FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

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

 

 

AARON RENTS, INC.

(Exact name of registrant as
specified in its charter)

 

 

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 -September 30, 2004 (Unaudited) and December 31, 2003
	Consolidated Statements of Earnings (Unaudited) - Three Months Ended September 30, 2004 and 2003 and Nine Months Ended September 30, 2004 and 2003
	Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2004 and 2003
	Notes to Consolidated Financial Statements (Unaudited)
	Independent Registered Public Accounting Firm 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 6.	Exhibits
Signatures

 

 

 

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

 

AARON RENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		(Unaudited) September 30, 2004			December 31, 2003
		(In Thousands, Except Share Data)
ASSETS
Cash		$	150		$	95
Accounts Receivable (net of allowances of $2,900 in 2004 and $1,718 in 2003)		32,561			30,878
Rental Merchandise		609,454			518,741
Less: Accumulated Depreciation		(203,670		)	(175,728		)
		405,784			343,013
Property, Plant and Equipment, Net		105,729			99,584
Goodwill and Other Intangibles, Net		68,606			55,485
Prepaid Expenses and Other Assets		27,077			26,237
Total Assets		$	639,907		$	555,292
LIABILITIES & SHAREHOLDERS’ EQUITY
Accounts Payable and Accrued Expenses		$	86,497		$	83,854
Dividends Payable		646			655
Deferred Income Taxes Payable		67,898			55,290
Customer Deposits and Advance Payments		15,111			15,737
Credit Facilities		108,797			79,570
Total Liabilities		278,949			235,106
Commitments & Contingencies
Shareholders’ Equity
Common Stock, Par Value $.50 Per Share; Authorized: 50,000,000 Shares; Shares Issued: 44,989,602 at September 30, 2004 and 44,990,212 at December 31, 2003		22,495			22,495
Class A Common Stock, Par Value $.50 Per Share; Authorized: 25,000,000 Shares; Shares Issued: 12,063,856 at September 30, 2004 and 12,063,903 at December 31, 2003		6,032			6,032
Additional Paid-in Capital		90,823			88,305
Retained Earnings		280,956			243,415
Accumulated Other Comprehensive Loss		(1,231		)
		399,075			360,247
Less: Treasury Shares at Cost,
Common Stock, 3,656,395 Shares at September 30, 2004 and 4,223,625 Shares at December 31, 2003		(22,213		)	(24,157		)
Class A Common Stock, 3,667,623 Shares at September 30, 2004 and December 31, 2003		(15,904		)	(15,904		)
Total Shareholders’ Equity		360,958			320,186
Total Liabilities & Shareholders’ Equity		$	639,907		$	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 September 30,						Nine Months Ended September 30,
		2004			2003			2004				2003
		(In Thousands, Except Share Data)
REVENUES:
Rentals and Fees		$	173,721		141,405			$		516,318		$	403,861
Retail Sales		13,651			15,672			42,700				54,318
Non-Retail Sales		36,831			25,499			118,602				81,926
Other		7,445			5,830			26,807				17,302
		231,648			188,406			704,427				557,407
COSTS AND EXPENSES:
Retail Cost of Sales		9,785			11,900			30,158				40,146
Non-Retail Cost of Sales		34,253			23,571			110,268				76,050
Operating Expenses		104,864			88,111			307,615				252,607
Depreciation of Rental Merchandise		63,845			49,630			189,377				142,536
Interest		1,350			1,461			3,824				4,522
		214,097			174,673			641,242				515,861
EARNINGS BEFORE TAXES		17,551			13,733			63,185				41,546
INCOME TAXES		6,904			5,082			24,336				15,386
NET EARNINGS		$	10,647		$	8,651		$	38,849			$	26,160
COMMON STOCK AND CLASS A COMMON STOCK EARNINGS PER SHARE:
Basic		$	.21		$	.18		$	.78			$	.53
Assuming Dilution		.21			.17			.77				.53
CASH DIVIDENDS DECLARED PER SHARE:
Common Stock		$	.013		$			$	.026			$	.0087
Class A Common Stock		.013						.026				.0087
COMMON STOCK AND CLASS A COMMON STOCK WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		49,711			49,077			49,557				48,905
Assuming Dilution		50,681			50,136			50,500				49,728

 

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

 

 

 

AARON RENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended September 30,
		2004			2003
		(In Thousands)
OPERATING ACTIVITIES
Net Earnings		$	38,849		$	26,160
Depreciation and Amortization		207,214			156,643
Additions to Rental Merchandise		(403,039		)	(260,009		)
Book Value of Rental Merchandise Sold or Disposed		159,882			129,762
Deferred Income Taxes		14,644			16,376
Gain on Sale of Marketable Securities		(5,481		)
Gain on Sale of Property, Plant, and Equipment		(429		)	(50		)
Change in Accounts Payable and Accrued Expenses		(2,057		)	2,315
Change in Accounts Receivable		(1,683		)	1,498
Other Changes, Net		4,243			(210		)
Cash Provided by Operating Activities		12,143			72,485
INVESTING ACTIVITIES
Additions to Property, Plant and Equipment		(27,550		)	(24,672		)
Contracts and Other Assets Acquired		(24,228		)	(40,399		)
Proceeds from Sale of Marketable Securities		7,592
Investment in Marketable Securities		(6,436		)
Proceeds from Sale of Property, Plant, and Equipment		6,162			4,264
Cash Used by Investing Activities		(44,460		)	(60,807		)
FINANCING ACTIVITIES
Proceeds from Credit Facilities		237,688			35,923
Repayments on Credit Facilities		(208,461		)	(43,396		)
Dividends Paid		(1,397		)	(923		)
Issuance of Stock Under Stock Option Plans		4,542			2,078
Cash Provided (Used) by Financing Activities		32,372			(6,318		)
Increase in Cash		55			5,360
Cash at Beginning of Period		95			96
Cash at End of Period		$	150		$	5,456

 

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

 

 

 

AARON RENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 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 September 30, 2004, and the Consolidated Statements of Earnings and the Consolidated Statements of Cash Flows for the quarter and nine months ended September 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 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 were distributed on August 16, 2004 to shareholders of record as of the close of business on August 2, 2004.  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 September 30, 2004 are not necessarily indicative of the operating results for the full year.

 

Certain reclassifications have been made to the prior periods to conform with the current period presentation.

 

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 nine-month periods ended September 30 were $14.8 million in 2004 and $9.1 million in 2003.  Rental merchandise adjustments for the three-month periods ended September 30 were $7.8 million in 2004 and $3.3 million in 2003.  These charges are recorded as a component of operating expenses.  Beginning in the three-month period ended September 30, 2004 we began recording rental merchandise adjustments on the allowance method.  This change to the allowance method had the effect of increasing expenses for a one-time adjustment of approximately $2.5 million to set up a rental merchandise allowance reserve on our balance sheet.  We expect rental merchandise adjustments in the future under this new method to be materially consistent with the prior year’s adjustments under the direct write-off method.

 

Goodwill and Other Intangibles

 

During 2004, the Company has recorded $13.6 million in goodwill and $0.8 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 2 years.  Amortization expense approximated $1.1 million and $126,000 for the nine-month periods ended September 30, 2004 and 2003, respectively. The aggregate purchase price for these 2004 asset acquisitions totaled approximately $26.5 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.

 

Group Health Self Insurance

 

Effective on September 30, 2004, we revised certain estimates related to our accrual for group health self-insurance based on shorter lag periods for incurred but not reported claims and favorable claims experience which resulted in a reduction in expenses of $2.3 million and $1.4 million for the three month and nine month periods, respectively, ended September 30, 2004.  The group health self-insurance liability and expense are included in accounts payable and accrued expenses and in operating expenses in the accompanying consolidated balance sheets and statements of earnings, respectively.

 

 

 

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 nine months ended September 30, 2004.  In addition, the Company was in compliance with all restrictive covenants contained in such credit facilities.

 

Note C – Comprehensive Income

 

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 changes in unrealized gains or losses on available-for-sale securities, net of income taxes, as summarized below:

 

		Three Months Ended September 30,							Nine Months Ended September 30,
		2004			2003				2004			2003
		(In Thousands)
Net Earnings		$	10,647		$		8,651		$	38,849		$	26,160
Other comprehensive (loss) income:
Derivative instruments, net of taxes		124			455				508			990
Unrealized gain on marketable securities, net of taxes		(767		)	221				1,611			476
Recognition of unrealized gain on marketable securities, net of taxes									(3,350		)
Total other comprehensive (loss) income		(643		)	676				(1,231		)	1,466
Comprehensive Income		$	10,004		$	9,327			$	37,619		$	27,626

 

 

 

Note D – Segment Information

 

		Three Months Ended September 30,							Nine Months Ended September 30,
		2004			2003				2004			2003
		(In Thousands)
Revenues From External Customers:
Sales & Lease Ownership		$	196,932		$	155,203			$	595,183		$	456,788
Rent-to-Rent		27,012			26,869				80,647			82,912
Franchise		6,606			4,849				18,168			14,205
Other		224			1,066				8,298			3,295
Manufacturing		15,409			13,644				50,123			44,708
Elimination of Intersegment Revenues		(15,619		)	(13,776			)	(50,521		)	(44,955			)
Cash to Accrual Adjustments		1,084			551				2,529			454
Total Revenues from External Customers		$	231,648		$		188,406		$	704,427		$		557,407
Earnings Before Income Taxes:
Sales & Lease Ownership		$	10,407		$		9,568		$	41,019		$		30,570
Rent-to-Rent		1,757			1,122				6,218			4,647
Franchise		4,630			3,388				12,901			10,040
Other		494			(340			)	2,656			(1,146			)
Manufacturing		(1,167		)	377				(218		)	1,027
Earnings Before Income Taxes for Reportable Segments		16,121			14,115				62,576			45,138
Elimination of Intersegment Loss (Profit)		1,148			(290			)	209			(1,898			)
Cash to Accrual and Other Adjustments		282			(92			)	400			(1,694			)
Total Earnings Before Income Taxes		$	17,551		$		13,733		$	63,185		$		41,546

 

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 the nine months ended September 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.

•                  Advertising expense in our Sales and Lease Ownership division is estimated at the beginning of each year and then allocated to the division ratably over time for management reporting purposes.  For financial reporting purposes, advertising expense is recognized when the related advertising activities occur.  The difference between these two methods is reflected as part of the Cash to Accrual and Other Adjustments line above.

•                  Sales and lease ownership rental merchandise write-offs are recorded using the direct write-off method for management reporting purposes and using the allowance method for financial reporting purposes.  The

 

 

 

difference between these two methods is reflected as part of the Cash to Accrual and Other Adjustments line above.

•                  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 September 30,							Nine Months Ended September 30,
		2004				2003			2004			2003
		(In Thousands, Except Per Share)
Net Earnings - As Reported		$	10,647			$	8,651		$	38,849		$		26,160
Stock-based Employee Compensation Cost, Net of Tax - Pro Forma		(386			)	(319		)	(1,202		)	(944			)
Net Earnings - Pro Forma		$		10,261		$	8,332		$	37,647		$	25,216
Basic Earnings Per Share - As Reported		$		.21		$	.18		$	.78		$	.53
Basic Earnings Per Share - Pro Forma		$		.21		$	.17		$	.76		$	.52
Diluted Earnings Per Share - As Reported		$		.21		$	.17		$	.77		$	.53
Diluted Earnings Per share - Pro Forma		$		.20		$	.17		$	.75		$	.51

 

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 September 30, 2004, the portion that the Company might be obligated to repay in the event franchisees defaulted was approximately $82.2 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.

 

 

 

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 September 30, 2004, and the related consolidated statements of earnings for the three-month and nine-month periods ended September 30, 2004 and 2003, and the related consolidated statements of cash flows for the nine months ended September 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
November 5, 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 nine months ended September 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 88% of our total revenues in both the third quarter and first nine months of 2004 compared with 86% and 85% in 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 September 30, 2004 versus three months ended September 30, 2003

 

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

 

(In Thousands)		Three Months Ended September 30, 2004			Three Months Ended September 30, 2003			Dollar Increase/ (Decrease) to 2004 from 2003			% Increase/ (Decrease) to 2004 from 2003
REVENUES:
Rentals and Fees		$	173,721		$	141,405		$	32,316		22.9	%
Retail Sales		13,651			15,672			(2,021		)	(12.9	)
Non-Retail Sales		36,831			25,499			11,332			44.4
Other		7,445			5,830			1,615			27.7
		231,648			188,406			43,242			23.0
COSTS AND EXPENSES:
Retail Cost of Sales		9,785			11,900			(2,115		)	(17.8	)
Non-Retail Cost of Sales		34,253			23,571			10,682			45.3
Operating Expenses		104,864			88,111			16,753			19.0
Depreciation of Rental Merchandise		63,845			49,630			14,215			28.6
Interest		1,350			1,461			(111		)	(7.6	)
		214,097			174,673			39,424			22.6
EARNINGS BEFORE TAXES		17,551			13,733			3,818			27.8
INCOME TAXES		6,904			5,082			1,822			35.9
NET EARNINGS		$	10,647		$	8,651		$	1,996		23.0	%

 

Revenues

 

The 23.0% increase in total revenues in the third 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 $43.1 million to $204.3 million in the third quarter of 2004 compared to $161.2 million in the third quarter of 2003, a 26.7% increase.  This increase was attributable to a 10.9% increase in same store revenues driven by increased leasing volume and the net addition of 103 Company-operated stores since the end of the third quarter of 2003.

 

The 22.9% increase in rentals and fees revenues is attributable to a $32.3 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 12.9% due primarily to a $2.0 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 replaced many retail sales. 

 

The 44.4% increase in non-retail sales in the third quarter of 2004 reflects the significant growth of our franchise operations.  Our franchisees had revenues of $89.3 million during the third quarter of 2004, a 29.5% increase over the third quarter of 2003 revenues of $68.9 million. Revenues of franchisees, however, are not revenues of Aaron Rents, Inc.

 

The 27.7% increase in other income primarily reflects an increase in franchise fees, royalty income, and other related revenues from our franchise operations of $1.7 million, or 35.7%, to $6.6 million compared with $4.8 million

 

 

 

in the third quarter of 2003. Of this increase, royalty income from franchisees increased $1.1 million to $4.5 million in the third quarter of 2004 compared to $3.5 million in the third 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 100 franchised stores since the end of the third quarter 2003 and improving operating revenues driven by increased lease volume at maturing franchised stores.

 

Cost of Sales

 

The 17.8% 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. Retail cost of sales as a percentage of retail sales decreased to 71.7% from 75.9%, due primarily to higher margins on certain retail sales in our sales and lease ownership division.

 

Cost of sales from non-retail sales increased 45.3%, following a similar percentage increase in non-retail sales described above.  Non-retail cost of sales as a percentage of non-retail sales remained comparable between the third quarters of 2004 and 2003.

 

Expenses

 

The 19.0% 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 45.3% for the third quarter of 2004 compared to 46.8% for the third quarter of 2003, the decrease driven by the maturing of new Company-operated sales and lease ownership stores and the 10.9% increase in same store revenues mentioned previously.

 

Beginning in the three-month period ended September 30, 2004 we began recording rental merchandise adjustments on the allowance method.  This change to the allowance method had the effect of increasing expenses for a one-time adjustment of approximately $2.4 million to set up a rental merchandise allowance reserve on our balance sheet.  We expect rental merchandise adjustments in the future under this new method to be materially consistent with the prior year’s adjustments under the direct write-off method.  Substantially offsetting this increase in operating expenses in the three month period ended September 30, 2004 was the revision of certain estimates related to our accrual for group health self-insurance based on shorter lag periods for incurred but not reported claims and favorable claims experience which resulted in a reduction in expenses of $2.3 million for the three month period ended September 30, 2004.

 

The 28.6% 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 36.8% for the third quarter of 2004 from 35.1% for the third 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 7.6% decrease in interest expense is a result of expiration of certain interest rate swap agreements subsequent to September 30, 2003.

 

The 35.9% 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 relating to state income taxes in 2004.

 

Net Earnings

 

The 23.1% increase in net earnings to $10.6 million in the third quarter of 2004 from $8.7 million in the third 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 10.9% increase in same store revenues; and a 35.7% increase in franchise fees, royalty income, and other related franchise income.  As a percentage of total revenues, net earnings held steady at 4.6% for the third quarters of both 2004 and 2003.

 

 

 

Nine months ended September 30, 2004 versus nine months ended September 30, 2003

 

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

 

(In Thousands)		Nine Months Ended September 30, 2004			Nine Months Ended September 30, 2003			Dollar Increase/ (Decrease) to 2004 from 2003			% Increase/ (Decrease) to 2004 from 2003
REVENUES:
Rentals and Fees		$	516,318		$	403,861		$	112,457		27.8	%
Retail Sales		42,700			54,318			(11,618		)	(21.4	)
Non-Retail Sales		118,602			81,926			36,676			44.8
Other		26,807			17,302			9,505			54.9
		704,427			557,407			147,020			26.4
COSTS AND EXPENSES:
Retail Cost of Sales		30,158			40,146			(9,988		)	(24.9	)
Non-Retail Cost of Sales		110,268			76,050			34,218			45.0
Operating Expenses		307,615			252,607			55,008			21.8
Depreciation of Rental Merchandise		189,377			142,536			46,841			32.9
Interest		3,824			4,522			(698		)	(15.4	)
		641,242			515,861			125,381			24.3
EARNINGS BEFORE TAXES		63,185			41,546			21,639			52.1
INCOME TAXES		24,336			15,386			8,950			58.2
NET EARNINGS		$	38,849		$	26,160		$	12,689		48.5	%

 

Revenues

 

The 26.4% increase in total revenues during the first nine months of 2004 over the same period in 2003 is primarily attributable to continued growth in our sales and lease ownership division.  Total revenues for our sales and lease ownership division increased $143.8 million to $617.2 million in the nine months ended September 30, 2004 compared to $473.4 million in the comparable period of 2003, a 30.4% increase.  This increase was attributable to an 11.3% increase in same store revenues and the net addition of 103 Company-operated stores since the end of the third quarter of 2003. Revenues in our rent-to-rent division fell $2.2 million to $81.7 million during the nine month period ended September 30, 2004 from $84.0 million in the comparable period of 2003, a 2.7% decrease. Consolidated revenues for the nine months ended September 30, 2004 also include a $5.5 million pre-tax gain on the sale of Rainbow Rentals common stock during the second quarter of 2004.

 

The 27.8% increase in rentals and fees revenues is attributable to a $113.0 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 21.4% due primarily to a $10.1 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.  In addition, there was a $1.6 million decrease in our rent-to-rent division retail sales revenue caused by the closure of 5 rent-to-rent stores since the end of the third quarter of 2003, coupled with an overall decrease in retail volumes.

 

The 44.8% increase in non-retail sales in the first nine months of 2004 reflects the significant growth of our franchise operations.  Our franchisees had revenues of $261.5 million during the nine months ended September 30, 2004, a 25.1% increase over the nine months ended September 30, 2003 revenues of $209.1 million. Revenues of franchisees, however, are not revenues of Aaron Rents, Inc.

 

 

 

The 54.9% 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, and franchise fees, royalty income, and other related revenues from our franchise operations increasing $3.9 million, or 27.5%, to $18.1 million compared with $14.2 million for the nine months ended September 30, 2003.  Of this increase, royalty income from franchisees increased $2.3 million to $12.8 million in the nine months ended September 30, 2004 compared to $10.5 million in the nine months ended September 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 100 franchised stores since the end of the third quarter 2003 and improving operating revenues at maturing franchised stores.

 

Cost of Sales

 

The 24.9% 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 70.6% from 73.9% for the nine month periods ended September 30 2004 and 2003, respectively, due primarily to higher margins on certain retail sales in our sales and lease ownership division.

 

Cost of sales from non-retail sales increased 45.0%, following a similar percentage increase in non-retail sales revenue described above.  Non-retail cost of sales as a percentage of non-retail sales increased slightly to 93.0% from 92.8% between the nine-month periods ended September 30, 2004 and 2003, respectively.

 

Expenses

 

The 21.8% 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% in the nine months ended September 30, 2004 compared to 45.3% for the comparable period of 2003, with the decrease attributable to the inclusion of the gain on the sale of Rainbow Rentals common stock mentioned above in other revenues and to the maturing of new Company-operated sales and lease ownership stores contributing to the 11.3% increase in same store revenues mentioned previously.

 

Beginning in the nine-month period ended September 30, 2004 we began recording rental merchandise adjustments on the allowance method.  This change to the allowance method had the effect of increasing expenses for a one-time adjustment of approximately $2.4 million to set up a rental merchandise allowance reserve on our balance sheet.  We expect rental merchandise adjustments in the future under this new method to be materially consistent with the prior year’s adjustments under the direct write-off method.  Substantially offsetting this increase in operating expenses in the nine month period ended September 30, 2004 was the revision of certain estimates related to our accrual for group health self-insurance based on shorter lag periods for incurred but not reported claims and favorable claims experience which resulted in a reduction in expenses of $1.4 million for the nine month period ended September 30, 2004.

 

The 32.9% 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 36.7% for the nine months ended September 30, 2004 from 35.3% 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 15.4% decrease in interest expense is a result of expiration of certain interest rate swap agreements subsequent to September 30, 2003.

 

The 58.2% 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 relating to increased state income taxes in 2004.

 

 

 

Net Earnings

 

The 48.5% increase in net earnings to $38.8 million for the nine month period ended September 30, 2004 from $26.2 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 11.3% increase in same store revenues; recognition of a $3.4 million after-tax gain on the sale of Rainbow Rentals common stock; and a 27.5% increase in franchise fees, royalty income, and other related franchise income.  As a percentage of total revenues, net earnings improved to 5.5% in the first nine months of 2004 from 4.7% the same period in 2003.  

 

Balance Sheet

 

Cash. The Company’s cash balance increased slightly to $150,000 at September 30, 2004 from $95,000 at 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 $62.8 million in rental merchandise, net of accumulated depreciation, to $405.8 million on September 30, 2004 from $343.0 million on December 31, 2003, is primarily the result of a net increase of 85 Company-operated Sales and Lease Ownership stores and two distribution centers since December 31, 2003, as well as replenishing the amount of merchandise needed in our distribution centers.

 

Goodwill and Other Intangibles.  The increase of $13.1 million, to $68.6 million on September 30, 2004 from $55.5 million on December 31, 2003, is the result of a series of acquisitions of sales and lease ownership businesses, net of amortization of certain finite-life intangible assets.  The aggregate purchase price for these asset acquisitions totaled approximately $26.5 million, and the principal tangible assets acquired consisted of rental merchandise and certain fixtures and equipment.

 

Credit Facilities. The $29.2 million increase in the amounts we owe under our credit facilities to $108.8 million at September 30, 2004 from $79.6 million at last fiscal year end reflects net borrowings under our revolving credit facility during the first nine months of 2004 primarily in order to fund purchases of rental merchandise, acquisitions, and working capital.

 

Deferred Income Taxes. The increase of $12.6 million in deferred income taxes payable, to $67.9 million on September 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 and property, plant, and equipment 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 nine months ended September 30, 2004 and 2003 were $12.1 million and $72.5 million, respectively.  The decline in cash flows from operations is primarily attributable to rental merchandise acquisitions associated with continuing new store growth.  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 September 30, 2004, $44.3 million was outstanding under the Company’s revolving credit agreement. The Company’s credit facilities balance increased by approximately $29.2 million in the first nine months of 2004. The increase in borrowings is primarily attributable to cash borrowed for purchases of rental merchandise, acquisitions, 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.  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 September 30, 2004 and anticipate remaining in compliance for the foreseeable future.

 

As of September 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 $.009 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 $.013 per share dividend on Common Stock and Class A Common Stock was paid in January 2004 and July 2004.  In addition, in July 2004 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 2004, for a total cash outlay of $1,397,000.  In August 2004 the Board of Directors announced an increase in the frequency of cash dividends from semi-annual to quarterly basis.  The first quarterly payment of $.013 per share on both Common Stock and Class A Common Stock will be distributed in October 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 September 30, 2004 was approximately $24.8 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 $24.8 million, respectively, at September 30, 2004.

 

Income Taxes.  Within the next three months, we anticipate that we will make cash payments for 2004 income taxes approximating $5.5 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 five 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 September 30, 2004, including leases under our construction and lease facility described above, are as follows: $11.3 million in 2004; $39.1 million in 2005; $29.1 million in 2006; $20.5 million in 2007; $13.4 million in 2008; and $12.5 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 September 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		$	97,622		$	54,290		$	20,009		$	20,011		$		3,312
Capital Leases		11,175			415			983			1,403			8,374
Operating Leases		125,810			37,251			57,823			23,455			7,281
Total Contractual Cash Obligations		$	234,607		$	91,956		$	78,815		$	44,869		$	18,967

 

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 September 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		$		82,231		$	82,231		$			$				$
Residual Value Guarantee Under Operating Leases		21,100							21,100
Total Commercial Commitments		$	103,331			$	82,231		$	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 September 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 8.28% until June 2005.  The fair value of interest rate swap agreements was a liability of approximately $0.6 million at September 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 third 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 6. EXHIBITS:

 

(a) The following exhibits are furnished herewith:

 

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.

 

 

 

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 – November 8, 2004	By:	/s/ Gilbert L. Danielson
		Gilbert L. Danielson
		Executive Vice President,
		Chief Financial Officer
Date – November 8, 2004		/s/ Robert P. Sinclair, Jr.
		Robert P. Sinclair, Jr.
		Vice President,
		Corporate Controller