<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, 1997 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 November 10, 1997
------------------- -----------------
Common Stock, $.50 Par Value 15,112,946
Class A Common Stock, $.50 Par Value 3,836,506
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
1997 1996
------------- ------------
(in thousands)
ASSETS:
Cash $ 98 $ 84
Accounts Receivable 11,488 10,491
Rental Merchandise 222,115 210,516
Less: Accumulated Depreciation (67,577) (60,532)
-------- --------
154,538 149,984
Property, Plant and Equipment, Net 31,076 33,267
Prepaid Expenses and Other Assets 4,154 4,277
-------- --------
Total Assets $201,354 $198,103
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 25,637 $ 24,999
Dividends Payable 382
Deferred Income Taxes Payable 4,725 2,882
Customer Deposits and Advance Payments 7,179 7,140
Bank Debt 50,840 55,125
Other Debt 828 240
-------- --------
Total Liabilities 89,209 90,768
Shareholders' Equity:
Common Stock, Par Value $.50 Per
Share; Authorized: 25,000,000 Shares;
Shares Issued: 16,170,987 8,085 8,085
Common Stock, Class A, Par Value $.50 Per
Share; Authorized: 25,000,000 Shares;
Shares Issued: 5,361,761 2,681 2,681
Additional Paid in Capital 15,476 15,445
Retained Earnings 109,597 96,226
-------- --------
135,839 122,437
Less: Treasury Shares at Cost,
Common Stock, 1,062,041 Shares
at September 30, 1997 and 415,941
Shares at December 31, 1996 (9,559) (2,315)
Class A Common Stock, 1,525,255 Shares
at September 30, 1997 and 1,418,855
Shares at December 31, 1996 (14,135) (12,787)
-------- --------
Total Shareholders' Equity 112,145 107,335
-------- --------
Total Liabilities and
Shareholders' Equity $201,354 $198,103
======== ========
See Notes to Consolidated Financial Statements
2
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
-------------------- --------------------
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------------------- --------------------
(in thousands, except per share amounts)
REVENUES:
Rentals and Fees $ 56,940 $ 54,230 $171,961 $155,687
Retail Sales 15,068 13,857 44,491 39,608
Non-Retail Sales 2,625 1,930 9,305 5,334
Other 1,605 1,207 4,426 2,898
-------- -------- -------- --------
76,238 71,224 230,183 203,527
-------- -------- -------- --------
COSTS AND EXPENSES:
Retail Cost of Sales 10,662 10,160 32,190 28,178
Non-Retail Cost of Sales 2,491 1,856 8,732 5,069
Operating Expenses 36,796 35,377 110,932 101,259
Depreciation
of Rental Merchandise 17,484 16,728 53,030 47,256
Interest 922 905 2,728 2,401
-------- -------- -------- --------
68,355 65,026 207,612 184,163
-------- -------- -------- --------
EARNINGS BEFORE
TAXES 7,883 6,198 22,571 19,364
INCOME TAXES 3,078 2,411 8,821 7,504
-------- -------- -------- --------
NET EARNINGS $ 4,805 $ 3,787 $ 13,750 $ 11,860
======== ======== ======== ========
EARNINGS PER SHARE $ .25 $ .19 $ .70 $ .59
-------- -------- -------- --------
CASH DIVIDENDS DECLARED
PER SHARE
Common Stock $ $ $ .02 $ .02
-------- -------- -------- --------
Class A Common Stock $ $ $ .02 $ .02
-------- -------- -------- --------
WEIGHTED AVERAGE
SHARES OUTSTANDING 19,548 20,027 19,659 19,962
======== ======== ======== ========
See Notes to Consolidated Financial Statements
3
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine Months Ended
-------------------------
September 30,
-------------------------
1997 1996
-------- ---------
(in thousands)
OPERATING ACTIVITIES
Net Earnings $13,750 $11,860
Depreciation and Amortization 57,709 48,088
Deferred Income Taxes 1,843 (1,381)
Change in Accounts Payable and
Accrued Expenses 638 2,188
Change in Accounts Receivable (997) (1,765)
Other Changes, Net 204 1,349
-------- --------
Cash Provided by Operating Activities 73,147 60,339
-------- --------
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (8,486) (13,319)
Book Value of Property Retired or Sold 6,016 874
Additions to Rental Equipment (100,219) (98,597)
Book Value of Rental Equipment Sold 42,752 37,645
Contracts and Other Assets Acquired (177) (1,744)
-------- --------
Cash Used by Investing Activities (60,114) (75,141)
-------- --------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 72,202 63,669
Repayments on Revolving Credit Agreement (76,487) (45,890)
Increase in Other Debt 588 383
Dividends Paid (761) (747)
Acquisition of Treasury Stock (8,918) (2,785)
Issuance of Stock Under Stock Option Plan 357 173
-------- --------
Cash (used) Provided by Financing Activities (13,019) 14,803
-------- --------
Increase in Cash 14 1
Cash at Beginning of Year 84 98
-------- --------
Cash at End of Period $ 98 $ 99
======== ========
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 September 30, 1997, and the Consolidated
Statements of Earnings and Cash Flows for the nine months ended September 30,
1997 and 1996, 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, 1997 and for all periods presented
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1996. The results of
operations for the period ended September 30, 1997 are not necessarily
indicative of the operating results for the full year.
5
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS:
- ---------------------
THE QUARTER ENDED SEPTEMBER 3O, 1997, COMPARED TO THE QUARTER ENDED SEPTEMBER
30, 1996:
Total revenues for the third quarter of 1997 increased $5.0 million (7.0%) to
$76.2 million compared to $71.2 million for the same period a year ago. This
increase in revenues was primarily due to a $2.7 million (5.0%) increase in
rentals and fees revenues. Of this increase in rental revenues, $4.4 million was
attributable to Aaron's Rental Purchase stores, which increased 17.1% to $30.0
million compared to $25.7 million last year. Rental revenues from the Company's
rent-to-rent operations decreased $1.7 million (5.8%) to $26.9 million compared
to $28.6 million during the same period a year ago. The decrease in rent-to-rent
rental revenues is due to over $2 million in Summer Olympic Games related
revenues being included in the third quarter of 1996.
Retail sales, increased $1.2 million (8.7%) to $15.1 million compared to $13.9
million last year. The $1.2 million increase in retail sales was due to an
increase in retail sales for the rent-to-rent division of $684,000 and an
increase in retail sales of $527,000 for the rental purchase division.
Non-retail sales, which primarily represent wholesale sales to Aaron's Rental
Purchase franchisees, increased $695,000 (36.0%) to $2.6 million compared to
$1.9 million for the same period last year. The increased sales are due to the
growth of the franchise operations.
Other revenue increased $398,000 (33.0%) to $1.6 million compared to $1.2
million last year. Included in other revenues is an increase of $416,000 (52.1%)
in franchise and royalty fee income due to a net increase of 32 franchised
stores compared to a year ago, as well as older franchised stores gaining in
revenues. Franchise and royalty fee income for the current quarter was $1.2
million compared with $797,000 for the same period last year.
Retail cost of sales increased $502,000 (4.9%) to $10.7 million compared to
$10.2 million last year and, as a percentage of retail sales, decreased to 70.8%
from 73.3% due to increased margins on sales in both the rent-to-rent and rental
purchase divisions.
Non-retail cost of sales increased $635,000 (34.2%) to $2.5 million from $1.9
million last year, and as a percentage of non-retail sales, decreased to 94.9%
from 96.2%. The decrease in non-retail cost of sales as a percentage of non-
retail sales is due to a higher margins on sales from the Company's
manufacturing operation to other furniture retailers during the third quarter of
1997.
Operating expenses increased $1.4 million (4.0%) to $36.8 million from $35.4
million last year. As a percentage of total revenues, operating expenses
decreased to 48.3% from 49.7% for the same period a year ago. The decline in
operating expenses as a percentage of total revenues is due to the leveraging of
such expenses over a larger revenue base.
6
<PAGE>
Depreciation of rental merchandise increased $756,000 (4.5%) to $17.5 million
compared to $16.7 million last year, and as a percentage of total rentals and
fees, decreased slightly to 30.7% versus 30.8% for the same period in 1996.
Interest expense increased $17,000 (1.9%) to $922,000 compared to $905,000 last
year. As a percentage of total revenues, interest decreased slightly to 1.2%
compared to 1.3% for the same period in 1996. The slight increase in interest
expense was due to the effect of lower debt being offset by higher interest
rates.
Income tax expense increased $667,000 (27.7%) to $3.1 million compared to $2.4
million last year, and the Company's effective tax rate was 39.0% for the
quarter versus 38.9% for the same period in 1996 due to higher state income
taxes.
As a result, net eamings increased $1.0 million (26.9%) to $4.8 million in the
third quarter of 1997 compared to $3.8 million for the same period in 1996. As a
percentage of total revenues, net earnings increased to 6.3% in the current
quarter as compared to 5.3% for the same period last year.
The weighted average number of shares outstanding during the third quarter of
1997 was 19,548,000 compared to 20,027,000 for the same period last year.
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996:
Total revenues for the first nine months of 1997 increased $26.7 million (13.1%)
to $230.2 million compared to $203.5 million for the same period a year ago.
This increase in revenues was primarily due to a $16.3 million (10.5%) increase
in rentals and fees revenues and $4.9 million (12.3%) increase in retail sales.
Of this increase in rental revenues, $13.7 million was attributable to Aaron's
Rental Purchase stores, which increased 18.2% to $88.7 million compared to $75.0
million last year. Rental revenues from the Company's rent-to-rent operations
increased $2.6 million (3.2%) to $83.3 million compared to $80.7 million for the
same period last year. The $4.9 million increase in retail sales was due to an
increase in retail sales for the rent-to-rent division of $4.0 million (10.8%)
and an increase in retail sales of $870,000 (35.5%) for the rental purchase
division.
Non-retail sales, which primarily represent wholesale sales to Aaron's Rental
Purchase franchisees, increased $4.0 million (74.4%) to $9.3 million compared to
$5.3 million for the same period last year. The increased non-retail sales are
due to the growth of the franchise operations.
Other revenue increased $1.5 million (52.7%) to $4.4 million compared to $2.9
million last year. Included in other revenues is an increase of $1.1 million
(62.4%) in franchise and royalty fee income due to a net increase of 32
franchise stores compared to a year ago as well as older franchise stores
gaining in revenue. This income for the nine month period was $2.9 million
compared with $1.8 million for the same period last year.
7
<PAGE>
Retail cost of sales increased $4.0 million (14.2%) to $32.2 million compared to
$28.2 million and as a percentage of retail sales, increased to 72.4% from 71.1%
primarily due to lower margin sales in the rent-to-rent division.
Non-retail cost of sales increased $3.7 million (72.3%) to $8.7 million from
$5.1 million last year, and as a percentage of non-retail sales, decreased to
93.8% from 95.0%. The decrease in non-retail cost of sales as a percentage of
non-retail sales is due to a higher margins on sales from the Company's
manufacturing operation to other furniture retailers during the first nine
months of 1997.
Operating expenses increased $9.7 million (9.6%) to $110.9 million from $101.3
million. As a percentage of total revenues, operating expenses decreased to
48.2% from 49.8% for the same period a year ago. The decline in operating
expenses as a percentage of total revenues is due to revenues increasing faster
than expenses.
Depreciation of rental merchandise increased $5.8 million (12.2%) to $53.0
million compared to $47.3 million and, as a percentage of total rentals and
fees, increased to 30.8% from 30.4% for the same period last year.
Interest expense increased $327,000 (13.6%) to $2.7 million compared to $2.4
million last year. As a percentage of total revenues, interest expense was 1.2%
for both periods. The stability in interest expense was due to higher interest
rates being offset by lower debt levels.
Income tax expense increased $1.3 million (17.6%) to $8.8 million compared to
$7.5 million, and the Company's effective tax rate was 39.1% for the current
nine month period versus 38.8% for the same period in 1996 due to higher state
income tax rates.
As a result, net earnings increased $1.9 million (15.9%) to $13.8 million in
first nine months of 1997 compared to $11.9 million for the same period in 1996.
As a percentage of total revenues, net earnings increased to 6.0% in the first
nine months as compared to 5.8% for the same period last year.
The weighted average number of shares outstanding during the first nine months
of 1997 was 19,659,000 compared to 19,994,000 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
On May 6, 1997, the Company declared a semi-annual dividend payable on July 8,
1997 of $.02 per share on both Common Stock and Class A Common Stock.
In February of 1997, the Company's Board of Directors authorized the purchase of
1,000,000 shares of the Company's Common Stock and Class A Common Stock. During
the first nine months of 1997 795,000 shares at an aggregate cost of $8.9
million had been purchased.
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.
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 - November 11, 1997
------------------- /s/Gilbert L. Danielson
--------------------------
Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date - November 11, 1997
------------------- /s/Robert P. Sinclair, Jr.
--------------------------
Robert P. Sinclair, Jr.
Corporate Controller
9
<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
------- ----------------------
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 September 30, 1997.
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
---------------------- ---------------------
September 30 September 30
---------------------- ---------------------
1997 1996 1997 1996
---------- ----------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Net Income $ 4,805 $ 3,787 $ 13,750 $ 11,860
========== ========== ========== =========
Weighted average number of
common shares outstanding 18,963 19,029 19,238 19,083
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 585 998 421 879
---------- ---------- ---------- ----------
Weighted average number of common
and common equivalent shares 19,548 20,027 19,659 19,962
---------- ---------- ---------- ----------
Primary earnings per share $ .25 $ .19 $ .70 $ .59
========== ========== ========== ==========
Fully diluted:
Weighted average number of common
and common equivalent shares 19,548 20,027 19,657 19,962
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 61 0 62 1
---------- ---------- ---------- ----------
Weighted average number of common
shares fully diluted 19,609 20,027 19,721 19,963
---------- ---------- ---------- ----------
Fully diluted earnings per share * $ 0.25 $ 0.19 $ 0.70 $ 0.59
========== ========== ========== ==========
</TABLE>
*Not presented in Financial Statements since dilutive effect is less than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 98
<SECURITIES> 0
<RECEIVABLES> 11,488
<ALLOWANCES> 0<F1>
<INVENTORY> 154,538<F2>
<CURRENT-ASSETS> 0<F3>
<PP&E> 31,076<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 201,354
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 0
0
0
<COMMON> 10,766
<OTHER-SE> 101,379
<TOTAL-LIABILITY-AND-EQUITY> 201,354
<SALES> 53,796
<TOTAL-REVENUES> 230,183
<CGS> 40,922
<TOTAL-COSTS> 163,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,728
<INCOME-PRETAX> 22,571
<INCOME-TAX> 8,821
<INCOME-CONTINUING> 13,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,750
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<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 purposes of this
schedule. Rental merchandise has been shown net of 67,577 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>
