<PAGE> 1
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 1934
SEPTEMBER 30, 2000 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
1934 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 November 8, 2000
------------------- ----------------
<S> <C>
Common Stock, $.50 Par Value 16,024,541
Class A Common Stock, $.50 Par Value 3,829,506
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30 December 31,
2000 1999
------------ ------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash $ 90 $ 99
Accounts Receivable 25,436 21,030
Rental Merchandise 358,854 316,294
Less: Accumulated Depreciation (109,708) (96,463)
------------ ------------
249,146 219,831
Property, Plant and Equipment, Net 61,978 55,918
Prepaid Expenses and Other Assets 25,006 21,530
------------ ------------
Total Assets $ 361,656 $ 318,408
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts Payable and Accrued Expenses $ 42,525 $ 36,941
Dividends Payable 399
Deferred and Income Taxes Payable 22,625 14,410
Customer Deposits and Advance Payments 10,686 10,180
Bank Debt 82,033 72,225
Other Debt 1,401 535
------------ ------------
Total Liabilities 159,270 134,690
Commitments & Contingencies
Shareholders' Equity
Common Stock, Par Value $.50 Per Share;
Authorized: 25,000,000 Shares;
Shares Issued: 18,270,987 9,135 9,135
Class A Common Stock, Par Value $.50 Per Share;
Authorized: 25,000,000 Shares;
Shares Issued: 5,361,761 2,681 2,681
Additional Paid-in Capital 53,665 54,181
Retained Earnings 179,832 159,313
------------ ------------
245,313 225,310
Less: Treasury Shares at Cost,
Common Stock, 2,246,446 Shares
at September 30, 2000 and 2,177,956 Shares
at December 31, 1999 (28,691) (27,356)
Class A Common Stock, 1,532,255 Shares at
September 30, 2000 and December 31, 1999 (14,236) (14,236)
------------ ------------
Total Shareholders' Equity 202,386 183,718
------------ ------------
Total Liabilities & Shareholders' Equity $ 361,656 $ 318,408
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 3
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Rentals and Fees $ 89,460 $ 79,963 $ 266,231 $ 237,204
Retail Sales 16,466 16,160 48,301 47,240
Non-Retail Sales 15,237 10,334 46,459 28,639
Other 3,687 2,922 11,141 7,963
---------- ---------- ---------- ----------
124,850 109,379 372,132 321,046
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Retail Cost of Sales 11,516 11,675 33,940 33,893
Non-Retail Cost of Sales 14,219 9,886 43,124 26,865
Operating Expenses 56,293 51,349 168,302 150,272
Depreciation
of Rental Merchandise 30,610 25,556 89,092 76,033
Interest 1,413 1,053 3,957 2,729
---------- ---------- ---------- ----------
114,051 99,519 338,415 289,792
---------- ---------- ---------- ----------
EARNINGS BEFORE
TAXES 10,799 9,860 33,717 31,254
INCOME TAXES 4,093 3,752 12,804 11,892
---------- ---------- ---------- ----------
NET EARNINGS $ 6,706 $ 6,108 $ 20,913 $ 19,362
========== ========== ========== ==========
EARNINGS PER SHARE $ .34 $ .30 $ 1.05 $ .96
---------- ---------- ---------- ----------
EARNINGS PER SHARE
ASSUMING DILUTION $ .34 $ .30 $ 1.05 $ 0.94
---------- ---------- ---------- ----------
CASH DIVIDENDS DECLARED
PER SHARE
Common Stock $ -- $ -- $ .02 $ .02
---------- ---------- ---------- ----------
Class A Common Stock $ -- $ -- $ .02 $ .02
---------- ---------- ---------- ----------
WEIGHTED AVERAGE
SHARES OUTSTANDING 19,834 20,078 19,841 20,111
========== ========== ========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING
ASSUMING DILUTION 19,938 20,393 19,980 20,495
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
AARON RENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
2000 1999
----------- -----------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 20,913 $ 19,362
Depreciation and Amortization 98,060 83,783
Deferred Income Taxes 8,215 307
Change in Accounts Payable and
Accrued Expenses 5,584 208
Change in Accounts Receivable (4,406) (1,886)
Other Changes, Net 2,814 (2,190)
----------- -----------
Cash Provided by Operating Activities 131,180 99,584
----------- -----------
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (19,670) (17,686)
Book Value of Property Retired or Sold 6,059 7,083
Additions to Rental Equipment (201,212) (158,299)
Book Value of Rental Equipment Sold 85,673 73,257
Contracts and Other Assets Acquired (10,069) (10,125)
----------- -----------
Cash Used by Investing Activities (139,219) (105,770)
----------- -----------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 142,527 134,858
Repayments on Revolving Credit Agreement (132,719) (118,773)
Increase in Other Debt 866 17
Dividends Paid (793) (816)
Acquisition of Treasury Stock (4,625) (12,553)
Issuance of Stock Under Stock Option Plans 2,774 3,456
----------- -----------
Cash Provided by Financing Activities 8,030 6,189
----------- -----------
Decrease in Cash (9) 3
Cash at Beginning of Year 99 95
----------- -----------
Cash at End of Period $ 90 $ 98
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
AARON RENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
The Consolidated Balance Sheet as of September 30, 2000, and the Consolidated
Statements of Earnings and Cash Flows for the nine months ended September 30,
2000 and 1999, 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, 2000 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, 1999. The results of
operations for the period ended September 30, 2000 are not necessarily
indicative of the operating results for the full year. Certain amounts in the
1999 segment information have been reclassified to conform to the 2000
presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives are either offset against the change in fair value of derivatives of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
The Company is required to adopt Statement 133 in 2001, however, management does
not expect its adoption to have a significant impact on the Company's financial
position or results of operations.
NOTE B: COMPREHENSIVE INCOME
There were no differences between net income and comprehensive income for the
nine months ended September 30, 2000 and 1999.
<PAGE> 6
NOTE C: SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS
Rental Purchase $ 76,480 $ 62,254 $ 225,909 $ 181,682
Rent-to-Rent 44,839 43,436 134,574 130,754
Franchise 3,196 2,330 9,174 6,364
Other 1,045 154 3,651 838
Manufacturing 11,596 12,583 42,066 41,827
Elimination of intersegment revenues (11,676) (12,154) (42,211) (41,176)
Cash to accrual adjustments (630) 776 (1,031) 757
----------- ----------- ----------- -----------
Total revenues from external customers $ 124,850 $ 109,379 $ 372,132 $ 321,046
=========== =========== =========== ===========
EARNINGS BEFORE INCOME TAXES:
Rental Purchase $ 4,447 $ 4,446 $ 14,885 $ 15,057
Rent-to-Rent 4,040 2,751 13,041 12,139
Franchise 2,000 1,335 5,443 3,555
Other (191) (236) (733) (801)
Manufacturing (65) 86 1,358 558
----------- ----------- ----------- -----------
Earnings before income taxes for reportable segments 10,231 8,382 33,994 30,508
Elimination of intersegment profit 132 (10) (1,107) (298)
Cash to accrual adjustments (604) 789 (770) 656
Other allocations and adjustments 1,040 699 1,600 388
----------- ----------- ----------- -----------
Total earnings before income taxes $ 10,799 $ 9,860 $ 33,717 $ 31,254
=========== =========== =========== ===========
</TABLE>
<PAGE> 7
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Special Note Regarding Forward-Looking Information: Except for historical
information contained herein, the matters set forth in this Form 10-Q are
forward-looking statements. The Company notes that the forward-looking
statements set forth involve a number of risks and uncertainties that could
cause actual results to differ materially from any such statements, including
the risks and uncertainties discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 1999, filed with the Securities and
Exchange Commission, under the caption "Certain Factors Affecting Forward
Looking Statements," which discussion is incorporated herein by this reference.
RESULTS OF OPERATIONS:
QUARTER ENDED SEPTEMBER 30, 2000 VERSUS QUARTER ENDED SEPTEMBER 30, 1999:
Total revenues for the third quarter of 2000 increased $15.5 million (14.1%) to
$124.9 million compared to $109.4 million in 1999 due primarily to a $9.5
million (11.9%) increase in rentals and fees revenues, plus a $5.2 million
(19.7%) increase in sales. Of this increase in rentals and fees revenues, $8.1
million was attributable to the Aaron's Rental Purchase division which added
sixteen Company-operated stores in the third quarter of 2000. Rentals and fees
revenues from the Company's rent-to-rent operations increased $1.4 million.
Revenues from retail sales increased $306,000 (1.9%) to $16.5 million in 2000,
from $16.2 million for the same period last year. This increase was primarily
due to a $372,000 increase in sales of rental return merchandise in the
Company's rent-to-rent operations and a $360,000 increase in rental return sales
in the rental purchase division partially offset by a $447,000 decrease in new
sales. Non-retail sales, which primarily represent merchandise sold to Aaron's
Rental Purchase franchisees, increased $4.9 million (47.4%) to $15.2 million
compared to $10.3 million for the same period last year. The increased sales are
due to the growth of the franchise operations.
Other revenues for the third quarter of 2000 increased $765,000 (26.2%) to $3.7
million compared to $2.9 million in 1999. This increase was attributable to fees
and royalties from franchise operations increasing $877,000 (38.7%) to $3.1
million compared to $2.3 million last year, reflecting a net increase of 40
franchised stores since the end of the third quarter of 1999 and increasing
operating revenues of maturing franchise stores.
Cost of sales from retail sales decreased $159,000 (-1.4%) to $11.5 million
compared to $11.7 million last year, and as a percentage of retail sales,
decreased slightly to 69.9% from 72.2%. This decrease was primarily the result
of improved margins on the sale of both residential and office rental return
merchandise. Cost of sales from non-retail sales increased $4.3 million (43.8%)
to $14.2 million from $9.9 million, and as a percentage of non-retail sales,
decreased slightly to 93.3% from 95.7%.
Operating expenses increased $4.9 million (9.6%) to $56.3 million from $51.3
million. As a percentage of total revenues, operating expenses were 45.1% in
2000 and 46.9% in 1999. Operating expenses decreased as a percentage of total
revenues between quarters primarily due to increased revenues in the Aaron's
Rental Purchase division.
<PAGE> 8
Depreciation of rental merchandise increased $5.1 million (19.8%) to $30.6
million, from $25.6 million, and as a percentage of total rentals and fees,
increased to 34.2% from 32.0%. The increase as a percentage of revenues is
primarily due to a greater percentage of the Company's rentals and fees coming
from the Aaron's Rental Purchase division, which depreciates its rental
merchandise at a faster rate than the Rent-to-Rent division.
Interest expense increased $360,000 (34.2%) to $1.4 million compared to $1.1
million. As a percentage of total revenues, interest expense was 1.1% in 2000
compared to 1.0% in 1999. The increase in interest expense as a percentage of
total revenues was due to slightly higher interest rates and higher debt levels
in the third quarter of 2000.
Income tax expense increased $341,000 (9.1%) to $4.1 million for 2000 compared
to $3.8 million for the same period in 1999. The Company's effective tax rate
was 37.9% for the third quarter of 2000 compared to 38.1% in the third quarter
of 1999.
As a result, net earnings increased $598,000 (9.8 %) to $6.7 million in the
third quarter of 2000 compared to $6.1 million for the same period in 1999. As
a percentage of total revenues, net earnings were 5.4% in the current quarter as
compared to 5.6% for the same period last year.
The weighted average number of shares outstanding during the third quarter of
2000 was 19,834,000 compared to 20,078,000 (19,938,000 versus 20,393,000
assuming dilution) for the same period last year.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1999:
Total revenues for the first nine months of 2000 increased $51.1 million (15.9%)
to $372.1 million compared to $321.0 million in 1999 due primarily to a $29.0
million (12.2%) increase in rentals and fees revenues, plus a $18.9 million
(24.9%) increase in sales. Of this increase in rentals and fees revenues, $24.9
million was attributable to the Aaron's Rental Purchase division which added 35
Company-operated stores in the first nine months of 2000. Rentals and fees
revenues from the Company's rent-to-rent operations increased $4.2 million.
Revenues from retail sales increased $1.1 million (2.2%) to $48.3 million in
2000, from $47.2 million for the same period last year. This increase was
primarily due to increased sales of new and rental return merchandise in the
Company's rental purchase operations partially offset by a decrease of rental
return sales in the rent-to-rent operations. Non-retail sales, which primarily
represent merchandise sold to Aaron's Rental Purchase franchisees, increased
$17.8 million (62.2%) to $46.5 million compared to $28.6 million for the same
period last year. The increased sales are due to the growth of the franchise
operations.
Other revenues for the first nine months of 2000 increased $3.2 million (39.9%)
to $11.1 million compared to $8.0 million in 1999. This increase was
attributable to fees and royalties from franchise operations increasing $2.8
million (45.3%) to $9.0 million compared to $6.2 million last year, reflecting a
net increase of 40 franchised stores since the end of the third quarter of 1999
and increasing operating revenues of maturing franchise stores.
Cost of sales from retail sales remained unchanged at $33.9 million, and as a
percentage of retail sales, decreased to 70.3% from 71.7%. This decrease was
primarily the result of improved margins on the sale of both residential and
office rental return merchandise. Cost of sales from non-retail sales increased
$16.3 million (60.5%) to $43.1 million from $26.9 million, and as a percentage
of sales, decreased slightly to 92.8% from 93.8%.
<PAGE> 9
Operating expenses increased $18.0 million (12.0%) to $168.3 million from $150.3
million. As a percentage of total revenues, operating expenses were 45.2% in
2000 and 46.8% in 1999. Operating expenses decreased as a percentage of total
revenues between periods primarily due to increased revenues in the Aaron's
Rental Purchase division.
Depreciation of rental merchandise increased $13.1 million (17.2%) to $89.1
million, from $76.0 million, and as a percentage of total rentals and fees,
increased to 33.5% from 32.1%. The increase as a percentage of revenues is
primarily due to a greater percentage of the Company's rentals and fees coming
from the Aaron's Rental Purchase division, which depreciates its rental
merchandise at a faster rate than the Rent-to-Rent division.
Interest expense increased $1.2 million (45.0%) to $4.0 million compared to $2.7
million. As a percentage of total revenues, interest expense was 1.1% in 2000
compared to 1.0% in 1999. The increase in interest expense as a percentage of
total revenues was due to slightly higher interest rates and higher debt levels
in the first nine months of 2000.
Income tax expense increased $912,000 (7.7%) to $12.8 million for 2000 compared
to $11.9 million for the same period in 1999. The Company's effective tax rate
was 38.0 % for the first nine months of 2000 versus 38.1%for the same period in
1999.
As a result, net earnings increased $1.6 million (8.0%) to $20.9 million in the
first nine months of 2000 compared to $19.4 million for the same period in 1999.
As a percentage of total revenues, net earnings were 5.6% in the current period
as compared to 6.0% for the same period last year.
The weighted average number of shares outstanding during the first nine months
of 2000 was 19,841,000 compared to 20,111,000 (19,980,000 versus 20,495,000
assuming dilution) for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES:
During the first quarter of 2000, the Company paid a semi-annual dividend that
was declared on November 3, 1999 of $.02 per share on Common Stock and Class A
Common Stock. On May 2, 2000, the Company declared a semi-annual dividend which
was paid on July 6, 2000 of $.02 per share on Common Stock and Class A Common
Stock.
Cash flow from operations for the nine months ended September 30, 2000 and 1999
was $131.2 million and $99.6 million, respectively. Such cash flows include
profits on the sale of rental return merchandise. The Company's primary capital
requirements consist of acquiring rental merchandise for both rent-to-rent
stores and Company-operated Aaron's Rental Purchase stores. As the Company
continues to grow, the need for additional rental merchandise will continue to
be the Company's major capital requirement. These capital requirements
historically have been financed through a revolving credit agreement, cash flow
from operations, trade credit, proceeds from the sale of rental return
merchandise, and stock offerings. The revolving credit agreement provides for
unsecured borrowings up to $90.0 million which includes a $6.0 million credit
line to fund daily working capital requirements. At September 30, 2000, an
aggregate of $82.0 million was outstanding under this facility, bearing interest
at an average rate of 7.12%. The Company uses interest rate swap agreements as
part of its overall long-term financing program. At September 30, 2000, the
Company had swap agreements with notional principal amounts of $40.0 million
which effectively fixed the interest rates on an equal amount under the
Company's revolving credit agreement at 6.93%.
The Company believes that the expected cash flows from operations, proceeds from
the sale of rental return merchandise, bank borrowings and vendor credit, will
be sufficient to fund the Company's capital and liquidity needs for at least the
next 24 months.
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
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 13, 2000 /s/ GILBERT L. DANIELSON
-----------------------------------
Gilbert L. Danielson
Executive Vice President
Chief Financial Officer
Date - November 13, 2000 /s/ ROBERT P. SINCLAIR, JR.
-----------------------------------
Robert P. Sinclair, Jr.
Vice President
Corporate Controller
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following exhibits are furnished herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) No reports on Form 8-K were filed by the Registrant during the
nine months ended September 30, 2000.
