<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 30,1997 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 August 7, 1997
- ------------------- --------------
Common Stock, $.50 Par Value 15,094,946
Class A Common Stock, $.50 Par Value 3,869,506
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1997 1996
------------- -------------
(in thousands)
<S> <C> <C>
ASSETS:
Cash $ 96 $ 84
Accounts Receivable 10,823 10,491
Rental Merchandise 216,721 210,516
Less: Accumulated Depreciation (63,167) (60,532)
------------- -------------
153,554 149,984
Property, Plant and Equipment, Net 26,734 33,267
Prepaid Expenses and Other Assets 5,470 4,277
------------- -------------
Total Assets $ 196,677 $ 198,103
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts Payable and Accrued Expenses $ 22,495 $ 24,999
Dividends Payable 379 382
Deferred Income Taxes Payable 3,750 2,882
Customer Deposits and Advance Payments 7,132 7,140
Bank Debt 54,000 55,125
Other Debt 1,232 240
------------- -------------
Total Liabilities 88,988 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 15,462 15,445
Retained Earnings 104,792 96,226
------------- -------------
131,020 122,437
Less: Treasury Shares at Cost,
Common Stock, 1,081,541 Shares
at June 30, 1997 and 415,941
Shares at December 31, 1996 (9,735) (2,315)
Class A Common Stock, 1,492,255 Shares
at June 30, 1997 and 1,418,855
Shares at December 31, 1996 (13,596) (12,787)
------------- -------------
Total Shareholders' Equity 107,689 107,335
------------- -------------
Total Liabilities and Shareholders' Equity $ 196,677 $ 198,103
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
REVENUES:
Rentals and Fees $ 58,006 $ 51,976 $ 115,021 $ 101,457
Retail Sales 14,355 12,837 29,423 25,751
Non-Retail Sales 3,709 1,811 6,680 3,404
Other 1,395 986 2,821 1,691
---------- ---------- ---------- ----------
77,465 67,610 153,945 132,303
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Retail Cost of Sales 10,444 8,984 21,528 18,018
Non-Retail Cost of Sales 3,458 1,724 6,241 3,213
Operating Expenses 37,086 33,812 74,136 65,882
Depreciation
of Rental Merchandise 17,932 15,936 35,546 30,528
Interest 937 779 1,806 1,496
---------- ---------- ---------- ----------
69,857 61,235 139,257 119,137
---------- ---------- ---------- ----------
EARNINGS BEFORE
TAXES 7,608 6,375 14,688 13,166
INCOME TAXES 2,975 2,461 5,743 5,093
---------- ---------- ---------- ----------
NET EARNINGS $ 4,633 $ 3,914 $ 8,945 $ 8,073
========== ========== ========== ==========
EARNINGS PER SHARE $ .24 $ .20 $ .45 $ .41
---------- ---------- ---------- ----------
CASH DIVIDENDS DECLARED
PER SHARE
Common Stock $ .02 $ .02 $ .02 $ .02
---------- ---------- ---------- ----------
Class A Common Stock $ .02 $ .02 $ .02 $ .02
---------- ---------- ---------- ----------
WEIGHTED AVERAGE
SHARES OUTSTANDING 19,443 20,027 19,715 19,931
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30,
--------
1997 1996
---------- -----------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 8,945 $ 8,073
Depreciation and Amortization 38,682 33,451
Deferred Taxes 732 669
Change in Accounts Payable and
Accrued Expenses 1,896 6,068
Change in Accounts Receivable (332) (1,269)
Other Changes, Net (5,423) 1,141
---------- -----------
Cash Provided by Operating Activities 44,500 48,133
---------- -----------
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (3,588) (7,319)
Book Value of Property Retired or Sold 6,985 506
Additions to Rental Equipment (67,655) (65,894)
Book Value of Rental Equipment Sold 28,674 20,721
Contracts and Other Assets Acquired (177) (1,744)
---------- -----------
Cash Used by Investing Activities (35,761) (53,730)
---------- -----------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 49,880 41,429
Repayments on Revolving Credit Agreement (51,005) (33,555)
Increase of Other Debt 992 735
Dividends Paid (382) (365)
Acquisition of Treasury Stock (8,378) (2,785)
Issuance of Stock Under Stock Option Plan 166 136
---------- -----------
Cash (used) provided by financing activities (8,727) 5,595
---------- -----------
Increase (decrease) in Cash 12 (2)
Cash at Beginning of Year 84 98
---------- -----------
Cash at End of Period $ 96 $ 96
========== ===========
</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, 1997, and the Consolidated
Statements of Earnings and Cash Flows for the six months ended June 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 June 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 June 30, 1997 are not necessarily indicative of
the operating results for the full year.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS:
- ---------------------
THE QUARTER ENDED JUNE 30, 1997, COMPARED TO THE QUARTER ENDED JUNE 30, 1996:
Total revenues for the second quarter of 1997 increased $9.9 million (14.6%) to
$77.5 million compared to $67.6 million for the same period a year ago. This
increase in revenues was primarily due to a $6.0 million (11.6%) increase in
rentals and fees revenues. Of this increase in rental revenues, $4.2 million was
attributable to Aaron's Rental Purchase stores, which increased 16.5% to $29.9
million compared to $25.7 million last year. Rental revenues from the Company's
rent-to-rent operations increased $1.8 million (6.8%) to $28.0 million compared
to $26.2 million during the same period a year ago.
Retail sales, increased $1.5 million (11.8%) to $14.4 million compared to $12.8
million last year. The $1.5 million increase in retail sales was due to an
increase in retail sales for the rent-to-rent division of $1.3 million and an
increase in retail sales of $179,000 for the rental purchase division.
Non-retail sales, which primarily represent wholesale sales to Aaron's Rental
Purchase franchisees, increased $1.9 million (104.8%) to $3.7 million compared
to $1.8 million for the same period last year. The increased sales are due to
the growth of the franchise operations.
Other revenue increased $409,000 (41.5%) to $1.4 million compared to $986,000
last year. Included in other revenues is an increase of $316,000 in franchise
and royalty fee income due to a net increase of 31 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 $671,000 compared with
$355,000 for the same period last year.
Retail cost of sales increased $1.5 million (16.3%) to $10.4 million compared to
$9 million last year, and as a percentage of retail sales, increased to 72.8%
from 70.0% primarily due to lower margin sales in the rent-to-rent division.
Non-retail cost of sales increased $1.7 million (100.6%) to $3.5 million from
$1.7 million last year, and as a percentage of sales, decreased to 93.2% from
95.2%. The decrease in cost of sales as a percentage of sales is due to a
higher margins on sales from the Company's manufacturing operation to other
furniture retailers during the second quarter of 1997.
Operating expenses increased $3.3 million (9.7%) to $37.1 million from $33.8
million last year. As a percentage of total revenues, operating expenses
decreased to 47.9% from 50.0% for the same period a year ago. The decline in
operating expenses as a percenage of total revenue is due to revenues increasing
faster than expenses.
Depreciation of rental merchandise increased $2.0 million (12.5%) to $17.9
million compared to $15.9 million last year, and as a percentage of total
rentals and fees, increased slightly to 30.9% versus 30.7% for the same period
in 1996.
<PAGE>
Interest expense increased $158,000 (20.3%) to $937,000 compared to $779,000
last year. As a percentage of total revenues, interest was 1.2% for both
periods due primarily to the stability of interest rates during the quarters.
Income tax expense increased $514,000 (20.9%) to $3.0 million compared to $2.5
million last year, and the Company's effective tax rate was 39.1% for the
quarter versus 38.6% for the same period in 1996 due to higher state income
taxes.
As a result, net earnings increased $719,000 (18.4%) to $4.6 million in the
second quarter of 1997 compared to $3.9 million for the same period in 1996. As
a percentage of total revenues, net earnings increased to 6.0% in the current
quarter as compared to 5.8% for the same period last year.
The weighted average number of shares outstanding during the second quarter of
1997 was 19,443,000 compared to 20,027,000 for the same period last year. Prior
year weighted average shares outstanding have been restated to reflect the
June, 1996 100% stock dividend.
SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX MONTHS ENDED JUNE 30, 1996:
Total revenues for the first six months of 1997 increased $21.6 million (16.4%)
to $153.9 million compared to $132.3 million for the same period a year ago.
This increase in revenues was primarily due to a $13.6 million (13.4%) increase
in rentals and fees revenues and $3.7 million (14.3%) increase in retail sales.
Of this increase in rental revenues, $9.3 million was attributable to Aaron's
Rental Purchase stores, which increased 18.8% to $58.6 million compared to $49.3
million last year. Rental revenues from the Company's rent-to-rent operations
increased $4.3 million (8.2%) to $56.4 million compared to $52.1 million for the
same period last year. The $3.7 million increase in retail sales was due to an
increase in retail sales for the rent-to-rent division of $3.3 million and an
increase in retail sales of $344,000 for the rental purchase division.
Non-retail sales, which primarily represent wholesale sales to Aaron's Rental
Purchase franchisees, increased $3.3 million (96.2%) to $6.7 million compared to
$3.4 million for the same period last year. The increased sales are due to the
growth of the franchise operations.
Other revenue increased $1.1 million (66.8%) to $2.8 million compared to $1.7
million last year. Included in other revenues is an increase of $562,000 in
franchise and royalty fee income due to a net increase of 31 franchise stores
compared to a year ago as well as older franchise stores gaining in revenue.
This income for the six month period was $1.3 million compared with $697,000 for
the same period last year.
Retail cost of sales increased $3.5 million (19.5%) to $21.5 million compared
to $18.0 million and as a percentage of retail sales, increased to 73.2% from
70% primarily due to lower margin sales in the rent-to-rent division.
Non-retail cost of sales increased $3 million (94.2%) to $6.2 million from $3.2
million last year, and as a percentage of sales, decreased to 93.4% from 94.4%.
The decrease in cost of sales as a percentage of sales is due to a higher
margins on sales from the Company's manufacturing operation to other furniture
retailers during the second quarter of 1997.
<PAGE>
Operating expenses increased $8.3 million (12.5%) to $74.1 million from $65.9
million. As a percentage of total revenues, operating expenses decreased to
48.2% from 49.8% for the same period a year ago.
Depreciation of rental merchandise increased $5.0 million (16.4%) to $35.5
million compared to $30.5 million and, as a percentage of total rentals and
fees, increased to 30.9% from 30.1% for the same period last year.
Interest expense increased $310,000 (20.7%) to $1.8 million. As a percentage of
total revenues, interest expense increased slightly to 1.2% from 1.1% due to
the stability of interest rates during the two six month periods.
Income tax expense increased $650,000 (12.8%) to $5.7 million compared to $5.1
million, and the Company's effective tax rate was 39.1% for the current six
month period versus 38.7% for the same period in 1996 due to higher state income
tax rates.
As a result, net earnings increased $872,000 (10.8%) to $8.9 million in first
six months of 1997 compared to $8.1 million for the same period in 1996. As a
percentage of total revenues, net earnings decreased to 5.8% in the first six
months as compared to 6.1% for the same period last year.
The weighted average number of shares outstanding during the first six months of
1997 was 19,715,000 compared to 19,931,000 for the same period last year. Prior
year weighted average shares outstanding have been restated to reflect the June,
1996 100% stock dividend.
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.
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
------ ----------------------
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, 1997.
<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 12, 1997 /s/ Gilbert L. Danielson
----------------- ---------------------------
Gilbert L. Danielson
Vice President, Finance
Chief Financial Officer
Date - August 12, 1997 /s/ Robert P. Sinclair, Jr.
----------------- ---------------------------
Robert P. Sinclair, Jr.
Corporate Controller
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ----------------
June 30 June 30
-------------------- ----------------
1997 1996 1997 1996
-------------------- ----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Net Income $ 4,633 $ 3,914 $ 8,945 $ 8,073
======== ======= ======= =======
Weighted average number of
common shares outstanding 19,103 19,061 19,377 19,110
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 340 966 338 821
-------- ------- ------- -------
Weighted average number of common
and common equivalent shares 19,443 20,027 19,715 19,931
-------- ------- ------- -------
Primary earnings per share $ .24 $ .20 $ .45 $ .41
======== ======= ======= =======
Fully diluted:
Weighted average number of common
and common equivalent shares 19,443 20,027 19,715 19,931
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 126 0 65 0
-------- ------- ------- -------
Weighted average number of common
shares fully diluted 19,569 20,027 19,780 19,931
-------- ------- ------- -------
Fully diluted earnings per share * $ 0.24 $ 0.20 $ 0.45 $ 0.41
======== ======= ======= =======
</TABLE>
*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> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 10,823
<ALLOWANCES> 0<F1>
<INVENTORY> 153,554<F2>
<CURRENT-ASSETS> 0<F3>
<PP&E> 26,734<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 196,677
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 0
0
0
<COMMON> 10,766
<OTHER-SE> 96,923
<TOTAL-LIABILITY-AND-EQUITY> 196,677
<SALES> 18,038
<TOTAL-REVENUES> 76,480
<CGS> 13,866
<TOTAL-COSTS> 68,531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,806
<INCOME-PRETAX> 14,688
<INCOME-TAX> 5,743
<INCOME-CONTINUING> 8,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,945
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<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 63,167 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>
