<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
June 30, 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 E. Paces Ferry Road, N.E.
Atlanta, Georgia 30305-2377
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(404) 231-0011
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether registrant (l) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X
-------
No
-------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest
practicable date.
Shares Outstanding as of
Title of Each Class August 13, 1996
-------------------------- ------------------------
Class A Common Stock, $.50 Par Value 3,786,906
Common Stock, $.50 Par Value 15,240,046
<PAGE>
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1996 1995
------------- ------------
(in thousands)
<S> <C> <C>
ASSETS:
Cash $ 96 $ 98
Accounts Receivable 9,405 8,136
Rental Merchandise 196,713 176,751
Less: Accumulated Depreciation (57,483) (54,440)
--------- ---------
139,230 122,311
Property, Plant and Equipment, Net 27,586 23,492
Prepaid Expenses and Other Assets 3,930 4,608
--------- ---------
Total Assets $ 180,247 $ 158,645
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 26,123 $ 19,304
Dividends Payable 382 365
Deferred Income Taxes Payable 4,450 3,781
Customer Deposits and Advance Payments 7,068 6,622
Bank Debt 45,134 37,260
Other Debt 954 219
--------- ---------
Total Liabilities 84,111 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, Par Value $.50 Per
Share-Authorized 25,000,000 shares:
16,170,987 Shares Issued 8,085 3,318
Additional Paid in Capital 15,414 15,370
Retained Earnings 89,289 86,365
--------- ---------
115,469 107,734
Less: Treasury Shares at Cost,
Class A Common Stock, 1,574,855 Shares
at June 30, 1996 and 1,427,588
Shares at December 31, 1995 (14,152) (11,451)
Common Stock, 930,941 Shares
at June 30, 1996 and 932,441 Shares at
December 31, 1995 (5,181) (5,189)
--------- ---------
Total Shareholders' Equity 96,136 91,094
--------- ---------
Total Liabilities and
Shareholders' Equity $ 180,247 $ 158,645
========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------------------ ------------------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
REVENUES:
Rentals and Fees $ 51,976 $45,690 $101,457 $ 90,903
Sales 14,648 12,858 29,155 26,638
Other 986 587 1,691 1,145
--------- ------- -------- --------
67,610 59,135 132,303 118,686
--------- ------- -------- --------
COSTS AND EXPENSES:
Cost of Sales 10,708 9,114 21,231 19,038
Operating Expenses 33,812 30,024 65,882 59,588
Depreciation
of Rental Merchandise 15,936 13,900 30,528 27,696
Interest 779 750 1,496 1,598
--------- ------- -------- --------
61,235 53,788 119,137 107,920
--------- ------- -------- --------
EARNINGS BEFORE
TAXES 6,375 5,347 13,166 10,766
INCOME TAXES 2,461 2,032 5,093 4,113
--------- ------- -------- --------
NET EARNINGS $ 3,914 $ 3,315 $ 8,073 $ 6,653
--------- ------- -------- --------
EARNINGS PER SHARE $ .20 $ .17 $ .41 $ .33
--------- ------- -------- --------
CASH DIVIDENDS DECLARED
PER SHARE
Class A Common Stock $ .02 $ .01 $ .02 $ .01
--------- ------- -------- --------
Class B Common Stock $ .02 $ .025 $ .02 $ .025
--------- ------- -------- --------
WEIGHTED AVERAGE
SHARES OUTSTANDING 20,027 20,074 19,931 19,969
--------- ------- -------- --------
Prior year earnings per share, dividends and weighted average shares outstanding
have been restated to reflect the June, 1996 100% stock dividend.
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
AARON RENTS, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30,
--------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 8,073 $ 6,653
Depreciation and Amortization 33,451 30,804
Deferred Taxes 669 (236)
Change in Accounts Payable and
Accrued Expenses 6,068 2,560
Change in Accounts Receivable (1,269) 1,452
Other Changes, Net 1,141 1,246
---------- -----------
Cash Provided by Operating Activities 48,133 42,479
---------- -----------
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (7,319) (5,480)
Book Value of Property Retired or Sold 506 2,159
Additions to Rental Equipment (65,894) (50,494)
Book Value of Rental Equipment Sold 20,721 20,876
Contracts and Other Assets Acquired (1,744) (328)
---------- -----------
Cash Used by Investing Activities (53,730) (33,267)
---------- -----------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 41,429 36,609
Repayments on Revolving Credit Agreement (33,555) (43,842)
Increase of Other Debt 735 442
Dividends Paid (365) (362)
Acquisition of Treasury Stock (2,785) (3,312)
Issuance of Stock Under Stock Option Plan 136 1,252
---------- -----------
Cash provided (used) by financing activities 5,595 (9,213)
---------- -----------
DECREASE IN CASH (2) (1)
Cash at Beginning of Year 98 92
Cash at Beginning of Period $ 96 $ 91
========== ===========
</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 Statements:
----------------------------
The Consolidated Balance Sheet as of June 30, 1996, and the Consolidated
Statements of Earnings and Cash Flows for the six months ended June 30, 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 June 30, 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 June 30, 1996, are not
necessarily indicative of the operating results for the full year.
Accounting Changes in 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, generally 12 months when on rent 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 of the change in the
depreciation method on merchandise purchased after December 31, 1995 was to
decrease net income by approximately $470,000 ($.02 per share) and $770,000
($.04 per share) for the quarter and six months ended June 30, 1996,
respectively. 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 by
approximately $140,000 ($.01 per share) and $540,000 ($.03 per share) for the
quarter and six months ended June 30, 1996, respectively. It is not expected
that such change in estimates will have a significant effect on net income for
the year ending December 31, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Managements Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
RESULTS OF OPERATIONS:
- ----------------------
SECOND QUARTER ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995:
Total revenues for the second quarter of 1996 increased $8.5 million (14.3%) to
$67.6 million compared to $59.1 million for the same period a year ago. This
increase in revenues was primarily due to a $6.3 million (13.8%) increase in
rentals and fees revenues. Of this increase in rental revenues, $4.3 million
was attributable to Aaron's Rental Purchase stores, which increased 19.8% to
$25.7 million compared to $21.5 million last year. Rental revenues from the
Company's rent-to-rent operations increased $2.0 million (8.4%) during the same
period.
Revenues from sales increased $1.8 million (13.9%) to $14.6 million from $12.9
million for the same period last year. This increase was due to an increase in
sales for the rental purchase division of $1.5 million and an increase in sales
of $300,000 for the rent-to-rent division
Other revenues increased $399,000 (68.0%) to $986,000 compared to $587,000 last
year. Included in other revenues is an increase of $324,000 in franchise and
royalty fee income due to a net increase of 7 franchise stores as well as older
franchise stores gaining in revenue. This income for the current quarter was
$624,000 compared with $300,000 for the same period last year.
Cost of sales increased $1.6 million (17.5%) to $10.7 million compared to $9.1
million and as a percentage of sales, increased to 73.1% from 70.9% due to
increased sales of product to rental purchase franchisees, which are typically
at lower margins than sales to retail customers.
Operating expenses increased $3.8 million (12.6%) to $33.8 million from $30.0
million. As a percentage of total revenues, operating expenses decreased to
50.0% from 50.8% for the same period a year ago.
Depreciation of rental merchandise increased $2.0 million (14.7%) to $15.9
million and, as a percentage of total rentals and fees, increased to 30.7%
verses 30.4% for the same period in 1995.
Interest expense increased $29,000 (3.9%) to $779,000 compared to $750,000. As a
percentage of total revenues, interest decreased to 1.2% from 1.3% due to the
stability of interest rates during the quarter.
Income tax expense increased $429,000 (21.1%) to $2.5 million compared to $2.0
million, and the Company's effective tax rate was 38.6% for the quarter versus
38.0% for the same period in 1995.
As a result, net earnings increased $599,000 (18.1%) to $3.9 million in the
second quarter of 1996 compared to $3.3 million for the same period in 1995. As
a percentage of total revenues, net earnings increased to 5.8% in the current
quarter as compared to 5.6% for the same period last year.
The weighted average number of shares outstanding during the second quarter of
fiscal year 1996 was 20,027,000 compared to 20,074,000 for the same period last
year. The prior year weighted average shares outstanding has been restated to
give effect to the 100% stock dividend declared in the second quarter of 1996.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995:
Total revenues for the first six months of 1996 increased $13.6 million (11.5%)
to $132.3 million compared to $118.7 million for the same period a year ago.
This increase in revenues was primarily due to a $10.6 million (11.6%) increase
in rentals and fees revenues. Of this increase in rental revenues, $7.7 million
was attributable to Aaron's Rental Purchase stores, which increased 18.5% to
$49.3 million compared to $41.6 million last year. Rental revenues from the
Company's rent-to-rent operations increased $2.9 million (5.7%) during the same
period.
Revenues from sales increased $2.5 million (9.4%) to $29.2 million from $26.6
million for the same period last year. This increase was due to an increase in
sales for the rental purchase division of $3.1 million offset by a $569,000
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 revenues increased $546,000 (47.7%) to $1.7 million compared to $1.1
million last year. Included in other revenues is an increase of $469,000 in
franchise and royalty fee income due to a net increase of 17 franchise stores as
well as older franchise stores gaining in revenue. This income for this six
month period was $1.0 million compared with $547,000 for the same period last
year.
Cost of sales increased $2.2 million (11.5%) to $21.2 million compared to $19.0
million and as a percentage of sales, increased to 72.8% from 71.5% due to
increased sales of product to rental purchase franchisees, which are typically
at lower margins than sales to retail customers.
Operating expenses increased $6.3 million (10.6%) to $65.9 million from $59.6
million. As a percentage of total revenues, operating expenses decreased to
49.8% from 50.2% for the same period a year ago.
Depreciation of rental merchandise increased $2.8 million (10.2%) to $30.5
million and, as a percentage of total rentals and fees, decreased to 30.1% from
30.5% for the same period last year.
Interest expense decreased $102,000 (6.4%) to $1.5 million compared to $1.6
million. As a percentage of total revenues, interest decreased to 1.1% from
1.3% due to a lower average revolving loan balance and stability of interest
rates during the quarter.
Income tax expense increased $980,000 (23.8%) to $5.1 million compared to $4.1
million, and the Company's effective tax rate was 38.7% for the current six
month period versus 38.2% for the same period in 1995.
As a result, net earnings increased $1.4 million (21.3%) to $8.1 million in
first six months of 1996 compared to $6.7 million for the same period in 1995.
As a percentage of total revenues, net earnings increased to 6.1% in the first
six months as compared to 5.6% for the same period last year.
<PAGE>
The weighted average number of shares outstanding during the first six months of
fiscal year 1996 was 19,931,000 compared to 19,969,000 for the same period last
year. This is after restating the prior year weighted shares outstanding to
give effect to the 100% stock dividend declared in the second quarater of 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
On May 7, 1996, Aaron Rents Class B Common stock was renamed Common Stock with
the NASDAQ trading symbol changing from ARONB to ARON. On the same date, a 100%
stock dividend was declared on both the Class A Common Stock (ARONA) as well as
the newly renamed Common Stock. The shareholders of record at the close of
business on May 20, 1996, received one share of Common Stock for each share of
Common Stock and Class A Common Stock held. The aforementioned stock dividend
was distributed on June 3, 1996.
On May 7, 1996, a cash dividend of $.02 per share was declared on both Common
Stock and Class A Common Stock, respectively. The stock dividend was payable
July 8, 1996 to shareholders of record as of June 3, 1996 based on the increased
number of shares mentioned above.
During the first quarter of fiscal 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 (now renamed 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>
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
27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the
three months ended June 30, 1996
<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 - August 13, 1996 /s/ Gilbert L. Danielson
--------------- --------------------------
Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date - August 13, 1996 /s/ Robert P. Sinclair, Jr.
--------------- -------------------------------
Robert P. Sinclair, Jr.
Controller
<PAGE>
<TABLE>
CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
------------------ ---------------
June 30 June 30
------------------ ---------------
1996 1995 1996 1995
------------------ -----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Net Income $ 3,914 $ 3,315 $ 8,073 $ 6,653
======== ======= ======= ======
Weighted average number of
common shares outstanding 19,061 19,570 19,110 19,501
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 966 503 821 468
-------- -------- ------- ------
Weighted average number of
common and common equivalent
shares 20,027 20,074 19,931 19,969
--------- -------- ------- -------
Primary earnings per share $ .20 $ .17 .41 .33
========= ======== ======= =======
Fully diluted:
Weighted average number of
common and common equivalent
shares 20,027 20,074 19,931 19,969
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
0 24 0 60
--------- -------- -------- ------
Weighted average number of common
shares fully diluted 20,027 20,098 19,931 20,029
--------- -------- ------- ------
Fully diluted earnings per share *
$ .20 $ .17 .41 .33
======== ======= ======== ======
*Not presented in Financial Statements since dilutive effect is less than 3%.
**Prior year earnings per share and weighted average shares have been restated
to reflect the June, 1996 2 for 1 stock dividend.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AARON RENT'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTERS ENDED JUNE 30,
1996 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> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 9,405
<ALLOWANCES> 0<F1>
<INVENTORY> 139,230<F2>
<CURRENT-ASSETS> 0<F3>
<PP&E> 27,586<F4>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 180,247
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 0
10,766
0
<COMMON> 0
<OTHER-SE> 85,370
<TOTAL-LIABILITY-AND-EQUITY> 180,247
<SALES> 29,155
<TOTAL-REVENUES> 132,303
<CGS> 21,231
<TOTAL-COSTS> 119,137
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,496
<INCOME-PRETAX> 131,166
<INCOME-TAX> 5,093
<INCOME-CONTINUING> 8,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,073
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
<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 57,483 accumulated
depreciation.
<F3> The financial statements are presented with an unclassified balance sheet.
<F4> PP&E has been shown net of accumulated depreciation.
</TABLE>
