-----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, S1aydwSzq7+sZaEZ9l+XfwKyv0RtMBppuZKnI+fCODx8glRzu/xXpufLTUCOt1Pn 3YKirdgpdF/6iBsYtpd1fA== 0000950144-99-006082.txt : 19990517 0000950144-99-006082.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-006082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99624164 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 MARCH 31, 1999 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 May 10, 1999 ------------------- ------------ Common Stock, $.50 Par Value 16,116,231 Class A Common Stock, $.50 Par Value 3,829,506 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS AARON RENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(unaudited) March 31, December 31, 1999 1998 ---------- ------------ (in thousands) ASSETS: Cash $ 92 $ 95 Accounts Receivable 15,262 16,226 Rental Merchandise 282,338 277,505 Less: Accumulated Depreciation (86,137) (83,342) --------- --------- 196,201 194,163 Property, Plant and Equipment, Net 49,750 50,113 Prepaid Expenses and Other Assets 15,062 11,577 --------- --------- Total Assets $ 276,367 $ 272,174 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts Payable and Accrued Expenses $ 38,731 $ 33,461 Dividends Payable 415 Deferred Income Taxes Payable 10,464 7,811 Customer Deposits and Advance Payments 11,056 9,889 Bank Debt 47,046 50,411 Other Debt 404 1,316 --------- --------- Total Liabilities 107,701 103,303 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 54,285 54,284 Retained Earnings 141,190 134,511 --------- --------- 207,291 200,611 Less: Treasury Shares at Cost, Common Stock, 2,068,781 Shares at March 31, 1999 and 1,558,991 Shares at December 31, 1998 (24,489) (17,604) Class A Common Stock, 1,525,255 Shares at March 31, 1999 and December 31, 1998 (14,136) (14,136) --------- --------- Total Shareholders' Equity 168,666 168,871 --------- --------- Total Liabilities & Shareholders' Equity $ 276,367 $ 272,174 ========= =========
See Notes to Consolidated Financial Statements 3 AARON RENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months Ended ------------------------------- March 31, ------------------------------- 1999 1998 ------------------------------- (in thousands, except per share amounts) REVENUES: Rentals and Fees $ 77,261 $70,118 Retail Sales 16,463 16,304 Non-Retail Sales 7,971 4,603 Other 2,608 1,784 -------- ------- 104,303 92,809 -------- ------- COSTS AND EXPENSES: Retail Cost of Sales 11,858 11,487 Non-Retail Cost of Sales 7,362 4,276 Operating Expenses 48,721 46,207 Depreciation of Rental Merchandise 24,769 21,018 Interest 814 1,141 -------- ------- 93,524 84,129 -------- ------- EARNINGS BEFORE TAXES 10,779 8,680 INCOME TAXES 4,100 3,394 -------- ------- NET EARNINGS $ 6,679 $ 5,286 ======== ======= EARNINGS PER SHARE $ .33 $ .28 EARNINGS PER SHARE ASSUMING DILUTION .33 .27 -------- ------- CASH DIVIDENDS DECLARED PER SHARE Common Stock $ -- $ -- Class A Common Stock -- -- -------- ------- WEIGHTED AVERAGE SHARES OUTSTANDING 20,215 18,965 WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 20,444 19,468 -------- -------
See Notes to Consolidated Financial Statements 4 AARON RENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended ------------------ March 31, --------- 1999 1998 --------- -------- (in thousands) OPERATING ACTIVITIES Net Earnings $ 6,679 $ 5,286 Depreciation and Amortization 27,413 23,027 Deferred Income Taxes 2,653 2,987 Change in Accounts Payable and Accrued Expenses 5,270 1,821 Change in Accounts Receivable 964 (2,377) Other Changes, Net 1,042 (48) -------- -------- Cash Provided by Operating Activities 44,021 30,696 -------- -------- INVESTING ACTIVITIES Additions to Property, Plant and Equipment (10,366) (7,953) Book Value of Property Retired or Sold 8,385 1,575 Additions to Rental Equipment (45,064) (46,528) Book Value of Rental Equipment Sold 19,885 23,896 Contracts and Other Assets Acquired (5,281) -------- -------- Cash Used by Investing Activities (32,441) (29,010) -------- -------- FINANCING ACTIVITIES Proceeds from Revolving Credit Agreement 29,374 35,827 Repayments on Revolving Credit Agreement (32,739) (37,341) Decrease in Other Debt (912) (209) Dividends Paid (415) (379) Acquisition of Treasury Stock (6,891) Issuance of Stock Under Stock Option Plan 415 -------- -------- Cash Used by Financing Activities (11,583) (1,687) -------- -------- Decrease in Cash (3) (1) Cash at Beginning of Year 95 96 -------- -------- Cash at End of Period $ 92 $ 95 ======== ========
See Notes to Consolidated Financial Statements 5 AARON RENTS, INC. AND SUBSIDIARIES 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 March 31, 1999, and the Consolidated Statements of Earnings and Cash Flows for the quarter ended March 31, 1999 and 1998, 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 March 31, 1999 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, 1998. The results of operations for the period ended March 31, 1999 are not necessarily indicative of the operating results for the full year. NOTE B: COMPREHENSIVE INCOME There were no differences between net income and comprehensive income for the three month periods ended March 31, 1999 and 1998. NOTE C: SEGMENT INFORMATION
Quarters Ended March 31 1999 1998 --------- -------- (in thousands) REVENUES FROM EXTERNAL CUSTOMERS: Rent-to-Rent $ 44,769 $ 43,901 Rental Purchase 58,106 46,541 Franchise 2,088 1,385 Other (49) 1,588 Manufacturing 5,789 5,025 Elimination of intersegment revenues (5,742) (5,057) Cash to accrual adjustments (658) (574) --------- -------- Total revenues from external customers $ 104,303 $ 92,809 ========= ======== EARNINGS BEFORE INCOME TAXES: Rent-to-Rent $ 5,469 $ 6,012 Rental Purchase 5,258 3,740 Franchise 1,225 525 Other (631) (332) Manufacturing 164 198 --------- -------- Earnings before income taxes for reportable segments 11,485 10,143 Elimination of intersegment profit (63) (194) Cash to accrual adjustments (702) (770) Other allocations and adjustments 59 (499) --------- -------- Total earnings before income taxes $ 10,779 $ 8,680 ========= ========
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 statement, including the risks and uncertainties discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, 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 MARCH 31, 1999 VERSUS QUARTER ENDED MARCH 31, 1998: Total revenues for the first quarter of 1999 increased $11.5 million (12.4%) to $104.3 million compared to $92.8 million in 1998 due primarily to a $7.1 million (10.2%) increase in rentals and fees revenues, plus a $3.5 million (16.9%) increase in sales. Of this increase in rentals and fees revenues, $8.3 million was attributable to the Aaron's Rental Purchase division. Rentals and fees revenues from the Company's rent-to-rent operations, which included in 1998 $1.6 million of rentals and fees revenues from the Company's convention furnishings division, decreased $1.2 million during the same period. The convention furnishings business was sold in the fourth quarter of 1998. Revenues from retail sales increased $159,000 (1.0%) to $16.5 million in 1999, from $16.3 million for the same period last year. This increase was due to increased sales of rental return merchandise in the Company's rent-to-rent operations. Non-retail sales, which primarily represent merchandise sold to Aaron's Rental Purchase franchisees, increased $3.4 million (73.2%) to $8.0 million compared to $4.6 million for the same period last year. The increased sales are due to the growth of the franchise operations. Other revenues for the first quarter 1999 increased $824,000 (46.2%) to $2.6 million compared to $1.8 million in 1998. This increase was attributable to fees and royalties from franchise operations increasing $598,000 (50.3%) to $1.8 million compared to $1.2 million last year, reflecting the addition of 33 franchised stores since the end of the first quarter of 1998 and increasing operating revenues at maturing franchise stores. Cost of sales from retail sales increased $371,000 (3.2%) to $11.9 million compared to $11.5 million last year, and as a percentage of retail sales, increased to 72.0% from 70.5%. The increase in cost of sales as a percentage of sales is due to lower margins from the sale of rental return merchandise in the Company's rent-to-rent operations. Cost of sales from non-retail sales increased $3.1 million (72.2%) to $7.4 million from $4.3 million, and as a percentage of sales, decreased to 92.4% from 92.9%. 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. Operating expenses increased $2.5 million (5.4%) to $48.7 million from $46.2 million. As a percentage of total revenues, operating expenses were 46.7% in 1999 and 49.8% in 1998. Operating expenses decreased as a percentage of total revenues between quarters primarily due to increased revenues in the Aaron's Rental Purchase division and the sale of the Company's convention furnishings business which had higher operating expenses than traditional rent-to-rent and rental purchase operations. 7 Depreciation of rental merchandise increased $3.8 million (17.8%) to $24.8 million, from $21.0 million, and as a percentage of total rentals and fees, increased to 32.1% from 30.0%. 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 decreased $327,000 (28.7%) to $814,000 compared to $1.1 million. As a percentage of total revenues, interest expense was 0.8% in 1999 compared to 1.2% in 1998. The decrease in interest expense as a percentage of total revenues was due to lower debt levels after the Company's April 1998 public stock offering. Income tax expense increased $706,000 (20.8%) to $4.1 million for 1999 compared to $3.4 million for the same period in 1998. The Company's effective tax rate was 38.0% for the first quarter of 1999 compared to 39.1% for the same period last year, primarily due to lower state income tax rates. As a result, net earnings increased $1.4 million (26.4%) to $6.7 million in the first quarter of 1999 compared to $5.3 million for the same period in 1998. As a percentage of total revenues, net earnings were 6.4% in the current quarter as compared to 5.7% for the same period last year. The weighted average number of shares outstanding during the first quarter of 1999 was 20,215,000 compared to 18,965,000 (20,444,000 versus 19,468,000 assuming dilution) for the same period last year. LIQUIDITY AND CAPITAL RESOURCES: During the first quarter of 1999, the Company paid a semi-annual dividend that was declared in December 1998 of $.02 per share on both Common Stock and Class A Common Stock respectively. On May 4, 1999, the Company declared a semi-annual dividend payable on July 6, 1999 of $.02 per share on both Common Stock and Class A Common Stock. Cash flow from operations for the quarters ended March 31, 1999 and 1998 was $44.0 million and $30.7 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 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 March 31, 1999, an aggregate of $47.0 million was outstanding under this facility, bearing interest at a average rate of 5.46%. The Company uses interest rate swap agreements as part of its overall long-term financing program. At March 31, 1999, 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 7.18%. 8 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. Year 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, generate invoices, or engage in similar normal business activities. The Company is continuing its assessments of the impact of the Year 2000 across its business and operations, including its customer and vendor base. The Company has substantially completed its identification of information technology systems ("IT systems") that are not Year 2000 compliant and is in the process of implementing a comprehensive plan to make its IT systems and non-information technology systems ("non-IT systems"), including embedded electronic circuits in equipment and hardware, products, telecommunication, building security and manufacturing equipment, Year 2000 compliant. The Company's plan to resolve the Year 2000 Issue involves the following four phases: (1) assessment, (2) remediation, (3) testing, and (4) implementation. The Company is simultaneously working on all four phases and has substantially completed phase (1) and anticipates that it will substantially complete phase (2) and (3) by the end of the third quarter 1999, and (4) by the end of the fourth quarter 1999. The Company is in the process of querying its significant suppliers and subcontractors (external agents). To date, the Company is not aware of any external agents with a Year 2000 issue that would materially impact the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 compliant. The inability of external agents to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by external agents is not determinable. The Company's significant IT systems, including financial, accounting, store operating and point-of-sale software, have recently been or are in the process of being updated. The upgrading and rewriting of the Company's IT systems is being completed to gain further strategic advantages over competitors and is not the result of any anticipated Year 2000 issues. In addition, as part of the Company's continuing process to update IT and non-IT systems, management has required vendor-purchased and internally developed systems be Year 2000 compliant. Therefore, management expects the cost of the Year 2000 project to be less than $300,000. The Company has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds, and backup vendors. 9 Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company does not complete any additional phases, the Company may be unable to take customer orders, manufacture and ship products, invoice customers or collect payments. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems product failure, for example, equipment shutdown or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. See "Special Note Regarding Forward-Looking Information". 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 March 31, 1999. 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 - May 11, 1999 /s/ Gilbert L. Danielson ------------ ---------------------------------- Gilbert L. Danielson Executive Vice President Chief Financial Officer Date - May 11, 1999 /s/ Robert P. Sinclair, Jr. ------------ --------------------------------- Robert P. Sinclair, Jr. Corporate Controller EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AARON RENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 MAR-31-1999 92 0 15,262 0 191,201 0 49,750 0 276,367 0 0 0 0 11,816 156,850 276,367 24,434 104,303 19,220 92,710 0 0 814 10,779 4,100 6,679 0 0 0 6,679 .33 .33 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 86,137 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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