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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the nine months ended Commission File No.
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December 31, 1995 0-12385
Aaron Rents, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-0687630
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
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(404) 231-0011
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
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Class A Common Stock, $.50 Par Value
Class B Common Stock, $.50 Par Value
Indicate by check mark whether the registrant (1) 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
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Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 12, 1996: $30,772,336 See Item 12.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Shares Outstanding as of
Title of Each Class March 12, 1996
- ------------------------------------ --------------
Class A Common Stock, $.50 Par Value 3,844,146
Class B Common Stock, $.50 Par Value 5,705,820
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders for the nine months ended
December 31, 1995 are incorporated by reference into Part II of this Form 10-K.
Portions of the registrant's definitive proxy statement for the 1996 annual
meeting of shareholders are incorporated by reference into Part III of this Form
10-K.
PART I.
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Item 1. Business
GENERAL
Aaron Rents is one of the leading furniture rental companies in the United
States and has a growing and distinct presence in the rental purchase industry.
The Company rents and sells residential and office furniture and accessories,
consumer electronics, household appliances and business equipment. By
manufacturing its own specially designed residential and office furniture, the
Company enjoys an advantage over many of its competitors. Through its rent-to-
rent and rental purchase operations, the Company serves a broad range of
customers, including customers with temporary needs, customers who want the
option but not the obligation to purchase merchandise, and consumers financially
unable to purchase merchandise for cash or on credit. Cost-conscious consumers
can buy rental return merchandise at any of the Company's rental purchase or
rent-to-rent stores or at one of the Company's clearance centers. These sales
allow the Company to maximize the residual value of its rental return
merchandise.
Aaron Rents at December 31, 1995 had 212 Company operated stores and 36
franchised stores in 24 states, including 98 rent-to-rent stores in its Aaron
Rents' Rent-to-Rent division, 106 Company-operated rental purchase stores in its
Aaron's Rental Purchase division, 36 Aaron's Rental Purchase franchised stores,
and 8 clearance sales stores in its Aaron Rents' Rent-to-Rent division. Aaron
Rents stores are located primarily in the Southeast and Southwest. While each
store has a principal focus (rent-to-rent, rental purchase or clearance sales),
all stores give customers the option to rent only, to rent to purchase, or to
purchase any of the store's merchandise. The Company expects to develop or
acquire additional stores in clusters to achieve marketing, distribution and
other operating efficiencies. The Company franchises Aaron's Rental Purchase
stores in selected markets. The Company also owns five furniture manufacturing
plants and four bedding manufacturing facilities, which supply approximately 49%
of the furniture rented or sold by the Company.
Beginning in 1990, the Company undertook a strategic plan to restructure
significant aspects of its operations and to concentrate on development of its
Aaron's Rental Purchase concept. The Company sold or closed its rent-to-rent
and clearance sales operations in the Northeast and California in order to
concentrate operations in the Southeast and Southwest, which it believed offered
the best opportunities for profitable growth. The Company in fiscal year 1994
sold its unprofitable Ball Stalker subsidiary which was engaged in the sale of
contract office furniture. The Company also reorganized its management
structure (including hiring additional personnel) to support anticipated new
growth, implemented profit-based compensation plans at both store and operations
management levels and decentralized certain store operations functions to ensure
continued high quality services to customers as the Company's business expanded.
In 1992, the Company accelerated development of its distinctive Aaron's
Rental Purchase concept to increase its share of the growing rent-to-own
industry. The Company took this opportunity to introduce innovative programs
and approaches that would differentiate the Company's rental purchase program
from the typical rent-to-own programs of its competitors. The Company's
innovations included offering 12-month rental purchase contract terms (compared
to the industry standard 18 to 24 months), larger and more attractive store
showrooms in more appealing locations, and a wider selection of merchandise. At
fiscal year end the Company had opened 85 rental purchase stores since March 31,
1990, including 63 stores since March 31, 1993. To address opportunities
primarily in non-metropolitan areas where the Company-operated stores would be
difficult to manage efficiently, the Company began its Aaron's Rental Purchase
franchise program in 1992.
For the nine months ended December 31, 1995, in the Company's rent-to-rent
and rental purchase stores, approximately 35% of its volume of business was the
rental of furniture and accessories, approximately 21% was the sale of rental
and other merchandise, and 44% was rental purchase. The rent-to-rent portion of
the business (including the sale of rental return merchandise) is mature and
stable, and accounts for approximately 60% of the Company's total revenues. At
December 31, 1995, the Company's 212 stores had an aggregate showroom and
warehouse space of approximately 2.9 million square feet, and approximately 72%
of the Company's rental merchandise inventory was on rent.
THE RENT-TO-OWN INDUSTRY
The Company believes its rental purchase concept differs significantly from
the typical rent-to-own program. The rent-to-own industry is a growing segment
of the retail industry that offers an alternative to traditional methods of
acquiring furniture, electronics and appliances. The rent-to-own concept is
particularly popular with consumers who are unable to pay for merchandise in
cash or who lack the credit to qualify under conventional financing programs.
It is also popular with consumers who, despite good credit, do not wish to incur
additional debt, have only a temporary need for the merchandise, or desire to
try out a particular brand or model before purchasing it. Historically,
electronic goods have been the dominant product category rented and sold in the
industry although furniture items are growing rapidly in popularity.
In the typical rent-to-own transaction, the customer seeks to acquire
merchandise over a fixed term, usually 18 to 24 months, by making weekly rental
payments. The customer may cancel the contract at any time by returning the
merchandise to the store, with no further rental obligation. The average rental
period in the industry is about four months, as the majority of customers do not
rent the item to the full term of the contract. If the customer rents the
item to the full term, he obtains ownership of the item, though he has the
option to purchase it any time.
The estimated potential size of the United States rent-to-own market is 12
million households of which only 2.7 million are being served currently by the
industry. According to the 1995 survey of the Association of Progressive Rental
Organizations ("APRO"), the national trade association representing the rent-to-
own industry, there were approximately 7,500 rent-to-own stores in the United
States, 40% of which were owned or franchised by companies having 25 or more
stores. Industry-wide revenues are believed to have been approximately $3.9
billion in 1994.
Rent-to-own transactions currently are regulated at the state level by 42
states. See "Government Regulation."
THE RENT-TO-RENT INDUSTRY
The rent-to-rent industry serves both residential and business customers
who generally have immediate, temporary needs for office or residential
merchandise but who generally do not seek to own the merchandise. Residential
rental customers include both individual residents seeking to rent merchandise
for their own homes and apartments, and apartment complex managers seeking to
provide furnished apartments. Business customers range from small businesses
and professionals who are in need of office furnishings but need to conserve
capital, to large corporations with temporary or seasonal needs.
In the typical rent-to-rent transaction, the customer agrees to rent one or
more items for a minimum of four months, which may be extended by the customer
on a month-to-month basis. Although most rental contracts give the customer the
option of purchasing the rented item, most customers do not enter into the
transaction with the desire to own the rented merchandise.
The furniture component of the rent-to-rent industry is estimated to be
greater than $650 million in annual rental revenues. Although in general the
rent-to-rent industry is mature, the Company believes that there is growth
potential in office furniture. The demand for rental products is
believed to be related to the mobility of the population, which relies upon
rented merchandise to fulfill temporary needs. The industry is highly
competitive and consolidating, with only a handful of companies accounting for a
substantial share of the market.
OPERATING DIVISIONS
Rental Purchase-Aaron's Rental Purchase
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The Company established its Aaron's Rental Purchase division with stand-
alone stores in 1987, accelerated its expansion of the stores in 1990, and at
December 31, 1995 had 106 Company-operated and 36 franchised Aaron's Rental
Purchase stores. The Company has clearly defined its Aaron's Rental Purchase
stores with specific merchandising selection and store layout, pricing and
contract terms, and the customers it seeks to attract. The Company believes
that these features create a store and rental purchase concept that is
significantly different from the operations of most other rent-to-own stores,
the Company's traditional rent-to-rent business, and the operations of home
furnishings retailers who finance merchandise.
Compared to the typical rent-to-own store, Aaron's Rental Purchase stores
offer shorter contract terms which are payable on a monthly basis and have
generally lower total payments to acquire merchandise. Aaron's Rental Purchase
stores offer a larger selection of merchandise in general and a greater
percentage of furniture merchandise in particular, and have a larger and more
visually appealing store layout. The Company believes that its rental purchase
customers demand and can afford both higher quality merchandise and more
competitive pricing on total contract terms compared to the typical rent-to-own
customer.
The Company's rental purchase operations differ from its traditional rent-
to-rent business. A typical rental purchase customer, while usually lacking the
cash or credit resources to acquire merchandise, desires the option of ownership
and may have the intention to utilize rental purchase to achieve ownership.
Accordingly, in rental purchase transactions, the customer is willing to pay a
higher monthly payment for the ownership option, as compared to the rent-to-rent
customer. Typically, the Company's rental purchase customers are more style and
brand name conscious than rent-to-rent customers who regard the merchandise as
temporary. Aaron's Rental Purchase stores are attractively appointed and are
typically in or near a shopping center strategically located near the residences
of its target customers, as opposed to the rent-to-rent store typical location
in an office park that services destination customers from a broad geographical
area.
The Company's rental purchase transactions differ from sales by home
furnishings retailers in that rental purchase allows the option, but not the
obligation, to purchase merchandise while paying a similar "all-in" contract
price. Rental purchase allows the customer to have the item serviced free of
charge or replaced at any time during the rental contract, and allows the
Company to re-rent an item to another customer if the contract does not go to
term. The Company also believes that rental purchase contracts have fewer
merchandise losses, as the customer is more likely to return merchandise that he
knows he does not own.
The Company's rental purchase store layout consists of a combination
showroom and warehouse, ranging from 2,600 to 20,000 square feet, with an
average of 9,200 total square feet. The stores are strategically located in or
near shopping centers within ten miles of the residential communities of a large
number of its target customers. The Company emphasizes a broad selection of
brand name products for its electronics and appliance items, and offers
customers a wide selection of furniture, including furniture manufactured by the
Company's MacTavish Furniture Industries division. Aaron's Rental Purchase
stores also offer jewelry and computers.
Aaron's Rental Purchase stores structure the pricing of merchandise to be
less expensive than similar items offered by other rent-to-own operators, and
substantially equivalent to the "all-in" contract price of similar items offered
by home furnishings retailers who finance merchandise. Over 86% of the
Company's rental purchase contracts have monthly payments as compared to the
industry standard weekly payments, and most monthly contracts are for 12 months
compared to the industry standard of 18 to 24 months. Approximately 35% of
Aaron's Rental Purchase contracts go to term, in contrast to the industry
average of 23%. The merchandise from the contracts that do not go to term is
either re-rented or sold.
In selecting new locations for Aaron's Rental Purchase stores, the Company
generally looks for locations near established working class neighborhoods and
communities with good access, typically in well-maintained strip shopping
centers. Many of the Company's stores are placed near existing rent-to-own
stores of competitors.
Each rental purchase store maintains at least two trucks and crews for
pickups and deliveries, and generally offers same or next day delivery for
addresses located within 15 miles of the store.
Franchise Program. The Company began franchising Aaron's Rental Purchase
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stores in selected markets in 1992. It is not anticipated that
franchised stores will compete with Company-operated stores, as franchises are
primarily awarded in markets into which the Company has no current plans to
expand. Franchised stores operate under the same financial controls and audits
as Company-operated stores and process their financial and inventory information
on the information system that was developed and can be accessed by the Company.
On a weekly basis, franchisees pay a continuing licensing fee of 5% of gross
revenues, and purchase much of their rental purchase inventory through or from
the Company. The Company provides its franchisees with considerable support,
including site selection, advertising, collection procedures and store operating
procedures. The Company has an arrangement with a major financial institution
to provide financing to qualifying franchisees to assist with the establishment
and operation of their stores. As of December 31, 1995, 106 Aaron's Rental
Purchase franchises had been awarded.
Rent-to-Rent-- Aaron Rents and Sells Furniture
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The Company has been in the rent-to-rent business for over 40 years and is
one of the largest furniture rent-to-rent companies in the United States. The
rent-to-rent business remains the Company's core business, and accounted for 60%
of the Company's total revenues for the nine months ended December 31, 1995,
even though the Company's rental purchase business is expanding rapidly. The
Company rents new and rental return merchandise to both the residential and the
office segments of the rent-to-rent industry, with approximately two-thirds of
its rental revenues generated from residential rentals.
Rental contracts typically give the customer the option to purchase the
merchandise rented, though few customers exercise the purchase option. Items
held for rent, whether new or rental return, are also available for purchase and
rental purchase at all rent-to-rent stores.
The Company's typical rent-to-rent store layout consists of a combination
showroom and warehouse comprising about 17,000 square feet. Each residential
showroom features attractive displays of dining-room, living-room and bedroom
furniture in a number of styles, fabrics, materials and colors. Office rental
showrooms feature lines of desks, chairs, conference tables, credenzas, sofas,
business equipment and accessories. The Company believes that having a
warehouse next to each showroom permits the store manager to exercise greater
control over inventory, merchandise condition and pickup and deliveries,
resulting in more efficient and consistent service for the customer, and gives
the Company an advantage over many of its competitors in the rent-to-rent market
who do not have attached warehouses.
Each rent-to-rent store generally offers next day delivery for addresses
located within 50 miles of the store, and maintains at least one truck and a
crew for pickups and deliveries. The Company believes that its ability to
deliver office furniture and equipment to its office customers quickly and
efficiently gives the Company an advantage over general office furniture
retailers who often require several weeks to effect delivery.
As of December 31, 1995, the Company had 98 rent-to-rent store locations,
primarily in the Southeastern and Southwestern United States.
Clearance Sales-Aaron Sells Furniture
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The Aaron Rents' Rent-to-Rent division's 8 clearance stores serve primarily
as retail outlets for final sales of rental return merchandise that will not be
rented again, though they also sell new merchandise. Sales by the division's
stores, together with sales at the clearance centers located in most of the
Company's rental purchase and rent-to-rent stores, are instrumental in enabling
the Company to maximize residual values of depreciated rental merchandise.
The Company generally sells rental return merchandise at or above its book
value (cost less depreciation) plus selling expenses, a price which is usually
considerably lower than the price for comparable new merchandise. Most
merchandise held for sale in clearance stores may also be acquired through a
rental purchase option. Because new merchandise is sold at the same location as
rental return merchandise, the Company has the opportunity to sell both new and
rental return merchandise to customers who may have been attracted to the store
by the advertising and price appeal of rental return merchandise. The ability
to sell new and rental return merchandise at the same location allows for more
efficient use of facilities and personnel and minimizes overhead.
Furniture Manufacturing
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The Company believes that its manufacturing capability gives it a strategic
advantage over its competitors by enabling the Company to control the quality,
cost, timing, styles and quantity of its furniture rental products. As the only
major furniture rental company that manufactures its own furniture, the Company
believes its 375,000 square feet of manufacturing facilities provide it more
flexibility in scheduling production runs and in meeting inventory needs than
rental companies that do not manufacture their own furniture and are dependent
upon third party suppliers. The Company's MacTavish Furniture Industries
division has manufactured furniture for the Company's rental stores since 1971.
The division has five manufacturing plants and four bedding manufacturing
facilities which supply 51% of the Company's rent-to-rent furniture and bedding
needs and 41% of rental purchase furniture and bedding needs. Overall,
approximately 49% of the furniture rented or sold by the Company is manufactured
by MacTavish Furniture Industries. The Company's manufacturing plants have the
capacity to meet the Company's needs for such furniture for the foreseeable
future. The Company also does limited manufacturing of residential furniture
for several unaffiliated furniture retailers.
MacTavish Furniture Industries manufactures upholstered living-room
furniture (including contemporary sofas, sofabeds, chairs and modular sofa and
ottoman collections in a variety of natural and synthetic fabrics and leather),
bedding (including standard sizes of mattresses and box springs), upholstered
office furniture, bedroom furniture (including bedroom sets, headboards,
dressers, mirrors, chests and night tables), and cocktail, sofa and end tables.
The Company has designed special features for the furniture it manufactures,
which make its furniture more durable than furniture purchased from third
parties. These features include wrench-disassembly (or knock-down) construction
of upholstered furniture products for easy replacement of worn or damaged parts
at lower cost; standardization of components; reduction of parts and features
susceptible to wear or damage; and durable, soil-resistant fabrics and solid-
hardwood frames for longer life and higher residual value. The Company also
manufactures replacement covers for all styles and fabrics of its upholstered
furniture for use in reconditioning rental return furniture.
The principal raw materials used in manufacturing are fabric, foam, wire-
innerspring assemblies, cotton liners and hardwoods. All of these materials are
purchased in the open market from sources not affiliated with the Company. The
Company is not dependent on any single supplier, and none of the raw materials
are in short supply. The Company generally maintains a three or four week
inventory of such materials.
Other Rental and Sales Operations
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To supplement its rental purchase, rent-to-rent and sales operations, the
Company also operates three smaller divisions: Aaron Rents Business Equipment,
Aaron Rents Convention Furnishings and Aaron Rents Housewares and Linens. The
Aaron Rents Business Equipment division's three stores offer business equipment
(such as computers, copy machines, fax machines, word processors and paper
shredders) for rental, rental purchase and purchase. The Aaron Rents Convention
Furnishings division specializes in supplying conventions and events of various
sizes with furniture (such as tables, chairs, desks and sofas) on a temporary
basis. The Aaron Rents Housewares and Linens division supplies many of the
Company's rent-to-rent stores with a selection of common household and linen
items to complement the store's other items of merchandise.
STORE OPERATIONS
Management
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The Company's rent-to-rent stores are managed by the President of the
division and are organized geographically into four regions, each supervised by
a vice-president who is primarily responsible for monitoring individual store
performance and inventory levels within the respective regions. The Aaron's
Rental Purchase division is managed separately by the President of the division,
who has five regional managers performing similar responsibilities.
Stores are directly supervised by 33 regional or district managers. At the
individual store level, the store manager is responsible for customer and credit
relations, deliveries and pickups, warehouse and inventory management, and
certain marketing efforts. Store managers are also responsible for inspecting
rental return furniture to determine whether it should be sold as is, rented
again as is, repaired and sold, or reconditioned for additional rental. A
significant portion of the store manager's compensation is dependent upon store
revenues and profits.
Executive management at the Company's headquarters directs and coordinates
purchasing, financial planning and controls, manufacturing, employee training,
and new store site selection for the Company-operated stores. The Company's
internal audit department conducts periodic audits of every store, including
audits of Company-operated rental purchase stores every 60 days, and semiannual
audits of rent-to-rent stores and franchised rental purchase stores. The
Company's business philosophy has always emphasized strict cost containment and
fiscal controls. Executive and store level management monitor expenses
vigilantly to contain costs. All invoices are paid out of the Company's
headquarters in order to enhance fiscal accountability. The Company believes
that its careful attention to the expense side of its operations has enabled it
to maintain financial stability and profitability even during periods of
declining revenues.
Management Information Systems
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The Company utilizes computer-based management information systems to
facilitate cash collections, merchandise returns and inventory monitoring.
Through the use of proprietary software developed by the Company, each of the
Company's stores is linked by computer directly to corporate headquarters, which
enables headquarters to monitor the performance of each store on a daily basis.
At the store level, the store manager is better able to track inventory on the
showroom floor and in the warehouse to minimize delivery times, assist with
product purchasing and match customer needs with available inventory.
Contract Approval, Renewal and Collection
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One of the keys to the Company's success is its ability to achieve timely
cash collections. Individual store managers utilize the Company's computerized
information system on a daily basis to track cash collections. They contact
customers within a few days of when their rental payments are due in order to
encourage customers to keep their contracts current and in force (rather than
having to return the merchandise for non-payment of rent) and to renew their
contracts for an additional rental period. Careful attention to cash
collections is particularly important in the rental purchase operations, where
the customer typically has the option to cancel the contract at any time and
each payment is considered a renewal of the contract rather than a collection of
a receivable.
Each rent-to-rent store performs a credit check on most of its residential
and business customers. The Company generally performs no formal credit check
with respect to rental purchase customers other than to verify employment or
other reliable sources of income and personal references supplied by the
customer because the Company does not extend credit to rental purchase
customers. All of the Company's rental contracts for residential and office
merchandise require rental payments in advance, and the merchandise normally is
picked up if a payment is significantly in arrears. Net bad debt losses from
rentals as a percentage of rental revenues were approximately 1.7%, 2.3% and
2.2% for the nine months ended December 31, 1995, and for the fiscal years ended
March 31, 1995, and 1994 respectively. For the same periods, net merchandise
shrinkage as a percentage of rental revenues was 2.8%, 2.7% and 2.1%,
respectively. The Company's collection and repossession policies comply with
governing legal requirements, and the Company disciplines any employee that it
discovers deviating from such policies.
CUSTOMER SERVICE
The Company believes that customer service is one of the most important
elements in the success of its rent-to-rent and rental purchase businesses.
Customer satisfaction is critical because the customer usually has the option of
returning the rented merchandise at any time. The Company's goal is to make its
customers feel positive about the Company and its products from the moment they
enter the Company's showrooms. Rented items are serviced at no charge to the
customer, and quick, free delivery is available in many cases. In order to
increase rentals at existing stores, the Company fosters relationships with
existing customers to attract recurring business, and many new rental and rental
purchase contracts are attributable to repeat customers.
Because of the importance of customer service, the Company believes that a
prerequisite for successful operations and growth is skilled, effective
employees who value the Company's customers and project a genuine desire to
serve the customers' needs. The Company has a comprehensive employee training
program at its Atlanta headquarters for all rent-to-rent store managers and
employees covering all areas of the Company's operations, with a heavy emphasis
on customer service. Additionally, four field trainers are based out of the
regional offices. Store managers and employees in the Aaron's Rental Purchase
stores have similar training primarily on site by the division's training staff
and regional managers. The Company's policy of promoting from within aids in
employee retention and commitment to the Company's customer service and other
business philosophies, which also allows the Company to realize greater benefits
from its employee training programs.
PURCHASING AND DISTRIBUTION
The Company's product mix is determined by store managers in consultation
with the regional managers and regional vice presidents, based on an analysis of
customer demands. With approval from the applicable operating management, store
managers send their orders to the purchasing department at headquarters. The
purchasing department reviews all purchase orders to determine whether
merchandise needs may be satisfied out of existing inventory at other stores
before contacting vendors. If inventory is available at other stores, the
purchasing department arranges for inventory shipments between stores.
Virtually all merchandise for the Company's stores is purchased by the Company's
six buyers, three of whom are solely responsible for rental purchase
merchandise.
The Company purchases the majority of its merchandise directly from
manufacturers, with the balance from local distributors. The Company's largest
supplier is its MacTavish Furniture Industries manufacturing division, which
supplies approximately 49% of the furniture rented or sold by the Company. The
Company has no long-term contracts for the purchase of merchandise and believes
that its relationships with suppliers are excellent.
All rent-to-rent merchandise is shipped by vendors directly to each store's
attached warehouse. Most rental purchase merchandise is shipped directly to the
distribution centers in Auburndale, Florida, Houston, Texas, and Duluth, Georgia
where it is held until needed. Weekly deliveries to individual stores are made
by contract carrier and by the Company's two tractor-trailers.
The Aaron's Rental Purchase division has distribution centers in
Auburndale, Florida, Houston, Texas, and Duluth, Georgia to serve its rental
purchase stores. Rental purchase stores typically have smaller warehouses with
less inventory storage space than the Company's rent-to-rent stores.
Vendors ship directly to the distribution centers, and stores order
directly from the distribution centers. Distribution centers result in freight
savings from truckload discounts and a more efficient distribution of rental
purchase merchandise. The Company expects to open additional distribution
centers near other clusters of its rental purchase stores in the near future.
MARKETING AND ADVERTISING
In its rental purchase operations, the Company relies heavily on store
traffic and direct mail advertising to reach its target markets. Rental
purchase stores are located within neighborhood communities, and will typically
distribute mass mailings of promotional material every two weeks, with the goal
of reaching every known household within a specified radius of each store at
least 12 times per year. In addition, delivery personnel are trained to leave
promotional material at the door of each residence within five doors of the
delivery destination. In concentrated geographic markets, and for special
promotions, the Company also utilizes television advertising and radio
advertising for special promotions.
The Company markets its rent-to-rent operations primarily through brochures
and personal contact with apartment complex managers and through distribution of
promotional items to apartment residents. It also relies heavily on The Yellow
Pages, direct mail advertising, and local apartment-locator publications. The
Company uses newspapers, radio, television, direct mail, trade publications and
The Yellow Pages to reach its residential and office rental and sales customers.
The Company believes that such advertising benefits its residential and office
rental operations because of increased name recognition.
COMPETITION
The Company's businesses are highly competitive. The Company competes in
the rent-to-rent market with national and local companies and, to a lesser
extent, with apartment owners who purchase furniture for rental to tenants. In
the rent-to-own market, the Company competes with several larger companies.
Although definitive industry statistics are not available, management
believes that the Company is one of the largest furniture rental companies in
the United States. Management also believes that it generally has a favorable
competitive position in that industry because of its manufacturing and
reconditioning capabilities, its prompt delivery and its commitment to customer
service.
GOVERNMENT REGULATION
The Company believes that 42 states specifically regulate rent-to-own
transactions, including states in which the Company currently operates Aaron's
Rental Purchase stores. Most of those states have enacted disclosure laws which
require rent-to-own companies to disclose to its customers the total number of
payments, total amount and timing of all payments to acquire ownership of any
item, any other charges that may be imposed by the Company and miscellaneous
other items. The most restrictive states limit the total amount that a customer
may be charged for an item to twice the "retail" price for the item, or regulate
the amount of "interest" that rent-to-own companies may charge on rent-to-own
transactions, generally defining "interest" as rental fees paid in excess of the
"retail" price of the goods. The Company's long-established policy in all
states is to disclose the term of its rental purchase transactions as a matter
of good business ethics and customer service.
At the present time, no federal law specifically regulates the rent-to-own
industry. Federal legislation has been proposed in the past which could affect
the rental purchase industry. Management cannot predict whether any such
legislation will be enacted and what the impact of such legislation would be.
Although the Company is unable to predict the results of these or any additional
regulatory initiatives, the Company does not believe that the existing and
proposed regulations will have a material adverse impact on the Company's rental
purchase or other operations.
EMPLOYEES
At December 31, 1995, the Company had 2,156 employees. None of the
Company's employees are covered by a collective bargaining agreement, and the
Company believes that its relations with its employees are good.
Item 2. Properties
The Company leases space for substantially all of its store and warehouse
operations under operating leases expiring at various times through August,
2005. Most of the leases contain renewal options for additional periods ranging
from two to ten years at rental rates generally adjusted on the basis of the
consumer price index or other factors. For further information regarding the
Company's store and warehouse leases, see Note G of the Notes to the Company's
Consolidated Financial Statements.
The Company owns five furniture manufacturing plants and operates four
bedding facilities and three distribution centers. It manufactures wood bedroom
furniture at an 80,000 square foot plant, and office furniture at a 91,000
square foot plant, both located on a four-acre site in Quincy, Florida, near
Tallahassee. Three plants are located in a five-acre site in Coolidge, Georgia
(approximately 200 miles south of Atlanta). Upholstered residential furniture
is produced at a 77,000 square foot plant. A second plant of 46,000 square feet
assembles chairs, manufactures leather upholstery, sleepers, and box springs and
mattresses. A third plant of 20,000 square feet cuts and sews fabric for
upholstered furniture. The Company's bedding operations are located in Atlanta
and Coolidge, Georgia, Houston, Texas, and Orlando, Florida. Distribution
centers in Auburndale, Florida, Houston, Texas and Duluth, Georgia
(approximately 40,000 square feet each) service the Aaron's Rental Purchase
division.
The Company's executive and administrative offices occupy approximately
37,000 square feet in an 11 story, 81,000 square-foot building that the Company
owns in Atlanta. The Company leases most of the remaining space to third
parties under leases with remaining terms averaging four years.
All of the Company's facilities are well maintained and adequate for their
current and reasonably foreseeable uses.
Item 3. Legal Proceedings
The Company is not currently a party to any legal proceedings the result of
which it believes could have a material adverse impact upon its business,
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
- -------
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
(a) The information presented under the caption "Common Stock Market Prices and
Dividends" on page 22 of the Company's Report to Shareholders for the Nine
Months ended December 31, 1995 is incorporated herein by reference. The
over-the-counter market quotations stated therein reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
(b) There were approximately 2,000 shareholders of record as of March 12, 1996.
(c) The information presented under "Note E - Debt" on page 20 of the Company's
Report to Shareholders for the Nine Months ended December 31, 1995 is
incorporated herein by reference. During the nine months ended December
31, 1995, the Company paid one semi-annual cash dividend. No assurance can
be provided that such dividends will continue.
Item 6. Selected Financial Data
The information presented under the caption "Selected Financial Highlights"
on page 12 of the Company's Report to Shareholders for the Nine Months ended
December 31, 1995 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information presented under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operation" on pages 13 through 15
of the Company's Report to Shareholders for the Nine Months ended December 31,
1995 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information presented under the captions "Consolidated Balance Sheets,"
"Consolidated Statements of Earnings," "Consolidated Statements of Shareholders'
Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated
Financial Statements," "Common Stock Market Prices and Dividends" and "Report of
Independent Auditors" on pages 16 through 22 of the Company's Report to
Shareholders for the Nine Months ended December 31, 1995 is incorporated herein
by reference.
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant
The information contained in the Company's definitive Proxy Statement,
which the Company will file with the Securities and Exchange Commission no later
than 120 days after December 31, 1995, with respect to the identity, background
and Section 16 filings of directors and executive officers of the Company, is
incorporated herein by reference to this item.
Item 11. Executive Compensation
The information contained in the Company's definitive Proxy Statement,
which the Company will file with the Securities and Exchange Commission no later
than 120 days after December 31, 1995, with respect to executive compensation,
is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the Company's definitive Proxy Statement,
which the Company will file with the Securities and Exchange Commission no later
than 120 days after December 31, 1995, with respect to the ownership of common
stock by certain beneficial owners and management, is incorporated herein by
reference to this item.
For purposes of determining the aggregate market value of the Company's
voting stock held by non-affiliates, shares held by all directors and officers
of the Company have been excluded. The exclusion of such shares is not intended
to, and shall not, constitute a determination as to which person or entities may
be "affiliates" of the Company as defined by the Securities and Exchange
Commission.
Item 13. Certain Relationships and Related Transactions.
The information contained in the Company's definitive Proxy Statement,
which the Company will file with the Securities and Exchange Commission no later
than 120 days after December 31, 1995, with respect to certain relationships
and related transactions, is incorporated herein by reference in response to
this item.
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
Form 8-K
Reference
Page
Form 10-K Report to
--------------------
Shareholders
- ------------
(a) 1. Consolidated Financial Statements
The following financial statements and notes
thereto of Aaron Rents, Inc. and Subsidiaries,
and the related Report of Independent Auditors
are incorporated in Item 8 by reference from the
Company's Report to Shareholders for the Nine
Months ended December 31, 1995 to Shareholders.
Consolidated Balance Sheets - December 31, 1995
and March 31, 1995 16
Consolidated Statements of Earnings - Nine Months ended
December 31, 1995, and Years ended March 31, 1995 and 1994 17
Consolidated Statements of Shareholders' Equity -
Nine Months ended December 31, 1995, and Years
ended March 31, 1995 and 1994 17
Consolidated Statements of Cash Flows - Nine Months ended
December 31, 1995, and Years ended March 31, 1995
and 1994 18
Notes to Consolidated Financial Statements 19-22
Report of Independent Auditors 22
2. Consolidated Financial Statement Schedules
All schedules have been omitted because they are inapplicable or the
required information is included in the financial statements or notes thereto.
3. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3 (a) Amended and Restated Articles of Incorporation of the Company, filed
as Exhibit 2.1.1 to the Company's Registration Statement on Form 8-A
filed with the Commission on October 22, 1992 (the "Form 8-A"),
which exhibit is by this reference incorporated herein.
3 (b) By-laws of the Company, filed as Exhibit 2.2 to the Form 8-A, which
exhibit is by this reference incorporated herein.
3 (c) Articles of Amendment to the Company's Amended and Restated Articles
of Incorporation, effective October 30, 1992, filed as Exhibit A to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992, which exhibit is by this reference incorporated
herein.
3 (d) Articles of Amendment to the Company's Amended and Restated Articles
of Incorporation, effective November 11, 1993, filed as Exhibit 3(d)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993 which exhibit is by this reference incorporated
herein.
4 See Exhibits 3(a) through 3(d).
10 (a) Aaron Rents, Inc. Employees Retirement Plan and Trust, filed as
Exhibit 4 (a) to the Company's Registration Statement on Form S-8,
file number 33-62538, filed with the Commission on May 12, 1993,
which exhibit is by this reference incorporated herein.*
10 (b) Aaron Rents, Inc. 1990 Stock Option Plan, filed as Exhibit 4 (a) to
the Company's Registration Statement on Form S-8, file number 33-
62536, filed with the Commission on May 12, 1993, which exhibit is
by this reference incorporated herein.*
10 (c) Amended and Restated Revolving Credit and Term Loan Agreement, dated
January 6, 1995, filed as Exhibit 10 (a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1994 (the
"December 31, 1994 10-Q"), which exhibit is by this reference
incorporated herein.
10 (d) Letter Agreements dated November 14, 1994, between Trust Company
Bank and the Company, and November 21, 1994 between Bank of America
and the Company regarding an Interest Rate Swap Transaction, filed
as Exhibit 10 (b) to the December 31, 1994 10-Q, which exhibit is by
this reference incorporated herein.
10 (e) Letter Agreements dated June 19, 1995, between First Union National
Bank of North Carolina and the Company and June 20, 1995, between
Trust Company Bank and the Company regarding an Interest Rate Swap
Transaction, filed as Exhibit 10 (b) to the June 30, 1995 10-Q,
which exhibit is by this reference incorporated herein.
11 Computation of Earnings Per Share.
13 Aaron Rents, Inc. Report to Shareholders for the Nine Months ended
December 31, 1995. With the exception of information expressly
incorporated herein by direct reference thereto, the Report to
Shareholders for the Nine Months ended December 31, 1995 is not to
be filed as a part of this Annual Report on Form 10-K.
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
*Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to item 14 (c) of this report.
(b) Reports on Form 8-K-none
(c) Exhibits listed in item 14(a)(3) are included elsewhere in this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 28th day of
March, 1996.
AARON RENTS, INC.
By: /s/ Gilbert L. Danielson
----------------------------
Gilbert L. Danielson
Vice President,Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 28th day of March, 1996.
SIGNATURE TITLE
- --------- ------
/s/ R. Charles Loudermilk, Sr.
- ------------------------------- Chief Executive Officer
R. Charles Loudermilk, Sr. (Principal Executive Officer)
and Chairman of the Board of Directors
/s/ Gilbert L. Danielson
- ------------------------------- Vice President, Finance, Chief
Gilbert L. Danielson Financial Officer and Director,
(Principal Financial Officer)
/s/ John E. Aderhold
- ------------------------------- Director
John E. Aderhold
/s/ Leo Benatar
- ------------------------------- Director
Leo Benatar
/s/ Earl Dolive
- ------------------------------- Director
Earl Dolive
/s/ Keith C. Groen
- ------------------------------- Vice President, Legal
Keith C. Groen Secretary and Director
/s/ Ingrid Saunders Jones
- ------------------------------- Director
Ingrid Saunders Jones
/s/ Robert C. Loudermilk, Jr.
- ------------------------------- Vice President, Real Estate
Robert C. Loudermilk, Jr. and Director
/s/ R.K. Sehgal
- ------------------------------- Director
R.K. Sehgal
/s/ Rankin M. Smith, Sr.
- ------------------------------- Director
Rankin M. Smith, Sr.
/s/ Robert P. Sinclair, Jr.
- ------------------------------- Controller
Robert P. Sinclair, Jr. (Principal Accounting Officer)
FINANCIAL TABLE OF CONTENTS
Selected financial information 12
Management's discussion and analysis 13
Consolidated balance sheets 16
Consolidated statements of earnings 17
Consolidated statements of shareholders' equity 17
Consolidated statements of cash flows 18
Notes to consolidated financial statements 19
Report of independent auditors 22
SELECTED FINANCIAL INFORMATION
Nine Nine
(Dollar Amounts in Thousands Months Ended Months Ended Year Ended Year Ended Year Ended Year Ended
Except Per Share) December 31, December 31, March 31, March 31, March 31, March 31,
1995 1994 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
(unaudited)
Operating Results--------------------------------------------------------------------------------------------
Systemwide Revenues/1/ $192,953 177,773 $241,286 $189,781 $158,361 $144,549
Revenues:
Rentals & Fees 137,098 127,995 173,208 130,962 100,617 89,593
Sales 39,218 39,875 53,655 53,139 55,275 53,161
Other 1,908 1,471 2,029 1,083 1,740 1,795
-----------------------------------------------------------------------
178,224 169,341 228,892 185,184 157,632 144,549
-----------------------------------------------------------------------
Costs & Expenses:
Cost of Sales 28,350 28,772 38,696 38,879 41,594 40,684
Operating Expenses 90,027 85,464 115,028 91,927 77,816 75,620
Depreciation of
Rental Merchandise 41,612 39,912 53,708 37,310 25,407 20,728
Interest 2,323 2,185 3,033 2,063 1,650 2,481
-----------------------------------------------------------------------
162,312 156,333 210,465 170,179 146,467 139,513
-----------------------------------------------------------------------
Earnings Before
Income Taxes 15,912 13,008 18,427 15,005 11,165 5,036
Income Taxes 6,032 5,021 7,102 6,209 5,100 1,984
-----------------------------------------------------------------------
Net Earnings $ 9,880 $ 7,987 $ 11,325 $ 8,796 $ 6,065 $ 3,052
-----------------------------------------------------------------------
Earnings Per Share $ .99 $ .81 $ 1.15 $ 1.01 $ 0.70 $ 0.36
-----------------------------------------------------------------------
Dividends Per Share:
Class A $ 0.04 $ 0.04 $ 0.05 $ 0.06 $ 0.055 $ 0.05
Class B 0.10 0.10 0.09 0.08 0.065 0.05
Financial Position-------------------------------------------------------------------------------------------
Rental Merchandise, Net $122,311 $119,781 $121,356 $113,599 $ 86,462 $ 80,141
Property, Plant &
Equipment, Net 23,492 23,532 24,181 18,819 13,326 10,861
Total Assets 158,645 155,914 157,527 144,917 108,217 101,051
Interest-Bearing Debt 37,479 46,894 43,159 53,123 33,130 34,126
Shareholders' Equity 91,094 81,418 84,951 59,830 52,152 46,676
At year end--------------------------------------------------------------------------------------------------
Stores open:
Company-Operated 212 203 203 200 156 153
Franchised 36 24 26 15 6 0
Rental Contracts in Effect 158,900 152,100 156,600 126,700 100,600 80,900
Number of Employees 2,160 2,150 2,200 2,100 1,450 1,400
- -------------------------------------------------------------------------------------------------------------
/1/ Systemwide revenues include rental revenues of franchised Aaron's
Rental Purchase stores.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Change in Fiscal Year End
During 1995, the Company changed its fiscal year end from March 31 to
December 31, which resulted in a nine month fiscal period ended December 31,
1995. The decision to change the fiscal year end was made for more convenience
in both internal and external communications. To aid comparative analysis, the
Company has elected to present the results of operations for the nine month
periods ended December 31, 1995, and December 31, 1994, unaudited, along with
the previously reported results of operations for the twelve months ended March
31, 1995, and March 31,1994.
Results of Operations
Nine Months Ended December 31, 1995 Versus December 31, 1994 (Unaudited)
Total revenues for the nine months of 1995 increased $8.9 million (5.2%) to
$178.2 million compared to $169.3 million in 1994 due to a $9.1 million (7.1%)
increase in rentals and fees revenue, offset by a decline in sales. Of this
increase in rental revenues, $11.7 million was attributable to Aaron's Rental
Purchase stores, which increased 22.1% to $64.7 million compared to $53.0
million last year. Higher revenues from existing rental purchase stores,
as well as the opening of 10 additional Company operated rental purchase
stores during the nine months of 1995, contributed to the increase. Rental
revenues from the Company's rent-to-rent operations declined $2.6 million
(-3.5%) during the same period, reflecting a slightly slower than normal winter
season, an overall maturity in this segment of the rental industry and the
Company's increased emphasis on the Aaron's Rental Purchase division.
Revenues from sales decreased $657,000 (-1.6%) to $39.2 million in the
nine months of 1995, from $39.9 million for the same period last year. This
decrease was due to the closure of two rent-to-rent clearance centers and the
realignment of MacTavish Furniture Industries away from sales to furniture
distributors to the supply of furniture internally for both the rent-to-rent and
rental purchase divisions. This new emphasis resulted in reduced sales of new
merchandise for the rent-to-rent division by $3.4 milliom; however, for the same
period, new sales for the rental purchase division increased $1.5 million
(268.9%), and rental return sales at all store outlets increased $1.3 million
(5.8%) to $24.2 million.
Other revenues increased $437,000 (29.7%) to $1.9 million compared to $1.5
million last year. This increase was entirely due to an increase of $552,000 in
franchise fee and royalty income due to the opening of 10 new franchise stores
as well as older franchise stores gaining revenues. This income in the nine
months of 1995 was $1.17 million compared with the $618,000 for the same period
last year.
Cost of sales decreased $422,000 (-1.5%) to $28.4 million compared to $28.8
million, and as a percentage of sales, increased slightly to 72.3% from 72.2%
primarily due to increases in vendor prices.
Operating expenses increased $4.6 million (5.3%) to $90 million from $85.5
million. As a percentage of total revenues, operating expenses were essentially
unchanged at 50.5% for both periods.
Depreciation of rental merchandise increased $1.7 million (4.3%) to $41.6
million and, as a percentage of total rentals and fees, decreased slightly to
30.4% from 31.2%. This decrease is primarily due to the change in rental
merchandise mix systemwide during the year.
Interest expense increased $138,000 (6.3%) to $2.3 million compared to $2.2
million. As a percentage of total revenues, interest is unchanged at 1.3% due to
stability in interest rates during the nine months of 1995.
Income tax expense increased $1 million (20.1%) to $6 million compared to
$5 million, and the Company's effective tax rate was 37.9% in 1995 versus 38.6%
for the same period in 1994.
As a result, net earnings increased $1.9 million (23.7%) to $9.9 million
for the nine months 1995 compared to $8 million for the same period in 1994. As
a percentage of total revenues, net earnings increased to 5.5% in the nine
months of 1995, as compared to 4.7% for the same period in 1994.
RESULTS OF OPERATIONS
(FISCAL YEARS ENDED MARCH 31, 1995 & 1994)
Total revenues for fiscal year 1995 increased $43.7 million (23.6%) to
$228.9 million compared to $185.2 million in 1994 due to a $42.2 million (32.3%)
increase in rentals and fees revenue. Of this increase in rental revenues, $26.7
million was attributable to Aaron's Rental Purchase stores, which increased
57.4% to $73.2 million compared to $46.5 million last year. Higher revenues from
existing rental purchase stores, as well as the opening of 19 additional rental
purchase stores during fiscal year 1995, contributed to the increase. Rental
revenues from rental purchase stores opened during the year were $3.8 million.
Rental revenues from the Company's rent-to-rent operation increased $15.5
million (18.4%) during the same time period. Included in fiscal year 1994 total
revenues was $4.9 million attributed to the former Looks Furniture Leasing
locations acquired in December 1993.
Revenues from sales increased $516,000 (1.0%) to $53.7 million from $53.1
million. Excluding sales of Ball Stalker, which was sold in fiscal year 1994,
revenues from sales increased $2.6 million in fiscal year 1995. Of this
increase, $1.3 million was due to sales to furniture distributors and the
remaining increase was due primarily to the sale of rental-return furniture.
Other revenue increased $946,000 (87.3%) to 2.0 million compared to $1.1
million last year. This increase was primarily due to a $495,000 increase in
franchise fee and royalty income. This income in fiscal year 1995 was $912,000
compared to $417,000 for the same period last year.
Cost of sales decreased $183,000 (.5%) to $38.7 million compared to $38.9
million and, as a percentage of sales, decreased to 72.1% from 73.2%. The
improvement in gross margins was primarily due to improved margins on the sale
of rental return furniture.
Operating expenses increased $23.1 million (25.1%) to $115.0 million from
$91.9 million. As a percentage of total revenues, operating expenses increased
slightly to 50.3% in fiscal year 1995 compared to 49.6% in fiscal year 1994.
Aaron's Rental Purchase operating costs increased $14.8 million (60.4%) to $39.3
million from $24.5 million. This increase was primarily due to increased costs,
including personnel and occupancy costs, associated with opening 19 rental
purchase stores during fiscal year 1995.
Depreciation of rental merchandise increased $16.4 million (44.0%) to $53.7
million and, as a percentage of total rentals and fees, increased 31.0% in 1995
from 28.5% in 1994. This increase was primarily due to the growth of the
Company's rental purchase operations, in which merchandise is depreciated at
faster rates to coincide with shorter contract terms.
Interest expense increased $970,000 (47.0%) to $3.0 million compared to
$2.1 million. This increase was primarily the result of higher interest
rates during fiscal year 1995.
Income tax expense increased $893,000 (14.4%) to $7.1 million compared to
$6.2 million, and the Company's effective tax rate was 38.5% in 1995 and 41.4%
in 1994. The decrease in the effective tax rate was due to decreases in
permanent differences between book and taxable income.
As a result, net earnings increased $2.5 million (28.8%) to $11.3 million
in 1995 compared to $8.8 million in 1994. As a percentage of total revenues, net
earnings were 4.9% in fiscal year 1995 and 4.7% in fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations for the nine months ended December 31, 1995
and the same nine month period in 1994 (unaudited) was $55.1 million and $46.2
million, respectively. Such cash flows include profits on the sale of rental
merchandise. The Company's primary capital requirements consist of acquiring
rental merchandise for Aaron's Rental Purchase stores and replacing merchandise
no longer suitable for rent at all Aaron Rents locations. 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 and proceeds from the sale of rental return merchandise.
The Company has financed its growth through a revolving credit agreement
with several banks, trade credit and internally generated funds. The rent-to-
rent business has contributed cash that has partially funded the growth of the
rental purchase business. The revolving credit agreement provides for unsecured
borrowings up to $75.0 million plus an additional $3.0 million credit line to
fund daily working capital requirements. At December 31, 1995, an aggregate of
$37.3 million was outstanding under this facility, bearing interest at an
average fixed rate of 6.76%. The Company uses interest rate swap agreements as
part of its overall long-term financing program. At December 31, 1995, the
Company had swap agreements with notional principal amounts of $40 million which
effectively fixed the interest rates on an equal amount of the Company's
revolving credit agreements at 7.44%.
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.
In 1995, the Financial Standards Accounting Board (FASB) issued Statement
of Financial Accounting Standards No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less then the assets
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company will adopt Statement 121 in the
first quarter of 1996 and, based on current circumstances, does not believe the
effect of adoption will be material.
In 1995, the FASB issued Statement of Financial Accounting Standards
No.123, "Accounting for Stock-Based Compensation" (SFAS 123). Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair value-based method or continue measuring
compensation expenses for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25. SFAS 123 requires that
companies electing to continue using the intrinsic value method must make pro
forma disclosures of net income and earnings per share as if the fair value-
based method of accounting had been applied. The Company anticipates continuing
to account for stock-based compensation using the intrinsic value method and,
accordingly, SFAS 123 will not have an impact on the Company's results of
operations or financial position.
The Company has paid dividends for nine consecutive years. A $.02 per share
dividend on Class A Common Stock and $.05 per share dividend on Class B Common
Stock were paid in July 1995, for a total nine months cash outlay of $367,000.
The Company currently expects to continue its policy of paying dividends.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
(In thousands, Except Share Data) 1995 1995
Assets---------------------------------------------------------------------
Cash $ 98 $ 95
Accounts Receivable 8,136 8,391
Rental Merchandise 176,751 172,741
Less: Accumulated Depreciation (54,440) (51,385)
-------- --------
122,311 121,356
Property, Plant & Equipment, Net 23,492 24,181
Prepaid Expenses & Other Assets 4,608 3,504
-------- --------
Total Assets $158,645 $157,527
Liabilities & Shareholders' Equity----------------------------------------
Accounts Payable & Accrued Expenses $ 19,304 $ 19,062
Dividends Payable 365
Deferred Income Taxes Payable 3,781 4,126
Customer Deposits & Advance Payments 6,622 6,229
Bank Debt 37,260 42,172
Other Debt 219 987
-------- --------
Total Liabilities 67,551 72,576
Commitments & Contingencies
Shareholders' Equity
Common Stock, Class A, Par Value
$.50 Per Share Authorized 25,000,000 Shares;
5,361,761 Shares Issued 2,681 2,681
Common Stock, Class B, Par Value
$.50 Per Share Authorized 25,000,000 Shares;
6,636,761 Shares Issued 3,318 3,318
Additional Paid-In Capital 15,370 15,314
Retained Earnings 86,365 77,216
-------- --------
107,734 98,529
Less: Treasury Shares at Cost,
Class A Common Stock, 1,427,588 Shares
at December 31, 1995 & 1,234,748 Shares
at March 31, 1995 (11,451) (8,324)
Class B Common Stock, 932,441 Shares
at December 31, 1995 & 944,031 Shares
at March 31, 1995 (5,189) (5,254)
-------- --------
Total Shareholders' Equity 91,094 84,951
-------- --------
Total Liabilities & Shareholders' Equity $158,645 $157,527
- --------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar Amounts in Thousands Except Per Share) Nine Months Ended Year Ended Year Ended
December 31, March 31, March 31,
1995 1995 1994
Revenues------------------------------------------------------------------------------------
Rentals & Fees $137,098 $173,208 $130,962
Sales 39,218 53,655 53,139
Other 1,908 2,029 1,083
-------- -------- --------
178,224 228,892 185,184
Costs & Expenses---------------------------------------------------------------------------
Cost of Sales 28,350 38,696 38,879
Operating Expenses 90,027 115,028 91,927
Depreciation of Rental Merchandise 41,612 53,708 37,310
Interest 2,323 3,033 2,063
-------- -------- --------
162,312 210,465 170,179
-------- -------- --------
Earnings Before Income Taxes 15,912 18,427 15,005
Income Taxes 6,032 7,102 6,209
-------- -------- --------
Net Earnings $ 9,880 $ 11,325 $ 8,796
-------- -------- --------
Earnings Per Share $ .99 $ 1.15 $ 1.01
- ------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Treasury Stock Common Stock Paid-In Retained
(In Thousands) Shares Amount Class A Class B Capital Earnings
- ---------------------------------------------------------------------------------------------------------------
Balance, March 31, 1993 (2,277) $(12,664) $2,681 $2,681 $ 1,069 $58,385
Reacquired Shares (115) (1,151)
Dividends (591)
Reissued Shares 106 587 32 5
Net Earnings 8,796
- --------------------------------------------------------------------------------------------------------------
Balance, March 31,1994 (2,286) (13,228) 2,681 2,681 1,101 66,595
Issued Shares 637 13,503
Reacquired Shares (138) (1,836)
Dividends (709)
Reissued Shares 245 1,486 710 5
Net Earnings 11,325
- --------------------------------------------------------------------------------------------------------------
Balance, March 31, 1995 (2,179) (13,578) 2,681 3,318 15,314 77,216
Reacquired Shares (194) (3,134)
Dividends (732)
Reissued Shares 13 72 56 1
Net Earnings 9,880
- --------------------------------------------------------------------------------------------------------------
Balance, December 31,1995 (2,360) $(16,640) $2,681 $3,318 $15,370 $86,365
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements.
NOTE D: PROPERTY, PLANT & EQUIPMENT
(In Thousands) December 31, March 31,
Years Ended 1995 1995
- -------------------------------------------------------------------------
Land $ 1,872 $ 1,968
Buildings & Improvements 9,692 8,824
Leasehold Improvements & Signs 13,834 13,845
Fixtures & Equipment 16,065 17,112
Construction in Progress 528 1,203
-------- --------
41,991 42,952
Less: Accumulated Depreciation
& Amortization (18,499) (18,771)
-------- --------
$ 23,492 $ 24,181
- -------------------------------------------------------------------------
NOTE E: DEBT
BANK DEBT -- The Company has a revolving credit agreement with three banks
providing for unsecured borrowings up to $75,000,000, plus a $3,000,000 credit
line to fund daily working capital requirements. Amounts borrowed bear interest
at the lower of the lender's prime rate, or LIBOR plus .5%, or the rate at which
certificates of deposit are offered in the secondary market plus .625%. The
pricing under the working capital line is based upon overnight bank borrowing
rates. At December 31, 1995, an aggregate of $37,260,000 was outstanding under
this agreement. The Company pays a .22% commitment fee on unused balances. The
weighted average interest rate on borrowings under the revolving credit
agreement (after giving effect to interest rate swaps) was 7.73% for the nine
months ended December 31, 1995 and 6.13% in fiscal 1995 and 5% in fiscal 1994.
The Company has entered into interest rate swap agreements that effectively
fix the interest rate on $20,000,000 of the amount outstanding under the
revolving credit agreement at an average 8.03% until November 1997 and an
additional $20,000,000 at an average of 6.85% until June 2005. These swap
agreements involve the receipt of amount when the floating rate exceeds the
fixed rates and the payment of amounts when the fixed rate exceed the floating
rate in such agreements over the life of the agreements. The differential to be
paid or received is accrued as interest rates change and is recognized as an
adjustment to the floating rate interest expense related to the debt. The
related amount payable to or receivable from counterparties is included in
accrued liabilities or other assets. The fair values of the swap
agreements, which are not recognized in the financial statements, are estimated
to be an unrealized loss of $1,692,000 at December 31, 1995. The fair value of
the Company's bank debt approximates its carrying value.
The revolving credit agreement may be terminated on ninety days' notice by
the Company or six months' notice by the lenders. The debt is payable in 60
monthly installments following the termination date if terminated by the
lenders.
The agreement restricts cash dividend payments and stock repurchases to
$3,000,000 plus 25% of net earnings since April 1, 1991, and places other
restrictions on additional borrowings and requires the maintenance of certain
financial ratios.
OTHER DEBT -- Other debt of $219,000 at December 31, 1995 and $987,000 at
March 31, 1995, represents an insurance premium financing agreement bearing
interest at 7.25%. Other debt matures in 1996.
NOTE F: INCOME TAXES
Years Ended
(In Thousands) Nine Months Ended March 31,
December 31, --------------
1995 1995 1994
- -----------------------------------------------------------------------------
Current Income Tax Expense:
Federal $5,577 $ 7,258 $5,667
State 800 934 441
-------------------------------------
6,377 8,192 6,108
Deferred Income Tax (Benefit) Expense:
Federal (302) (930) 101
State (43) (160)
-------------------------------------
(345) (1,090) 101
- -----------------------------------------------------------------------------
$6,032 $ 7,102 $6,209
- -----------------------------------------------------------------------------
Significant components of the Company's deferred The Company's actual tax rate differs from the federal income
income tax liabilities and assets are as follows: tax statutory rate as follows:
(In thousands) December 31, March 31, Nine Months Ended Year Ended Year Ended
1995 1995 December 31, March 31, March 31,
- ------------------------------------------------------- 1995 1995 1994
Deferred Tax Liabilities: ----------------------------------------------------------------------
Tax Over Book Depreciation $6,858 $6,967 Statutory Rates 35.0% 35.0% 34.3%
Other, Net 134 606 Increases in Taxes
------ ------ Resulting From:
Total Deferred Tax Liabilities 6,992 7,573 State Income Taxes, net of
------ ------ Federal Income Tax Benefit 3.2 2.7 2.5
Deferred Tax Assets Effect of Change in Federal
Insurance Reserves 635 934 Income Tax Rate on
Reserve for Closed Store Deferred Taxes .9
Locations 212 353 Other, Net (.3) .8 3.7
Rent Collected in Advance 1,374 1,325 ---------------------------------
Franchise Deposits 328 Effective Tax Rate 37.9% 38.5% 41.4%
Other, Net 662 835 ---------------------------------------------------------------------
------ ------
Total Deferred Tax Assets 3,211 3,447
------ ------
Net Deferred Tax Liabilities $3,781 $4,126
- -------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1995 and March 31, 1995 and for the Nine Month Period Ended
December 31, 1995 and the Years Ended March 31, 1995 and March 31, 1994
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Aaron Rents, Inc., and its wholly-owned subsidiaries, Aaron
Enterprises, Inc., formerly Ball Stalker Co., and Aaron Investment Company. All
significant intercompany accounts and transactions have been eliminated. The
preparation of Aaron Rents' consolidated financial statements in conformity with
generally accepted accounting principles requires Aaron Rents' management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
LINE OF BUSINESS--The Company is engaged in the business of renting and
selling residential and office furniture and other merchandise. The Company
manufactures furniture principally for its rental and sales operations.
RENTAL MERCHANDISE consists primarily of residential and office furniture
and other merchandise and is recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful life of the merchandise,
principally from 1 to 5 years, after allowing for a salvage value of 5% to 60%.
The Company recognizes rental revenues over the rental period and recognizes all
costs of servicing and maintaining merchandise on rent as incurred.
PROPERTY, PLANT AND EQUIPMENT are recorded at cost. Depreciation and
amortization are computed on a straight-line basis over the estimated useful
lives of the respective assets, which are from 8 to 27 years for buildings and
improvements and from 2 to 5 years for other depreciable property and equipment.
Gains and losses related to dispositions and retirements are included in
income. Maintenance and repairs are charged to income as incurred; renewals and
betterments are capitalized.
DEFERRED INCOME TAXES arise principally from the use of accelerated methods
of computing depreciation on rental merchandise for tax purposes.
COST OF SALES includes the depreciated cost of rental-return residential
and office merchandise sold and the cost of new residential and office
merchandise sold. It is not practicable to allocate operating expenses between
selling and rental operations.
ADVERTISING--The Company expenses advertising costs as incurred. Such costs
aggregated $6,258,000 for the nine months ended December 31, 1995 and $7,257,000
and $6,025,000 in fiscal years 1995, and 1994, respectively.
NEW ACCOUNTING STANDARDS--In 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" (SFAS 121), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for long-
lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on current circumstances,
does not believe the effect of adoption will be material.
In 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). Under the provisions
of SFAS 123, companies can elect to account for stock-based compensation plans
using a fair value-based method or continue measuring compensation expense for
those plans using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123
requires that companies electing to continue using the intrinsic value method
make pro forma disclosures of net income and earnings per share as if the fair
value-based method of accounting had been applied. The Company anticipates
continuing to account for stock-based compensation using the intrinsic value
method, and accordingly, SFAS 123 will not have an impact on the Company's
results of operations or financial position.
NOTE B: CHANGE IN FISCAL YEAR END
During 1995, the Company changed its fiscal year end from March 31 to
December 31, which resulted in a nine month fiscal period ended December 31,
1995. The decision to change the fiscal year end was made for more convenience
in both internal and external reporting.
Results of operations (condensed) for the nine-month periods ended December
31, 1995, and December 31, 1994, are shown below:
Nine Months Ended
(In Thousands Except Per Share Amounts) December 31, December 31,
1995 1994
- ------------------------------------------------------------------------------
(Unaudited)
Revenues $178,224 $169,341
Cost of Sales 28,350 28,772
Operating And Other Expenses 92,350 87,649
Depreciation of Rental Merchandise 41,612 39,912
-----------------------
Income Before Income Taxes 15,912 13,008
Earnings Before Income Taxes 6,032 5,021
-----------------------
Net Earnings $ 9,880 $ 7,987
-----------------------
Earnings Per Share $ .99 $ .81
-----------------------
Weighted Average Shares Outstanding 10,019 9,884
- ------------------------------------------------------------------------------
NOTE C: EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings by the weighted
average number of common shares and common equivalent shares (for stock options
using the treasury stock method) outstanding during the period, which was
10,018,728 shares for the nine months ended December 31, 1995; 9,814,274 shares
for the year ended March 31, 1995; and 8,720,209 shares for the year ended March
31, 1994.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts In Thousands Except Per Share)
Nine
Months Ended Year Ended Year Ended
December 31, March 31, March 31,
1995 1995 1994
OPERATING ACTIVITIES----------------------------------------------------------------------------------------
Net Earnings $ 9,880 $ 11,325 $ 8,796
Depreciation & Amortization 45,798 58,765 41,040
Deferred Income Taxes (345) (1,090) 101
Change in Accounts Payable & Accrued Expenses 242 (1,834) 6,428
Change in Accounts Receivable 255 (386) (1,159)
Other Changes, Net (711) 1,966 585
-----------------------------------------------
Cash Provided by Operating Activities 55,119 68,746 55,791
INVESTING ACTIVITIES----------------------------------------------------------------------------------------
Additions to Property, Plant & Equipment (5,476) (11,820) (9,539)
Book Value of Property Retired or Sold 1,979 1,401 590
Additions to Rental Merchandise (72,926) (101,755) (103,164)
Book Value of Rental Merchandise Sold 30,892 40,667 48,267
Contracts & Other Assets Acquired (533) (328) (10,815)
-----------------------------------------------
Cash Used by Investing Activities (46,064) (71,835) (74,661)
FINANCING ACTIVITIES----------------------------------------------------------------------------------------
Proceeds from Revolving Credit Agreement 51,933 229,448 219,262
Repayments on Revolving Credit Agreement (56,845) (238,727) (199,756)
(Decrease) Increase in Other Debt (768) (685) 487
Proceeds from Common Stock Offering 14,140
Dividends Paid (367) (709) (591)
Acquisition of Treasury Stock (3,134) (1,836) (1,151)
Issuance of Stock Under Stock Option Plan 129 1,467 624
-----------------------------------------------
Cash (Used) Provided by Financing Activities (9,052) 3,098 18,875
-----------------------------------------------
Increase in Cash 3 9 5
Cash at Beginning of Year 95 86 81
-----------------------------------------------
Cash at End of Year $ 98 $ 95 $ 86
-----------------------------------------------
Cash Paid During the Year:
Interest $ 2,642 $ 3,005 $ 2,277
Income Taxes 7,677 8,705 5,123
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements.
NOTE G: COMMITMENTS
The Company leases warehouse and retail store space for substantially
all of its operations under operating leases expiring at various times through
2005. Most of the leases contain renewal options for additional periods ranging
from 2 to 10 years at rental rates generally adjusted on the basis of the
consumer price index or other factors. The Company also leases transportation
equipment and data processing equipment under operating leases expiring during
the next 3 years. Management expects that most leases will be renewed or
replaced by other leases in the normal course of business.
Future minimum rental payments required under operating leases that have
initial or remaining non-cancelable terms in excess of one year as of December
31, 1995, are as follows: $14,545,000 in 1996; $13,731,000 in 1997; $10,187,000
in 1998; $7,091,000 in 1999; $3,769,000 in 2000; and $3,442,000 thereafter.
Rental expense was $11,513,000 for the nine months ended December 31,
1995 and $15,467,000 and $12,462,000 for the years ended March 31, 1995 and 1994
respectively.
The Company leases four buildings from certain officers of the Company
under leases expiring through 2005 for annual rentals aggregating $643,000.
The Company maintains a 401(k) savings plan for all full-time employees
with at least one year of service with the Company and who meet certain
eligibility requirements. The plan allows employees to contribute up to 6% of
their annual compensation with 50% matching by the Company on the first 4% of
compensation. The Company's expense related to the plan was $162,000 for the
nine months ended December 31, 1995 and $259,000 and $219,000 for the years
ended March 31, 1995 and 1994, respectively.
NOTE H: SHAREHOLDERS' EQUITY
On May 2, 1994, the Company issued, through a public offering, 1,275,000
shares of Class B Common Stock. The net proceeds to the Company after deducting
underwriting discounts and offering expenses were $14,100,000. The net proceeds
were used to reduce bank debt.
At December 31, 1995, the Company held a total of 2,360,029 common
shares in its treasury, and is authorized by the Board of Directors to acquire
up to an additional 141,560 shares.
The Company has 1,000,000 shares of preferred stock authorized. The
shares are issuable in series with terms for each series fixed by the Board and
such issuance is subject to approval by the Board of Directors. No preferred
shares have been issued.
The Company has a stock incentive plan under which certain key employees
can purchase shares of common stock under stock options. Stock options are
granted to employees at an exercise price equal to or greater than the fair
market value of the stock on the date of grant. Options become exercisable after
a period of two years and unexercised options lapse five years after the date of
grant. However, such options are subject to forfeiture upon termination of
service. Under the plan, 624,000 shares of the Company's treasury shares are
reserved for issuance when these options are exercised. Following is a summary
of the activity in this plan:
Nine Months Ended Fiscal Year Ended Fiscal Year Ended
December 31, 1995 March 31, 1995 March 31, 1994
---------------------- ----------------------- -----------------------
Common Price Range Common Price Range Common Price Range
shares per share shares per share shares per share
- --------------------------------------------------------------------------------------------------------------------------------
Options outstanding--beginning of year 647,000 $ 6.00 - 13.875 639,500 $ 6.00 - 10.50 717,000 $ 6.00 - 10.25
Options granted 252,000 12.00 - 13.875 16,500 9.75 - 10.50
Options exercised 12,000 6.00 244,500 6.00 83,900 6.00
Options cancelled 11,000 12.75 - 13.875 10,000 6.00
-------------------------------------------------------------------------------------
Options outstanding--end of year 624,000 $ 6.00 - 13.875 647,000 $ 6.00 - 13.875 639,500 $ 6.00 - 10.50
- --------------------------------------------------------------------------------------------------------------------------------
Options exercisable--end of year 383,000 $ 6.00 - 10.50 380,000 $ 6.00 - 10.25 613,100 $ 6.00
- --------------------------------------------------------------------------------------------------------------------------------
NOTE I: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In Thousands Except Per Share)
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------
Twelve Months ended December 31, 1995
Revenues $59,551 $59,135 $59,012 $60,077
Gross Profit 35,831 36,121 35,646 36,495
Earnings Before Taxes 5,419 5,347 5,152 5,413
Net Earnings 3,338 3,315 3,205 3,360
Earnings Per Share $ .34 $ .33 $ .32 $ .34
- ----------------------------------------------------------------------------------------------
Twelve Months ended December 31, 1994
Revenues $53,415 $55,595 $57,235 $56,511
Gross Profit 32,358 33,183 33,274 34,200
Earnings Before Taxes 4,636 4,273 4,097 4,638
Net Earnings 2,719 2,607 2,507 2,873
Earnings Per Share $ .31 $ .27 $ .25 $ .29
- ----------------------------------------------------------------------------------------------
NOTE J: SALES & ACQUISITIONS
On June 16, 1993, the Company sold substantially all of the assets of
its Ball Stalker subsidiary. Ball Stalker had revenues of $16,242,000 in fiscal
year 1993 and did not contribute to earnings in that year. The sale did not have
any significant effect on the Company's results of operations for fiscal year
1994.
On December 1, 1993, the Company acquired substantially all of the
assets of FLB, Inc. (d/b/a Looks Furniture Leasing), a furniture rental
operation with 15 locations in Texas and Oklahoma. The cash purchase price was
$8,000,000. The acquisition had no significant effect on the Company's results
of operations for fiscal year 1994. In addition to the above acquisition, the
Company acquired during fiscal year 1994 the assets of several other furniture
rental companies for cash aggregating approximately $3,000,000.
NOTE K: FRANCHISING OF AARON'S RENTAL PURCHASE
The Company franchises Aaron's Rental Purchase stores. As of December
31, 1995 and March 31, 1995, 106 and 35 franchises had been awarded,
respectively. Franchisees pay a non-refundable initial franchise fee of $35,000
and an ongoing royalty of 5% of cash receipts. The Company recognizes this
income as earned and includes them in Other Revenues in the Consolidated
Statements of Earnings. The Company has guaranteed certain lease and debt
obligations of some of the franchisees amounting to $555,000 and $2,205,000,
respectively, at December 31, 1995. The Company has recourse rights to the
leased property and to the assets securing the debt obligations. As a result,
the Company does not expect to incur any significant losses under these
guarantees.
COMMON STOCK MARKET PRICES & DIVIDENDS
The Company's Class A and Class B Common Stock are traded on The NASDAQ
Market under the symbols "ARONA" and "ARONB," respectively. The approximate
number of shareholders of record of the Company's Common Stock at March 12,
1996, was 2,000. The following table shows, for the periods indicated, the range
of high and low bid prices per share for the Class A and Class B Common Stock as
reported by NASDAQ, and the cash dividends paid per share.
The average closing bid quotation for Class A and Class B Common Stock
on March 12, 1996, was $19.50 and $18.75 respectively. The Company currently
expects to continue its policy of paying dividends.
CLASS A COMMON STOCK
Cash
Dividends
High Low Per Share
- -----------------------------------------------------------------
DECEMBER 31, 1995
First Quarter $15.50 $14.00 $.02
Second Quarter 19.00 15.50
Third Quarter 18.50 17.375 .02
- -----------------------------------------------------------------
March 31, 1995
First Quarter $13.25 $11.50 $.03
Second Quarter 13.00 10.50
Third Quarter 12.75 11.50 .02
Fourth Quarter 14.25 12.00
CLASS B COMMON STOCK
Cash
Dividends
High Low Per Share
- -----------------------------------------------------------------
DECEMBER 31, 1995
First Quarter $15.75 $13.75 $.05
Second Quarter 19.00 15.375
Third Quarter 18.50 17.25 .05
- -----------------------------------------------------------------
March 31, 1995
First Quarter $12.75 $11.25 $.04
Second Quarter 13.25 11.50
Third Quarter 12.875 11.50 .05
Fourth Quarter 14.00 12.00
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Aaron Rents, Inc.:
We have audited the accompanying consolidated balance sheets of Aaron
Rents, Inc. and Subsidiaries as of December 31, 1995 and March 31, 1995, and
the related consolidated statements of earnings, shareholders' equity and cash
flows for the nine months ended December 31, 1995 and the years ended March 31,
1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Aaron
Rents, Inc. and Subsidiaries as of December 31, 1995 and March 31, 1995, and
the consolidated results of their operations and their cash flows for the nine
months ended December 31, 1995 and the years ended March 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
March 19, 1996
EXHIBIT
INDEX
Exhibit 11 Computation of Earnings Per Share
Exhibit 13 Aaron Rents, Inc. Report to Shareholders for
the Nine Months ended December 31, 1995
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Ernst & Young LLP
Exhibit 27 Financial Data Schedule