<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
March 31, 1996 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.
<TABLE>
<CAPTION>
Shares Outstanding as of
Title of Each Class May 10, 1996
------------------- ------------
<S> <C>
Class A Common Stock, $.50 Par Value 3,826,406
Common Stock, $.50 Par Value 5,705,820
</TABLE>
<PAGE>
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
----------- -------------
(in thousands)
<S> <C> <C>
ASSETS:
Cash $ 97 $ 98
Accounts Receivable 7,310 8,136
Rental Merchandise 182,740 176,751
Less: Accumulated Depreciation (55,099) (54,440)
----------- ------------
127,641 122,311
Property, Plant and Equipment, Net 24,812 23,492
Prepaid Expenses and Other Assets 2,895 4,608
----------- ------------
Total Assets $ 162,755 $ 158,645
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 19,037 $ 19,304
Dividends Payable 365
Deferred Income Taxes Payable 4,299 3,781
Customer Deposits and Advance Payments 7,014 6,622
Bank Debt 37,966 37,260
Other Debt 1,300 219
----------- ------------
Total Liabilities 69,616 67,551
Shareholders' Equity:
Common Stock, Class A, Par Value $.50 Per
Share-Authorized 25,000,000 shares:
5,361,761 Shares Issued 2,681 2,681
Common Stock, 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 15,401 15,370
Retained Earnings 90,525 86,365
----------- ------------
111,925 107,734
Less: Treasury Shares at Cost,
Class A Common Stock, 1,535,355 Shares
at March 31, 1996 and 1,427,588
Shares at December 31, 1995 (13,605) (11,451)
Class B Common Stock, 930,941 Shares
at March 31, 1996 and 932,031 Shares at
December 31, 1995 (5,181) (5,189)
----------- ------------
Total Shareholders' Equity 93,139 91,094
----------- ------------
Total Liabilities and
Shareholders' Equity $ 162,755 $ 158,645
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
--------
1996 1995
---- ----
(in thousands,
except per share amounts)
<S> <C> <C>
REVENUES:
Rentals and Fees $ 49,481 $ 45,213
Sales 14,507 13,780
Other 705 558
--------- ---------
64,693 59,551
--------- ---------
COSTS AND EXPENSES:
Cost of Sales 10,523 9,924
Operating Expenses 32,070 29,564
Depreciation
of Rental Merchandise 14,592 13,796
Interest 717 848
--------- ---------
57,902 54,132
--------- ---------
EARNINGS BEFORE TAXES 6,791 5,419
INCOME TAXES 2,632 2,081
--------- ---------
NET EARNINGS $ 4,159 $ 3,338
========= =========
EARNINGS PER SHARE $ .42 $ .34
========= =========
WEIGHTED AVERAGE
SHARES OUTSTANDING 9,922 9,932
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 4,159 $ 3,338
Depreciation and Amortization 16,272 15,448
Deferred Income Taxes 518 (13)
Change in Accounts Payable and
Accrued Expenses (267) 2,750
Change in Accounts Receivable 826 1,661
Other Changes, Net 2,105 (643)
---------- ---------
Cash Provided by Operating Activities 23,613 22,541
---------- ---------
INVESTING ACTIVITIES
Additions to Property, Plant and
Equipment (3,230) (2,687)
Book Value of Property Retired or Sold 251 692
Additions to Rental Equipment (31,242) (26,734)
Book Value of Rental Equipment Sold 11,300 11,057
Contracts and Other Assets Acquired (328)
---------- ---------
Cash (Used) by Investing Activities (22,921) (18,000)
---------- ---------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 16,448 16,965
Repayments on Revolving Credit Agreement (15,742) (21,471)
Increase of Other Debt 1,081 771
Dividends Paid (365) (362)
Acquisition of Treasury Stock (2,220) (1,693)
Issuance of Stock Under Stock Option Plan 105 1,252
---------- ---------
Cash (Used) by Financing Activities (693) (4,538)
---------- ---------
(Decrease) Increase in Cash (1) 3
Cash at Beginning of Year 98 92
---------- ---------
Cash at End of Period $ 97 $ 95
========== =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<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 Statements:
- -----------------------------
The Consolidated Balance Sheet as of March 31, 1996, and the Consolidated
Statements of Earnings and Cash Flows for the three months ended March 31, 1996
and 1995, have been prepared without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1996 and for all periods presented have
been made.
During 1995, the Company changed its fiscal year end from March 31 to
December 31. Interim financial statements for the comparable periods during 1995
of the fiscal year ending December 31, 1996 have been presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the nine months ended December 31, 1995. The results of
operations for the period ended March 31, 1996, are not necessarily indicative
of the operating results for the full year.
Accounting Changes:
- -------------------
Depreciation:
- -------------
At December 31, 1995, approximately 20% of the Aaron's Rental Purchase
Division's merchandise on rent was fully depreciated. On January 1, 1996, the
Company prospectively changed its depreciation method on rental purchase
merchandise acquired after December 31, 1995 from generally 14 months straight-
line with a 5% salvage value to a method that depreciates the merchandise over
the contract period, when on rent generally 12 months, and 36 months when not on
rent to a 0% salvage value. This new method is similar to a method referred to
as the income forecasting method in the rental purchase industry. The Company
adopted the new method because management believes that it provides a more
systematic and rational allocation of the cost of rental purchase merchandise
over its useful life. The effect for the quarter ended March 31, 1996 of the
change in the depreciation method on merchandise purchased after December 31,
1995 was to decrease net income by approximately $300,000 ($.03 per share). In
addition, based on an analysis of the average composite life of the division's
rental purchase merchandise on rent or on hand at December 31, 1995, the Company
extended the depreciable lives of that merchandise from generally 14 months to
18 months, and made other refinements to depreciation rates on rental and rental
purchase merchandise. The effect of such change in depreciable lives and other
refinements was to increase net income for the quarter ended March 31, 1996 by
approximately $400,000 ($.04 per share). It is not expected that such change in
estimates will have a significant effect on net income for the year ending
December 31, 1996.
5
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ---------------------
FIRST QUARTER ENDED MARCH 31, 1996, COMPARED TO THE QUARTER ENDED
MARCH 31, 1995:
Total revenues for the first quarter of fiscal year 1996 increased $5.1 million
(8.6%) to $64.7 million compared to $59.6 million for the same period a year
ago. This increase in revenues was primarily due to a $4.3 million (8.6%)
increase in rentals and fees revenue. Of this increase in rental revenues, $3.7
million was attributable to Aaron's Rental Purchase stores, which increased
18.0% to $23.9 million compared to $20.2 million last year. Rental revenues from
the Company's rent-to-rent operations increased $475,000 (1.9%) during the same
period.
Revenues from sales increased $727,000 (5.3%) to $14.5 million from $13.8
million for the same period last year. This increase was due to an increase in
sales for the rental purchase division of $1.6 million offset by a $842,000
decrease for the rent-to-rent division due to the closure of two rent-to-rent
clearance centers and a realignment of MacTavish Furniture away from outside
sales to the supply of furniture internally.
Other revenue increased $147,000 (29.7%) to $705,000 compared to $558,000 last
year. This increase was entirely due to an increase of $164,000 in franchise
and royalty fee income due to a net increase of 12 franchise stores as well as
older franchise stores gaining in revenue. This income for the current quarter
was $458,000 compared with $294,000 for the same period last year.
Cost of sales increased $598,000 (6.0%) to $10.5 million compared to $9.9
million and as a percentage of sales increased to 72.5% from 72.0% primarily
due to increases in product costs.
Operating expenses increased $2.5 million (8.5%) to $32.1 million from $29.6
million. As a percentage of total revenues, operating expenses were essentially
unchanged at 49.6% for both periods.
Depreciation of rental merchandise increased $797,000 (5.8%) to $14.6 million
and, as a percentage of total rentals and fees, decreased to 29.5% from 30.5%.
This decrease is due to the change in depreciation method in the rental purchase
division.
Interest expense decreased $131,000 (-15.5%) to $717,000 compared to $848,000.
As a percentage of total revenue, interest decreased to 1.1% from 1.4% due to a
lower average bank debt balance and stability of interest rates during the
quarter.
Income tax expense increased $551,000 (26.5%) to $2.6 million compared to $2.1
million, and the Company's effective tax rate was 38.8% for the quarter versus
38.4% for the same period in 1995.
As a result, net earnings increased $822,000 (24.6%) to $4.2 million in first
quarter of fiscal year 1996 compared to $3.3 million for the same period in
1995. As a percentage of total revenues, net earnings increased to 6.4% in the
current quarter as compared to 5.6% for the same period last year.
The weighted average number of shares outstanding during the first quarter of
fiscal year 1996 was 9,922,000 compared to 9,932,000 for the same period last
year.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
During the first quarter of 1996 the Company paid a semi-annual dividend
that was declared in December 1995 of .02 per share on Class A Common Stock and
.05 per share on Class B Common Stock.
On May 7, 1996, the Company declared a semi-annual dividend payable on July
8, 1996 of $.02 per share on both Common Stock and Class A 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.
7
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
The following is a description of the matters submitted to a vote at the
May 7, 1996 Annual Shareholders meeting and the results of that vote.
(1) The election of ten directors to constitute the Board of Directors
until the next annual meeting and until their successors are elected and
qualified:
For: 3,143,209 Withheld: 185,003
(2) The approval of a proposal to amend the Company's articles of
incorporation to change the designation of the Company's Class B Common Stock to
"Common Stock";
For: 3,103,792 Against: 215,634
Abstain: 2,786 Broker non-votes: 6,000
(3) The approval of the Aaron Rents, Inc. 1996 Stock Option and Incentive
Award Plan:
For: 2,954,941 Against: 364,242
Abstain: 3,029 Broker non-votes: 6,000
Item 5. Other Information
On May 7, 1996, the Company's Board of Directors declared a stock
dividend as described in Exhibit 99.
Item 6. Exhibits and Reports on Form 8-K:
(a) The following exhibits are furnished herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page No.
- ------ ---------------------- --------
<C> <S> <C>
3 Amended and Restated Articles of Incorporation
11 Computation of Earnings Per Share
18 Letter Re Change in Accounting Principles
27 Financial Data Schedule
99 Press Release
</TABLE>
(b) No reports on Form 8-K were filed by the Registrant during the
three months ended March 31, 1996
8
<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- May 14, 1996 /s/ GILBERT L. DANIELSON
------------- ---------------------------
Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date- May 14, 1996 /s/ ROBERT P. SINCLAIR, JR.
------------- ---------------------------
Robert P. Sinclair, Jr.
Controller
9
<PAGE>
EXHIBIT 3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
AARON RENTS, INC.
I.
The name of the corporation is:
AARON RENTS, INC.
II.
The Corporation is organized pursuant to the provisions of
the Georgia Business Corporation Code (the "Code").
III.
The Corporation shall have perpetual duration.
IV.
The Corporation is organized for the following purposes:
To buy, sell, rent and lease office and residential
furniture and accessories and other personal property of all
kinds; to manufacture, sell and deliver furniture of any kind
whatsoever; and generally to manufacture, produce, assemble,
fabricate, import, purchase or otherwise acquire, invest in,
own, hold, use, maintain, service or repair, sell, rent, lease,
pledge, mortgage, exchange, export, distribute, assign and
otherwise dispose of and to trade and deal in and with, at
wholesale or retail, goods, wares, merchandise, commodities,
articles of commerce and property of every kind and
description; and to engage in, conduct and carry on a general
manufacturing, importing and exporting, merchandising, leasing,
mercantile and trading business in any and all branches
thereof.
To do each and every thing necessary, suitable or proper
for the accomplishment of any of the purposes or the attainment
of any one o more of the objects herein enumerated, or which
shall at any time appear conducive to or expedient for the
protection or benefit of the Corporation.
IN FURTHERANCE OF AND NOT IN LIMITATION of the general
powers conferred by the laws of the State of Georgia and the
objects and purposes herein set forth, it is expressly provided
that to such extent as a corporation organized under the Code
may now or hereafter lawfully do, the Corporation shall have
the power to do, either as principal or agent and either alone
<PAGE>
or in connection with other corporations, firms or individuals,
all and anything necessary, suitable, convenient or proper for,
or in connection with, or incident to, the accomplishment of
any of the purposes or the attainment of any one or more of the
objects herein enumerated, or designed directly or indirectly
to promote the interests of the Corporation or to enhance the
value of its properties; and in general to do any and all
things and exercise any and all powers, rights and privileges
which a corporation may now or hereafter be authorized to do or
to exercise under the Code or under any act amendatory thereof,
supplemental thereto or substituted therefor.
The foregoing provisions of this Article IV shall be
construed both as purposes and powers and each as an
independent purpose and power. The foregoing enumeration of
specific purposes and powers herein specified shall, except
when otherwise provided in this Article IV, be in no wise
limited or restricted by referenced to, or inference from, the
terms of any provision of this or any other Article of these
Amended and Restated Articles of Incorporation.
V.
The Corporation shall have authority to issue shares of
capital stock consisting of Twenty-Five Million (25,000,000)
shares of Common Stock, par value $0.50 per share ("Common
Stock"), Twenty-Five Million (25,000,000) shares of Class A
Common Stock, par value $0.50 per share ("Class A Common
Stock") (collectively, the "Stock"), and One Million
(1,000,000) shares of Preferred Stock, par value $1.00 per
share ("Preferred Stock").
The Corporation may purchase its own shares of capital
stock out of unreserved and unrestricted earned surplus and
capital surplus available therefor and as otherwise provided by
law. The Board of Directors may from time to time distribute
to shareholders out of capital surplus of the Corporation a
portion of its assets, in cash or in property.
SECTION 1. TERMS OF THE CLASS A COMMON STOCK AND COMMON
--------------------------------------------
STOCK. The powers, preferences and rights of the Class A
-----
Common Stock and the Common Stock, and the qualifications,
limitations or restrictions thereof, shall be as follows:
(a) Voting. At each annual or special meeting of
------
stockholders, each holder of Class A Common Stock shall be
entitled to one (1) vote in person or by proxy for each share
of Class A Common Stock standing in such person's name on the
stock transfer records of the Corporation in connection with
the election of directors and all other actions submitted to a
vote of stockholders; holders of Common Stock shall not be
entitled to vote on any matters except as otherwise expressly
provided by these Amended and Restated Articles of
Incorporation or the Code.
2
<PAGE>
(b) Dividends and Other Distributions. The record holders
---------------------------------
of the Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of the
Corporation as may be declared thereon by the Board of
Directors out of funds legally available therefor. Each share
of Class A Common Stock and each share of Common Stock shall
have identical rights with respect to dividends and
distributions (including distributions in connection with any
recapitalization, and upon liquidation, dissolution or winding
up, either partial or complete, of the Corporation); provided,
that in the case of regular cash dividends, the Corporation may
pay a dividend on the Common Stock without paying any dividend
on the Class A Common Stock, and the payment per share of
Common Stock may be higher (but in no event lower) than the
payment per share of Class A Common Stock; and provided
further, that dividends or other distributions payable on the
Stock in shares of Stock shall be made to all holders of Stock
and may be made only as follows: (i) in shares of Common Stock
to the record holders of Class A Common Stock and to the record
holders of Common Stock, (ii) in shares of Class A Common Stock
to the record holders of Class A Common Stock and in shares of
Common Stock to the record holders of Common Stock, or (iii) in
any other authorized class or series of capital stock to the
holders of both classes of Stock.
(c) Convertibility. Except as provided below, neither
--------------
the Class A Common Stock nor the Common Stock shall be
convertible into another class of Stock or any other security
of the Corporation.
(1) All outstanding shares of Common Stock may be
converted into shares of Class A Common Stock on a share-for-
share basis by resolution of the Board of Directors if, as a
result of the existence of the Common Stock, either the Class A
Common Stock or Common Stock is, or both are, excluded from
quotation on the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") or, if such shares
are listed on a national securities exchange, from trading on
the principal national securities exchange on which such
securities are traded.
(2) All outstanding shares of Common Stock shall be
immediately converted into shares of Class A Common Stock on a
share-for-share basis if at any time the number of outstanding
shares of Class A Common Stock as reflected on the stock
transfer records of the Corporation falls below 10% of the
aggregate number of outstanding shares of Class A Common Stock
and Common Stock. For purposes of the immediately preceding
sentence, any shares of Class A Common Stock and Common Stock
repurchased or otherwise acquired by the Corporation shall no
longer be deemed "outstanding" from and after the date of
repurchase.
3
<PAGE>
(3) If the Common Stock is converted pursuant to
subsection (c)(1) or (c)(2), certificates which formerly
represented outstanding shares of Common Stock will thereafter
be deemed to represent a like number of shares of Class A
Common Stock and all shares of Stock authorized by these
Amended and Restated Articles of Incorporation shall be deemed
to be shares of Class A Common Stock.
(d) Common Stock Protection.
-----------------------
(1) If, after October 30, 1992 (the "Effective
Date"), any person or group acquires (other than upon issuance
or sale by the Corporation, by operation of law, by will or the
laws of descent and distribution, by charitable contribution or
gift, or by foreclosure of a bona fide loan) beneficial
ownership of shares of Class A Common Stock constituting 20% or
more of the then issued and outstanding shares of Class A
Common Stock (such acquisition making such person or group a
"Significant Shareholder"), and such person or group does not
then beneficially own shares of Common Stock constituting an
equal or greater percentage of all then issued and outstanding
shares of Common Stock, such Significant Shareholder must,
within a 90-day period beginning the day after becoming a
Significant Shareholder, commence a public tender offer in
compliance with all applicable laws and regulations to acquire
additional shares of Common Stock (a "Common Stock Protection
Transaction") as provided in this subsection (d) of Section 1
of this Article V.
(2) In a Common Stock Protection Transaction, the
Significant Shareholder must offer to acquire from the holders
of the Common Stock that number of shares of Common Stock (the
"Additional Shares") determined by (i) multiplying the
percentage of issued and outstanding shares of Class A Common
Stock beneficially owned by such Significant Shareholder which
were acquired after the Effective Date by the total number of
shares of Common Stock issued and outstanding on the date such
person or group became a Significant Shareholder, and (ii)
subtracting therefrom the total number of shares of Common
Stock beneficially owned by such Significant Shareholder on
such date (including shares acquired on such date or prior to
the time such person or group became a Significant
Shareholder). The Significant Shareholder must acquire all
shares validly tendered; provided, however, that if the number
of shares of Common Stock tendered to the Significant
Shareholder exceeds the number of shares required to be
acquired pursuant to this paragraph (2), the number of shares
of Common Stock acquired from each tendering holder shall be
pro rata in proportion to the total number of shares of Common
Stock tendered by all tendering holders.
(3) The offer price for any shares of Common Stock
required to be purchased by a Significant Shareholder pursuant
to a Common Stock Protection Transaction shall be the greater
of (i) the highest price per share paid by the Significant
Shareholder for any share of Class A Common Stock or Common
Stock (whichever is higher) in the six-month period ending on
the date such person or group became a Significant Shareholder
4
<PAGE>
and (ii) the highest closing price of a share of Class A Common
Stock or Common Stock (whichever is higher) on the NASDAQ
National Market System (or such other quotation system or
securities exchange constituting the principal trading market
for either class of Stock) during the thirty calendar days
preceding the date such person or group became a Significant
Shareholder. For purposes of paragraph (4) below, the
applicable date for the calculations required by the preceding
sentence shall be the date on which the Significant Shareholder
acquires beneficial ownership of an additional 5% of the then
issued and outstanding shares of Class A Common Stock. If the
Significant Shareholder has acquired Class A Common Stock or
Common Stock in the six-month period ending on the date such
person or group becomes a Significant Shareholder for
consideration other than cash, the value of such consideration
per share of Class A Common Stock or Common Stock shall be as
determined in good faith by the Board of Directors.
(4) A Common Stock Protection Transaction shall also
be required to be effected each time a Significant Shareholder
acquires beneficial ownership of shares of Class A Common Stock
constituting an additional 5% or more of the then issued and
outstanding Class A Common Stock (other than upon issuance or
sale by the Corporation, by operation of law, by will or the
laws of descent and distribution, by charitable contribution or
gift, or by foreclosure of a bona fide loan) subsequent to the
last acquisition of Class A Common Stock which triggered the
requirement for a Common Stock Protection Transaction, if such
Significant Shareholder does not then beneficially own shares
of Common Stock constituting an equal or greater percentage of
all issued and outstanding shares of Common Stock. Such
Significant Shareholder shall be required to offer to buy
through a public tender offer that number of Additional Shares
prescribed in paragraph (2) above, and must acquire all shares
validly tendered or a pro rata portion thereof, as specified in
such paragraph (2) above, at the price determined pursuant to
paragraph (3) above, even if a previous Common Stock Protection
Transaction resulted in fewer shares of Common Stock being
tendered than such previous offer included.
(5) The requirement to engage in a Common Stock
Protection Transaction is satisfied by making the requisite
offer and purchasing validly tendered shares, even if the
number of shares tendered is less than the number of shares
included in the required offer.
(6) If any Significant Shareholder fails to make an
offer required by this subsection (d) of Section 1 of this
Article V, or to purchase shares validly tendered and not
withdrawn (after proration, if any), such Significant
Shareholder shall not be entitled to vote any shares of Class A
Common Stock beneficially owned by such Significant Shareholder
and acquired by such Significant Shareholder after the
Effective Date unless and until such requirements are complied
with or unless and until all shares of Class A Common Stock
causing such offer requirement to be effective are no longer
beneficially owned by such Significant Shareholder. To the
extent that the voting power of any shares of Class A Common
Stock is so suspended, such shares will not be included in the
determination of aggregate voting shares for any purpose under
these Amended and Restated Articles of Incorporation or the
Code.
5
<PAGE>
(7) The Common Stock Protection Transaction
requirement shall not apply to any increase in percentage
ownership of Class A Common Stock resulting solely from a
change in the total amount of Class A Common Stock outstanding;
provided, that any acquisition after such change which results
in any person or group beneficially owning 20% or more of the
Class A Common Stock (or an additional 5% or more of the Class
A Common Stock subsequent to the last acquisition which
triggered the requirement for a Common Stock Protection
Transaction) excluding, with respect to the numerator but not
the denominator for the calculation of such percentage, shares
of Class A Common Stock held by such Significant Shareholder
immediately after the Effective Date (or immediately after the
last acquisition which triggered the requirement for a Common
Stock Protection Transaction, as the case may be), shall be
subject to any Common Stock Protection Transaction requirement
that would be imposed with respect to a Significant Shareholder
pursuant to this subsection (d) of Section 1 of this Article
V.
(8) All calculations with respect to percentage
ownership of issued and outstanding shares of either class of
Stock will be based upon the numbers of issued and outstanding
shares reported by the Corporation on the last filed of (i) the
Corporation's most recent Annual Report on Form 10-K, (ii) its
most recent definitive proxy statement, (iii) its most recent
Quarterly Report on Form 10-Q, or (iv) if any, its most recent
Current Report on Form 8-K.
(9) For purposes of this subsection (d) of Section 1
of Article V, the term "person" means a natural person,
company, government, or political subdivision agency or
instrumentality of a government, or other entity. The terms
"beneficial ownership" and "group" have the same meanings as
used in Regulation 13D promulgated under the Exchange Act,
subject to the following qualifications: (i) relationships by
blood or marriage between or among any persons will not
constitute any of such persons a member of a group with any
other such persons, absent affirmative attributes of concerted
action; (ii) any person acting in his official capacity as a
director or officer of the Corporation shall not be deemed to
beneficially own shares of Stock where such beneficial
ownership exists solely by virtue of such person's status as a
trustee (or similar position) with respect to shares of Stock
held by plans or trusts for the general benefit of employees or
retirees of the Corporation, and actions taken or agreed to be
taken by him in such official capacity or in any other official
6
<PAGE>
capacity will not be deemed to constitute such a person a
member of a group with any other person; and (iii) formation of
a group will not be deemed to be an acquisition by the group
(or any member thereof) of beneficial ownership of any shares
of Class A Common Stock then owned by a group member and
acquired by such member from the Corporation, by operation of
law, by will or the laws of descent or distribution, by
charitable contribution or gift, or by foreclosure of a bona
fide loan. Furthermore, for the purposes of calculating the
number of shares of Common Stock beneficially owned by such
shareholder or group: (a) shares of Common Stock acquired by
gift shall be deemed to be beneficially owned by such
shareholder or member of such group only if such gift is made
in good faith and not for the purposes of circumventing the
Common Stock Protection Transaction feature; (b) only shares of
Common Stock owned of record by such shareholder or member of
such group, or held by others as nominees of such shareholder
or member and identified as such to the Corporation, shall be
deemed to be beneficially owned by such shareholder or group
(provided that shares with respect to which such shareholder or
member has sole investment and voting power shall be deemed to
be beneficially owned thereby); and (c) only shares of Common
Stock acquired by such shareholder or member of such group for
an "equitable price" shall be treated as being beneficially
owned by such shareholder or group. An "equitable price" will
be deemed to have been paid only when shares of Common Stock
have been acquired at a price at least equal to the greater of
(1) the highest per share price paid by the acquiring person,
in cash or in non-cash consideration, for any shares of Class A
Common Stock or Common Stock (whichever is higher) in the six-
month period ending on the date such person or group became a
Significant Shareholder and (ii) the highest closing price of a
share of Class A Common Stock or Common Stock (whichever is
higher) on the NASDAQ National Market System (or such other
quotation system or securities exchange constituting the
principal trading market for either class of Stock) during the
thirty calendar days preceding the date such person or group
became a Significant Shareholder, with the value of any
non-cash consideration in either case being determined by the
Board of Directors acting in good faith.
(e) Merger and Consolidation. In the event of a merger
------------------------
or consolidation of the Corporation with or into another entity
(whether or not the Corporation is the surviving entity), or a
statutory share exchange involving the Stock, the holders of
Common Stock shall be entitled to receive the same amount and
form of consideration per share as the per share consideration,
if any, received by any holder of the Class A Common Stock in
such merger or consolidation.
(f) Subdivision of Shares. If the Corporation shall in
---------------------
any manner split, subdivide or combine the outstanding shares
of Class A Common Stock or Common Stock, the outstanding shares
of the other such class of Stock shall be proportionally split,
subdivided or combined in the same manner and on the same basis
as the outstanding shares of the other class of Stock have been
split, subdivided or combined.
(g) Power to Sell and Purchase Shares. The Board of
---------------------------------
Directors shall have the power to cause the Corporation to
issue and sell all or any part of any class of stock herein or
hereafter authorized to such persons, firms, associations or
corporations, and for such consideration, as the Board of
Directors shall from time to time, in its discretion,
determine, whether or not greater consideration could be
received upon the issue or sale of the same number of shares of
another class, and as otherwise permitted by law. The Board of
Directors shall have the power to cause the Corporation to
purchase any class of stock herein or hereafter authorized from
such persons, firms, associations or corporations, and for such
consideration, as the Board of Directors shall from time to
time, in its discretion, determine, whether or not less
consideration could be paid upon the purchase of the same
number of shares of another class, and as otherwise permitted
by law.
7
<PAGE>
(h) Increase or Decrease in Number of Shares. The number
----------------------------------------
of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares then outstanding)
by the affirmative vote of a majority of the votes which may be
collectively cast by holders of the Class A Common Stock.
(i) Amendments. In addition to any other vote provided
----------
for by law, by these Articles or the By-Laws of the Corporation
or by the Board of Directors, the affirmative vote of at least
two-thirds of the votes cast by the holders of shares of Common
Stock, voting as a separate group, at any meeting of
shareholders shall be required to amend, alter or repeal any
provision of Section 1 of this Article V that adversely affects
the rights of the holders of the Common Stock. Where the
Common Stock is entitled to vote upon a proposal, each holder
of Common Stock shall be entitled to one vote for each share of
Common Stock held on the record date for such meeting.
SECTION 2. TERMS OF THE PREFERRED STOCK. The following
----------------------------
are the designations, powers, preferences and rights of the
preferred stock and the qualifications, limitations and
restrictions thereof:
(a) Except as otherwise provided by applicable law, or by
the resolution or resolutions of the Board of Directors
providing for the issue of any series of a Preferred Stock, the
holders of shares of Preferred Stock, as such holders, (i)
shall not have any right to vote, and are hereby specifically
excluded from the right to vote, in the election of directors
or for any other purpose, and (ii) shall not be entitled to
notice of any meeting of shareholders.
(b) Before any sum or sums shall be set aside or applied
to the purchase of any outstanding shares of Stock, and before
any dividend shall be declared or paid or any distribution
ordered or made upon the Stock (other than a dividend payable
in shares of Stock), the Corporation shall have complied with
the dividend and sinking fund requirements (if any) set forth
in any resolution or resolutions of the Board of Directors with
respect to the issue of any series of Preferred Stock of which
any shares shall at the time be outstanding.
8
<PAGE>
(c) Subject to the provisions of the immediately
preceding paragraph, and to such other limitations as may be
specified in any resolution or resolutions of the Board of
Directors providing for the issue of any series of Preferred
Stock, the holders of outstanding shares of Stock shall be
entitled to the exclusion of the holders of shares of Preferred
Stock of any and all series, to receive such dividends payable
with respect to the Stock as may be declared by the Board of
Directors from time to time.
(d) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to the holders
of shares of Preferred Stock of the full amount to which any
series of the Preferred Stock is entitled as set forth in the
resolution or resolutions of the Board of Directors providing
for the issue thereof, the holders of outstanding shares of
Stock shall be entitled, to the exclusion of the holders of
shares of Preferred Stock of any and all series, to share in
all remaining assets of the Corporation available for
distribution to its shareholders ratably according to the
number of shares of Stock held by them. Neither the merger nor
consolidation of the Corporation with or into any other
corporation or corporations, nor the merger or consolidation of
any other corporation or corporations into or with the
Corporation, nor the sale, transfer, mortgage, pledge or lease
by the Corporation of all or any part of its assets shall be
deemed to be a liquidation, dissolution or winding up of the
Corporation.
(e) The Preferred Stock may be issued from time to time
in one or more series of any number of shares, except that the
aggregate number of shares issued and not canceled of any and
all such series shall not exceed the total number of shares of
Preferred Stock hereinabove authorized. Each series of
Preferred Stock shall be distinctively designated by number,
letter or descriptive words.
(f) Authority is hereby expressly granted to and vested
in the Board of Directors to issue the Preferred Stock at any
time, or from time to time, as Preferred Stock of any one or
more series, and, in connection with the establishment of each
such series, to fix by resolution or resolutions providing for
the issue of the shares thereof the voting powers, if any, and
the designation, preferences and relative rights of each such
series of Preferred Stock to the full extent now or hereafter
permitted by these Amended and Restated Articles of
Incorporation and the laws of the State of Georgia, including,
without limiting the generality of the foregoing, all of the
following matters which may vary between each series:
(1) The distinctive designation of such series and
the number of shares which constitute such series, which number
may be increased or decreased either before or subsequent to
the issuance of any shares of such series (but not below the
number of shares of such series then outstanding), from time to
time by action of the Board of Directors;
(2) The dividend rate of such series, the dates of
payment thereof, and any limitations, restrictions or
conditions on the payment of dividends, including whether
dividends shall be cumulative and, if so, from which date or
dates, and the relative rights of priority, if any, of payment
of dividends on the shares of each series;
(3) The price or prices at which, and the terms,
times and conditions on which, the shares of such series may be
redeemed at the option of the Corporation or at the option of
the holders of such shares;
9
<PAGE>
(4) The amount or amounts payable upon the shares of
such series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment to the
holders of shares of each series;
(5) Whether or not the shares of such series shall
be entitled to the benefit of a purchase, retirement or sinking
fund to be applied to the redemption or purchase of such
series, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at
which the shares of such series may be redeemed or purchased
through the application of such fund;
(6) Whether or not the shares of such series shall
be made convertible into, or exchangeable for, shares of any
other class or classes of stock of the Corporation, or the
shares of any other series of Preferred Stock, and, if made so
convertible or exchangeable, the conversion price or prices, or
the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
(7) Whether or not the shares of such series shall
have any voting rights, and, if voting rights are so granted,
the extent of such voting rights and the terms and conditions
under which such voting rights may be exercised.
(8) Whether or not the issue of any additional
shares of such series or of any future series in addition to
such series shall be subject to restrictions in addition to the
restrictions, if any, on the issue of additional shares imposed
in the resolution or resolutions fixing the terms of any
outstanding series of Preferred Stock theretofore issued
pursuant to this Section 2(f), and, if subject to additional
restrictions, the extent of such additional restrictions; and
(9) Whether or not the shares of such series shall
be entitled to the benefit of limitations restricting the
purchase of, the payment of dividends on, or the making of
other distributions in respect of stock of any class of the
Corporation, and the terms of any such restrictions; provided,
however, that such restrictions shall not include any
prohibition on the payment of dividends or with respect to
distributions in the event of voluntary or involuntary
liquidation established for any outstanding series of Preferred
Stock theretofore issued.
VI.
None of the holders of any capital stock of the
Corporation of any kind, class or series now or hereafter
authorized shall have preemptive rights with respect to any
shares of capital stock of the Corporation of any kind, class
or series now or hereafter authorized.
10
<PAGE>
VII.
No director of the Corporation shall be personally liable
to the Corporation or its shareholders for monetary damages for
breach of his duty of care or other duty as a director;
provided, that this provision shall eliminate or limit the
liability of a director only to the extent permitted from time
to time by the Code or any successor law or laws.
IN WITNESS WHEREOF, AARON RENTS, INC., has caused these
Amended and Restated Articles of Incorporation to be executed
and its corporate seal to be affixed hereto by its duly
authorized officers this 7th day of May, 1996.
AARON RENTS, INC.
By:
-----------------------------
Keith C. Groen, Vice
President, Legal
(CORPORATE SEAL)
11
<PAGE>
EXHIBIT 11
----------
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31,
---------------------------------
1996 1995
---------------------------------
(in thousands, except per share data)
<S> <C> <C>
Primary:
Net Income $ 4,159 $ 3,338
======= ========
Weighted average number of
common shares outstanding 9,597 9,716
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 325 216
------- --------
Weighted average number of common
and common equivalent shares 9,922 9,932
------- --------
Primary earnings per share $ .42 $ .34
======= ========
Fully diluted:
Weighted average number of common
and common equivalent shares 9,922 9,932
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 22 4
------- --------
Weighted average number of common
shares fully diluted 9,944 9,936
------- --------
Fully diluted earnings per share $ .42* $ .34*
======= ========
</TABLE>
*Not presented in Financial Statements since dilutive effect is less than 3%.
<PAGE>
Exhibit 18
----------
LETTER RE CHANGE IN ACCOUNTING PRINCIPLES
May 13, 1996
Mr. Gilbert L. Danielson
Chief Financial Officer
Aaron Rents, Inc.
309 E. Paces Ferry Road, N.E.
Atlanta, GA 30305
Dear Mr. Danielson:
The notes to the financial statements of Aaron Rents, Inc. included in its Form
10-Q for the three months ended March 31, 1996 describe a change in the method
of depreciation accounting for depreciation of rental purchase merchandise. You
have advised us that you believe the change is to a preferable method in your
circumstances because the new method provides a more systematic and rational
allocation of the cost of rental merchandise over its useful life.
There are no authoritative criteria for determining a preferred depreciation
method based upon the particular circumstances; however, we conclude that the
change in the method of depreciation for rental purchase merchandise is to an
acceptable alternative method which, based on your business judgment to make
this change for the reasons cited above, is preferable in your circumstances.
We have not audited the financial statements of Aaron Rents, Inc. for the three
months ended March 31, 1996 included in its Form 10-Q. Accordingly, we are
unable to express and do not express an opinion on such financial statements.
/s/Ernst & Young LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 97
<SECURITIES> 0
<RECEIVABLES> 7,310
<ALLOWANCES> 0<F1>
<INVENTORY> 127,641<F2>
<CURRENT-ASSETS> 0<F3>
<PP&E> 24,812
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 162,755
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 0
0
0
<COMMON> 5,999
<OTHER-SE> 87,140
<TOTAL-LIABILITY-AND-EQUITY> 162,755
<SALES> 14,507
<TOTAL-REVENUES> 64,693
<CGS> 10,523
<TOTAL-COSTS> 57,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 717
<INCOME-PRETAX> 6,791
<INCOME-TAX> 2,632
<INCOME-CONTINUING> 4,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,159
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<FN>
<F1> The allowance of doubtful accounts is netted against total accounts
receivable in the Accounts Receivable balance.
<F2> Rental merchandise has been classified as inventory for purpose of this
schedule. Rental merchandise has been shown net of 55,099 accumulated
depreciation.
<F3> The financial statements are presented with an unclassified balance sheet.
<F4> PP&E has been shown net of accumulated depreciation.
</FN>
</TABLE>
<PAGE>
Contact: Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Exhibit 99
PRESS RELEASE
AARON RENTS, INC. CHANGES NAME OF CLASS B COMMON STOCK
DECLARES 100% STOCK DIVIDEND
INCREASES ANNUAL CASH DIVIDEND PAYOUT 5%
Atlanta, May 7, 1996 -- The Shareholders of Aaron Rents, Inc. (NASDAQ:
ARONA and ARONB) today approved a proposal to change the name of the Company's
Class B Common Stock to Common Stock. The renamed Common Stock will be traded on
the NASDAQ under the new symbol ARON, replacing the current ARONB symbol.
After the Annual Shareholders Meeting, the Board of Directors of the
Company declared a 100% stock dividend on both Class A and Class B Common Stock
to be paid in shares of the renamed Common Stock. The stock dividend will have
the effect of a 2-for-1 stock split. In addition, the Directors declared a semi-
annual cash dividend of $.02 per share on the Class A Common Stock and $.02 per
share on the Common Stock to be paid after the stock dividend on the increased
number of shares, resulting in the annual cash dividend payout being raised by
more than 5%.
The holders of both Class A and Class B Common Stock will receive one new
share of Common Stock for each share of A and B stock held, with the cash
dividend
<PAGE>
then paid on the combined total number of shares of each class outstanding after
the stock dividend. The stock dividend will be distributed on June 3, 1996 to
shareholders of record as of the close of business on May 20, 1996. The semi-
annual cash dividend is payable on July 8, 1996 to shareholders of record of the
increased number of shares as of June 3, 1996 .
"This 100% stock dividend and the subsequent cash dividend on the increased
number of shares result from our record growth over the past year and the
outlook for continuing strong expansion." said R. Charles Loudermilk, Sr.,
Chairman and Chief Executive Officer of the Company. "The renaming of the Class
B stock and the larger number of shares outstanding as a result of this stock
dividend should increase the floating shares and the activity in our stock to
the further benefit of our stockholders, who have seen a stock price
appreciation of more than 500 percent in the past five years. With our record
first quarter this year and the better than expected performance of both our
rent-to-rent and rental purchase businesses we are very optimistic about the
future progress of the Company."
Mr. Loudermilk said the Directors' decision in declaring the stock dividend
seeks to broaden the Company's shareholder base and further strengthen the
marketability of its Common Stock. In addition, changing the name of the Class
B Common Stock should result in broader coverage of the stock from financial
analysts and media.
Based on the total number of outstanding shares of both classes of stock on
March 31, 1996, the stock dividend will increase the outstanding Common shares
by
<PAGE>
approximately 9.5 million shares. After the stock dividend, the total number
of Class A and Common Stock shares will increase to 19.1 million shares.
For the first quarter this year, Aaron Rents, Inc. reported net income up
25% to $4.2 million, or $.42 per share, compared to $3.3 million, or $.34 per
share, a year ago, while revenues rose 9% to $64.7 million compared to $59.6
million. It was the 19th consecutive quarter of record earnings and the 18th
consecutive quarter of record revenues. Systemwide revenues, including revenues
from franchised rental purchase stores, grew 13% to $71.5 million, and revenues
of the rapidly growing Aaron's Rental Purchase division increased 25%.
Rental purchase stores are being opened at the rate of 1 every 6 days by
Aaron's Rental Purchase, which has 160 stores including 39 franchised stores
open. In addition, franchises have been awarded for another 94 stores.
Management's expectations for the future are forward looking statements
which are subject to uncertainty. Actual results may differ, perhaps materially,
from these expectations. Please refer to the Company's filings with the
Securities and Exchange Commission for a fuller discussion of any assumptions
and uncertainties that bear on the forward looking statements.
Aaron Rents, Inc., based in Atlanta, has a total of 266 stores in 24 states
for the rental and sale of residential and office furniture and accessories,
consumer electronics, household appliances and business equipment.
###
