UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
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or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file number 1-12623
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U.S. RENTALS, INC.
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 94-3061974
------------------------------- ----------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1581 Cummins Drive, Ste. 155, Modesto, California 95358
- --------------------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
(209) 544-9000
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 month (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes [x] No [_]
There were 30,748,975 shares of common stock, $.01 per value, outstanding
at November 12, 1997.
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U.S. RENTALS, INC.
TABLE OF CONTENTS
PART I: Financial Information
- -------------------------------
Financial Introduction
ITEM 1. Financial Statements
Balance Sheets -
September 30, 1997 and December 31, 1996................ 1
Statements of Operations -
Three and nine months ended September 30, 1997 and 1996. 2
Statements of Cash Flows -
Three and nine months ended September 30, 1997 and 1996. 3
Statement of Changes in Stockholders' Equity -
Nine months ended September 30, 1997.................... 4
Notes to Financial Statements -
September 30, 1997...................................... 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II: Other Information
- ---------------------------
ITEM 1. Legal Proceedings........................................ 12
ITEM 2. Changes in Securities.................................... 12
ITEM 3. Defaults Upon Senior Securities.......................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders...... 12
ITEM 5. Other Information........................................ 12
ITEM 6. Exhibits and Reports on Form 8-K......................... 13
Signatures.............................................................. 14
U.S. RENTALS,INC.
FINANCIAL INTRODUCTION
INTRODUCTION
The Registrant's initial public offering ("IPO") was declared effective on
February 20, 1997. Prior to the IPO, the equipment rental business was
operated by USR Holdings, Inc., a California corporation (the "Predecessor")
that was treated as an S-corporation under the Internal Revenue Code. The
Registrant did not have any operations prior to its IPO. Prior to the closing
of the IPO, the Predecessor transferred substantially all of its operating
assets and associated liabilities to the Registrant in exchange for 20,748,975
shares of Common Stock of the Registrant, representing all of the Registrant's
outstanding capital stock prior to the IPO. The Predecessor retained only non-
operating assets and liabilities, including approximately $25.7 million of notes
receivable from related parties and approximately $24.4 million of notes payable
to related parties. These transactions are referred to as the
"Recapitalization" in this report.
Because the Predecessor elected to be treated as an S-corporation, the
Predecessor's sole shareholder paid federal and California taxes on the
Predecessor's taxable income. Therefore, the provision for income taxes prior
to February 20, 1997, reflects only certain state income taxes the Predecessor
was required to pay. Upon the transfer of the assets and liabilities from the
Predecessor to the Registrant, which is a C-corporation, all income generated by
the Registrant became subject to federal income taxes and applicable state
income taxes, as reflected in the financial information included in this report.
Unless otherwise indicated, the "Company" means the Predecessor prior to the IPO
and the Registrant on or after the IPO.
U.S. RENTALS, INC.
BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
1997 1996
------------ -----------
ASSETS (Unaudited)
Cash $ 5,270 $ 2,906
Accounts receivable, net 55,985 35,653
Notes receivable from affiliate - 25,365
Inventories 12,196 5,841
Rental equipment, net 330,104 205,982
Property and equipment, net 65,064 42,345
Prepaid expenses and other assets 19,710 6,356
-------- --------
Total assets $488,329 $324,448
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities $ 62,841 $ 57,008
Notes payable to related parties 17,000 23,943
Notes payable, other 142,300 162,767
Deferred taxes 12,829 -
-------- --------
Total liabilities 234,970 243,718
-------- --------
Stockholders' equity
Common stock, at stated value
Authorized shares - 2,500 shares
Issued and outstanding shares - 900 - 699
Common stock, $.01 par value;
Authorized shares - 100,000,000
Issued and outstanding shares - 30,748,975 307 -
Paid-in capital 244,211 13,186
Retained earnings 8,841 66,845
-------- --------
Total stockholders' equity 253,359 80,730
-------- --------
Total liabilities and stockholders' equity $488,329 $324,448
======== ========
U.S. RENTALS, INC.
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- --------- ---------
Revenues:
Rental revenue $ 93,470 $ 72,556 $ 235,909 $ 183,233
Rental equipment sales 9,238 7,488 25,713 16,165
Merchandise and new equipment sales 11,318 6,603 29,819 17,064
-------- -------- --------- ---------
Total revenues 114,026 86,647 291,441 216,462
-------- -------- --------- ---------
Cost of revenues:
Rental equipment expense 23,855 20,353 60,031 45,708
Rental equipment depreciation 18,072 13,833 48,093 41,054
Cost of rental equipment sales 4,535 3,456 12,551 6,785
Cost of merchandise and new equipment sales 7,779 4,987 21,715 12,418
Direct operating expense 24,870 18,774 68,751 52,699
-------- -------- --------- ---------
Total cost of revenues 79,111 61,403 211,141 158,664
-------- -------- --------- ---------
Gross profit 34,915 25,244 80,300 57,798
Selling, general and administrative expense 11,840 10,074 29,861 24,086
Non-rental depreciation and amortization 3,120 1,133 7,774 5,386
Termination cost of deferred compensation agreements - - 20,290 -
-------- -------- --------- ---------
Operating income 19,955 14,037 22,375 28,326
Other income (expense), net - 134 (473) 342
Interest (expense) income from related parties, net (265) 2,388 (436) 2,570
Interest expense, net (1,479) (4,807) (3,536) (8,286)
-------- -------- --------- ---------
Income before income taxes and extraordinary item 18,211 11,752 17,930 22,952
Income tax expense 7,354 156 23,616 316
-------- -------- --------- ---------
Income (loss) before extraordinary item 10,857 11,596 (5,686) 22,636
Extraordinary item, loss on extinguishment of debt less
applicable income tax benefit of $995 - - 1,511 -
-------- -------- --------- ---------
Net income (loss) $ 10,857 $ 11,596 ($ 7,197) $ 22,636
======== ======== ========= =========
U.S. RENTALS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- ---------- --------- ---------
Operating activities:
Net income (loss) $ 10,857 $ 11,596 ($7,197) $ 22,636
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 21,192 14,966 55,867 46,440
Gain on sale of equipment (4,735) (4,389) (13,741) (9,838)
Principal adjustment on notes receivable - (134) (146) (402)
Provision for doubtful accounts 2,067 1,724 5,303 4,176
Deferred taxes 3,449 - 12,829 -
Interest income not collected - - (294) -
Interest expense not paid - - 495 -
Loss on early extingusihment of debt - - 2,506 -
Changes in operating assets and liabilities
Accounts receivable (7,402) (7,466) (22,298) (14,228)
Inventories (1,579) 714 (3,100) (232)
Prepaid expenses and other assets (3,150) (1,637) (3,682) (1,741)
Accounts payable and other liabilities (1,181) (1,414) 7,311 (2,005)
Taxes payable (2,442) 136 - -
--------- ---------- --------- ---------
Net cash provided by operating activities 17,076 14,096 33,853 44,806
--------- ---------- --------- ---------
Investing activities:
Acquisitions of rental operations (15,559) (9,428) (36,607) (9,861)
Purchases of rental equipment (74,845) (24,071) (167,822) (89,919)
Proceeds from sale of rental equipment 9,250 7,071 25,713 16,165
Purchases of property and equipment, net (12,954) (4,007) (30,115) (17,064)
Collections of notes receivable, net 15 3,368 268 2,086
--------- ---------- --------- ---------
Net cash used in investing activities (94,093) (27,067) (208,563) (98,593)
--------- ---------- --------- ---------
Financing activities:
Proceeds from (payments on) line of credit, net 83,000 (20,211) 69,733 28,979
Proceeds from (payments on) senior notes - 40,000 (92,506) 40,000
Payments on other obligations, net - (509) (200) (168)
(Payments on) proceeds from related party note (1,000) - 17,000 -
Proceeds from issuance of common stock,
net of issuance costs - - 185,950 -
Distribution of cash to principal stockholder - - (998) -
Dividends paid prior to IPO - (2,765) (1,905) (14,737)
--------- ---------- --------- ---------
Net cash provided by financing activities 82,000 16,515 177,074 54,074
--------- ---------- --------- ---------
Net increase (decrease) in cash 4,983 3,544 2,364 287
Cash at beginning of period 287 222 2,906 3,479
--------- ---------- --------- ---------
Cash at end of period $ 5,270 $ 3,766 $ 5,270 $ 3,766
========= ========== ========= =========
Supplemental non-cash flow information:
Distribution of net assets to principal stockholder $ 3,221
=========
Page 3
U.S. RENTALS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
--------- ------------- ------------- --------------
Balance at December 31, 1996 $ 699 $ 13,186 $ 66,845 $ 80,730
Net loss - - (7,197) (7,197)
Recapitalization (699) 699 - -
Distribution of non-operating assets, net - (4,219) - (4,219)
Dividends paid prior to IPO - (1,905) - (1,905)
Contribution of earnings to paid-in capital - 50,807 (50,807) -
Recapitalization due to IPO 207 (207) - -
IPO 100 187,400 - 187,500
IPO costs - (1,550) - (1,550)
--------- ------------ ------------ --------------
Balance at September 30, 1997 $ 307 $244,211 $ 8,841 $253,359
========= ============ ============ ==============
U.S. RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Table in thousands, except share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the interim periods are not necessarily indicative of
the results that may be expected for a full year.
2. PRO FORMA EARNINGS PER SHARE
Pro forma net income reflects an income tax provision as if the Company had been
a C-corporation for all periods presented.
The computation of pro forma earnings per share is based on the weighted average
number of outstanding common shares, on a pro forma basis, after giving effect
to the Recapitalization and the IPO. Common stock equivalents, consisting of
certain shares subject to stock options, were not included in the calculation of
pro forma earnings per share as they did not have a dilutive effect.
Pro forma income data:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Historical net income before income
taxes and extraordinary item $ 18,211 $ 11,752 $ 17,930 $ 22,952
Pro forma income tax expense 7,354 4,701 7,172 9,181
----------- ----------- ----------- -----------
Pro forma net income before
extraordinary item 10,857 7,051 10,758 13,771
Extraordinary item, loss on extinguishment of
debt less applicable income tax benefit
of $995 - - 1,511 -
----------- ----------- ----------- -----------
Pro forma net income $ 10,857 $ 7,051 $ 9,247 $ 13,771
=========== =========== =========== ===========
Pro forma net income per share $ .35 $ .34 $ .32 $ .66
=========== =========== =========== ===========
Pro forma number of shares outstanding 30,748,975 20,748,975 28,887,975 20,748,975
=========== =========== =========== ===========
In February, 1997 the Financial Accounting Standards Board issued Statement
Number 128 on Earnings Per Share (FAS #128) which changed the basis upon which
earnings (or loss) per share is calculated. FAS #128 is applicable to the
Company Beginning in the year ending December 31, 1997. Basic and diluted pro
forma net income per share calculated under FAS #128 does not differ from that
shown above.
U.S. RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Table in thousands, except share data)
(Unaudited)
3. BANK DEBT AND LONG-TERM OBLIGATIONS
Bank debt and long-term obligations consist of the following:
September 30, December 31,
1997 1996
---- ----
Notes payable:
Senior notes payable to various parties interest
payable semi-annually ranging from 6.82% to
7.76%, due 1999-2002 $ - $ 90,000
Revolving line of credit, interest payable monthly at
reference rate (8.5 % at September 30, 1997 and
8.25% at December 31, 1996) - 26,300
Revolving line of credit, interest payable monthly
at money market rates (6.42% at September 30,
1997 and 6.13% to 6.19 % at December 31, 1996) 142,000 43,000
Notes payable to a bank, interest and principal
payable monthly at rates ranging from 5.74%
to 9.51%, due 1997 - 2,967
Notes payable related to the purchase of certain
businesses, imputed interest averaging 7%,
due through 1999 300 500
-------- --------
142,300 162,767
-------- --------
Notes payable to related parties:
Demand note payable to related party, interest at a
variable rate, payable monthly, 5.936%
at September 30, 1997 17,000 -
Subordinated note payable to The Colburn School
of Performing Arts, interest payable quarterly
at prime rate plus 5%, due in 2013 and 2014
(13.5% at December 31, 1996) - 20,000
Demand notes payable to related parties, interest at
various rates tied to the Predecessor's average
bank borrowing rate. Interest rates ranged from
8.45% to 10.25% at December 31, 1996 - 3,943
-------- --------
17,000 23,943
-------- --------
$159,300 $186,710
======== ========
On February 26, 1997 the Company repaid the bank notes, revolving line of credit
and senior notes utilizing proceeds from its IPO. The early extinguishment of
debt generated an extraordinary loss of $1,511,000 (and a net income tax benefit
of $995,000).
On February 26, 1997, the Company entered into a $300,000,000 unsecured line of
credit with a bank maturing no later than February 25, 2002. The Company
believes it is in compliance with all covenants in the credit agreement.
U.S. RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Table in thousands, except share data)
(Unaudited)
4. INCOME TAXES
Income tax expense consists of the following:
Nine Months Ended
September 30,
-------------
1997 1996
---- ----
One-time charge for cumulative deferred taxes as
of the date of the IPO as if the Company had
always been subject to taxes as a C-corporation $ 9,328 $ -
Income tax provision for the period subsequent to
the IPO 14,288 -
S-corporation income tax expense - 316
-------- --------
$ 23,616 $ 316
======== ========
Deferred income tax assets and liabilities are computed based on temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax rate in effect for the year in
which the differences are expected to reverse. Deferred income tax expenses or
credits are based on the changes in the deferred income tax assets or
liabilities from period to period.
Deferred tax assets (liabilities) are as follows:
September 30,
1997
---------
Self-insurance reserves $ 7,595
Allowances for doubtful accounts 4,873
Compensation related accruals 1,497
Deferred sales tax 1,054
State income taxes 858
Others, net 1,328
---------
17,205
Depreciation (30,034)
---------
$ (12,829)
=========
The Company has determined that the one-time charge to establish cumulative
deferred income tax liabilities as of the date of the Company's IPO associated
with becoming subject to taxes as a C-Corporation should have been $9.3 million
instead of $8.3 million as previously reported in the 10Q for the 1st and 2nd
quarters of 1997. The results of operations for the nine months ended September
30, 1997 as presented herein reflect this change. The results of operations for
the three months ended September 30, 1997 are unaffected by this change.
U.S. RENTALS,INC.
SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIRD QUARTER 1997 VS. THIRD QUARTER 1996
RESULTS OF OPERATIONS
Revenues. Total revenues for the third quarter of 1997 increased 31.6% to
$114.0 million compared to $86.6 million in the third quarter of 1996. Rental
revenue increased 28.8% to $93.5 million or 82.0% of total revenues for the
third quarter of 1997, as compared to rental revenue of $72.6 million or 83.7%
of total revenues in the third quarter of 1996. Of the $20.9 million increase in
rental revenue, $11.5 million was due primarily to increased demand for
equipment rental fleet at existing locations. The remaining increase of
approximately $9.4 million was the result of adding 41 new operating locations
subsequent to September 30, 1996. Rental equipment sales increased 23.4% to $9.2
million or 8.1% of total revenues for the third quarter of 1997 from $7.5
million or 8.6% of total revenues in the third quarter of 1996. The growth was
due to increased customer demand and increased market share. Merchandise and new
equipment sales increased 71.4% for the third quarter of 1997 to $11.3 million
or 9.9% of total revenues as compared to $6.6 million or 7.6% of total revenues
in the third quarter of 1996, primarily due to the increase in the related
rental revenue, expansion of product line and number of locations.
Gross Profit. Gross profit for the third quarter of 1997 increased 38.3% to
$34.9 million from $25.2 million in the third quarter of 1996. Gross profit from
rentals increased 34.3% to $51.5 million for the third quarter of 1997 compared
to $38.4 million in the third quarter of 1996 as a result of higher revenue
volume. Rental gross profit as a percent of rental revenue increased to 55.1%
for the third quarter of 1997 from 52.9% in the third quarter of 1996. This
increase was due primarily to a 28.8% increase in rental revenue resulting from
the increase in rental fleet and utilization. Gross profit from sales of used
rental equipment increased 16.6% to $4.7 million for the third quarter of 1997
compared to $4.0 million in the third quarter of 1996 due to increased demand
for used equipment, but decreased as a percent of such revenue due to the mix of
sales toward later model equipment. Gross profit from sales of merchandise and
new equipment increased 119.0% for the third quarter of 1997 compared to the
third quarter of 1996 due to the impact of increased rental volume on the sale
of merchandise, a concerted effort to continue to expand the product line, and
an increase in new equipment sales and customer volume. Gross profit was also
impacted by an increase in direct operating expenses for the third quarter of
1997 which increased 32.5% to $24.9 million as compared to $18.8 million in the
third quarter of 1996. The increase reflects staffing and facilities costs
resulting from an increased number of rental yards and higher maintenance costs
necessary to support the increased size of the rental fleet and volume.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the third quarter of 1997 increased 17.5% to $11.8
million or 10.4% of total revenues compared to $10.1 million or 11.6% of total
revenue in the third quarter of 1996. The increase was primarily due to higher
advertising, bad debt, liability insurance expenses and an increase in profit
sharing expense in the third quarter of 1997 as compared to the third quarter of
1996.
Other Income (Expense). Substantially all other income and expense items
for the third quarter of 1996 are related to investments and charitable
contributions made at the direction of the principal stockholder of the S-
corporation prior to the IPO and are not expected to be incurred by the Company
in the future as a result of the Recapitalization.
U.S. RENTALS,INC.
SEPTEMBER 30, 1997
Interest Expense. Interest expense decreased 69.2% to $1.5 million for the
third quarter of 1997 from $4.8 million in the third quarter of 1996. The
decrease was primarily the result of lower debt outstanding for the third
quarter of 1997 as compared to the third quarter of 1996 as a result of
repayment of debt from the proceeds of the IPO.
Income Taxes. Prior to the IPO, the Company had elected to be taxed as an
S-corporation for federal and state purposes. Income tax expense was
approximately 1.5% of pre-tax income for 1996 and for the period January 1, 1997
through February 26, 1997. Subsequent to February 26, 1997, the Company's income
was taxed as a C-corporation at an effective rate of 40.4%.
NINE MONTHS 1997 VS. NINE MONTHS 1996
RESULTS OF OPERATIONS
Revenues. Total revenues for the first nine months of 1997 increased 34.6%
to $291.4 million compared to $216.5 million in the first nine months of 1996.
Rental revenue increased 28.7% to $235.9 million or 80.9% of total revenues in
the first nine months of 1997, as compared to rental revenue of $183.2 million
or 84.6% of total revenues in the first nine months of 1996. Of the $52.7
million increase in rental revenue, $38.6 million was due primarily to increased
demand for equipment rental fleet at existing locations. The remaining increase
of approximately $14.1 million was the result of adding 41 new operating
locations subsequent to September 30, 1996. Rental equipment sales increased
59.1% to $25.7 million or 8.8% of total revenues for the first nine months of
1997 from $16.2 million or 7.5% of total revenues in the first nine months of
1996 due to increased customer demand and increased market share. Merchandise
and new equipment sales increased 74.7% for the first nine months of 1997 to
$29.8 million or 10.2% of total revenues as compared to $17.1 million or 7.9% of
total revenues in the first nine months of 1996, primarily due to the increase
in the related rental revenue, expansion of product line and number of
locations.
Gross Profit. Gross profit for the first nine months of 1997 increased
38.9% to $80.3 million from $57.8 million in the first nine months of 1996.
Gross profit from rentals increased 32.5% to $127.8 million for the first nine
months of 1997 from $96.5 million in the first nine months of 1996 as a result
of higher revenue volume. Rental gross profit as a percent of rental revenue
increased to 54.2% for the first nine months of 1997 from 52.6% in the first
nine months of 1996. This increase was due primarily to a 28.7% increase in
rental revenue resulting from the increase in rental fleet and utilization.
Gross profit from sales of used rental equipment increased 40.3% to $13.2
million for the first nine months of 1997 from $9.4 million in the first nine
months of 1996 due to increased demand for used equipment, but decreased as a
percent of such revenue due to the mix of sales toward later model equipment.
Gross profit from sales of merchandise and new equipment increased 74.4% for the
first nine months of 1997 compared to the first nine months of 1996 due to the
impact of increased rental volume on the sale of merchandise, a concerted effort
to continue to expand the product line, and an increase in new equipment sales
and customer volume, but remained constant as a percent of such revenue due to
the continued mix of increased sales of lower margin items. Gross profit was
also impacted by an increase in direct operating expenses for the first nine
months of 1997 which increased 30.5% to $68.8 million as compared to $52.7
million in the first nine months of 1996. The increase reflects staffing and
facilities costs resulting from an increased number of rental yards and higher
maintenance costs necessary to support the increased size of the rental fleet
and volume.
U.S. RENTALS,INC.
SEPTEMBER 30, 1997
Selling, General and Administrative Expense. Selling, general and
administrative expense for the first nine months of 1997 increased 24.0% to
$29.9 million or 10.2% of total revenues compared to $24.1 million or 11.1% of
total revenue in the first nine months of 1996. The increase was primarily due
to higher advertising, bad debt, liability insurance expenses and an increase in
profit sharing expense.
Other Operating Expense. Other operating expense for the first nine months
of 1997 includes $20.3 million of non-recurring compensation expense related to
the termination of the Predecessor's deferred incentive compensation agreements
just prior to the initial public offering in February, 1997.
Other Income (Expense). Substantially all other income and expense items
for the nine months of 1997 and 1996 are related to investments and charitable
contributions made at the direction of the principal stockholder of the S-
corporation prior to the IPO and are not expected to be incurred by the Company
in the future as a result of the Recapitalization.
Interest Expense. Interest expense decreased 57.3% to $3.5 million for the
first nine months of 1997 from $8.3 million in the first nine months of 1996.
The decrease was primarily the result of lower debt outstanding for the first
nine months of 1997 as compared to the first nine months of 1996 as a result of
repayment of debt from the proceeds of the IPO.
Income Taxes. Prior to the its IPO, the Company had elected to be taxed as
an S-corporation for federal and state purposes. Income tax expense was
approximately 1.5% of pre-tax income for 1996 and for the period January 1, 1997
through February 26, 1997. Subsequent to February 26, 1997, the Company's income
was taxed as a C-corporation at an effective rate of 40.4%.
LIQUIDITY AND CAPITAL RESOURCES
The Company received net proceeds of $186.0 million from the initial public
offering of 10,000,000 shares of its common stock on February 26, 1997. A
portion of the net proceeds from the offering were used to repay all of the
senior notes and borrowings under the credit facility. In conjunction with the
offering, the Company entered into a new credit facility which provides
availability of up to $300.0 million with its existing lenders.
The Company has primarily used cash to purchase rental equipment and invest
in acquired and start-up rental yards. The Company historically has financed its
cash requirements primarily through net cash provided by operating activities
and borrowings under its credit facility. The Company believes that cash flow
from operations and availability under the new credit facility will be
sufficient to support its operations, expansion and liquidity requirements for
at least the next 12 months.
For the first nine months of 1997, the Company's operating activities
before changes in operating assets and liabilities provided net cash flow of
$55.6 million as compared to $63.0 million in the first nine months of 1996. The
$7.4 million decrease in cash flows generated by operating activities before
adjustments for changes in operating assets and liabilities was primarily due to
the cost of termination of deferred compensation agreements and an increase in
gain from sale of equipment. These increases were offset by one time deferred
tax adjustments and higher depreciation expense due to a larger rental equipment
fleet that supported growth in revenues.
U.S. RENTALS,INC.
SEPTEMBER 30, 1997
Net cash used in investing activities was $208.6 million for the first nine
months of 1997 as compared to $98.6 million in the first nine months of 1996.
The principal causes for the variation in cash flow between the periods were
increased purchases of rental equipment, acquisition of rental operations, and
investment in property and equipment, partially offset by increased sales of
rental equipment. The increase in rental fleet relates to newly opened or
acquired yards and the continued expansion of rental fleet at existing
locations. Rental equipment purchases for the first nine months of 1997 were
$167.8 million as compared to $89.9 million in the first nine months of 1996.
Net cash provided by financing activities was $177.1 million for the first
nine months of 1997 as compared to $54.1 million in the first nine months of
1996. The principal causes for the variation between periods was the receipt of
the net proceeds of $186.0 million from the IPO in February, 1997, which were
initially used to repay all of the senior notes and borrowings under the credit
facility, and proceeds from a note payable to a related party and subsequent
borrowings under the credit facility.
U.S. RENTALS, INC.
SEPTEMBER 30, 1997
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Supplemental Pro Forma Net Income.
Supplemental pro forma net income data (unaudited):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Supplemental pro forma net income $10,857,000 $ 8,327,000 $23,757,000 $17,273,000
=========== =========== =========== ===========
Supplemental pro forma net income per share $ .35 $ .40 $ .82 $ .83
=========== =========== =========== ===========
Supplemental number of shares outstanding 30,748,975 20,748,975 28,887,975 20,748,975
=========== =========== =========== ===========
Supplemental pro forma net income increased 30% to $10.9 million for
the three months ended September 30, 1997 from $8.3 million for the
same period in 1996. Supplemental pro forma net income for the three
months ended September 30, 1996 includes the reduction/add-back of
interest income (expense) on related party balances, and the add-
back of interest expense related to bank debt that was repaid with
the net proceeds of the IPO.
U.S. RENTALS, INC.
SEPTEMBER 30, 1997
Item 5.-continued,
Supplemental pro forma net income increased 38% to $23.8 million for
the nine months ended September 30, 1997 from $17.3 million for the
same period in 1996. Supplemental pro forma net income for the nine
months ended September 30, 1997and 1996 includes the following
adjustments to the historical income statement: the add-back of $20.3
million non-recurring charges related to the termination of the
Company's deferred compensation agreements, the reduction/add-back of
interest income (expense) on related party balances prior to the IPO,
and the add-back of interest expense related to bank debt that was
repaid with the net proceeds of the IPO.
These adjustments reflect the Company as if the Recapitalization and
IPO occurred as of the beginning of the periods presented. In
addition, income taxes have been calculated as if the Company had
been taxed as a C-corporation during all periods presented. On a pro
forma C-corporation basis, the Company's effective tax rate was 40.2%
in 1997 compared to 40.0% in 1996.
Earnings per share is computed using the weighted average number of
shares of common stock and common stock equivalents, on a pro forma
basis, assuming that the Recapitalization and IPO occurred as of the
beginning of the periods presented.
Item 6. Exhibits and reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1997.
27.1 Financial data schedule.
U.S. RENTALS, INC.
SEPTEMBER 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. RENTALS, INC.
(Registrant)
Date: November 12, 1997 By: /s/ JOHN S. MCKINNEY
----------------- -----------------------
John S. McKinney
Vice President
Chief Financial Officer