FORM 8-K | |
AARON’S, INC. |
Georgia | 1-13941 | 58-0687630 | ||
(State or other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
309 E. Paces Ferry Road, N.E. Atlanta, Georgia | 30305-2377 | |
(Address of principal executive offices) | (Zip code) |
• | Progressive Acquisition. On April 14, 2014, the Company completed its acquisition of Progressive Finance Holdings, LLC (“Progressive”) for cash consideration of approximately $700 million. The press release presents earnings and EPS excluding (i) $11.3 million in amortization of intangibles related to the acquisition during the third quarter of 2014 and (ii) $9.7 million in amortization of intangibles related to the acquisition, as well as, acquisition-related fees and expenses (including financial advisory and legal fees) of $5.5 million during the second quarter of 2014. The Company had never previously completed an acquisition of the magnitude of the Progressive transaction. |
• | Retirement Charges. As previously disclosed, Ronald W. Allen, formerly Chief Executive Officer of the Company, retired from the Company, effective August 31, 2014, and on July 24, 2014, David L. Buck, formerly Chief Operating Officer of the Company, notified the Company that he is retiring as an employee of the Company effective December 31, 2014, and in connection with his retirement relinquished his duties as Chief Operating Officer effective August 1, 2014. The Company incurred $9.1 million in expenses pertaining to the retirement of these two officers during the third quarter of 2014. While charges related to retirement do arise from time to time, management regards the charges incurred in the third quarter of 2014 as uncommon in nature and size. |
• | California Regulatory Investigation. During the third quarter of 2014, the Company resolved the previously reported regulatory investigation by the California Attorney General into the Company’s business. The press release presents earnings and EPS excluding a $1.2 million reduction during the third quarter of 2014 of previously recognized regulatory expense upon such resolution. Management believes that the circumstances and costs of this particular matter differentiated it from the Company’s normal course legal and regulatory proceedings. |
• | Strategic Matters. The Company and its Board addressed various strategic matters during the second quarter of 2014, including an unsolicited acquisition offer, two proxy contests and shareholder proposals. The Company incurred $12.4 million in financial advisory and legal costs to address them during the second quarter. These matters were unprecedented in the Company’s history, and the level of the professional fees associated with them was similarly exceptional. |
• | Restructuring Charges. In connection with its previously announced new strategy, which includes an initiative to rationalize the Company’s store base, the Company incurred approximately $6.9 million and $2.3 million in restructuring charges related to store closures in the third and second quarters of 2014, respectively. While the Company has routinely closed and sold stores on an |
• | California Regulatory Investigation. The Company accrued $13.4 million and $15.0 million for loss contingencies in connection with this now-resolved investigation during the third quarter of 2013 and second quarter of 2013, respectively. |
• | Retirement and Vacation Related Charges. As previously disclosed, William K. Butler, Jr., formerly Chief Operating Officer of the Company, retired from the Company effective May 1, 2013. The Company also implemented changes to its vacation policies last year. The Company recorded $4.9 million in charges in the second quarter related to this retirement and change in vacation policies. While charges related to retirement or employee benefit actions or policy changes do arise from time to time, management regards the charges incurred in the quarter ended June 30, 2013 as uncommon in both nature and size. |
Exhibit No. | Description |
99.1 | Aaron’s, Inc. press release dated October 24, 2014, announcing the Company’s financial results for the third quarter and first nine months of 2014. |
AARON’S, INC. | |||
By: | /s/ Gilbert L. Danielson | ||
Date: October 24, 2014 | Gilbert L. Danielson interim Chief Executive Officer, Executive Vice President and Chief Financial Officer |
Contact: Sharon J. Lawrence |
Vice President, Finance |
404-231-0011 |
• | Total Revenues of $707.6 Million |
• | Net Earnings of $9.3 Million; Diluted EPS of $.13 |
• | Non-GAAP Diluted EPS of $.39 Excluding Special Charges |
• | Progressive Continues to Exceed Expectations |
• | Executing on Strategic Cost Initiatives |
• | Consolidated fourth quarter revenues (excluding revenues of franchisees) of approximately $740 million, including Progressive revenues of approximately $205 million. |
• | Fiscal year 2014 revenues (excluding revenues of franchisees) of approximately $2.71 billion, including Progressive revenues of approximately $534 million since the April 14 acquisition. |
• | Fourth quarter and fiscal year adjusted EBITDA in the range of approximately $57 million to $62 million and $257 million to $262 million, respectively, including Progressive EBITDA in the range of $15 million to $18 million and $47 million to $50 million, respectively. |
• | Fourth quarter and fiscal year GAAP diluted earnings per share in the range of $.24 to $.29 and $1.01 to $1.06, respectively. |
• | Fourth quarter and fiscal year 2014 non-GAAP adjusted diluted earnings per share in the range of $.34 to $.39 and $1.62 to $1.67, respectively. |
• | EPS guidance does not assume any significant repurchases of the Company's common stock. |
• | The Company expects for the full year 2014 no new store growth in Company-operated Aaron's stores, on a net basis after store closings. |
(Unaudited) Three Months Ended | (Unaudited) Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Revenues: | |||||||||||||
Lease Revenues and Fees | $ | 603,601 | $ | 425,734 | $ | 1,625,931 | $ | 1,330,526 | |||||
Retail Sales | 8,094 | 9,315 | 31,023 | 32,618 | |||||||||
Non-Retail Sales | 78,503 | 84,412 | 254,021 | 262,152 | |||||||||
Franchise Royalties and Fees | 15,838 | 16,530 | 50,147 | 51,564 | |||||||||
Other | 1,528 | 1,233 | 4,375 | 3,919 | |||||||||
Total | 707,564 | 537,224 | 1,965,497 | 1,680,779 | |||||||||
Costs and Expenses: | |||||||||||||
Depreciation of Lease Merchandise | 260,819 | 154,495 | 661,446 | 475,900 | |||||||||
Retail Cost of Sales | 5,409 | 5,681 | 19,900 | 19,295 | |||||||||
Non-Retail Cost of Sales | 71,403 | 76,792 | 230,537 | 238,335 | |||||||||
Operating Expenses | 334,294 | 259,708 | 918,129 | 759,541 | |||||||||
Financial Advisory and Legal Costs | 385 | — | 13,661 | — | |||||||||
Restructuring Expenses | 6,876 | — | 9,140 | — | |||||||||
Retirement and Vacation Charges | 9,094 | — | 9,094 | 4,917 | |||||||||
Progressive-Related Transaction Costs | 371 | — | 6,638 | — | |||||||||
Regulatory (Income) Expenses | (1,200 | ) | 13,400 | (1,200 | ) | 28,400 | |||||||
Other Operating (Income) Expense, Net | (197 | ) | (1,038 | ) | (869 | ) | 1,218 | ||||||
Total | 687,254 | 509,038 | 1,866,476 | 1,527,606 | |||||||||
Operating Profit | 20,310 | 28,186 | 99,021 | 153,173 | |||||||||
Interest Income | 634 | 719 | 2,461 | 2,241 | |||||||||
Interest Expense | (6,162 | ) | (1,497 | ) | (13,174 | ) | (4,516 | ) | |||||
Other Non-Operating (Expense) Income, Net | (1,583 | ) | 2,012 | (837 | ) | (49 | ) | ||||||
Earnings Before Income Taxes | 13,199 | 29,420 | 87,471 | 150,849 | |||||||||
Income Taxes | 3,904 | 8,282 | 31,332 | 52,857 | |||||||||
Net Earnings | $ | 9,295 | $ | 21,138 | $ | 56,139 | $ | 97,992 | |||||
Earnings Per Share | $ | .13 | $ | .28 | $ | .78 | $ | 1.29 | |||||
Earnings Per Share Assuming Dilution | $ | .13 | $ | .28 | $ | .77 | $ | 1.28 | |||||
Weighted Average Shares Outstanding | 72,340 | 76,101 | 72,350 | 75,922 | |||||||||
Weighted Average Shares Outstanding Assuming Dilution | 72,660 | 76,676 | 72,713 | 76,611 |
September 30, 2014 | December 31, 2013 | |||||||
Cash and Cash Equivalents | $ | 10,401 | $ | 231,091 | ||||
Investments | 21,704 | 112,391 | ||||||
Accounts Receivable, Net | 89,821 | 68,684 | ||||||
Lease Merchandise, Net | 1,036,407 | 869,725 | ||||||
Property, Plant and Equipment, Net | 224,301 | 231,293 | ||||||
Other Assets, Net | 905,294 | 313,992 | ||||||
Total Assets | 2,287,928 | 1,827,176 | ||||||
Debt | 557,237 | 142,704 | ||||||
Total Liabilities | 1,086,682 | 687,213 | ||||||
Shareholders' Equity | $ | 1,201,246 | $ | 1,139,963 | ||||
(Unaudited) Three Months Ended September 30, | (Unaudited) Nine Months Ended September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Net Earnings | $ | 9,295 | $ | 21,138 | $ | 56,139 | $ | 97,992 | ||||
Add Preliminary Progressive-Related Amortization Expense (1) | 7,984 | — | 13,502 | — | ||||||||
Add Financial Advisory and Legal Costs (2) | 271 | — | 8,768 | — | ||||||||
Add Progressive-Related Transaction Costs (3) | 261 | — | 4,260 | — | ||||||||
Add Restructuring Expenses (4) | 4,842 | — | 5,866 | — | ||||||||
Add Regulatory (Income) Expenses (5)(6) | (845 | ) | 9,628 | (770 | ) | 18,449 | ||||||
Add Retirement and Vacation Charges (7)(8) | 6,404 | — | 5,837 | 3,194 | ||||||||
Non-GAAP Net Earnings | $ | 28,212 | $ | 30,766 | $ | 93,602 | $ | 119,635 | ||||
Earnings Per Share Assuming Dilution | $ | .13 | $ | .28 | $ | .77 | $ | 1.28 | ||||
Add Preliminary Progressive-Related Amortization Expense | .11 | — | .19 | — | ||||||||
Add Financial Advisory and Legal Costs | — | — | .12 | — | ||||||||
Add Progressive-Related Transaction Costs | — | — | .06 | — | ||||||||
Add Restructuring Expenses | .07 | — | .08 | — | ||||||||
Add Regulatory (Income) Expenses | (.01 | ) | .13 | (.01 | ) | .24 | ||||||
Add Retirement and Vacation Related Charges | .09 | — | .08 | .04 | ||||||||
Non-GAAP Earnings Per Share Assuming Dilution (9) | $ | .39 | $ | .40 | $ | 1.29 | $ | 1.56 | ||||
Weighted Average Shares Outstanding Assuming Dilution | 72,660 | 76,676 | 72,713 | 76,611 |
(1) | Net of taxes of $3,354 for the three months and $7,535 for the nine months ended September 30, 2014 calculated using the effective tax rates for the three and nine months ended September 30, 2014. |
(2) | Net of taxes of $114 for the three months and $4,893 for the nine months ended September 30, 2014 calculated using the effective tax rates for the three and nine months ended September 30, 2014. |
(3) | Net of taxes of $110 for the three months and $2,378 for the nine months ended September 30, 2014 calculated using the effective tax rates for the three and nine months ended September 30, 2014. |
(4) | Net of taxes of $2,034 for the three months and $3,274 for the nine months ended September 30, 2014 calculated using the effective tax rates for the three and nine months ended September 30, 2014. |
(5) | Net of taxes of $355 for the three months and $430 for the nine months ended September 30, 2014 calculated using the effective tax rates for the three and nine months ended September 30, 2014. |
(6) | Net of taxes of $3,772 for the three months and $9,951 for the nine months ended September 30, 2013 calculated using the effective tax rates for the three and nine months ended September 30, 2013. |
(7) | Net of taxes of $2,690 for the three months and $3,257 for the nine months ended September 30, 2014 calculated using the effective tax rates for the three and nine months ended September 30, 2014. |
(8) | Net of taxes of $1,723 for the nine months ended September 30, 2013 calculated using the effective tax rate for the nine months ended September 30, 2013. |
(9) | In some cases the sum of individual EPS amounts may not equal total EPS calculations. |
Three Months Ended September 30, 2014 | |||||||||||||||||||||
Sales & Lease Ownership | Progressive | HomeSmart | Franchise | Manufacturing | Other | Consolidated Total | |||||||||||||||
Net Income | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 9,295 | |||||||
Provision for Income Taxes | — | — | — | — | — | — | 3,904 | ||||||||||||||
Operating Income | 23,814 | 1,689 | (906 | ) | 12,542 | (17 | ) | (23,923 | ) | 13,199 | |||||||||||
Interest Expense | 1,966 | 5,247 | 217 | — | 12 | (1,280 | ) | 6,162 | |||||||||||||
Depreciation | 8,260 | 327 | 646 | 388 | 385 | 3,328 | 13,334 | ||||||||||||||
Amortization | 353 | 11,338 | 42 | — | — | — | 11,733 | ||||||||||||||
EBITDA | 34,393 | 18,601 | (1 | ) | 12,930 | 380 | (21,875 | ) | 44,428 | ||||||||||||
Financial Advisory and Legal Costs | — | — | — | — | — | 385 | 385 | ||||||||||||||
Progressive-Related Transaction Costs | — | — | — | — | — | 371 | 371 | ||||||||||||||
Restructuring Expenses | 2,572 | — | 6 | — | — | 4,298 | 6,876 | ||||||||||||||
Regulatory Income | — | — | — | — | — | (1,200 | ) | (1,200 | ) | ||||||||||||
Retirement Charges | — | — | — | — | — | 9,094 | 9,094 | ||||||||||||||
Adjusted EBITDA | $ | 36,965 | $ | 18,601 | $ | 5 | $ | 12,930 | $ | 380 | $ | (8,927 | ) | $ | 59,954 | ||||||
Three Months Ended September 30, 2013 | |||||||||||||||||||||
Sales & Lease Ownership | Progressive | HomeSmart | Franchise | Manufacturing | Other | Consolidated Total | |||||||||||||||
Net Income | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 21,138 | |||||||
Provision for Income Taxes | — | — | — | — | — | — | 8,282 | ||||||||||||||
Operating Income | 37,193 | — | (1,582 | ) | 13,084 | 22 | (19,297 | ) | 29,420 | ||||||||||||
Interest Expense | 1,876 | — | 217 | — | 20 | (616 | ) | 1,497 | |||||||||||||
Depreciation | 9,080 | — | 614 | 441 | 381 | 2,762 | 13,278 | ||||||||||||||
Amortization | 708 | — | 232 | — | — | — | 940 | ||||||||||||||
EBITDA | 48,857 | — | (519 | ) | 13,525 | 423 | (17,151 | ) | 45,135 | ||||||||||||
Regulatory Expenses | — | — | — | — | — | 13,400 | 13,400 | ||||||||||||||
Adjusted EBITDA | $ | 48,857 | $ | — | $ | (519 | ) | $ | 13,525 | $ | 423 | $ | (3,751 | ) | $ | 58,535 |
Nine Months Ended September 30, 2014 | |||||||||||||||||||||
Sales & Lease Ownership | Progressive | HomeSmart | Franchise | Manufacturing | Other | Consolidated Total | |||||||||||||||
Net Income | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 56,139 | |||||||
Provision for Income Taxes | — | — | — | — | — | — | 31,332 | ||||||||||||||
Operating Income | 111,806 | 1,366 | (1,492 | ) | 38,173 | 441 | (62,823 | ) | 87,471 | ||||||||||||
Interest Expense | 5,891 | 9,501 | 688 | — | 40 | (2,946 | ) | 13,174 | |||||||||||||
Depreciation | 25,766 | 587 | 1,944 | 1,217 | 1,152 | 9,677 | 40,343 | ||||||||||||||
Amortization | 1,458 | 21,037 | 249 | — | — | — | 22,744 | ||||||||||||||
EBITDA | 144,921 | 32,491 | 1,389 | 39,390 | 1,633 | (56,092 | ) | 163,732 | |||||||||||||
Financial Advisory and Legal Costs | — | — | — | — | — | 13,661 | 13,661 | ||||||||||||||
Progressive-Related Transaction Costs | — | — | — | — | — | 6,638 | 6,638 | ||||||||||||||
Restructuring Expenses | 4,836 | — | 6 | — | — | 4,298 | 9,140 | ||||||||||||||
Regulatory Income | — | — | — | — | — | (1,200 | ) | (1,200 | ) | ||||||||||||
Retirement Charges | — | — | — | — | — | 9,094 | 9,094 | ||||||||||||||
Adjusted EBITDA | $ | 149,757 | $ | 32,491 | $ | 1,395 | $ | 39,390 | $ | 1,633 | $ | (23,601 | ) | $ | 201,065 | ||||||
Nine Months Ended September 30, 2013 | |||||||||||||||||||||
Sales & Lease Ownership | Progressive | HomeSmart | Franchise | Manufacturing | Other | Consolidated Total | |||||||||||||||
Net Income | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 97,992 | |||||||
Provision for Income Taxes | — | — | — | — | — | — | 52,857 | ||||||||||||||
Operating Income | 162,409 | — | (2,376 | ) | 40,841 | 67 | (50,092 | ) | 150,849 | ||||||||||||
Interest Expense | 5,613 | — | 683 | — | 64 | (1,844 | ) | 4,516 | |||||||||||||
Depreciation | 27,005 | — | 1,836 | 1,350 | 1,640 | 7,792 | 39,623 | ||||||||||||||
Amortization | 2,153 | — | 793 | — | — | — | 2,946 | ||||||||||||||
EBITDA | 197,180 | — | 936 | 42,191 | 1,771 | (44,144 | ) | 197,934 | |||||||||||||
Regulatory Expenses | — | — | — | — | — | 28,400 | 28,400 | ||||||||||||||
Retirement and Vacation Charges | — | — | — | — | — | 4,917 | 4,917 | ||||||||||||||
Adjusted EBITDA | $ | 197,180 | $ | — | $ | 936 | $ | 42,191 | $ | 1,771 | $ | (10,827 | ) | $ | 231,251 | ||||||
Fourth Quarter 2014 | Fiscal Year 2014 | |||||||||||
Low Range | High Range | Low Range | High Range | |||||||||
Projected Earnings Per Share Assuming Dilution | $ | .24 | $ | .29 | $ | 1.01 | $ | 1.06 | ||||
Add Progressive-Related Amortization Expense | .10 | .10 | .28 | .28 | ||||||||
Add Financial Advisory and Legal Costs | — | — | .12 | .12 | ||||||||
Add Progressive-Related Transaction Costs | — | — | .06 | .06 | ||||||||
Add Restructuring Expenses | — | — | .08 | .08 | ||||||||
Add Regulatory (Income) | — | — | (.01 | ) | (.01 | ) | ||||||
Add Retirement Charges | — | — | .08 | .08 | ||||||||
Projected Non-GAAP Earnings Per Share Assuming Dilution | $ | .34 | $ | .39 | $ | 1.62 | $ | 1.67 |