SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C.  20549

 

Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of l934

 

June 30, 2004		1-13941
For Quarter Ended		Commission File No.

 

AARON RENTS, INC.

(Exact name of registrant as
specified in its charter)

 

Georgia		58-0687630
(State or other jurisdiction of incorporation or organization)		(I. R. S. Employer Identification No.)
309 E. Paces Ferry Road, N.E. Atlanta, Georgia		30305-2377
(Address of principal executive offices)		(Zip Code)
(404) 231-0011
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether registrant (l) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ý

No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ý

No  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

AARON RENTS, INC.

 

INDEX

 

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets – June 30, 2004 (Unaudited) and December 31, 2003
	Consolidated Statements of Earnings (Unaudited) - Three Months Ended June 30, 2004 and 2003 and Six Months Ended June 30, 2004 and 2003
	Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2004 and 2003
	Notes to Consolidated Financial Statements (Unaudited)
	Independent Accountants’ Review Report
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosure of Market Risk
Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits and Reports on Form 8-K
Signatures

 

 

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

 

AARON RENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		(Unaudited) June 30, 2004			December 31, 2003
		(In Thousands, Except Share Data)
ASSETS
Cash		$	95		$	95
Accounts Receivable (net of allowances of $2,042 in 2004 and $1,718 in 2003)		29,132			30,878
Rental Merchandise		580,846			518,741
Less: Accumulated Depreciation		(194,755		)	(175,728		)
		386,091			343,013
Property, Plant and Equipment, Net		101,136			99,584
Goodwill and Other Intangibles, Net		62,714			55,485
Prepaid Expenses and Other Assets		27,714			26,237
Total Assets		$	606,882		$	555,292
LIABILITIES & SHAREHOLDERS’ EQUITY
Accounts Payable and Accrued Expenses		$	86,249		$	83,854
Dividends Payable		662			655
Deferred Income Taxes Payable		62,766			55,290
Customer Deposits and Advance Payments		15,682			15,737
Credit Facilities		90,957			79,570
Total Liabilities		256,316			235,106
Commitments & Contingencies
Shareholders’ Equity
Common Stock, Par Value $.50 Per Share; Authorized: 50,000,000 Shares; Shares Issued: 29,993,475 at June 30, 2004 and December 31, 2003		14,997			14,997
Class A Common Stock, Par Value $.50 Per Share; Authorized: 25,000,000 Shares; Shares Issued: 8,042,602 at June 30, 2004 and December 31, 2003		4,021			4,021
Additional Paid-in Capital		90,324			88,305
Retained Earnings		280,464			252,924
Accumulated Other Comprehensive Loss		(588		)
		389,218			360,247
Less: Treasury Shares at Cost,
Common Stock, 2,495,731 Shares at June 30, 2004 and 2,815,750 Shares at December 31, 2003		(22,748		)	(24,157		)
Class A Common Stock, 2,445,082 Shares at June 30, 2004 and December 31, 2003		(15,904		)	(15,904		)
Total Shareholders’ Equity		350,566			320,186
Total Liabilities & Shareholders’ Equity		$	606,882		$	555,292

 

The accompanying notes are an integral part of the Consolidated Financial Statements

 

 

AARON RENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In Thousands, Except Share Data)
REVENUES:
Rentals and Fees		$	170,225		$	131,419		$	342,597		$	262,456
Retail Sales		12,578			15,608			29,049			38,646
Non-Retail Sales		35,272			24,870			81,771			56,427
Other		12,211			5,844			19,362			11,472
		230,286			177,741			472,779			369,001
COSTS AND EXPENSES:
Retail Cost of Sales		8,663			11,391			20,373			28,246
Non-Retail Cost of Sales		32,709			23,077			76,015			52,479
Operating Expenses		100,658			81,377			202,751			164,496
Depreciation of Rental Merchandise		62,062			46,517			125,532			92,906
Interest		1,266			1,473			2,474			3,061
		205,358			163,835			427,145			341,188
EARNINGS BEFORE TAXES		24,928			13,906			45,634			27,813
INCOME TAXES		9,543			5,145			17,432			10,304
NET EARNINGS		$	15,385		$	8,761		$	28,202		$	17,509
COMMON STOCK AND CLASS A COMMON STOCK EARNINGS PER SHARE:
Basic		$	.46		$	.27		$	.85		$	.54
Assuming Dilution		.46			.26			.84			.53
CASH DIVIDENDS DECLARED PER SHARE:
Common Stock		$	.02		$	.013		$	.02		$	.013
Class A Common Stock		.02			.013			.02			.013
COMMON STOCK AND CLASS A COMMON STOCK WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		33,088			32,562			32,985			32,545
Assuming Dilution		33,683			33,085			33,595			33,000

 

The accompanying notes are an integral part of the Consolidated Financial Statements

 

 

AARON RENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six Months Ended June 30,
		2004			2003
		(In Thousands)
OPERATING ACTIVITIES
Net Earnings		$	28,202		$	17,509
Depreciation and Amortization		138,740			102,111
Additions to Rental Merchandise		(270,915		)	(173,799		)
Book Value of Rental Merchandise Sold		105,795			84,375
Deferred Income Taxes		12,089			11,384
Gain on Sale of Marketable Securities		(5,481		)
(Gain) Loss on Sale of Property, Plant, and Equipment		(357		)	106
Change in Accounts Payable and Accrued Expenses		734			(10,947		)
Change in Accounts Receivable		1,746			2,159
Other Changes, Net		360			217
Cash Provided by Operating Activities		10,913			33,115
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment		(16,662		)	(15,239		)
Contracts and Other Assets Acquired		(12,819		)	(3,394		)
Proceeds from Sale of Marketable Securities		7,592
Investment in Marketable Securities		(5,007		)
Proceeds from Sale of Property, Plant, and Equipment		4,400			2,556
Cash Used by Investing Activities		(22,496		)	(16,077		)
FINANCING ACTIVITIES
Proceeds from Credit Facilities		149,539			35,894
Repayments on Credit Facilities		(138,152		)	(43,276		)
Dividends Paid		(655		)	(434		)
Issuance of Stock Under Stock Option Plans		851			1,140
Cash Provided (Used) by Financing Activities		11,583			(6,676		)
Increase in Cash					10,362
Cash at Beginning of Period		95			96
Cash at End of Period		$	95		$	10,458

 

The accompanying notes are an integral part of the Consolidated Financial Statements

 

 

AARON RENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2004

(Unaudited)

 

Note A - Basis of Presentation

 

The consolidated financial statements include the accounts of Aaron Rents, Inc. (the “Company”) and its wholly owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

 

The Consolidated Balance Sheet as of June 30, 2004, and the Consolidated Statements of Earnings and the Consolidated Statements of Cash Flows for the quarter and six months ended June 30, 2004 and 2003, are unaudited.  The preparation of interim consolidated financial statements requires 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.  Generally, actual experience has been consistent with management’s prior estimates and assumptions.  Management does not believe these estimates or assumptions will change significantly in the future absent unsurfaced or unforeseen events.

 

On July 21, 2003 the Company announced a 3-for-2 stock split effected in the form of a 50% stock dividend on both Common Stock and Class A Common Stock.  New shares were distributed on August 15, 2003 to shareholders of record as of the close of business on August 1, 2003.  All share and per share information has been restated for all periods presented to reflect this transaction.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2003.  The results of operations for the quarter ended June 30, 2004 are not necessarily indicative of the operating results for the full year.

 

Accounting Policies and Estimates

 

See Note A to the consolidated financial statements in the 2003 Annual Report on Form 10-K.

 

Rental Merchandise

 

See Note A to the consolidated financial statements in the 2003 Annual Report on Form 10-K.  Rental merchandise adjustments for the six-month periods ended June 30 were $7.0 million in 2004 and $5.7 million in 2003.  Rental merchandise adjustments for the three-month periods ended June 30 were $3.3 million in 2004 and $3.1 million in 2003.   These charges are recorded as a component of operating expenses.

 

Goodwill and Other Intangibles

 

During 2004, the Company has recorded $7.6 million in goodwill and $0.3 million in customer relationship intangibles in connection with a series of acquisitions of sales and lease ownership businesses.  Customer relationship intangibles are amortized on a straight-line basis over their useful lives of 3 years.  Amortization expense approximated $685,000 and $40,000 for the six month periods ended June 30, 2004 and 2003, respectively. The aggregate purchase price for these asset acquisitions totaled approximately $12.7 million, and the principal tangible assets acquired consisted of rental merchandise and certain fixtures and equipment.  However, the purchase price allocations are tentative and preliminary and will be finalized prior to December 31, 2004.  The results of operations of the acquired businesses are included in the Company’s results of operations from the dates of acquisition and are not significant.

 

 

Note B – Credit Facilities

 

See Note E to the consolidated financial statements in the 2003 Annual Report on Form 10-K.  There were no significant changes in the nature of the Company’s borrowings under credit facilities during the six months ended June 30, 2004.  In addition, the Company was in compliance with all restrictive covenants contained in such credit facilities.

 

Note C – Comprehensive Income

 

Comprehensive income for the six-month periods ended June 30, 2004 and 2003 was $27.6 million and $18.3 million, respectively.  Comprehensive income for the three-month periods ended June 30, 2004 and 2003 approximated $12.5 million and $9.1 million, respectively.  Comprehensive income is comprised of the net earnings of the Company, the change in the fair value of interest rate swap agreements, net of income taxes, and the unrealized gain or loss on available-for-sale securities, net of income taxes, as summarized below:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In Thousands)
Net Earnings		$	15,385		$	8,761		$	28,202		$	17,509
Other comprehensive (loss) income:
Derivative instruments, net of taxes		263			231			384			535
Unrealized gain on marketable securities,  net of taxes		182			114			2,378			255
Recognition of unrealized gain on marketable securities, net of taxes		(3,350		)				(3,350		)
Total other comprehensive (loss) income		(2,905		)	345			(588		)	790
Comprehensive Income		$	12,480		$	9,106		$	27,614		$	18,299

 

 

Note D – Segment Information

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In Thousands)
Revenues From External Customers:
Sales & Lease Ownership		$	188,848		$	143,614		$	398,251		$	301,585
Rent-to-Rent		26,044			27,061			53,635			56,043
Franchise		5,634			4,721			11,562			9,356
Other		6,951			1,106			8,074			2,229
Manufacturing		15,630			13,655			34,714			31,064
Elimination of Intersegment Revenues		(15,727		)	(13,734		)	(34,902		)	(31,179		)
Cash to Accrual Adjustments		2,906			1,318			1,445			(97		)
Total Revenues from External Customers		$	230,286		$	177,741		$	472,779		$	369,001
Earnings Before Income Taxes:
Sales & Lease Ownership		$	13,312		$	8,939		$	30,612		$	21,002
Rent-to-Rent		1,793			1,347			4,461			3,525
Franchise		4,000			3,311			8,271			6,652
Other		4,200			(243		)	2,162			(806		)
Manufacturing		17			299			949			650
Earnings Before Income Taxes for Reportable Segments		23,322			13,653			46,455			31,023
Elimination of Intersegment Loss (Profit)		68			(233		)	(939		)	(1,608		)
Cash to Accrual and Other Adjustments		1,538			486			118			(1,602		)
Total Earnings Before Income Taxes		$	24,928		$	13,906		$	45,634		$	27,813

 

Revenues in the “Other” category are primarily from leasing space to unrelated third parties in our corporate headquarters building and revenues from several minor unrelated activities.  The pre-tax items in the “Other” category are the net result of the profits and losses from leasing a portion of the corporate headquarters and several minor unrelated activities, and the portion of corporate overhead not allocated to the reportable segments for management purposes, net of, in 2004, the $5.5 million pre-tax gain recognized on the sale of marketable securities.

 

Earnings before income taxes for each reportable segment are generally determined in accordance with accounting principles generally accepted in the United States with the following adjustments:

 

•                  A predetermined amount of approximately 2.3% in 2004 and 2003 of each reportable segment’s revenues is charged to the reportable segment as an allocation of corporate overhead.

•                  Accruals related to store closures are not recorded on the reportable segments’ financial statements, but are rather maintained and controlled by corporate headquarters.

•                  The capitalization and amortization of manufacturing and distribution variances are recorded on the consolidated financial statements as part of the Cash to Accrual and Other Adjustments item above and are not allocated to the segment that holds the related rental merchandise.

•                  Interest on borrowings is estimated at the beginning of each year.  Interest is then allocated to operating segments on the basis of relative total assets.

•                  Sales and lease ownership revenues are reported on a cash basis for management reporting purposes.

 

Note E – Stock Compensation

 

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, which measure compensation cost using the intrinsic value method of accounting for stock options.  Accordingly, the Company does not recognize compensation cost based upon the fair value method of accounting as provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123).  If the

 

 

Company had elected to recognize compensation cost based on the fair value of the options granted beginning in fiscal year 1996, as prescribed by SFAS 123, net earnings would have been reduced to the pro forma amounts indicated in the table below:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In Thousands, Except Per Share)
Net Earnings - As Reported		$	15,385		$	8,761		$	28,202		$	17,509
Stock-based Employee Compensation Cost, Net of Tax - Pro Forma		(408		)	(333		)	(816		)	(625		)
Net Earnings - Pro Forma		$	14,977		$	8,428		$	27,386		$	16,884
Basic Earnings Per Share - As Reported		$	.46		$	.27		$	.85		$	.54
Basic Earnings Per Share - Pro Forma		$	.45		$	.26		$	.83		$	.52
Diluted Earnings Per Share - As Reported		$	.46		$	.26		$	.84		$	.53
Diluted Earnings Per share - Pro Forma		$	.45		$	.25		$	.82		$	.52

 

Note F – Adoption of New Accounting Principles

 

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.  The Company has not entered into transactions with, created, or acquired significant potential variable interest entities subsequent to that date.  For interests in variable interest entities arising prior to February 1, 2003, the Company must apply the provisions of FIN 46 as of December 31, 2003.  The Company has concluded that certain independent franchisees, as discussed in Note J to the 2003 Annual Report on Form 10-K, are not subject to the interpretation, and are therefore not included in the Company’s consolidated financial statements.  In addition, as discussed in Note E to the 2003 Annual Report on Form 10-K, the Company has certain capital leases with partnerships controlled by related parties of the Company.  The Company has concluded that these partnerships are not variable interest entities. The Company has concluded that the accounting and reporting of its construction and lease facility (see Note G to the 2003 Annual Report on Form 10-K) are not subject to the provisions of FIN 46 since the lessor is not a variable interest entity, as defined by FIN 46.

 

Note G – Commitments

 

The Company has guaranteed the borrowings of certain independent franchisees under a franchise loan program with a bank. In the event these franchisees are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for a portion of the outstanding balance of the franchisee’s debt obligations, which would be due in full within 90 days of the event of default. At June 30, 2004, the portion that the Company might be obligated to repay in the event franchisees defaulted was approximately $76.7 million. However, due to franchisee borrowing limits, management believes any losses associated with any defaults would be mitigated through recovery of rental merchandise as well as the associated rental agreements and other assets. Since its inception, the Company has had no losses associated with the franchisee loan and guaranty program.

 

The Company has no long-term commitments to purchase merchandise. See Note G to the consolidated financial statements in the 2003 Annual Report on Form 10-K for further information.

 

 

Note H – Subsequent Event

 

On July 12, 2004, the Company announced a 3-for-2 stock split effected in the form of a 50% stock dividend on both Common Stock and Class A Common Stock.  New shares will be distributed on August 16, 2004 to shareholders of record as of the close of business on August 2, 2004.

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Aaron Rents, Inc.

 

We have reviewed the accompanying consolidated balance sheet of Aaron Rents, Inc. and Subsidiaries as of June 30, 2004, and the related statements of earnings for the three-month and six-month periods ended June 30, 2004 and 2003, and the related statements of cash flows for the six months ended June 30, 2004 and 2003.  These financial statements are the responsibility of the Company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)., the consolidated balance sheet of Aaron Rents, Inc. and Subsidiaries as of December 31, 2003, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated February 24, 2004, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

	/s/ Ernst & Young LLP
Atlanta, Georgia
July 28, 2004

 

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Special Note Regarding Forward-Looking Information: Except for historical information contained herein, the matters set forth in this Form 10-Q are forward-looking statements.  Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with our growth strategy, competition, trends in corporate spending, our franchise program, government regulation and the other risks and uncertainties discussed under the caption “Certain Factors Affecting Forward-Looking Statements” in Part I, Item 1 -”Business” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2003 filed with the Securities and Exchange Commission and in the Company’s other public filings.

 

The following discussion should be read in conjunction with the consolidated financial statements as of and for the three months and six months ended June 30, 2004, including the notes to those statements, appearing elsewhere in this report.  We also suggest that this management’s discussion and analysis be read in conjunction with the management’s discussion and analysis and consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003.

 

Overview

 

Aaron Rents, Inc. is a leading U.S. company engaged in the combined businesses of the rental, lease ownership and specialty retailing of consumer electronics, residential and office furniture, household appliances and accessories.  Our major operating divisions are the Aaron’s Sales & Lease Ownership division, the Aaron Rents’ Rent-to-Rent division, and the MacTavish Furniture Industries division, which manufactures and supplies nearly one-half of the furniture and related accessories rented and sold in our stores.  Our sales and lease ownership division accounted for 86% of our total revenues in the second quarter of 2004 and 87% in the first six months of 2004 compared with 85% in both of the comparable periods in 2003.

 

In this management’s discussion and analysis section we review the results of our sales and lease ownership and rent-to-rent divisions across the four components of our revenues: rentals and fees, retail sales, non-retail sales and other revenues.  Rentals and fees includes all revenues derived from rental agreements from our sales and lease ownership and rent-to-rent stores, including agreements that result in our customers acquiring ownership at the end of the term. Retail sales represents sales of both new and rental return merchandise.  Non-retail sales mainly represents merchandise sales to our franchisees from our sales and lease ownership division.  Other revenues represents franchise fees and royalty income, and other related income from our franchise stores and other miscellaneous revenues.

 

We separate our cost of sales into two components: retail and non-retail.  Retail cost of sales represents the original or depreciated cost of merchandise sold through our Company-operated stores.  Non-retail cost of sales mainly represents the cost of merchandise sold to our franchisees.

 

 

Results of Operations

 

Three months ended June 30, 2004 versus three months ended June 30, 2003

 

The following table shows key selected financial data for the quarters ended June 30, 2004 and 2003, and the changes in dollars and as a percentage to 2004 from 2003:

 

(In Thousands)		Three Months Ended June 30, 2004			Three Months Ended June 30, 2003			Dollar Increase/ (Decrease) to 2004 from 2003			% Increase/ (Decrease) to 2004 from 2003
REVENUES:
Rentals and Fees		$	170,225		$	131,419		$	38,806		29.5	%
Retail Sales		12,578			15,608			(3,030		)	(19.4	)
Non-Retail Sales		35,272			24,870			10,402			41.8
Other		12,211			5,844			6,367			109.0
		230,286			177,741			52,545			29.6
COSTS AND EXPENSES:
Retail Cost of Sales		8,663			11,391			(2,728		)	(24.0	)
Non-Retail Cost of Sales		32,709			23,077			9,632			41.7
Operating Expenses		100,658			81,377			19,281			23.7
Depreciation of Rental Merchandise		62,062			46,517			15,545			33.4
Interest		1,266			1,473			(207		)	(14.1	)
		205,358			163,835			41,523			25.3
EARNINGS BEFORE TAXES		24,928			13,906			11,022			79.3
INCOME TAXES		9,543			5,145			4,398			85.5
NET EARNINGS		$	15,385		$	8,761		$	6,624		75.6	%

 

Revenues

 

The 29.6% increase in total revenues in the second quarter of 2004 over the same period in 2003 is primarily attributable to continued growth in our sales and lease ownership division, offset slightly by declining revenues in our rent-to-rent division.  Total revenues for our sales and lease ownership division increased $48.0 million to $198.3 million in the second quarter of 2004 compared to $150.3 million in the second quarter of 2003, a 32.0% increase.  This increase was attributable to a 14.7% increase in same store revenues driven by increased leasing volume and the net addition of 123 Company-operated stores since the end of the second quarter of 2003.  Revenues in our rent-to-rent division declined $1.0 million, due primarily to a net reduction of 6 stores since the end of the second quarter of 2003 and a decline in same store rental volumes over that period.

 

The 29.5% increase in rentals and fees revenues is attributable to a $39.2 million increase from our sales and lease ownership division related to the growth in same store revenues and the increase in the number of stores described above.

 

Revenues from retail sales fell 19.4% due primarily to a $2.5 million decrease in our sales and lease ownership division, which reflects a decreased focus on retail sales in certain stores and the impact of the introduction of an alternative shorter-term lease, which we believe replaced many retail sales.  Also contributing to the decline was a $0.5 million decrease in our rent-to-rent division caused by the store closures described above and a decline in rent-to-rent retail volumes.

 

The 41.8% increase in non-retail sales in the second quarter of 2004 reflects the significant growth of our franchise operations.  Our franchisees had revenues of $88.7 million during the second quarter of 2004, a 29.2% increase over the second quarter of 2003 revenues of $68.7 million. Revenues of franchisees, however, are not revenues of Aaron Rents, Inc.

 

 

The 109.0% increase in other revenues is primarily attributable to the recognition of a $5.5 million pre-tax gain on the sale of our holdings of the common stock of Rainbow Rentals, Inc. in connection with that company’s merger with Rent-a-Center, Inc.  An increase in franchise fees, royalty income, and other related revenues from our franchise operations of $0.9 million, or 18.9%, to $5.6 million compared with $4.7 million in the second quarter of 2003 also contributed. Of this increase, royalty income from franchisees increased $0.7 million to $4.1 million in the second quarter of 2004 compared to $3.4 million in the second quarter of 2003, with increased franchise and financing fee revenues comprising the majority of the remainder.  This franchisee-related revenue growth reflects the net addition of 75 franchised stores since the end of the second quarter 2003 and improving operating revenues driven by increased lease volume at maturing franchised stores.

 

Cost of Sales

 

The 24.0% decrease in retail cost of sales is primarily the result of the decrease in retail sales in our sales and lease ownership division described above. Our rent-to-rent division’s retail cost of sales declined as a result of the store count reduction and decreased retail volume described above. Retail cost of sales as a percentage of retail sales decreased to 68.9% from 73.0%, due primarily to higher margins on certain retail sales in our sales and lease ownership division.

 

Cost of sales from non-retail sales increased 41.7%, following a similar percentage increase in non-retail sales described above.  Non-retail cost of sales as a percentage of retail sales remained comparable between the second quarters of 2004 and 2003.

 

Expenses

 

The 23.7% increase in operating expenses is a result of the growth of our sales and lease ownership division described above.  As a percentage of total revenues, operating expenses dropped to 43.7% for the second quarter of 2004 compared to 45.8% for the second quarter of 2003, with approximately half of the decrease attributable to the inclusion of the gain on the sale of Rainbow Rentals common stock mentioned above in other revenue, with the remainder of the decrease driven by the maturing of new Company-operated sales and lease ownership stores and the 14.7% increase in same store revenues mentioned previously.

 

The 33.4% increase in depreciation of rental merchandise was the result of the growth of our sales and lease ownership division described above.  Depreciation of rental merchandise as a percentage of rentals and fees revenue increased slightly to 36.5% for the second quarter of 2004 from 35.4% for the second quarter of 2003, resulting primarily from increased depreciation expense in connection with the larger number of short-term leases in 2004 in our sales and lease ownership division.

 

The 14.0% decrease in interest expense is a result of expiration of certain interest rate swap agreements subsequent to June 30, 2003.

 

The 85.5% increase in income tax expense is driven primarily by the increase in net earnings described below, as well as an increase in the effective tax rate for state income taxes in 2004.

 

Net Earnings

 

The 75.6% increase in net earnings to $15.4 million in the second quarter of 2004 from $8.8 million in the second quarter of 2003, is primarily due to the maturing of new Company-operated sales and lease ownership stores added over the past several years, contributing to a 14.7% increase in same store revenues; recognition of a $3.4 million dollar after-tax gain on the sale of Rainbow Rentals common stock; and an 18.9% increase in franchise fees, royalty income, and other related franchise income.  As a percentage of total revenues, net earnings improved to 6.7% for the second quarter of 2004, from 4.9% for the second quarter of 2003.

 

 

Six months ended June 30, 2004 versus six months ended June 30, 2003

 

The following table shows key selected financial data for the six-month periods ended June 30, 2004 and 2003, and the changes in dollars and as a percentage to 2004 from 2003:

 

(In Thousands)		Six Months Ended June 30, 2004			Six Months Ended June 30, 2003			Dollar Increase/ (Decrease) to 2004 from 2003			% Increase/ (Decrease) to 2004 from 2003
REVENUES:
Rentals and Fees		$	342,597		$	262,456		$	80,141		30.5	%
Retail Sales		29,049			38,646			(9,597		)	(24.8	)
Non-Retail Sales		81,771			56,427			25,344			44.9
Other		19,362			11,472			7,890			68.8
		472,779			369,001			103,778			28.1
COSTS AND EXPENSES:
Retail Cost of Sales		20,373			28,246			(7,873		)	(27.9	)
Non-Retail Cost of Sales		76,015			52,479			23,536			44.9
Operating Expenses		202,751			164,496			38,255			23.3
Depreciation of Rental Merchandise		125,532			92,906			32,626			35.2
Interest		2,474			3,061			(587		)	(19.2	)
		427,145			341,188			85,957			25.2
EARNINGS BEFORE TAXES		45,634			27,813			17,821			64.1
INCOME TAXES		17,432			10,304			7,128			69.2
NET EARNINGS		$	28,202		$	17,509		$	10,693		61.1	%

 

Revenues

 

The 28.1% increase in total revenues during the first six months of 2004 over the same period in 2003 is primarily attributable to continued growth in our sales and lease ownership division, offset slightly by declining revenues in our rent-to-rent division.  Total revenues for our sales and lease ownership division increased $100.7 million to $412.9 million in the six months ended June 30, 2004 compared to $312.2 million in the comparable period of 2003, a 32.2% increase.  This increase was attributable to a 12.8% increase in same store revenues and the net addition of 123 Company-operated stores since the end of the second quarter of 2003.  Revenues in our rent-to-rent division  declined $2.4 million to $54.4 million during the six-month period ended June 30, 2004 from $56.8 million in the comparable period of 2003, a 4.2% decrease, due primarily to a net reduction of 6 stores since end of the second quarter of 2003 and a decline in same store rental volumes over that period

 

The 30.5% increase in rentals and fees revenues is attributable to a $80.8 million increase from our sales and lease ownership division related to the growth in same store revenues and the increase in the number of stores described above.

 

Revenues from retail sales fell 24.8% due primarily to an $8.0 million decrease in our sales and lease ownership division, which reflects a decreased focus on retail sales in certain stores and the impact of the introduction of an alternative shorter-term lease, which we believe has replaced many retail sales. The $1.6 million decrease in our rent-to-rent division retail sales revenue caused by the store closures described above and a decrease in retail volume also contributed to the overall decline.

 

The 44.9% increase in non-retail sales in the first six months of 2004 reflects the significant growth of our franchise operations.  Our franchisees had revenues of $172.0 million during the six months ended June 30, 2004, a 22.5% increase over the six months ended

 

 

June 30, 2003 revenues of $140.5 million. Revenues of franchisees, however, are not revenues of Aaron Rents, Inc.

 

The 68.8% increase in other revenues is primarily attributable to recognition of a $5.5 million pre-tax gain on the sale of Rainbow Rentals common stock, as well as franchise fees, royalty income, and other related revenues from our franchise operations increasing $2.2 million, or 23.3%, to $11.5 million compared with $9.4 million for the six months ended June 30, 2003.  Of this increase, royalty income from franchisees increased $1.3 million to $8.3 million in the six months ended June 30 2004 compared to $7.0 million in the six months ended June 30 2003, with increased franchise and financing fee revenues comprising the majority of the remainder.  This franchisee-related revenue growth reflects the net addition of 75 franchised stores since the end of the second quarter 2003 and improving operating revenues at maturing franchised stores.

 

Cost of Sales

 

The 27.9% decrease in retail cost of sales is primarily the result of the decrease in retail sales in our sales and lease ownership division described above.  Our rent-to-rent division’s retail cost of sales also declined, due to the store count reduction and decline in retail volume described above. Retail cost of sales as a percentage of retail sales decreased to 70.1% from 73.9%, due primarily to higher margins on certain retail sales in our sales and lease ownership division.

 

Cost of sales from non-retail sales increased 44.9%, following a similar percentage increase in non-retail sales revenue described above.  Non-retail cost of sales as a percentage of retail sales remained comparable between the six-month periods ended 2004 and 2003.

 

Expenses

 

The 23.3% increase in operating expenses is a result of the growth of our sales and lease ownership division described above.  As a percentage of total revenues, operating expenses dropped to 42.9% in the six months ended June 30, 2004 compared to 44.6% for the comparable period of 2003, with approximately one-third of the decrease attributable to the inclusion of the gain on the sale of Rainbow Rentals common stock mentioned above in other revenue, with the remainder driven primarily by the maturing of new Company-operated sales and lease ownership stores contributing to the 12.8% increase in same store revenues mentioned previously.

 

The 35.1% increase in depreciation of rental merchandise was the result of the growth of our sales and lease ownership division described above.  Depreciation of rental merchandise as a percentage of rentals and fees revenue increased slightly to 36.6% for the six months ended June 30, 2004 from 35.4% for the comparable period in 2003, resulting primarily from increased depreciation expense in connection with the larger number of short-term leases in 2004 in our sales and lease ownership division.

 

The 19.1% decrease in interest expense is a result of expiration of certain interest rate swap agreements subsequent to June 30, 2003.

 

The 69.2% increase in income tax expense is driven primarily by the increase in net earnings described below, as well as an increase in the effective tax rate for increased state income taxes in 2004.

 

Net Earnings

 

The 61.1% increase in net earnings to $28.2 million for the six month period ended June 30, 2004 from $17.5 million in the comparable period of 2003, is primarily due to the maturing of new Company-operated sales and lease ownership stores added over the past several years, contributing to the 12.8% increase in same store revenues; recognition of a $3.4 million after-tax gain on the sale of Rainbow Rentals common stock; and a 23.3% increase in franchise fees, royalty income, and other related franchise income.  As a percentage of total revenues, net earnings improved to 6.0% in the first six months of 2004, from 4.7% the same period in 2003.

 

 

Balance Sheet

 

Cash. The Company’s cash balance remained steady at $95,000 at both June 30, 2004 and December 31, 2003.  The consistency of the cash balance is the result of our position as a net borrower, with all excess cash being used to repay debt balances.

 

Rental Merchandise.  The increase of $43.1 million in rental merchandise net of accumulated depreciation, to $386.1 million on June 30, 2004 from $343.0 million on December 31, 2003, is primarily the result of a net increase of 60 stores since December 31, 2003, as well as replenishing the amount of merchandise needed in our distribution centers.

 

Goodwill and Other Intangibles.  The increase of $7.2 million, to $62.7 million on June 30, 2004 from $55.5 million on December 31, 2003, is the result of a series of acquisitions of sales and lease ownership businesses.  The aggregate purchase price for these asset acquisitions totaled approximately $12.7 million, and the principal tangible assets acquired consisted of rental merchandise and certain fixtures and equipment.

 

Credit Facilities. The $11.4 million increase in the amounts we owe under our credit facilities to $91.0 million at June 30, 2004 from $79.6 million at last fiscal year end reflects net borrowings under our revolving credit facility during the first six months of 2004 primarily in order to fund purchases of rental merchandise, acquisitions, and working capital.

 

Deferred Income Taxes. The increase of $7.5 million in deferred income taxes payable, to $62.8 million on June 30, 2004 from $55.3 million on December 31, 2003, is primarily the result of March 2002 tax law changes, effective September 2001, that allow additional accelerated depreciation of rental merchandise for tax purposes.  Additional tax law changes effective May 2003 increased the allowable acceleration and extended the life of the March 2002 changes to December 31, 2004.

 

 Liquidity and Capital Resources

 

General

 

Cash flows from operations for the six months ended June 30, 2004 and 2003 were $10.9 million and $33.1 million, respectively.  Our cash flows include profits on the sale of rental return merchandise. Our primary capital requirements consist of buying rental merchandise for both Company-operated sales and lease ownership and rent-to-rent stores. As Aaron Rents continues to grow, the need for additional rental merchandise will continue to be our major capital requirement. These capital requirements historically have been financed through:

 

•                  cash flow from operations

•                  bank credit

•                  trade credit with vendors

•                  proceeds from the sale of rental return merchandise

•                  private debt

•                  stock offerings

 

At June 30, 2004, 23.9 million was outstanding under the Company’s revolving credit agreement. The Company’s credit facilities balance increased by approximately $11.4 million in the first six months of 2004. The increase in borrowings is primarily attributable to cash borrowed for acquisitions, purchases of rental merchandise, and working capital.  We renegotiated our revolving credit agreement on May 28, 2004, extending the life of the agreement until May 28, 2007 and increasing the total available credit to $87 million. The restated revolving credit agreement is included in this report as Exhibit 10(a).  From time to time we use interest rate swap agreements as part of our overall long-term financing program. We also have $50 million in aggregate principal amount of 6.88% senior unsecured notes due August 2009 currently outstanding, principal repayments for which are first required in 2005.

 

Aaron Rents’ revolving credit agreement and senior unsecured notes, and the construction and lease facility and franchisee loan program discussed below, contain financial covenants which, among other things, forbid us from exceeding certain debt to equity levels and require us to maintain minimum fixed charge coverage ratios. If we fail to comply with these covenants, we will be

 

in default under these commitments, and all amounts would become due immediately. We were in compliance with all these covenants at June 30, 2004 and anticipate remaining in compliance for the foreseeable future.

 

As of June 30, 2004, Aaron Rents was authorized by its Board of Directors to purchase up to an additional 1,186,890 common shares.

 

We have a consistent history of paying dividends, having paid dividends for 17 consecutive years. A $.013 per share dividend on Common Stock and Class A Common Stock was paid in January 2003 and July 2003.   In addition, our Board of Directors declared a 3-for-2 stock split, effected in the form of a 50% stock dividend, which was distributed to shareholders in August 2003, for a total fiscal year cash outlay of $924,000.  A $.02 per share dividend on Common Stock and Class A Common Stock was paid in January 2004, for a total cash outlay of $655,000.  On May 3, 2004, our Board of Directors declared a $.02 per share dividend on our Common Stock and Class A Common Stock, payable on July 2, 2004.  Subject to sufficient operating profits, to any future capital needs, and to other contingencies, we currently expect to continue our policy of paying dividends.

 

We believe that our expected cash flows from operations, existing credit facilities, vendor credit, and proceeds from the sale of rental return merchandise will be sufficient to fund our capital and liquidity needs for at least the next 24 months.

 

Commitments

 

Construction and Lease Facility. On October 31, 2001, we renewed our $25 million construction and lease facility. From 1996 to 1999, we arranged for a bank holding company to purchase or construct properties identified by us pursuant to this facility, and we subsequently leased these properties from the bank holding company under operating lease agreements. The total amount advanced and outstanding under this facility at June 30, 2004 was approximately $24.9 million.  Since the resulting leases are accounted for as operating leases, we do not record any debt obligation on our balance sheet. This construction and lease facility expires in 2006. Lease payments fluctuate based upon current interest rates and are generally based upon LIBOR plus 1.1%. The lease facility contains residual value guarantee and default guarantee provisions that would require us to make payments to the lessor if the underlying properties are worth less at termination of the facility than agreed upon values in the agreement. Although we believe the likelihood of funding to be remote, the maximum guarantee obligation under the residual value and default guarantee provisions upon termination are approximately $21.1 million and $24.9 million, respectively, at June 30, 2004.

 

Income Taxes.  Within the next six months, we anticipate that we will make cash payments for 2004 income taxes approximating $26 million.

 

Leases. Aaron Rents leases warehouse and retail store space for substantially all of its operations under operating leases expiring at various times through 2017. Most of the leases contain renewal options for additional periods ranging from one to 15 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. We also lease transportation and computer equipment under operating leases expiring during the next three years. We expect that most leases will be renewed or replaced by other leases in the normal course of business. Approximate future minimum rental payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of June 30, 2004, including leases under our construction and lease facility described above, are as follows: $21.6 million in 2004; $35.5 million in 2005; $25.8 million in 2006; $17.1 million in 2007; $10.4 million in 2008; and $9.4 million thereafter.

 

The Company has 13 capital leases, 12 of which are with limited liability companies (LLCs) whose owners include Aaron Rents’ executive officers and majority shareholder. Eleven of these related party leases relate to properties purchased from Aaron Rents in December 2002 by one of the LLCs for a total purchase price of approximately $5 million. This LLC is leasing back these properties to Aaron Rents for 15-year terms at an aggregate annual rental of approximately $635,000. The twelfth related party capital lease relates to a property sold by Aaron Rents to a second LLC for $6.3 million in April 2002 and leased back to Aaron Rents for a 15-year term at an annual rental of approximately $617,000. See Note E to the Consolidated Financial Statements in the 2003 Annual Report on Form 10-K.

 

 

 

The following table shows the Company’s approximate contractual obligations and commitments to make future payments as of June 30, 2004:

 

(In Thousands)		Total			Period Less Than 1 Year			Period 1-3 Years			Period 4-5 Years			Period Over 5 Years
Credit Facilities, Excluding Capital Leases		$	79,684		$	36,352		$	20,009		$	20,010		$	3,313
Capital Leases		11,273			406			946			1,355			8,566
Operating Leases		119,824			37,569			54,585			20,541			7,129
Total Contractual Cash Obligations		$	210,781		$	74,327		$	75,540		$	41,906		$	19,008

 

Franchise and Residual Value Guaranty. The Company has certain commercial commitments related to franchisee borrowing guarantees and residual values under operating leases. The Company believes the likelihood of any significant amounts being funded in connection with these commitments to be remote. The following table shows the Company’s approximate commercial commitments as of June 30, 2004:

 

(In Thousands)		Total Amounts Committed			Period Less Than 1 Year			Period 1-3 Years			Period 4-5 Years			Period Over 5 Years
Guaranteed Borrowings of Franchisees		$	76,810		$	76,810		$			$			$
Residual Value Guarantee Under Operating Leases		21,100						21,100
Total Commercial Commitments		$	97,910		$	76,810		$	21,100		$			$

 

Market Risk

 

We manage our exposure to changes in short-term interest rates, particularly to reduce the impact on our variable payment construction and lease facility and floating-rate borrowings, by entering into interest rate swap agreements. These swap agreements involve the receipt of amounts by us when floating rates exceed the fixed rates and the payment of amounts by us to the counterparties when fixed rates exceed the floating rates in the agreements over their term. We accrue the differential we may pay or receive as interest rates change, and recognize it as an adjustment to the floating rate interest expense related to our debt. The counterparties to these contracts are high credit quality commercial banks, which we believe minimizes to a large extent the risk of counterparty default.

 

At June 30, 2004, we had swap agreements with total notional principal amounts of $20 million that effectively fixed the interest rates on obligations in the notional amount of $20 million of debt under our variable payment construction and lease facility at an average rate of 7.91% until June 2005.  The fair value of interest rate swap agreements was a liability of approximately $0.8 million at June 30, 2004. A 1% adverse change in interest rates on variable rate obligations would not have a material adverse impact on the future earnings and cash flows of the Company.

 

We do not use any market risk sensitive instruments to hedge commodity, foreign currency, or risks other than interest rate risk, and hold no market risk sensitive instruments for trading or speculative purposes.

 

 

New Accounting Pronouncements

 

See Note F to the Consolidated Financial Statements contained in Part I, Item I of this Quarterly Report on Form 10-Q.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

 

Substantially all of the information called for by this item is provided under Item 2 in the Company’s Form 10-K for the year ended December 31, 2003, and Part I, Item 2 of this Quarterly Report above.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures.

 

An evaluation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, was carried out by management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as of the end of the period covered by this Quarterly Report on Form 10-Q.

 

No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases.  Our disclosure controls and procedures, however, are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

 

Based on management’s evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the date of the evaluation to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

 

Internal Control Over Financial Reporting.

 

There were no changes in Aaron Rents’ internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, during the Company’s second quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

On Tuesday, April 27, 2004, the Company held its annual meeting of shareholders in Atlanta, Georgia. As of the record date, March 5, 2004 there were 5,597,329 shares of Class A Common Stock entitled to vote at the annual meeting. Represented at the meeting in person or by proxy were 5,543,595 shares representing 99.04% of the total shares of Class A Common Stock entitled to vote at the meeting.

 

The purpose of the meeting was to re-elect ten directors to a one-year term expiring in 2005 and to approve an amendment to the Company’s 2001 Stock Option and Incentive Award Program to increase the number of authorized shares from 900,000 to 1,900,000.

 

The following tables set forth the results of the vote on the two matters:

 

		Number of Votes
		For		Withheld
R. Charles Loudermilk, Sr.		5,445,568		98,027
David L. Kolb		5,493,245		50,350
Robert C. Loudermilk, Jr.		5,446,443		97,152
Gilbert L. Danielson		5,491,993		51,602
Ronald W. Allen		5,493,245		50,350
Leo Benatar		5,538,795		4,800
Earl Dolive		5,493,245		50,350
Ray M. Robinson		5,538,795		4,800
Ingrid Saunders Jones		5,537,445		6,150
William K. Butler, Jr.		5,491,993		51,602

 

		Number of Votes
		For		Against		Abstain		Broker Non- Vote
Approval of Amendment to the 2001 Stock Option and Incentive Award Plan		5,147,605		107,570		75		288,345

 

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:

 

(a) The following exhibits are furnished herewith:

 

10(a) Revolving Credit Agreement by and among Aaron Rents, Inc as borrower, Aaron Rents, Inc. Puerto Rico, as co-borrower and SunTrust Bank as Agent and each of the Lenders Party Thereto dated May 28, 2004.

 

10 (b) Loan Facility Agreement and Guaranty by and among Aaron Rents, Inc. and SunTrust Bank as Servicer and each of the Participants Party Thereto dated May 28, 2004.

 

15 Letter Re: Unaudited Interim Financial Information

 

31(a) Certification of Chief Executive Officer, pursuant to Rules 13a-14(a)/15d-14(a).

 

31(b) Certification of Chief Financial Officer, pursuant to Rules 13a-14(a)/15d-14(a).

 

32(a) Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32(b) Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(b) Reports on Form 8-K:

 

On April 26, 2004 we furnished on Form 8-K under Item 12 the press release entitled “Aaron Rents, Inc. Reports Record First Quarter; Same Store Revenues up 13.7%; Raises Outlook for Year” relating to the results of our first quarter ended March 31, 2004.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	AARON RENTS, INC.
		(Registrant)
Date – August 6, 2004	By:	/s/ Gilbert L. Danielson
		Gilbert L. Danielson
		Executive Vice President,
		Chief Financial Officer
Date – August 6, 2004		/s/ Robert P. Sinclair, Jr.
		Robert P. Sinclair, Jr.
		Vice President,
		Corporate Controller