<PAGE>
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, 1995 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 EAST 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
Title of Each Class of November 7, 1995
------------------- ---------------------
Class A Common Stock, $.50 Par Value 4,008,263
Class B Common Stock, $.50 Par Value 5,703,730
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPT. 30, MARCH 31,
1995 1995
----------- ---------
(in thousands)
<S> <C> <C>
ASSETS:
Cash $ 96 $ 95
Accounts Receivable 8,570 8,391
Rental Merchandise 173,827 172,741
Less: Accumulated Depreciation (53,343) (51,385)
-------- --------
120,484 121,356
Property, Plant and Equipment, Net 23,131 24,181
Prepaid Expenses and Other Assets 3,458 3,504
-------- --------
Total Assets $155,739 $157,527
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 18,017 $ 19,062
Deferred Income Taxes Payable 3,038 4,126
Customer Deposits and Advance Payments 6,442 6,229
Bank Debt 38,375 42,172
Other Debt 439 987
-------- --------
66,311 72,576
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:
6,636,761 Shares Issued 3,318 3,318
Additional Paid-In Capital 15,363 15,314
Retained Earnings 83,369 77,216
-------- --------
104,731 98,529
Less: Treasury Shares at Cost,
Class A Common Stock, 1,353,498 Shares
at September 30, 1995 and 1,234,748
Shares at March 31, 1995 (10,110) (8,324)
Class B Common Stock, 933,031 Shares
at September 30, 1995 and 944,031
Shares at March 31, 1995 (5,193) (5,254)
-------- --------
89,428 84,951
-------- --------
Total Liabilities and Shareholders' Equity $155,739 $157,527
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1995 1994 1995 1994
------------------ -------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Rentals and Fees $ 45,361 $ 42,639 $ 91,051 $ 84,347
Sales 13,132 14,133 25,990 27,592
Other 519 463 1,106 891
-------- -------- --------- ---------
59,012 57,235 118,147 112,830
-------- -------- --------- ---------
COSTS AND EXPENSES:
Cost of Sales 9,440 10,250 18,554 19,942
Operating Expenses 29,664 28,447 59,688 56,677
Depreciation
of Rental Merchandise 13,926 13,710 27,826 26,430
Interest 830 731 1,580 1,411
-------- -------- --------- ---------
53,860 53,138 107,648 104,460
-------- -------- --------- ---------
EARNINGS BEFORE
TAXES 5,152 4,097 10,499 8,370
INCOME TAXES 1,947 1,590 3,979 3,256
NET EARNINGS $ 3,205 $ 2,507 $ 6,520 $ 5,114
======== ======== ========= =========
EARNINGS PER SHARE $ 0.32 $ 0.25 $ 0.65 $ 0.52
-------- -------- --------- ---------
CASH DIVIDENDS DECLARED
PER SHARE
Class A Common Stock $ $ $ 0.02 $ 0.03
-------- -------- --------- ---------
Class B Common Stock $ $ $ 0.05 $ 0.04
-------- -------- --------- ---------
WEIGHTED AVERAGE
SHARES OUTSTANDING 10,022 10,040 10,028 9,822
======== ======== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
1995 1994
-------- ---------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 6,520 $ 5,114
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 28,865 28,851
Decrease in deferred taxes (1,088) (821)
Decrease in accounts payable
and accrued expenses (1,045) (3,853)
Increase in accounts receivable (179) (2,479)
Other changes, net 259 1,897
------- --------
Cash provided by operations 33,332 28,709
------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,973) (5,919)
Book value of property retired or sold 2,123 295
Additions to rental merchandise (46,613) (56,267)
Book value of rental merchandise sold 21,520 20,257
------- --------
Cash used by investing activities (26,943) (41,634)
------- --------
FINANCING ACTIVITIES:
Proceeds from Revolving Credit Agreement 38,102 131,128
Repayments on Revolving Credit Agreement (41,899) (131,168)
Decrease in other debt (548) (910)
Dividends paid (367) (347)
Acquisition of treasury stock (1,794)
Sale of common stock 14,140
Issuance of stock under stock option plan 118 81
------- --------
Cash (used) provided by financing activi (6,388) 12,924
------- --------
INCREASE (DECREASE) IN CASH 1 (1)
Cash at Beginning of Period 95 86
------- --------
Cash at End of Period $ 96 $ 85
======= ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Principles of Consolidation:
- --------------------------------
The consolidated financial statements include the accounts of
Aaron Rents, Inc. ("the Company") and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Interim Financial Statement:
- --------------------------------
The Consolidated Balance Sheet as of September 30, 1995, and the
Consolidated Statements of Earnings and Cash Flows for the six months ended
September 30, 1995 and 1994, 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, 1995 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 March 31, 1995. The
results of operations for the period ended September 30, 1995, are not
necessarily indicative of the operating results for the full year.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ----------------------
SECOND QUARTER OF FISCAL YEAR 1996 COMPARED TO SECOND QUARTER OF FISCAL YEAR
1995:
Total revenues for the second quarter of fiscal year 1996 increased
$1.8 million (3.1%) to $59.0 million from $57.2 million for the same period a
year ago. This increase in revenues is primarily due to a $2.7 million (6.4%)
increase in rentals and fees income. Of this increase in rentals and fees
income, $3.5 million is attributed to Aaron's Rental Purchase stores in which
rental revenues increased 19.7% to $21.3 million in the second quarter of 1996
compared to $17.8 million for the same quarter a year ago. Rental revenues from
the Company's rent-to-rent operations declined $800,000 (3.4%) during the same
period.
Revenues from sales declined $1.0 million (7.1%) to $13.1 million
compared to $14.1 million for the same period last year. This decline is due to
lower sales of new furniture and sales to furniture distributors. Sales to
furniture distributors decreased $670,000 in the second quarter of fiscal 1996
compared to a year ago.
Other revenues in the second quarter 1996 were $519,000 compared to
$463,000 a year ago. Included in other revenues is franchise and royalty fee
income from franchised operations. This income for the current quarter was
$315,000 compared to $203,000 for the same period a year ago.
Cost of sales decreased $810,000 to $9.4 million compared to $10.3
million for the second quarter last year, and as a percentage of sales was 71.9%
compared to 72.5% a year ago.
Operating expenses increased $1.2 million (4.3%) to $29.7 million
compared to $28.4 million a year ago. As a percentage of total revenues,
operating expenses were 50.3% in the second quarter of fiscal year 1996 compared
to 49.7% for the quarter a year ago.
Depreciation of rental merchandise increased $216,000 (1.6%) to $13.9
million from $13.7 million last year and, as a percentage of total rentals and
fees, decreased to 30.7% in the current quarter from 32.2% for the same quarter
a year ago. The percentage decline was due to lower depreciation expense
compared to rentals and fees at Aaron's Rental Purchase stores.
Interest expense increased $99,000 (13.5%) to $830,000 in the second
quarter of fiscal year 1996 compared to $731,000 for the same quarter last year.
The increase in interest expense was due to increased borrowing rates in the
current quarter.
Income tax expense increased $357,000 (22.5%) to $1.9 million compared
to $1.6 million a year ago, and the Company's effective tax rate was 37.8% for
the second quarter of fiscal year 1996 compared to 38.8% in the previous year's
quarter. The decrease in the effective tax rate is due to lower amounts
provided in fiscal year 1996 for permanent differences.
As a result, net earnings increased $698,000 (27.8%) to $3.2 million
in the second quarter of fiscal year 1996 compared to $2.5 million a year ago.
As a percentage of total revenues, net earnings were 5.4% in the current year
quarter compared to 4.4% a year ago.
The weighted average number of shares outstanding during the second
quarter of fiscal year 1996 was 10,022,000 compared to 10,040,000 for the same
period last year.
<PAGE>
SIX MONTHS OF FISCAL YEAR 1996 COMPARED TO SIX MONTHS OF FISCAL YEAR 1995.
Total revenues for the six months of fiscal year 1996 increased $5.3
million (4.7%) to $118.1 million from $112.8 million for the same period a year
ago. This increase in revenues is primarily due to a $6.7 million (7.9%)
increase in rentals and fees income. Of this increase in rentals and fees
income, $8.4 million is attributed to Aaron's Rental Purchase stores in which
rental revenues increased 24.4% to $42.8 million in the first six months of 1996
compared to $34.4 million for the same period a year ago. Rental revenues from
the Company's rent-to-rent operations declined $1.7 million (3.4%) during the
same period.
Revenues from sales declined $1.6 million (5.8%) to $26.0 million
compared to $27.6 million for the same period last year. This decrease is due
to decreased sales of new furniture and sales to furniture distributors. Sales
to furniture distributors decreased $691,000 for the six months of fiscal year
1996 compared to the same period a year ago.
Other revenues in the six months of 1996 were $1,106,000 compared to
$891,000 a year ago. Included in other revenues is franchise and royalty fee
income from franchised operations. This income for the first six months of
fiscal year 1996 was $660,000 compared to $368,000 for the same period a year
ago.
Cost of sales decreased $1.4 million to $18.6 million compared to
$19.9 million for the six months last year and, as a percentage of sales,
decreased to 71.4% from 72.3%. The improvement in gross margins is primarily
due to improved margins on the sale of rental return furniture.
Operating expenses increased $3.0 million (5.3%) to $59.7 million
compared to $56.7 million a year ago. As a percentage of total revenues,
operating expenses were 50.5% for the first six months of fiscal year 1996
compared to 50.2% for the same period a year ago.
Depreciation of rental merchandise increased $1.4 million (5.3%) to
$27.8 million from $26.4 million last year and, as a percentage of total rentals
and fees, decreased to 30.6% for the six months from 31.3% for the same period a
year ago. The percentage decline was due to lower depreciation expense compared
to rentals and fees at Aaron's Rental Purchase stores.
Interest expense increased $169,000 (12.0%) to $1,580,000 for the
first six months of fiscal year 1996 compared to $1,411,000 for the same period
last year. The increase in interest expense is due to increased borrowing rates
in the first six months of fiscal year 1996.
Income tax expense increased $723,000 (22.2%) to $4.0 million compared
to $3.3 million a year ago, and the Company's effective tax rate was 37.9% for
the first six months of fiscal year 1996 compared to 38.9% in the previous
year's period. The decrease in the effective tax rate is due to lower amounts
provided in fiscal year 1996 for permanent differences.
As a result, net earnings increased $1.4 million (27.5%) to $6.5
million for the first six months of fiscal year 1996 compared to $5.1 million a
year ago. As a percentage of total revenues, net earnings were 5.5% in the
current year and 4.5% for the same period a year ago.
The weighted average number of shares outstanding during the first six
months of fiscal year 1996 was 10,028,000 compared to 9,822,000 for the first
six month period last year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
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.
During the first quarter of fiscal year 1996, the Company declared a
semi-annual dividend payable on July 6, 1995 of $.02 per share on Class A Common
Stock and $.05 per share on Class B 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.
<PAGE>
ITEM 5. OTHER INFORMATION
-----------------
On November 7, 1995, the Company's Board of Directors made a decision
to change the Company's fiscal year end from March 31 to December 31. The
Company has elected to file a transition report on Form 10-K for the nine-month
transition period from April 1, 1995 to December 31, 1995, and will begin its
quarterly reporting on its new fiscal year with its new first quarter ended
March 31, 1996.
<PAGE>
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.
- ------ ---------------------- --------
11 Computation of Earnings Per Share 12
27 Article 5 Financial Data Schedule 13
(b) No reports on Form 8-K were filed by the Registrant during the
three months ended September 30, 1995.
<PAGE>
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 10, 1995 /s/ GILBERT L. DANIELSON
------------------------- ---------------------------
Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date - November 10, 1995 /s/ ROBERT P. SINCLAIR, JR.
------------------------- ---------------------------
Robert P. Sinclair, Jr.
Controller
<PAGE>
EXHIBIT 11
----------
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ --------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1995 1994 1995 1994
------------------ --------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
PRIMARY:
Net Income $ 3,205 $ 2,507 $ 6,520 $ 5,114
======== ======== ========= ========
Weighted average number of
common shares outstanding 9,716 9,723 9,750 9,504
-------- -------- --------- --------
Add:
Dilutive effect of outstanding options,
as determined by the application
of the treasury stock method using
the average market price of the
Company's common stock 306 317 278 318
-------- -------- --------- --------
Weighted average number of common
and common equivalent share 10,022 10,040 10,028 9,822
-------- -------- --------- --------
Primary earnings per share $ .32 $ .25 $ .65 $ .52
======== ======== ========= ========
Fully diluted:
Weighted average number of common
and common equivalent share 10,022 10,040 10,028 9,822
-------- -------- --------- --------
Add:
Additional dilutive effect of outstanding
options, as determined by the application
of the treasury stock method using the
quarter end market price of the
Company's common stock 1 28
-------- -------- --------- --------
Weighted average number of common
shares fully diluted 10,023 10,040 10,056 9,822
-------- -------- --------- --------
Fully diluted earnings per share* $ .32 $ .25 $ .65 $ .52
======== ======== ========= ========
</TABLE>
- ------
*Not presented in Financial Statements since dilutive effect is less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AARON RENT'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTER ENDED SEPTEMBER
30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 8,570
<ALLOWANCES> 0<F1>
<INVENTORY> 120,484<F2>
<CURRENT-ASSETS> 0<F3>
<PP&E> 23,181
<DEPRECIATION> 0<F1><F3>
<TOTAL-ASSETS> 155,739
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 0
<COMMON> 5,999
0
0
<OTHER-SE> 83,429
<TOTAL-LIABILITY-AND-EQUITY> 155,739
<SALES> 25,990
<TOTAL-REVENUES> 118,147
<CGS> 18,554
<TOTAL-COSTS> 106,068
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,580
<INCOME-PRETAX> 10,499
<INCOME-TAX> 3,979
<INCOME-CONTINUING> 6,520
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,520
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<FN>
<F1> The allowance for doubtful accounts is netted against total accounts
receivable in the Accounts Receivable balance.
<F2> Rental merchandise has been classified as inventory for purposes of this
schedule. Rental merchandise has been shown net of 53,343 accumulated
depreciation.
<F3> The financial statements are presented with an unclassified balance sheet.
<F4> PP&E has been shown net of accumulated depreciation.
</TABLE>
