation with 15
locations in Texas and Oklahoma. The cash purchase price was $8,000,000. The
acquisition had no significant effect on the Company's results of operations for
fiscal year 1994. In addition to the above acquisition, the Company acquired
during the fiscal year the assets of several other furniture rental companies
for cash aggregating approximately $3,000,000.
Note J: Franchising of Aaron's Rental Purchase Stores
The Company franchises Aaron's Rental Purchase stores. At March 31, 1994 and
1993, there were 18 and 7 franchises sold, respectively, and 15 and 6 franchises
opened, respectively. Franchisees pay a non-refundable initial franchise fee of
$15,000 and an ongoing royalty fee of 5% of cash receipts. The Company
recognizes these fees as earned and includes them in Other Revenues in the
Consolidated Statements of Earnings. The Company has guaranteed certain lease
and debt obligations of some of the franchisees amounting to $547,000 and
$1,100,000, respectively, at March 31, 1994. The Company has recourse rights to
the leased property and to the assets securing the debt obligations. As a
result, the Company does not expect to incur any significant losses under these
guarantees.
Common Stock Market Prices
and Dividends
The Company's Class A and Class B Common Stock are traded on The Nasdaq National
Market under the symbols "ARONA" and "ARONB," respectively. The approximate
number of shareholders of record of the Company's Common Stock at June 1, 1994
was 2,000. The following table shows, for the periods indicated, the range of
high and low bid prices per share for the Class A and Class B Common Stock as
reported by Nasdaq, and the cash dividends paid per share. All share price and
cash dividend amounts with respect to the Common Stock prior to November 3,
1992, have been divided by two to reflect the reclassification of the Company's
Common Stock on that date into Class A and Class B Common Stock.
Common Stock
Cash
Dividends
Fiscal Year Ended High Low Per Share
March 31, 1993
First Quarter $ 6.56 $ 6.00 $ .025
Second Quarter 7.75 5.75
Third Quarter (through
November 2, 1992) 8.38 7.25
Class A
Common Stock
Cash
Dividends
Fiscal Year Ended High Low Per Share
March 31, 1993
Third Quarter
(November 3 through
December 31,1992) $ 9.50 $ 7.25 $ .03
Fourth Quarter 11.50 8.50
March 31, 1994
First Quarter 10.75 10.25 .03
Second Quarter 13.25 10.50
Third Quarter 12.25 10.50 .03
Fourth Quarter 15.00 11.75
Class B
Common Stock
Cash
Dividends
Fiscal Year Ended High Low Per Share
March 31, 1993
Third Quarter
(November 3 through
December 31,1992) $ 8.50 $ 7.00 $ .04
Fourth Quarter 11.00 8.25
March 31, 1994
First Quarter 10.00 9.75 .04
Second Quarter 13.00 9.50
Third Quarter 12.50 10.00 .04
Fourth Quarter 15.00 11.00
The average closing bid quotation for Class A and Class B Common Stock on June
1, 1994 was $12.75 and $12.25 respectively. The Company currently expects to
continue its policy of paying dividends.
Report of Independent Auditors
To the Board of Directors and Shareholders of Aaron Rents, Inc.:
We have audited the accompanying consolidated balance sheets of Aaron Rents,
Inc. and Subsidiaries as of March 31, 1994 and 1993, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aaron Rents, Inc.
and Subsidiaries as of March 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1994 in conformity with generally accepted accounting
principles.
Ernst & Young, LLP
Atlanta, Georgia Ernst & Young, LLP
May 27, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 21 day of
April, 1995.
AARON RENTS, INC.
Gilbert L. Danielson
By:
Gilbert L. Danielson
Vice President, Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 21 day of April, 1995.
SIGNATURE TITLE
R. Charles Loudermilk, Sr.
Chief Executive Officer
R. Charles Loudermilk, Sr. (Principal Executive Officer)
and Chairman of the Board of Directors
Gilbert L. Danielson
____________________________ Vice President, Finance and Director
Gilbert L. Danielson (Principal Financial Officer)
John E. Aderhold
____________________________ Director
John E. Aderhold
Earl Dolive
___________________________ Director
Earl Dolive
Leo Benatar
___________________________ Director
Leo Benatar
Keith C. Groen
___________________________ Vice President, Legal
Keith C. Groen Secretary and Director
Robert C. Loudermilk, Jr.
____________________________ Vice President, Real Estate
Robert C. Loudermilk, Jr. and Director
____________________________
R.K. Sehgal Director
____________________________
Rankin M. Smith, Sr. Director
____________________________
Ingrid Saunders Jones Director
Robert P. Sinclair, Jr.
____________________________
Robert P. Sinclair, Jr. Controller
(Principal Accounting Officer)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report on
Form 10-K of Aaron Rents, Inc. of our report dated May 27, 1994, included
in the 1994 Annual Report to Shareholders of Aaron Rents, Inc. as amended by
this Form 10-K/A.
We also consent to the addition of the financial statement
schedules, listed in the accompanying index to financial
statements, to the financial statements covered by our report
dated May 27, 1994, incorporated herein by reference.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-62536) pertaining to the
Aaron Rents, Inc. 1990 Stock Option Plan and in the Registration
Statements (Form S-8 Nos. 33-9026 and 33-62538) pertaining to the Aaron
Rents, Inc. Employees Retirement Plan and Trust of our report
dated May 27, 1994, with respect to the consolidated financial
statements and schedules of Aaron Rents, Inc. incorporated by
reference in its Annual Report (Form 10-K) for the year ended
March 31, 1994, as amended by this From 10-K/A.
Ernst & Young, LLP
Atlanta, Georgia
April 20, 1995
