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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 fiscal year ended Commission File No.
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March 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 June 9, 1995: $23,826,661 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 June 9, 1995
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Class A Common Stock, $.50 Par Value 4,022,263
Class B Common Stock, $.50 Par Value 5,692,730
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders for the year ended March 31,
1995 are incorporated by reference into Part II of this Form 10-K.
Portions of the registrant's definitive proxy statement for the 1995 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 March 31, 1995 had 203 Company operated stores and 26
franchised stores in 21 states, including 98 rent-to-rent stores in its Aaron
Rents' Rent-to-Rent division, 96 Company operated rental purchase stores in its
Aaron's Rental Purchase division, 26 Aaron's Rental Purchase franchised stores,
and 9 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 39%
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 75 rental purchase
stores since 1990, including 53 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 twelve months ended March 31, 1995, in the Company's rent-to-rent and
rental purchase stores, approximately 37% of its volume of business was the
rental of furniture and accessories, approximately 21% was the sale of rental
and other merchandise, and 42% 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 64% of the Company's total revenues. At
March 31, 1995, the Company's 203 stores had an aggregate showroom and
warehouse space of approximately 2.8 million square feet, and approximately 70%
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 13
million households-those households with earnings of less than $25,000 per year-
of which only 3.4 million are being served currently by the industry. According
to the 1994 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 $4.5 billion in 1993.
APRO reports that the industry experienced rapid growth in the 1980's, and grew
at an estimated annual rate of 15% from 1992 to 1993.
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
approximately $500 million in annual rental revenues. Although in general the
rent-to-rent industry is mature, the Company believes that there is growth
potential in the office furniture segments. 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
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 March
31, 1995 had 96 Company-operated and 26 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 3,750 to 30,000 square feet, with an average of
9,300 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 78% 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 33% 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
stores in selected smaller 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 March 31, 1995, 63 Aaron's Rental Purchase
franchises had been awarded. Each of the 26 franchise stores which has
commenced operations as of March 31, 1995 has been successful.
Rent-to-Rent-- Aaron Rents and Sells Furniture
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 64%
of the Company's total revenues for the fiscal year ended March 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 the end of the fiscal year 1995, the Company had 98 rent-to-rent store
locations, primarily in the Southeastern and Southwestern United States.
Clearance Sales-Aaron Sells Furniture
The Aaron Rents' Rent-to-Rent division's 9 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 will continue to promote such sales, although it does not expect to
increase the number of clearance stores in the foreseeable future.
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
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 376,800 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 45% of the Company's rent-to-rent furniture and bedding
needs and 62% of rental purchase furniture and bedding needs. Overall,
approximately 47% 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
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
The Company's rent-to-rent stores are managed by the President of the
division and is 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 four regional managers performing similar responsibilities.
Stores are directly supervised by 32 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 is 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
monthly audits of Company-operated and franchised rental purchase stores, and
semiannual audits of other Company 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
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
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 2.3%, 2.2% and
2.6% for the fiscal years ended March 31, 1995, 1994, and 1993, respectively.
For the same periods, net merchandise shrinkage as a percentage of rental
revenues was 2.7%, 2.1% and 2.0%, 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. Store managers and employees in the Aaron's Rental
Purchase stores have similar training primarily on site by the division's
training staff. 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
five 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 47% 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
stores, and a portion is shipped to the distribution centers in Auburndale,
Florida 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 and Duluth, Georgia to serve its rental purchase stores located in
Florida and Georgia. Rental purchase stores typically have smaller warehouses
with less inventory storage space than the Company's rent-to-rent stores.
Stores served by the distribution centers no longer receive merchandise directly
from vendors. 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, the Company also
utilizes radio and television advertising.
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 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.
At the present time, no federal law specifically regulates the rent-to-own
industry, although at least four bills are now pending in Congress. Two bills
would mandate certain disclosures to customers similar to those required by most
state legislation. The other two bills propose to regulate the industry by
classifying rent-to-own transactions as credit sales, thus subjecting them to
state and federal lending laws regarding interest rate caps, disclosure,
repossession and collection practices, including the Federal Truth in Lending
Act and Fair Credit Reporting Act.
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. 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 March 31, 1995, the Company had 2,200 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 2004. 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 F of the Notes to the Company's Consolidated
Financial Statements.
The Company owns six furniture manufacturing plants and operates four bedding
facilities and two 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
an 80,000 square foot plant. A second plant of 45,000 square feet assembles
chairs, manufactures leather upholstery, sleepers, and box springs and
mattresses. A third plant of 19,600 square feet cuts and sews fabric for
upholstered
furniture. A frame milling operation and additional cutting and sewing are
performed in a 12,000 square foot facility in Duluth, Georgia. The Company's
bedding operations are located in Atlanta and Coolidge, Georgia, Houston, Texas,
and Orlando, Florida. Distribution centers in Auburndale, Florida and Duluth,
Georgia (40,000 square feet each) service the Aarons Rental Purchase division.
The Company's executive and administrative offices occupy approximately
32,000 square feet in an 11 story, 70,000 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 two 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 or
financial condition.
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 1995 Annual Report to Shareholders
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 June 9, 1995.
(c) The information presented under "Note D - Debt" on page 19 of the Company's
1995 Annual Report to Shareholders is incorporated herein by reference.
During fiscal 1995, the Company paid two semi-annual cash dividends. No
assurance can be provided that such dividends will continue.
Item 6. Selected Financial Data
The information presented under the caption "Selected Financial Information"
on page 12 of the Company's 1995 Annual Report to Shareholders 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 Operations" on pages 13 through
15 of the Company's 1995 Annual Report to Shareholders 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," and "Report of Independent Auditors" on pages 16 through
22 of the Company's 1995 Annual Report to Shareholders 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 March 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 March 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 March 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 March 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 1995
Form 10-K Annual Report
---------- -------------
(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 referencefrom the
Company's 1995 Annual Report to Shareholders.
Consolidated Balance Sheets - March 31, 1995 and 1994 16
Consolidated Statements of Earnings - Years Ended
March 31, 1995, 1994 and 1993. 17
Consolidated Statements of Shareholders' Equity - Years Ended
March 31, 1995, 1994 and 1993. 17
Consolidated Statements of Cash Flows - Years Ended
March 31, 1995, 1994 and 1993. 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.
11 Computation of Earnings Per Share.
13 Aaron Rents, Inc. 1995 Annual Report to Shareholders. With the
exception of information expressly incorporated herein by direct
reference thereto, the 1995 Annual Report to Shareholders is not
deemed 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 28 day of June,
1995.
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 28 day of June, 1995.
SIGNATURE TITLE
- --------- -----
/s/ R. Charles Loudermilk, Sr. Chief Executive Officer
- ------------------------------- (Principal Executive Officer)
R. Charles Loudermilk,Sr. and Chairman of the Board of Directors
/s/ Gilbert L. Danielson Vice President, Finance, Chief
- ------------------------------- Financial Officer and Director,
Gilbert L. Danielson (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
- ------------------------------- Secretary and Director
Keith C. Groen
/s/ Ingrid Saunders Jones Director
- -------------------------------
Ingrid Saunders Jones
/s/ Robert C. Loudermilk, Jr. Vice President, Real Estate
- ------------------------------- and Director
Robert C. Loudermilk, Jr.
/s/ R.K. Sehgal Director
- -------------------------------
R.K. Sehgal
/s/ Rankin M. Smith, Sr. Director
- -------------------------------
Rankin M. Smith, Sr.
/s/ Robert P. Sinclair, Jr. Controller
- ------------------------------- (Principal Accounting Officer)
Robert P. Sinclair, Jr.
EXHIBIT
INDEX
Exhibit 11 Computation of Earnings Per Share
Exhibit 13 Aaron Rents, Inc. 1995 Annual Report to
Shareholders
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Ernst & Young LLP
Exhibit 27 Financial Data Schedule