-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EE5NfN7f+GjaD4kM8wJJYJ9zbeP2FtkCS818gMLVCUOkaaDwG07uIA44d6Psh1O7 ziuhqGcYDI6y4MS6S27/Ww== 0000950144-98-009833.txt : 19980817 0000950144-98-009833.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950144-98-009833 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AARON RENTS INC CENTRAL INDEX KEY: 0000706688 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 580687630 STATE OF INCORPORATION: GA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13941 FILM NUMBER: 98688241 BUSINESS ADDRESS: STREET 1: 3001 N FULTON DR NE STREET 2: 1100 AARON BLDG CITY: ATLANTA STATE: GA ZIP: 30363 BUSINESS PHONE: 4042310011 MAIL ADDRESS: STREET 1: 309 E. PACES FERRY ROAD., N.E. STREET 2: 3001 N FULTON DRIVE NE CITY: ATLANTA STATE: GA ZIP: 30305-2377 10-Q 1 AARON RENTS INC 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 l934 JUNE 30, 1998 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 11, 1998 --------------------- ----------------- Common Stock, $.50 Par Value 17,264,391 Class A Common Stock, $.50 Par Value 3,836,506 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS AARON RENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(unaudited) June 30, December 31, 1998 1997 ---------- ------------ (in thousands) ASSETS: Cash $ 99 $ 96 Accounts Receivable 15,922 11,794 Rental Merchandise 268,403 246,498 Less: Accumulated Depreciation (77,879) (69,530) --------- --------- 190,524 176,968 Property, Plant and Equipment, Net 45,575 39,757 Prepaid Expenses and Other Assets 14,390 10,767 --------- --------- Total Assets $ 266,510 $ 239,382 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts Payable and Accrued Expenses $ 28,439 $ 31,071 Dividends Payable 422 379 Deferred Income Taxes Payable 7,675 6,687 Customer Deposits and Advance Payments 8,831 8,304 Bank Debt 50,880 75,904 Other Debt 2,967 582 --------- --------- Total Liabilities 99,214 122,927 Shareholders' Equity: Common Stock, Par Value $.50 Per Share; Authorized: 25,000,000 Shares; Shares Issued: 18,270,987 at June 30, 1998 9,135 8,085 and 16,170,987 at December 31, 1997 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 54,439 15,484 Retained Earnings 124,282 113,864 --------- --------- 190,537 140,114 Less: Treasury Shares at Cost, Common Stock, 1,016,596 Shares at June 30, 1998 and 1,058,041 Shares at December 31, 1997 (9,105) (9,523) Class A Common Stock, 1,525,255 Shares at June 30, 1998 and December 31, 1997 (14,136) (14,136) --------- --------- Total Shareholders' Equity 167,296 116,455 --------- --------- Total Liabilities and Shareholders' Equity $ 266,510 $ 239,382 ========= =========
See Notes to Consolidated Financial Statements 3 AARON RENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, ------------------ ---------------- 1998 1997 1998 1997 ------------------ ---------------- (in thousands, except per share amounts) REVENUES: Rentals and Fees $71,860 $58,006 $141,978 $115,021 Retail Sales 15,213 14,355 31,517 29,423 Non-Retail Sales 4,604 3,709 9,207 6,680 Other 2,155 1,395 3,939 2,821 ------- ------- -------- -------- 93,832 77,465 186,641 153,945 ------- ------- -------- -------- COSTS AND EXPENSES: Retail Cost of Sales 10,738 10,444 22,225 21,528 Non-Retail Cost of Sales 4,287 3,458 8,563 6,241 Operating Expenses 47,133 37,086 93,340 74,136 Depreciation of Rental Merchandise 21,632 17,932 42,650 35,546 Interest 952 937 2,093 1,806 ------- ------- -------- -------- 84,742 69,857 168,871 139,257 ------- ------- -------- -------- EARNINGS BEFORE TAXES 9,090 7,608 17,770 14,688 INCOME TAXES 3,536 2,975 6,930 5,743 ------- ------- -------- -------- NET EARNINGS $ 5,554 $ 4,633 $ 10,840 $ 8,945 ======= ======= ======== ======== EARNINGS PER SHARE $ .27 $ .24 $ .55 $ .46 ------- ------- -------- -------- EARNINGS PER SHARE ASSUMING DILUTION $ .27 $ .24 $ .54 $ .45 ------- ------- -------- -------- CASH DIVIDENDS DECLARED PER SHARE Common Stock $ .02 $ .02 $ .02 $ .02 ------- ------- -------- -------- Class A Common Stock $ .02 $ .02 $ .02 $ .02 ------- ------- -------- -------- WEIGHTED AVERAGE SHARES OUTSTANDING 20,399 19,102 19,686 19,377 ======= ======= ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 20,873 19,443 20,167 19,715 ======= ======= ======== ========
See Notes to Consolidated Financial Statements 4 AARON RENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1998 1997 --------- -------- (in thousands) OPERATING ACTIVITIES Net Earnings $ 10,840 $ 8,945 Depreciation and Amortization 46,845 38,682 Deferred Taxes 988 732 Change in Accounts Payable and Accrued Expenses (2,632) 1,896 Change in Accounts Receivable (4,128) (332) Other Changes, Net (2,108) (5,423) --------- -------- Cash Provided by Operating Activities 49,805 44,500 --------- -------- INVESTING ACTIVITIES Additions to Property, Plant and Equipment (15,850) (3,588) Book Value of Property Retired or Sold 6,026 6,985 Additions to Rental Equipment (93,737) (67,655) Book Value of Rental Equipment Sold 37,666 28,674 Contracts and Other Assets Acquired (1,312) (177) --------- -------- Cash Used by Investing Activities (67,207) (35,761) --------- -------- FINANCING ACTIVITIES Proceeds from Revolving Credit Agreement 76,166 49,880 Repayments on Revolving Credit Agreement (101,190) (51,005) Proceeds from Common Stock Offering 39,958 Increase of Other Debt 2,385 992 Dividends Paid (379) (382) Acquisition of Treasury Stock 0 (8,378) Issuance of Stock Under Stock Option Plan 465 166 --------- -------- Cash provided (used) by financing activities 17,405 (8,727) --------- -------- Increase in Cash 3 12 Cash at Beginning of Year 96 84 --------- -------- Cash at End of Period $ 99 $ 96 ========= ========
See Notes to Consolidated Financial Statements 5 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 subsidiary. All significant intercompany accounts and transactions have been eliminated. INTERIM FINANCIAL STATEMENTS: The Consolidated Balance Sheet as of June 30, 1998, and the Consolidated Statements of Earnings and Cash Flows for the six months ended June 30, 1998 and 1997, 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, 1998 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, 1997. The results of operations for the period ended June 30, 1998 are not necessarily indicative of the operating results for the full year. PUBLIC OFFERING OF STOCK On April 28, 1998, the Company issued through a public offering 2,100,000 shares of Common Stock. The net proceeds to the Company after deducting underwriting discounts and offering expenses were $40.0 million. The net proceeds were used to reduce bank debt. 6 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, 1998, COMPARED TO THE QUARTER ENDED JUNE 30, 1997: Total revenues for the second quarter of 1998 increased $16.4 million (21.1%) to $93.8 million compared to $77.5 million in 1997 due primarily to a $13.9 million (23.9%) increase in rentals and fees revenues, plus a $1.8 million (9.7%) increase in sales. Of this increase in rentals and fees revenues, $11.0 million (79.1%) was attributable to the Aaron's Rental Purchase division. Rentals and fees from the Company's rent-to-rent operations increased $2.8 million (10.1%) during the same period. Revenues from retail sales increased $858,000 (6.0%) to $15.2 million in 1998, from $14.4 million for the same period last year. This increase was primarily due to increased sales of both new and rental return merchandise in the Aaron's Rental Purchase and Rent-to-Rent divisions. Non-retail sales, which primarily represent merchandise sold to Aaron's Rental Purchase franchisees, increased $895,000 (24.1%) to $4.6 million compared to $3.7 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 1998 increased $760,000 (54.5%) to $2.2 million compared to $1.4 million in 1997. This increase was attributable to franchise fee and royalty income increasing $800,000 (80.6%) to $1.8 million compared to $992,000 last year, reflecting the addition of 40 franchised stores since the end of the second quarter of 1997 and increased operating revenues at mature franchise stores. Cost of sales from retail sales increased $294,000 (2.8%) to $10.7 million compared to $10.4 million last year, and as a percentage of retail sales, decreased to 70.6% from 72.8%. The decrease in cost of sales as a percentage of sales is due to improved margins in the Company's rent-to-rent operations and a greater percentage of the Company's sales coming from the Aaron's Rental Purchase division which are at higher margins. Cost of sales from non-retail sales increased $829,000 (24.0%) to $4.3 million from $3.5 million, and as a percentage of sales, decreased slightly to 93.1% from 93.2%. Operating expenses increased $10.0 million (27.1%) to $47.1 million from $37.1 million. As a percentage of total revenues, operating expenses were 50.2% in 1998 and 47.9% in 1997. Operating expenses increased as a percentage of total revenues between quarters primarily due to the Company's acquisition of RentMart Rent-To-Own, Inc. in December 1997. The RentMart stores are relatively immature and have lower revenues over which to spread expenses. Depreciation of rental merchandise increased $3.7 million (20.6%) to $21.6 million, from $17.9 million, and as a percentage of total rentals and fees, decreased to 30.1% from 30.9%. The decrease as a percentage of revenues is primarily due to decreased depreciation in relation to revenues in both the Company's Aaron's Rental Purchase and Rent-to-Rent divisions. 7 Interest expense increased $15,000 (1.6%) to $952,000 compared to $937,000. As a percentage of total revenues, interest expense was 1.0% in 1998 compared to 1.2% in 1997. The slight decrease in interest expense as a percentage of revenues was due to lower debt levels after the Company's April 1998 public offering. Income tax expense increased $561,000 (18.9%) to $3.5 million for 1998 compared to $3.0 million for the same period in 1997. The Company's effective tax rate was 38.9% for the quarter versus 39.1% for the same period in 1997 due to lower state income taxes. As a result, net earnings increased $921,000 (19.9%) to $5.6 million in the second quarter of 1998 compared to $4.6 million for the same period in 1997. As a percentage of total revenues, net earnings were 5.9% in the current quarter as compared to 6.0% for the same period last year. The weighted average number of shares outstanding during the second quarter of 1998 was 20,399,000 compared to 19,102,000 (20,873,000 versus 19,443,000 assuming dilution) for the same period last year. SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO SIX MONTHS ENDED JUNE 30, 1997: Total revenues for the first six months of 1998 increased $32.7 million (21.2%) to $186.6 million compared to $153.9 million in 1997 due primarily to a $27.0 million (23.4%) increase in rentals and fees revenues, plus a $4.6 million (12.8%) increase in sales. Of this increase in rentals and fees revenues, $21.6 million (80.0%) was attributable to the Aaron's Rental Purchase division. Rentals and fees from the Company's rent-to-rent operations increased $5.4 million (9.6%) during the same period. Revenues from retail sales increased $2.1 million (7.1%) to $31.5 million in 1998, from $29.4 million for the same period last year. This increase was primarily due to increased sales of both new and rental return merchandise in the Aaron's Rental Purchase division. Non-retail sales, which primarily represent merchandise sold to Aaron's Rental Purchase franchisees, increased $2.5 million (37.8%) to $9.2 million compared to $6.7 million for the same period last year. The increased sales are due to the growth of the franchise operations. Other revenues for the first six months of 1998 increased $1.1 million (39.6%) to $3.9 million compared to $2.8 million in 1997. This increase was attributable to franchise fee and royalty income increasing $954,000 (52.4%) to $3.2 million compared to $2.1 million last year, reflecting the addition of 40 franchised stores since the end of the second quarter of 1997 and increased operating revenues at mature franchise stores. Cost of sales from retail sales increased $697,000 (3.2%) to $22.2 million compared to $21.5 million last year, and as a percentage of retail sales, decreased to 70.5% from 73.2%. The decrease in cost of sales as a percentage of sales is due to improved margins in the Company's rent-to-rent operations and a greater percentage of the Company's sales coming from the Aaron's Rental Purchase division which are at higher margins. Cost of sales from non-retail sales increased $2.3 million (37.2%) to $8.6 million from $6.2 million, and as a percentage of sales, decreased to 93.0% from 93.4%. The decrease in cost of sales as a percentage of sales is due to slightly higher margins on sales through the Company's distribution centers. 8 Operating expenses increased $19.2 million (25.9%) to $93.3 million from $74.1 million. As a percentage of total revenues, operating expenses were 50.0% in 1998 and 48.2% in 1997. Operating expenses increased as a percentage of total revenues between the periods primarily due to the Company's acquisition of RentMart Rent-To-Own, Inc. in December 1997. The RentMart stores are relatively immature and have lower revenues over which to spread expenses. Depreciation of rental merchandise increased $7.1 million (20.0%) to $42.7 million, from $35.5 million, and as a percentage of total rentals and fees, decreased to 30.0% from 30.9%. The decrease as a percentage of revenues is primarily due to decreased depreciation in relation to revenues in both the Company's Aaron's Rental Purchase and Rent-to-Rent divisions. Interest expense increased $287,000 (15.9%) to $2.1 million compared to $1.8 million. As a percentage of total revenues, interest expense was 1.1% in 1998 compared to 1.2% in 1997. The slight decrease in interest expense as a percentage of revenues was due to lower debt levels after the Company's April 1998 public offering. Income tax expense increased $1.2 million (20.7%) to $6.9 million for 1998 compared to $5.7 million for the same period in 1997. The Company's effective tax rate was 39.0% for first six months of 1998 versus 39.1% for the same period in 1997. As a result, net earnings increased $1.9 million (21.2%) to $10.8 million in the first six months of 1998 compared to $8.9 million for the same period in 1997. As a percentage of total revenues, net earnings were 5.8% both periods. The weighted average number of shares outstanding during the first six months of 1998 was 19,686,000 compared to 19,377,000 (20,167,000 versus 19,715,000 assuming dilution) for the same period last year. LIQUIDITY AND CAPITAL RESOURCES: During the first quarter of 1998, the Company paid a semi-annual dividend that was declared in December 1997 of $.02 per share on both Common Stock and Class A Common Stock, respectively. On May 5, 1998, the Company declared a semi-annual dividend payable on July 7, 1998 of $.02 per share on both Common Stock and Class A Common Stock, respectively. On April 28, 1998, the Company issued through a public offering 2,100,000 shares of Common Stock. The net proceeds to the Company after deducting underwriting discounts and offering expenses were $40.0 million. The net proceeds were used to reduce bank debt. Cash flow from operations for the six months ended June 30, 1998 and 1997 was $49.8 million and $44.5 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 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 bank credit, cash flow from operations, trade credit, proceeds from the sale of rental return merchandise, and proceeds from public stock offerings. 9 The Company has financed its growth through a revolving credit agreement with several banks, trade credit and internally generated funds. 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, 1998, an aggregate of $50.9 million was outstanding under this facility, bearing interest at a average rate of 6.47%. The Company uses interest rate swap agreements as part of its overall long-term financing program. At June 30, 1998, the Company had swap agreements with notional principal amounts of $40.0 million which effectively fixed the interest rates on an equal amount of borrowings under the Company's revolving credit agreement at 7.18%. The Company believes that the expected cash flows from operations, proceeds from the sale of rental return merchandise, bank borrowings and vendor credit, together with the proceeds from the stock offering on April 28, 1998, will be sufficient to fund the Company's capital and liquidity needs for at least the next 24 months. 10 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 ------- ---------------------- 27 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Registrant during the three months ended June 30, 1998 11 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, 1998 /s/ Gilbert L. Danielson --------------- ------------------------ Gilbert L. Danielson Executive Vice President Chief Financial Officer Date - August 12, 1998 --------------- /s/ Robert P. Sinclair, Jr. --------------------------- Robert P. Sinclair, Jr. Corporate Controller EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 99 0 15,922 0 190,524 0 45,575 0 266,510 0 0 0 0 11,816 155,480 266,510 40,724 186,641 30,788 166,778 0 0 2,093 17,770 6,930 10,840 0 0 0 10,840 .55 .54 The allowance of doubtful accounts is netted against total accounts receivable in the Accounts Receivable balance. Rental merchandise has been classified as inventory for purposes of this schedule. Rental merchandise has been shown net of 77,879 accumulated depreciation. The financial statements are presented with an unclassified balance sheet. PP&E has been shown net of accumulated depreciation.
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