<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
JUNE 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.
Shares Outstanding as of
Title of Each Class August 7, 2000
------------------------------------ ------------------------
Common Stock, $.50 Par Value 15,964,041
Class A Common Stock, $.50 Par Value 3,829,506
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AARON RENTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
---------- ------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash $ 91 $ 99
Accounts Receivable 23,435 21,030
Rental Merchandise 342,927 316,294
Less: Accumulated Depreciation (104,335) (96,463)
---------- ----------
238,592 219,831
Property, Plant and Equipment, Net 55,096 55,918
Prepaid Expenses and Other Assets 18,316 21,530
---------- ----------
Total Assets $ 335,530 $ 318,408
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts Payable and Accrued Expenses $ 27,782 $ 36,941
Dividends Payable 396 399
Deferred Income Taxes Payable 18,888 14,410
Customer Deposits and Advance Payments 10,864 10,180
Bank Debt 80,829 72,225
Other Debt 2,229 535
---------- ----------
Total Liabilities 140,988 134,690
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 53,740 54,181
Retained Earnings 173,124 159,313
---------- ----------
238,680 225,310
Less: Treasury Shares at Cost,
Common Stock, 2,342,246 Shares
at June 30, 2000 and 2,177,956 Shares
at December 31, 1999 (29,902) (27,356)
Class A Common Stock, 1,532,255 Shares at
June 30, 2000 and December 31, 1999 (14,236) (14,236)
---------- ----------
Total Shareholders' Equity 194,542 183,718
---------- ----------
Total Liabilities & Shareholders' Equity $ 335,530 $ 318,408
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 3
AARON RENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Rentals and Fees $ 89,257 $ 79,980 $176,771 $157,241
Retail Sales 14,530 14,617 31,835 31,080
Non-Retail Sales 14,392 10,334 31,222 18,305
Other 3,731 2,433 7,454 5,041
-------- -------- -------- --------
121,910 107,364 247,282 211,667
-------- -------- -------- --------
COSTS AND EXPENSES:
Retail Cost of Sales 10,191 10,360 22,424 22,218
Non-Retail Cost of Sales 13,412 9,617 28,905 16,979
Operating Expenses 55,594 50,202 112,009 98,923
Depreciation
of Rental Merchandise 30,219 25,708 58,482 50,477
Interest 1,317 862 2,544 1,676
-------- -------- -------- --------
110,733 96,749 224,364 190,273
-------- -------- -------- --------
EARNINGS BEFORE
TAXES 11,177 10,615 22,918 21,394
INCOME TAXES 4,248 4,040 8,711 8,140
-------- -------- -------- --------
NET EARNINGS $ 6,929 $ 6,575 $ 14,207 $ 13,254
======== ======== ======== ========
EARNINGS PER SHARE $ .35 $ .33 $ .72 $ .66
-------- -------- -------- --------
EARNINGS PER SHARE
ASSUMING DILUTION $ .35 $ .32 $ .71 $ .65
-------- -------- -------- --------
CASH DIVIDENDS DECLARED
PER SHARE
Common Stock $ .02 $ .02 $ .02 $ .02
-------- -------- -------- --------
Class A Common Stock $ .02 $ .02 $ .02 $ .02
-------- -------- -------- --------
WEIGHTED AVERAGE
SHARES OUTSTANDING 19,790 20,040 19,845 20,127
======== ======== ======== ========
WEIGHTED AVERAGE
SHARES OUTSTANDING
ASSUMING DILUTION 19,905 20,445 19,998 20,439
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
AARON RENTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
June 30,
-----------------------------------
2000 1999
---------- ----------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings 14,207 $ 13,254
Depreciation and Amortization 64,258 56,220
Deferred Income Taxes 4,478 (3,233)
Change in Accounts Payable and
Accrued Expenses (9,159) 5,077
Change in Accounts Receivable (2,405) (1,314)
Other Changes, Net 3,950 (2,394)
---------- ----------
Cash Provided by Operating Activities 75,329 67,610
---------- ----------
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment (9,512) (11,392)
Book Value of Property Retired or Sold 4,709 5,812
Additions to Rental Equipment (132,316) (99,445)
Book Value of Rental Equipment Sold 55,292 42,495
Contracts and Other Assets Acquired (422) (9,610)
---------- ----------
Cash Used by Investing Activities (82,249) (72,140)
---------- ----------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Agreement 97,765 91,571
Repayments on Revolving Credit Agreement (89,161) (81,202)
Increase in Other Debt 1,694 809
Dividends Paid (399) (415)
Acquisition of Treasury Stock (4,625) (9,437)
Issuance of Stock Under Stock Option Plans 1,638 3,199
---------- ----------
Cash Provided by Financing Activities 6,912 4,525
---------- ----------
Decrease in Cash (8) (5)
Cash at Beginning of Year 99 95
---------- ----------
Cash at End of Period $ 91 $ 90
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
AARON RENTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A: PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Aaron Rents, Inc.
("the Company") and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
The Consolidated Balance Sheet as of June 30, 2000, and the Consolidated
Statements of Earnings and Cash Flows for the six months ended June 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 June 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 June 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.
NOTE B: COMPREHENSIVE INCOME
There were no differences between net income and comprehensive income for the
six months ended June 30, 2000 and 1999.
NOTE C: SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Rental Purchase $ 72,203 $ 61,322 $ 149,429 $ 119,428
Rent-to-Rent 44,163 43,483 89,735 88,252
Franchise 3,048 1,946 5,978 4,034
Other 1,782 (201) 2,606 (250)
Manufacturing 13,022 14,901 30,470 29,244
Elimination of intersegment revenues (13,042) (14,726) (30,535) (29,022)
Cash to accrual adjustments 734 639 (401) (19)
--------- --------- --------- ---------
Total revenues from external customers $ 121,910 $ 107,364 $ 247,282 $ 211,667
========= ========= ========= =========
EARNINGS BEFORE INCOME TAXES:
Rental Purchase $ 3,872 $ 5,353 $ 10,438 $ 9,388
Rent-to-Rent 4,228 3,919 9,001 10,611
Franchise 1,749 995 3,443 2,220
Other (245) 66 (542) (565)
Manufacturing 711 420 1,423 472
--------- --------- --------- ---------
Earnings before income taxes for reportable segments 10,315 10,753 23,763 22,126
Elimination of intersegment profit (624) (337) (1,239) (288)
Cash to accrual adjustments 901 569 (166) (133)
Other allocations and adjustments 585 (370) 560 (311)
--------- --------- --------- ---------
Total earnings before income taxes $ 11,177 $ 10,615 $ 22,918 $ 21,394
========= ========= ========= =========
</TABLE>
<PAGE> 6
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 JUNE 30, 2000 VERSUS QUARTER ENDED JUNE 30, 1999:
Total revenues for the second quarter of 2000 increased $14.5 million (13.5%) to
$121.9 million compared to $107.4 million in 1999 due primarily to a $9.3
million (11.6%) increase in rentals and fees revenues, plus a $4.0 million
(15.9%) increase in sales. Of this increase in rentals and fees revenues, $7.9
million was attributable to the Aaron's Rental Purchase division which opened
five new Company-operated stores in the second quarter of 2000. Rentals and fees
revenues from the Company's rent-to-rent operations increased $1.4 million.
Revenues from retail sales decreased $87,000 (0.6%) to $14.5 million in 2000,
from $14.6 million for the same period last year. This decrease was primarily
due to a $614,000 decrease in sales of rental return merchandise in the
Company's rent-to-rent operations partially offset by a $428,000 increase in
rental return sales in the rental purchase division and a $63,000 increase in
new sales. Non-retail sales, which primarily represent merchandise sold to
Aaron's Rental Purchase franchisees, increased $4.1 million (39.3%) to $14.4
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 second quarter of 2000 increased $1.3 million (53.3%) to
$3.7 million compared to $2.4 million in 1999. This increase was attributable to
fees and royalties from franchise operations increasing $964,000 (58.3%) to $2.6
million compared to $1.7 million last year, reflecting a net increase of 43
franchised stores since the end of the second quarter of 1999 and increasing
operating revenues of maturing franchise stores.
Cost of sales from retail sales decreased $169,000 (1.6%) to $10.2 million
compared to $10.4 million last year, and as a percentage of retail sales,
decreased slightly to 70.1% from 70.9%. Cost of sales from non-retail sales
increased $3.8 million (39.5%) to $13.4 million from $9.6 million, and as a
percentage of sales, increased slightly to 93.2% from 93.1%.
Operating expenses increased $5.4 million (10.7%) to $55.6 million from $50.2
million. As a percentage of total revenues, operating expenses were 45.6% in
2000 and 46.8% 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.
Depreciation of rental merchandise increased $4.5 million (17.5%) to $30.2
million, from $25.7 million, and as a percentage of total rentals and fees,
increased slightly to 33.9% from 32.1%. The increase as a percentage of revenues
is primarily due to a greater percentage of the Company's
<PAGE> 7
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 $455,000 (52.8%) to $1.3 million compared to
$862,000. As a percentage of total revenues, interest expense was 1.1% in 2000
compared to .80% 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 second quarter of 2000.
Income tax expense increased $208,000 (5.1%) to $4.2 million for 2000 compared
to $4.0 million for the same period in 1999. The Company's effective tax rate
was 38.0% for the second quarter of 2000 compared to 38.1% in the second quarter
of 1999.
As a result, net earnings increased $354,000 (5.4%) to $6.9 million in the
second quarter of 2000 compared to $6.6 million for the same period in 1999. As
a percentage of total revenues, net earnings were 5.7% in the current quarter as
compared to 6.1% for the same period last year.
The weighted average number of shares outstanding during the second quarter of
2000 was 19,790,000 compared to 20,040,000 (19,905,000 versus 20,445,000
assuming dilution) for the same period last year.
Six Months Ended June 30, 2000 versus Six Months Ended June 30, 1999:
Total revenues for the first six months of 2000 increased $35.6 million (16.8%)
to $247.3 million compared to $211.7 million in 1999 due primarily to a $19.5
million (12.4%) increase in rentals and fees revenues, plus a $13.7 million
(27.7%) increase in sales. Of this increase in rentals and fees revenues, $16.8
million was attributable to the Aaron's Rental Purchase division which opened
18 new Company-operated stores in the first six months of 2000. Rentals
and fees revenues from the Company's rent-to-rent operations increased $2.7
million.
Revenues from retail sales increased $755,000 (2.4%) to $31.8 million in 2000,
from $31.1 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 primarily 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 $12.9 million
(70.6%) to $31.2 million compared to $18.3 million for the same period last
year. The increased sales are due to the growth of the franchise operations.
Other revenues for the second quarter of 2000 increased $2.4 million (47.8%) to
$7.5 million compared to $5.0 million in 1999. This increase was attributable to
fees and royalties from franchise operations increasing $1.6 million (46.6%) to
$5.0 million compared to $3.4 million last year, reflecting a net increase of 43
franchised stores since the end of the second quarter of 1999 and increasing
operating revenues of maturing franchise stores.
Cost of sales from retail sales increased $206,000 (0.9%) to $22.4 million
compared to $22.2 million last year, and as a percentage of retail sales,
decreased slightly to 70.4% from 71.5%. Cost of sales from non-retail sales
increased $11.9 million (70.2%) to $28.9 million from $17.0 million, and as a
percentage of sales, decreased slightly to 92.6 % from 92.8%.
Operating expenses increased $13.1 million (13.2%) to $112.0 million from $98.9
million. As a percentage of total revenues, operating expenses were 45.3% in
2000 and 46.7% 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.
<PAGE> 8
Depreciation of rental merchandise increased $8.0 million (15.9%) to $58.5
million, from $50.5 million, and as a percentage of total rentals and fees,
increased slightly to 33.1% 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 $868,000 (51.8%) to $2.5 million compared to $1.7
million. As a percentage of total revenues, interest expense was 1.0% in 2000
compared to 0.8% 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 six months of 2000.
Income tax expense increased $571,000 (7.0%) to $8.7 million for 2000 compared
to $8.1 million for the same period in 1999. The Company's effective tax rate
was 38.0% for both the first six months of 2000 and 1999.
As a result, net earnings increased $953,000 (7.2%) to $14.2 million in the
first six months of 2000 compared to $13.3 million for the same period in 1999.
As a percentage of total revenues, net earnings were 5.7% in the current period
as compared to 6.3% for the same period last year.
The weighted average number of shares outstanding during the first six months of
2000 was 19,845,000 compared to 20,127,000 (19,998,000 versus 20,439,000
assuming dilution) for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES:
During the first six months of 2000, the Company paid a semi-annual dividend
that was declared on November 3, 1999 of $.02 per share on both Common Stock and
Class A Common Stock. On May 2, 2000, the Company declared a semi-annual
dividend payable on July 6, 2000 of $.02 per share on both Common Stock and
Class A Common Stock.
Cash flow from operations for the six months ended June 30, 2000 and 1999 was
$75.3 million and $67.6 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 June 30, 2000, an aggregate
of $80.8 million was outstanding under this facility, bearing interest at an
average rate of 7.17%. The Company uses interest rate swap agreements as part of
its overall long-term financing program. At June 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> 9
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on May 2, 2000 in Atlanta,
Georgia, at which the following matter was submitted to a vote of the
shareholders:
Votes cast for or withheld regarding the election of nine (9) Directors
for a term of one (1) year were as follows:
<TABLE>
<CAPTION>
Name of Nominee For Withheld
--------------- --------- --------
<S> <C> <C>
R.C. Loudermilk, Sr. 3,718,599 125
Gilbert L. Danielson 3,718,599 125
Earl Dolive 3,718,619 105
Robert C. Loudermilk, Jr. 3,718,599 125
Ronald W. Allen 3,718,619 105
Leo Benatar 3,718,619 105
Ingrid Sanders Jones 3,718,619 105
J. Rex Fuqua 3,718,619 105
M. Collier Ross 3,718,619 105
</TABLE>
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)
10(J) Amended and Restated Loan Facility Agreement
</TABLE>
(b) No reports on Form 8-K were filed by the Registrant during the six
months ended June 30, 2000.
<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 - August 14, 2000 /s/ Gilbert L. Danielson
------------------------------
Gilbert L. Danielson
Executive Vice President
Chief Financial Officer
Date - August 14, 2000 /s/ Robert P. Sinclair, Jr.
------------------------------
Robert P. Sinclair, Jr.
Vice President
Corporate Controller
