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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-14387
United Rentals, Inc.
Commission File No. 1-13663
United Rentals (North America), Inc.
(Exact names of registrants as specified in their charters)
Delaware 06-1522496
Delaware 06-1493538
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Nos.)
Five Greenwich Office Park,
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
(203) 622-3131
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
X Yes No
As of August 1, 2000, there were 70,286,251 shares of the United Rentals,
Inc. common stock, $.01 par value outstanding. There is no market for the
common stock of United Rentals (North America), Inc., all outstanding shares
of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and
(ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary
of United Rentals, Inc.). United Rentals (North America), Inc. meets the
conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and
is therefore filing this form with the reduced disclosure format permitted by
such instruction.
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UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements
United Rentals, Inc. Consolidated Balance Sheets as of June 30,
2000 and
December 31, 1999 (unaudited).................................. 4
United Rentals, Inc. Consolidated Statements of Operations for
the Six and Three Months Ended June 30, 2000 and 1999
(unaudited).................................................... 5
United Rentals, Inc. Consolidated Statement of Stockholders'
Equity for the Six Months Ended June 30, 2000 (unaudited)...... 6
United Rentals, Inc. Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2000 and 1999 (unaudited)........ 7
United Rentals (North America), Inc. Consolidated Balance Sheets
as of June 30, 2000
and December 31, 1999 (unaudited).............................. 8
United Rentals (North America), Inc. Consolidated Statements of
Operations for the
Six and Three Months Ended June 30, 2000 and 1999 (unaudited).. 9
United Rentals (North America), Inc. Consolidated Statement of
Stockholder's Equity for the Six Months Ended June 30, 2000
(unaudited).................................................... 10
United Rentals (North America), Inc. Consolidated Statements of
Cash Flows for the
Six Months Ended June 30, 2000 and 1999 (unaudited)............ 11
Notes to Unaudited Consolidated Financial Statements............ 12
Management's Discussion and Analysis of Financial Condition and
Item 2 Results of Operations.......................................... 23
Item 3 Quantitative and Qualitative Disclosures about Market Risk...... 31
PART II OTHER INFORMATION
Item 1 Legal Proceedings............................................... 31
Item 2 Changes in Securities and Use of Proceeds....................... 31
Item 4 Submission of Matters to a Vote of Security Holders............. 31
Item 6 Exhibits and Reports on Form 8-K................................ 32
Signatures...................................................... 33
Certain of the statements contained in this Report are forward looking in
nature. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy. You are cautioned that our business and operations
are subject to a variety of risks and uncertainties and, consequently, our
actual results may materially differ from those projected by any forward-
looking statements. Certain of these factors are discussed in Item 2 of Part I
of this Report under the caption "--Factors that May Influence Future Results
and Accuracy of Forward-Looking Statements." We make no commitment to revise
or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.
UNITED RENTALS
United Rentals is North America's largest equipment rental company with more
than 700 locations in 47 states, seven Canadian provinces and Mexico. We offer
for rent more than 600 different types of equipment to over 1.1 million
customers, including construction and industrial companies, manufacturers,
utilities, municipalities, homeowners and others. During the second quarter of
2000 we completed more than 2.2 million rental transactions.
We have the largest fleet of rental equipment in the world, with over
500,000 units having an original purchase price of approximately $3.3 billion.
Our fleet includes:
. light to heavy construction and industrial equipment, such as aerial
lifts, backhoes, skid-steer loaders, forklifts, ditching equipment,
earth moving equipment, material handling equipment, compressors, pumps
and generators;
. traffic control equipment, such as barricades, cones, warning lights,
message boards and pavement marking systems;
. trench safety equipment for below ground work, such as trench shields,
aluminum hydraulic shoring systems, slide rails, crossing plates,
construction lasers, and line testing equipment;
. special event equipment used for sporting, corporate and other large
events, such as light towers, air conditioning units, portable power
units, electrical cable, temporary kitchens and tents; and
. general tools and equipment, such as power washers, water pumps, heaters
and hand tools.
In addition to renting equipment, we sell used rental equipment, act as a
dealer for new equipment, and sell related merchandise, parts and service.
Competitive Advantages
We believe that we benefit from the following competitive advantages:
Large and Diverse Rental Fleet. We have the largest and most comprehensive
equipment rental fleet in the industry, which helps us to:
. attract customers by providing "one-stop" shopping;
. serve a diverse customer base and reduce our dependence on any
particular customer or group of customers; and
. serve customers that require assurance that substantial quantities of
different types of equipment will be available on a continuing basis.
1
Operating Efficiencies. We generally group our branches into clusters of 10
to 30 locations that are in the same geographic area. Our information
technology system allows each branch to access all available equipment within
a cluster. We believe that our cluster strategy produces significant operating
efficiencies by enabling us to: (1) market equipment within a cluster through
multiple branches, (2) cross-market equipment specialties of different
branches within each cluster, and (3) reduce costs by centralizing common
functions such as payroll, accounts payable and credit and collection into 31
credit offices and four service centers. In the second quarter of 2000,
approximately 10.3% of our rental revenues was attributable to equipment
sharing among branches.
Geographic Diversity. We have branches in 47 states, seven Canadian
provinces and Mexico. We believe that our geographic diversity reduces the
impact that fluctuations in regional economic conditions have on our overall
financial performance. Our geographic diversity and large network of branch
locations also give us the ability to better serve National Account customers,
better serve customers that operate at multiple locations, and access used
equipment re-sale markets across the country.
Customer Diversity. Our customer base is highly diversified and ranges from
Fortune 500 companies to small companies and homeowners. We estimate that our
top ten customers accounted for approximately 1% of our revenues during 1999.
Strong and Motivated Branch Management. Each of our branches has a full-time
branch manager who is supervised by one of our 56 district managers and nine
regional vice presidents. We believe that our managers are among the most
knowledgeable and experienced in the industry, and we empower them--within
budgetary guidelines--to make day-to-day decisions concerning staffing,
pricing, equipment purchasing and other branch matters. Management closely
tracks branch, district and region performance with extensive systems and
controls, including performance benchmarks and detailed monthly operating
reviews. We promote equipment sharing among branches through our profit
sharing program, which directly ties the compensation of branch personnel to
their branch's financial performance and return on assets.
Significant Purchasing Power. We purchase large amounts of equipment and
other items, which enables us to negotiate favorable terms with our vendors.
We are continuing our efforts to increase our purchasing power by narrowing
our vendor base. We estimate that these efforts allowed us to reduce our
equipment purchase costs in 1999 by approximately $50 million, and our goal is
to increase these savings to a total of $150 million in 2000.
National Account Program. Our National Account sales force is dedicated to
establishing and expanding relationships with larger companies, particularly
those with a national or multi-regional presence. We offer our National
Account customers the benefits of a consistent level of service across North
America and a single point of contact for all their equipment needs. Our
National Account team currently includes 45 professionals. Revenues from
National Account customers in the first six months of this year were $87.2
million and our goal is to reach $175 million by the end of this year. We
currently have over 1,000 National Account customers.
Information Technology System. Our information technology system facilitates
rapid and informed decision making and permits us to respond quickly to
changing market conditions. The system provides management with a wide range
of operating and financial data and enables branch personnel to search for
needed equipment throughout a geographic region, determine its closest
location and arrange for delivery to a customer's work site. An in-house group
of approximately 115 information technology specialists supports the system
and extends it to new locations. The system includes software developed by our
Wynne Systems(TM) subsidiary, which is the leading provider of proprietary
software for use by equipment rental companies in managing and operating
multiple branch locations.
2
E-Rental Store(TM). In February 2000, we launched our business-to-business
e-commerce web site. The centerpiece of our site is the E-Rental Store(TM),
where customers can rent or buy equipment online, 24 hours a day, seven days a
week. The E-Rental Store(TM) is staffed by experienced managers, who have in-
depth product knowledge and real-time access to all our equipment. Customers
can also benefit from our URdata(TM) application, which gives them up-to-the-
minute reports on their business activity with us.
Risk Management and Safety Programs. We place great emphasis on risk
reduction and safety and believe that we have one of the most comprehensive
risk management and safety programs in the industry. Our risk management
department is staffed by 43 experienced professionals and is responsible for
implementing our safety programs and procedures, developing our employee and
customer training programs, and managing any claims against us. We estimate
that in 1999 we had approximately 19% fewer accidents than comparable
companies, 45% lower workers' compensation claim costs and 50% lower liability
claims, resulting in significant cost savings.
Industry Background
Industry Size and Growth
The U.S. equipment rental industry has grown from about $6 billion in annual
rental revenues in 1989 to over $24 billion in 1999, representing a compound
annual growth rate of approximately 15%. This information is based on data
reported by Manfredi & Associates, Inc. In addition to reflecting general
economic growth, we believe that the growth in the equipment rental industry
is being driven by the following trends:
Recognition of Advantages of Renting. Equipment users are increasingly
recognizing the many advantages that equipment rental may offer compared
with ownership. They recognize that by renting they can:
. avoid the large capital investment required for equipment purchases;
. access a broad selection of equipment and select the equipment best
suited for each particular job;
. reduce storage and maintenance costs; and
. access the latest technology without investing in new equipment.
Outsourcing. Although growth in the equipment rental industry has to date
been largely driven by an increase in rentals by the construction industry,
we believe that the cost and other advantages of renting, together with the
general trend toward the corporate outsourcing of non-core competencies,
are increasingly leading industrial companies, municipalities, government
agencies, utilities and others to rent equipment.
3
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
---------------- ------------------
(In thousands, except share data)
ASSETS
Cash and cash equivalents.................. $ 33,192 $ 23,811
Accounts receivable, net of allowance for
doubtful accounts of $57,758 in 2000 and
$50,736 in 1999........................... 498,892 434,985
Inventory.................................. 156,258 129,473
Prepaid expenses and other assets.......... 92,807 81,457
Rental equipment, net...................... 1,794,785 1,659,733
Property and equipment, net................ 370,132 304,907
Intangible assets, net of accumulated
amortization of $77,231 in 2000 and
$51,231 in 1999........................... 2,134,556 1,863,372
---------------- ----------------
$ 5,080,622 $ 4,497,738
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable......................... $ 395,238 $ 242,946
Debt..................................... 2,613,621 2,266,148
Deferred taxes........................... 93,672 81,229
Accrued expenses and other liabilities... 246,396 209,929
---------------- ----------------
Total liabilities...................... 3,348,927 2,800,252
Commitments and contingencies
Company-obligated mandatorily redeemable
convertible preferred securities of
a subsidiary trust........................ 300,000 300,000
Stockholders' equity:
Preferred stock--$.01 par value,
5,000,000 shares authorized:
Series A perpetual convertible preferred
stock--$300,000 liquidation preference,
300,000 shares issued and outstanding.. 3 3
Series B perpetual convertible preferred
stock--$150,000 liquidation preference,
150,000 shares issued and outstanding.. 2 2
Common stock--$.01 par value, 500,000,000
shares authorized, 70,281,363 shares
issued and outstanding in 2000 and
72,051,095 in 1999...................... 703 721
Additional paid-in capital............... 1,186,243 1,216,968
Retained earnings........................ 244,085 179,475
Accumulated other comprehensive income... 659 317
---------------- ----------------
Total stockholders' equity............. 1,431,695 1,397,486
---------------- ----------------
$ 5,080,622 $ 4,497,738
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
4
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
---------- -------- --------- ---------
(In thousands, except per share data)
Revenues:
Equipment rentals.................. $ 911,632 $643,302 $ 511,534 $ 354,917
Sales of rental equipment.......... 155,171 87,194 84,839 51,251
Sales of equipment and merchandise
and other revenues................ 242,105 165,475 133,573 97,494
---------- -------- --------- ---------
Total revenues...................... 1,308,908 895,971 729,946 503,662
Cost of revenues:
Cost of equipment rentals,
excluding depreciation............ 396,614 279,146 222,314 153,327
Depreciation of rental equipment... 159,035 124,067 85,532 64,954
Cost of rental equipment sales..... 91,168 49,919 50,082 29,077
Cost of equipment and merchandise
sales and other operating costs... 184,309 124,784 100,220 72,240
---------- -------- --------- ---------
Total cost of revenues.............. 831,126 577,916 458,148 319,598
---------- -------- --------- ---------
Gross profit........................ 477,782 318,055 271,798 184,064
Selling, general and administrative
expenses........................... 210,969 149,861 109,119 84,601
Non-rental depreciation and
amortization....................... 40,721 26,520 20,703 14,350
---------- -------- --------- ---------
Operating income.................... 226,092 141,674 141,976 85,113
Interest expense.................... 106,210 51,306 56,527 26,933
Preferred dividends of a subsidiary
trust.............................. 9,750 9,750 4,875 4,875
Other (income) expense, net......... (312) 9,224 (108) 9,430
---------- -------- --------- ---------
Income before provision for income
taxes.............................. 110,444 71,394 80,682 43,875
Provision for income taxes.......... 45,834 29,283 33,483 17,989
---------- -------- --------- ---------
Net income.......................... $ 64,610 $ 42,111 $ 47,199 $ 25,886
========== ======== ========= =========
Basic earnings per share............ $ 0.90 $ 0.60 $ 0.66 $ 0.36
========== ======== ========= =========
Diluted earnings per share.......... $ 0.70 $ 0.46 $ 0.51 $ 0.28
========== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
5
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Series A Series B
Perpetual Perpetual
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
--------------- --------------- ------------------
Accumulated
Additional Other
Number Number Number Paid-in Retained Comprehensive Comprehensive
of Shares Amount of Shares Amount of Shares Amount Capital Earnings Income Income
--------- ------ --------- ------ ---------- ------ ---------- -------- ------------- -------------
(In thousands, except share amounts)
Balance, December
31, 1999........ 300,000 $3 150,000 $ 2 72,051,095 $721 $1,216,968 $179,475 $317
Comprehensive
income:
Net income...... 64,610 $64,610
Other
comprehensive
income:
Foreign
currency
translation
adjustments.... 342 342
-------
Comprehensive
income.......... $64,952
=======
Issuance of
common stock.... 5,784 100
Exercise of
common stock
options......... 9,499 107
Shares
repurchased and
retired......... (1,785,015) (18) (30,932)
------- --- ------- --- ---------- ---- ---------- -------- ----
Balance, June 30,
2000............ 300,000 $3 150,000 $2 70,281,363 $703 $1,186,243 $244,085 $659
======= === ======= === ========== ==== ========== ======== ====
The accompanying notes are an integral part of these consolidated financial
statements.
6
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
2000 1999
---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net income............................................ $ 64,610 $ 42,111
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 199,756 152,481
Gain on sale of rental equipment..................... (64,003) (37,275)
Deferred taxes....................................... 14,571 18,808
Changes in operating assets and liabilities:
Accounts receivable.................................. (31,981) (62,203)
Inventory............................................ (13,616) (37,858)
Prepaid expenses and other assets.................... (1,430) (47,143)
Accounts payable..................................... 137,285 97,856
Accrued expenses and other liabilities............... (42,367) 46,720
---------- ----------
Net cash provided by operating activities........ 262,825 173,497
Cash Flows From Investing Activities:
Purchases of rental equipment......................... (513,817) (390,693)
Purchases of property and equipment................... (69,241) (52,807)
Proceeds from sales of rental equipment............... 155,171 87,194
In-process acquisition costs.......................... (2,445) (1,644)
Payments of contingent purchase price................. (6,553) (1,118)
Purchases of other companies.......................... (265,084) (587,561)
---------- ----------
Net cash used in investing activities............ (701,969) (946,629)
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net of
issuance costs....................................... 65,198
Proceeds from issuance of series A perpetual
convertible preferred stock, net of issuance costs... 287,000
Proceeds from debt.................................... 1,041,028 1,284,166
Payments of debt...................................... (702,342) (876,660)
Proceeds from sale-leaseback.......................... 147,515
Payments of financing costs........................... (7,164) (4,657)
Proceeds from the exercise of common stock options.... 96 17,501
Shares repurchased and retired........................ (30,950)
---------- ----------
Net cash provided by financing activities........ 448,183 772,548
Effect of foreign exchange rates...................... 342 2
---------- ----------
Net increase (decrease) in cash and cash equivalents.. 9,381 (582)
Cash and cash equivalents at beginning of period...... 23,811 20,410
---------- ----------
Cash and cash equivalents at end of period............ $ 33,192 $ 19,828
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 101,046 $ 49,355
Cash paid for income taxes............................ $ 62,720 $ 11,461
Supplemental disclosure of non-cash investing and
financing activities:
The Company acquired the net assets and assumed
certain liabilities of other companies as follows:
Assets, net of cash acquired......................... $ 392,873 $ 869,523
Liabilities assumed.................................. (102,592) (272,567)
Less:
Amounts paid through issuance of debt.............. (25,197) (9,395)
---------- ----------
Net cash paid.................................... $ 265,084 $ 587,561
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
7
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2000 December 31, 1999
---------------- ------------------
(In thousands, except share data)
ASSETS
Cash and cash equivalents.................. $ 33,192 $ 23,811
Accounts receivable, net of allowance for
doubtful accounts of $57,758 in 2000 and
$50,736 in 1999........................... 498,892 434,985
Inventory.................................. 156,258 129,473
Prepaid expenses and other assets.......... 61,169 37,125
Rental equipment, net...................... 1,794,785 1,659,733
Property and equipment, net................ 334,328 276,524
Intangible assets, net of accumulated amor-
tization of $77,231 in 2000 and $51,231 in
1999...................................... 2,134,556 1,863,372
---------------- ----------------
$ 5,013,180 $ 4,425,023
================ ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable......................... $ 355,394 $ 212,565
Debt..................................... 2,613,621 2,266,148
Deferred taxes........................... 93,672 81,229
Due to parent............................ 36,113
Accrued expenses and other liabilities... 194,180 171,807
---------------- ----------------
Total liabilities...................... 3,292,980 2,731,749
Commitments and contingencies
Stockholder's equity:
Common stock--$0.01 par value, 3,000
shares authorized, 1,000 shares issued
and outstanding.........................
Additional paid-in capital............... 1,507,426 1,507,330
Retained earnings........................ 212,115 185,627
Accumulated other comprehensive income... 659 317
---------------- ----------------
Total stockholder's equity............. 1,720,200 1,693,274
---------------- ----------------
$ 5,013,180 $4,425,023
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
8
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
---------- -------- --------- ---------
(In thousands)
Revenues:
Equipment rentals.................. $ 911,632 $643,302 $ 511,534 $ 354,917
Sales of rental equipment.......... 155,171 87,194 84,839 51,251
Sales of equipment and merchandise
and other revenues................ 242,105 165,475 133,573 97,494
---------- -------- --------- ---------
Total revenues....................... 1,308,908 895,971 729,946 503,662
Cost of revenues:
Cost of equipment rentals,
excluding depreciation............ 396,614 279,146 222,314 153,327
Depreciation of rental equipment... 159,035 124,067 85,532 64,954
Cost of rental equipment sales..... 91,168 49,919 50,082 29,077
Cost of equipment and merchandise
sales and other operating costs... 184,309 124,784 100,220 72,240
---------- -------- --------- ---------
Total cost of revenues............... 831,126 577,916 458,148 319,598
---------- -------- --------- ---------
Gross profit......................... 477,782 318,055 271,798 184,064
Selling, general and administrative
expenses............................ 210,969 149,861 109,119 84,601
Non-rental depreciation and
amortization........................ 37,155 24,857 18,838 13,211
---------- -------- --------- ---------
Operating income..................... 229,658 143,337 143,841 86,252
Interest expense..................... 106,210 51,306 56,527 26,933
Other (income) expense, net.......... (312) 8,982 (108) 9,328
---------- -------- --------- ---------
Income before provision for income
taxes............................... 123,760 83,049 87,422 49,991
Provision for income taxes........... 51,409 33,960 36,280 20,451
---------- -------- --------- ---------
Net income........................... $ 72,351 $ 49,089 $ 51,142 $ 29,540
========== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
9
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(Unaudited)
Common Stock
---------------- Additional Accumulated
Number Paid-In Retained Comprehensive Other Comprehensive
of Shares Amount Capital Earnings Income Income
--------- ------ ---------- -------- ------------- -------------------
(In thousands, except share data)
Balance, December 31,
1999................... 1,000 $1,507,330 $185,627 $317
Comprehensive income:
Net income............. 72,351 $72,351
Other comprehensive
income:
Foreign currency
translation
adjustments.......... 342 342
-------
Comprehensive income.... $72,693
=======
Contributed capital from
parent................. 96
Dividend distribution to
parent................. (45,863)
----- --- ---------- -------- ----
Balance, June 30, 2000.. 1,000 $1,507,426 $212,115 $659
===== === ========== ======== ====
The accompanying notes are an integral part of these consolidated financial
statements.
10
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
2000 1999
---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net income............................................ $ 72,351 $ 49,089
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 196,190 150,818
Gain on sale of rental equipment..................... (64,003) (37,275)
Deferred taxes....................................... 14,571 18,808
Changes in operating assets and liabilities:
Accounts receivable.................................. (31,981) (62,203)
Inventory............................................ (13,616) (37,858)
Prepaid expenses and other assets.................... (14,124) (39,924)
Accounts payable..................................... 127,822 77,297
Accrued expenses and other liabilities............... (56,461) 55,472
---------- ----------
Net cash provided by operating activities.......... 230,749 174,224
Cash Flows From Investing Activities:
Purchases of rental equipment......................... (513,817) (390,693)
Purchases of property and equipment................... (55,656) (27,947)
Proceeds from sales of rental equipment............... 155,171 87,194
Payments of contingent purchase price................. (6,553) (1,118)
Purchases of other companies.......................... (265,084) (587,561)
---------- ----------
Net cash used in investing activities.............. (685,939) (920,125)
Cash Flows From Financing Activities:
Proceeds from debt.................................... 1,041,028 1,284,166
Payments of debt...................................... (702,342) (876,660)
Proceeds from sale-leaseback.......................... 147,515
Payments of financing costs........................... (7,155) (4,657)
Due to parent......................................... 30,950
Capital contribution by parent........................ 96 369,699
Dividend distribution to parent....................... (45,863) (9,750)
---------- ----------
Net cash provided by financing activities.......... 464,229 762,798
Effect of foreign exchange rates...................... 342 2
---------- ----------
Net increase in cash and cash equivalents............. 9,381 16,899
Cash and cash equivalents at beginning of period...... 23,811 20,410
---------- ----------
Cash and cash equivalents at end of period............ $ 33,192 $ 37,309
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 91,296 $ 39,605
Cash paid for income taxes............................ $ 62,720 $ 11,461
Supplemental disclosure of non-cash investing and
financing activities:
The Company acquired the net assets and assumed
certain liabilities of other companies as follows:
Assets, net of cash acquired......................... $ 392,873 $ 869,523
Liabilities assumed.................................. (102,592) (272,567)
Less:
Amounts paid through issuance of debt.............. (25,197) (9,395)
---------- ----------
Net cash paid.................................... $ 265,084 $ 587,561
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
11
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
General
United Rentals, Inc., is principally a holding company ("Holdings" or the
"Company") and conducts its operations primarily through its wholly owned
subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of
URI. Separate footnote information is not presented for the financial
statements of URI and subsidiaries as that information is substantially
equivalent to that presented below. Earnings per share data is not provided
for the operating results of URI and its subsidiaries as they are wholly owned
subsidiaries of Holdings.
The Consolidated Financial Statements of the Company included herein are
unaudited and, in the opinion of management, such financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the results of the interim periods presented. Interim financial
statements do not require all disclosures normally presented in year-end
financial statements, and, accordingly, certain disclosures have been omitted.
Results of operations for the six and three month periods ended June 30, 2000
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. The Consolidated Financial Statements included
herein should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133". This standard delays the effective date of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", for
one year, to fiscal years beginning after June 15, 2000. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". This standard amends
SFAS No. 133 and addresses a limited number of issues causing implementation
difficulties. The adoption of SFAS No. 138 is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2000
presentation.
2.Acquisitions
During the six months ended June 30, 2000, the Company completed 40
acquisitions that were accounted for as purchases. The results of operations
of the businesses acquired in these acquisitions have been included in the
Company's results of operations from their respective acquisition dates.
The aggregate initial consideration paid by the Company for such
acquisitions that were accounted for as purchases was $252.3 million and
consisted of approximately $227.1 million in cash and $25.2 million in seller
notes. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in such acquisitions in the aggregate amount of
$49.0 million.
The purchase prices for such acquisitions have been allocated to the assets
acquired and liabilities assumed based on their respective fair values at
their respective acquisition dates. However, the Company has not
12
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
completed its valuation of all of its purchases and, accordingly, the purchase
price allocations are subject to change when additional information concerning
asset and liability valuations are completed.
The following table summarizes, on an unaudited pro forma basis, the results
of operations of the Company for the six months ended June 30, 2000 and 1999
as though (i) each acquisition summarized above which was consummated during
the six months ended June 30, 2000, was made on January 1, 2000, in the case
of the results for the six months ended June 30, 2000, and (ii) each
acquisition which was consummated during the period January 1, 1999 to June
30, 2000 as described above and in Note 3 to the Notes to Consolidated
Financial Statements included in the Company's 1999 Annual Report on Form 10-K
was made on January 1, 1999 in the case of the results for the six months
ended June 30, 1999 (in thousands, except per share data):
Six
Months Ended June
30,
---------------------
2000 1999
---------- ----------
Revenues............................................ $1,374,003 $1,173,800
Net income.......................................... 67,599 51,880
Basic earnings per share............................ $ 0.94 $ 0.74
Diluted earnings per share.......................... $ 0.73 $ 0.56
The unaudited pro forma results are based upon certain assumptions and
estimates, which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
3. Revolving Credit Facility
The Company has a credit facility (the "Credit Facility") which enables URI
to borrow up to $872.5 million on a revolving basis and permits a Canadian
subsidiary of URI to directly borrow up to $40 million under the Credit
Facility (provided that the aggregate borrowings of URI and the Canadian
subsidiary do not exceed $872.5 million). The Credit Facility terminates on
September 26, 2003, at which time all outstanding indebtedness is due. There
was $475.0 million outstanding under the Credit Facility at June 30, 2000.
4. Term Loan D
URI obtained a $100.0 million term loan dated as of June 9, 2000 from a
financial institution (the "Term Loan D"). The Term Loan D matures in June
2006. Prior to maturity, quarterly installments of principal in the amount of
$0.3 million are due on the last day of each calendar quarter, commencing
September 30, 2000. The amount due at maturity is $94.3 million. The Term Loan
D accrues interest, at URI's option, at either (a) the Base Rate (which is
equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) Bank of
America's reference rate) plus a margin of 0.625% per annum, or (b) the
Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin of 2.5% per annum. The Term
Loan D is secured pari passu with the Credit Facility. The agreement governing
the Term Loan D contains restrictive covenants substantially similar to those
provided under the Credit Facility.
13
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except share and per share data):
Three Months
Six Months Ended
Ended June 30, June 30,
--------------- ---------------
2000 1999 2000 1999
------- ------- ------- -------
Numerator:
Net income............................. $64,610 $42,111 $47,199 $25,886
======= ======= ======= =======
Denominator:
Denominator for basic earnings per
share--weighted-average shares........ 71,844 70,304 71,631 71,570
Effect of dilutive securities:
Employee stock options............... 1,144 5,493 1,024 4,708
Warrants............................. 2,435 4,325 2,303 4,211
Series A perpetual convertible
preferred stock..................... 12,000 11,803 12,000 11,803
Series B perpetual convertible
preferred stock..................... 5,000 5,000
------- ------- ------- -------
Denominator for diluted earnings per
share--adjusted weighted-average
shares................................ 92,423 91,925 91,958 92,292
======= ======= ======= =======
Basic earnings per share................. $ 0.90 $ 0.60 $ 0.66 $ 0.36
======= ======= ======= =======
Diluted earnings per share............... $ 0.70 $ 0.46 $ 0.51 $ 0.28
======= ======= ======= =======
14
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Condensed Consolidating Financial Information Of Guarantor Subsidiaries
Certain indebtedness of URI is guaranteed by URI's United States
subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's
foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor
subsidiaries are all wholly-owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination
provisions and subject to a standard limitation which provides that the
maximum amount guaranteed by each guarantor will not exceed the maximum amount
that can be guaranteed without making the guarantee void under fraudulent
conveyance laws). Pursuant to a legal reorganization of URI, certain guarantor
subsidiaries and subsidiaries of URI were combined for the purpose of
simplifying the Company's legal entity structure. As a result of this legal
reorganization, prior period amounts have been reclassified to conform to the
current year presentation. Separate consolidated financial statements of the
guarantor subsidiaries have not been presented because management has
determined that such information would not be material to investors. However,
condensed consolidating financial information as of June 30, 2000 and
December 31, 1999 and for the six and three months ended June 30, 2000 and
1999, are presented. The condensed consolidating financial information of URI
and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2000
---------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
ASSETS
Cash and cash equiva-
lents.................. $ 31,051 $ 2,141 $ 33,192
Accounts receivable,
net.................... $ 218,276 170,398 110,218 498,892
Intercompany receivable
(payable).............. 453,674 (202,651) (251,023)
Inventory............... 76,237 70,029 9,992 156,258
Prepaid expenses and
other assets........... 43,799 15,832 1,538 61,169
Rental equipment, net... 842,660 824,768 127,357 1,794,785
Property and equipment,
net.................... 124,360 188,665 21,303 334,328
Investment in subsidiar-
ies.................... 2,157,421 $ (2,157,421)
Intangible assets, net.. 911,355 1,094,753 128,448 2,134,556
---------- ---------- -------- ------------ ----------
$4,827,782 $2,192,845 $149,974 $ (2,157,421) $5,013,180
========== ========== ======== ============ ==========
LIABILITIES AND STOCK-
HOLDER'S EQUITY
Liabilities:
Accounts payable....... $ 313,325 $ 17,761 $ 24,308 $ 355,394
Debt................... 2,583,714 314 29,593 2,613,621
Deferred taxes......... 92,670 1,002 93,672
Due to parent.......... 36,113 36,113
Accrued expenses and
other liabilities..... 101,842 81,846 10,492 194,180
---------- ---------- -------- ------------ ----------
Total liabilities.... 3,127,664 99,921 65,395 3,292,980
Commitments and contin-
gencies
Stockholder's equity:
Common stock...........
Additional paid-in
capital................ 1,488,003 1,830,274 65,648 $ (1,876,499) 1,507,426
Retained earnings...... 212,115 262,650 18,272 (280,922) 212,115
Accumulated other com-
prehensive income...... 659 659
---------- ---------- -------- ------------ ----------
Total stockholder's
equity.............. 1,700,118 2,092,924 84,579 (2,157,421) 1,720,200
---------- ---------- -------- ------------ ----------
$4,827,782 $2,192,845 $149,974 $ (2,157,421) $5,013,180
========== ========== ======== ============ ==========
15
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1999
---------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
Assets
Cash and cash equiva-
lents.................. $ 3,689 $ 16,414 $ 3,708 $ 23,811
Accounts receivable,
net.................... 200,419 199,981 34,585 434,985
Intercompany receivable
(payable).............. 142,156 42,906 (185,062)
Inventory............... 56,086 64,253 9,134 129,473
Prepaid expenses and
other assets........... 1,020 18,296 17,809 37,125
Rental equipment, net... 747,232 789,967 122,534 1,659,733
Property and equipment,
net.................... 150,841 106,232 19,451 276,524
Investment in subsidiar-
ies.................... 2,072,115 $(2,072,115)
Intangible assets, net.. 792,198 948,128 123,046 1,863,372
---------- ---------- --------- ----------- ----------
$4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023
========== ========== ========= =========== ==========
Liabilities and Stock-
holder's Equity
Liabilities:
Accounts payable....... $ 71,995 $ 120,511 $ 20,059 $ 212,565
Debt................... 2,231,923 380 33,845 2,266,148
Deferred taxes......... 80,476 753 81,229
Accrued expenses and
other liabilities..... 107,828 53,177 10,802 171,807
---------- ---------- --------- ----------- ----------
Total liabilities.... 2,492,222 174,068 65,459 2,731,749
Commitments and contin-
gencies
Stockholder's equity:
Common stock...........
Additional paid-in
capital................ 1,487,907 1,830,182 65,644 $(1,876,403) 1,507,330
Retained earnings...... 185,627 181,927 13,785 (195,712) 185,627
Accumulated other com-
prehensive income...... 317 317
---------- ---------- --------- ----------- ----------
Total stockholder's
equity.............. 1,673,534 2,012,109 79,746 (2,072,115) 1,693,274
---------- ---------- --------- ----------- ----------
$4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023
========== ========== ========= =========== ==========
16
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000
--------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $ 378,801 $484,540 $ 48,291 $ 911,632
Sales of rental equip-
ment................. 74,484 68,315 12,372 155,171
Sales of equipment and
merchandise and other
revenues............. 112,041 114,201 15,863 242,105
--------- -------- -------- -------- ----------
Total revenues.......... 565,326 667,056 76,526 1,308,908
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 162,317 211,389 22,908 396,614
Depreciation of rental
equipment............ 70,016 79,670 9,349 159,035
Cost of rental equip-
ment sales........... 43,989 39,471 7,708 91,168
Cost of equipment and
merchandise sales and
other operating
costs................ 91,840 79,645 12,824 184,309
--------- -------- -------- -------- ----------
Total cost of revenues.. 368,162 410,175 52,789 831,126
--------- -------- -------- -------- ----------
Gross profit............ 197,164 256,881 23,737 477,782
Selling, general and ad-
ministrative expenses.. 92,687 106,523 11,759 210,969
Non-rental depreciation
and amortization....... 17,912 16,597 2,646 37,155
--------- -------- -------- -------- ----------
Operating income........ 86,565 133,761 9,332 229,658
Interest expense........ 104,617 195 1,398 106,210
Other (income) expense,
net.................... 3,929 (4,422) 181 (312)
--------- -------- -------- -------- ----------
Income (loss) before
provision for income
taxes.................. (21,981) 137,988 7,753 123,760
Provision (benefit) for
income taxes........... (9,122) 57,265 3,266 51,409
--------- -------- -------- -------- ----------
Income (loss) before
equity in net earnings
of subsidiaries........ (12,859) 80,723 4,487 $(85,210) (12,859)
Equity in net earnings
of subsidiaries........ 85,210 85,210
--------- -------- -------- -------- ----------
Net income ............. $ 72,351 $ 80,723 $ 4,487 $(85,210) $ 72,351
========= ======== ======== ======== ==========
17
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999
-------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $246,314 $362,682 $34,306 $643,302
Sales of rental equip-
ment................. 43,029 37,558 6,607 87,194
Sales of equipment and
merchandise and other
revenues............. 84,463 67,101 13,911 165,475
-------- -------- ------- -------- --------
Total revenues.......... 373,806 467,341 54,824 895,971
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 101,373 160,567 17,206 279,146
Depreciation of rental
equipment............ 50,958 66,896 6,213 124,067
Cost of rental equip-
ment sales........... 24,396 21,599 3,924 49,919
Cost of equipment and
merchandise sales and
other operating
costs................ 69,917 44,152 10,715 124,784
-------- -------- ------- -------- --------
Total cost of revenues.. 246,644 293,214 38,058 577,916
-------- -------- ------- -------- --------
Gross profit............ 127,162 174,127 16,766 318,055
Selling, general and ad-
ministrative expenses.. 63,015 77,461 9,385 149,861
Non-rental depreciation
and amortization....... 12,400 10,958 1,499 24,857
-------- -------- ------- -------- --------
Operating income........ 51,747 85,708 5,882 143,337
Interest expense........ 50,526 627 153 51,306
Other (income) expense,
net.................... (948) 10,355 (425) 8,982
-------- -------- ------- -------- --------
Income before provision
for income taxes ...... 2,169 74,726 6,154 83,049
Provision for income
taxes.................. 889 30,253 2,818 33,960
-------- -------- ------- -------- --------
Income before equity in
net earnings
of subsidiaries........ 1,280 44,473 3,336 $(47,809) 1,280
Equity in net earnings
of subsidiaries........ 47,809 47,809
-------- -------- ------- -------- --------
Net income ............. $ 49,089 $ 44,473 $ 3,336 $(47,809) $ 49,089
======== ======== ======= ======== ========
18
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2000
------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $212,902 $271,802 $26,830 $511,534
Sales of rental equip-
ment................. 31,500 47,444 5,895 84,839
Sales of equipment and
merchandise and other
revenues............. 65,415 59,722 8,436 133,573
-------- -------- ------- -------- --------
Total revenues.......... 309,817 378,968 41,161 729,946
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 84,062 126,661 11,591 222,314
Depreciation of rental
equipment............ 36,928 43,798 4,806 85,532
Cost of rental equip-
ment sales........... 17,848 28,830 3,404 50,082
Cost of equipment and
merchandise sales and
other operating
costs................ 52,782 40,833 6,605 100,220
-------- -------- ------- -------- --------
Total cost of revenues.. 191,620 240,122 26,406 458,148
-------- -------- ------- -------- --------
Gross profit............ 118,197 138,846 14,755 271,798
Selling, general and ad-
ministrative expenses.. 48,535 54,065 6,519 109,119
Non-rental depreciation
and amortization....... 8,653 8,813 1,372 18,838
-------- -------- ------- -------- --------
Operating income........ 61,009 75,968 6,864 143,841
Interest expense........ 55,949 35 543 56,527
Other (income) expense,
net.................... 2,156 (2,698) 434 (108)
-------- -------- ------- -------- --------
Income before provision
for income taxes ...... 2,904 78,631 5,887 87,422
Provision for income
taxes.................. 1,205 32,661 2,414 36,280
-------- -------- ------- -------- --------
Income before equity in
net earnings
of subsidiaries........ 1,699 45,970 3,473 $(49,443) 1,699
Equity in net earnings
of subsidiaries........ 49,443 49,443
-------- -------- ------- -------- --------
Net income ............. $ 51,142 $ 45,970 $ 3,473 $(49,443) $ 51,142
======== ======== ======= ======== ========
19
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 1999
-------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $139,120 $194,839 $20,958 $354,917
Sales of rental equip-
ment................. 23,309 24,014 3,928 51,251
Sales of equipment and
merchandise and other
revenues............. 47,548 41,171 8,775 97,494
-------- -------- ------- -------- --------
Total revenues.......... 209,977 260,024 33,661 503,662
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 57,081 86,229 10,017 153,327
Depreciation of rental
equipment............ 27,180 34,334 3,440 64,954
Cost of rental equip-
ment sales........... 13,135 13,331 2,611 29,077
Cost of equipment and
merchandise sales and
other operating
costs................ 36,287 28,913 7,040 72,240
-------- -------- ------- -------- --------
Total cost of revenues.. 133,683 162,807 23,108 319,598
-------- -------- ------- -------- --------
Gross profit............ 76,294 97,217 10,553 184,064
Selling, general and ad-
ministrative expenses.. 41,603 37,490 5,508 84,601
Non-rental depreciation
and amortization....... 6,045 6,310 856 13,211
-------- -------- ------- -------- --------
Operating income........ 28,646 53,417 4,189 86,252
Interest expense........ 26,587 288 58 26,933
Other (income) expense,
net.................... (211) 9,759 (220) 9,328
-------- -------- ------- -------- --------
Income before provision
for income taxes ...... 2,270 43,370 4,351 49,991
Provision for income
taxes.................. 931 17,553 1,967 20,451
-------- -------- ------- -------- --------
Income before equity in
net earnings
of subsidiaries........ 1,339 25,817 2,384 $(28,201) 1,339
Equity in net earnings
of subsidiaries........ 28,201 28,201
-------- -------- ------- -------- --------
Net income.............. $ 29,540 $ 25,817 $ 2,384 $(28,201) $ 29,540
======== ======== ======= ======== ========
20
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Six Months Ended June 30, 2000
----------------------------------------------------------------
Guarantor Non-guarantor
URI Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------- ------------ ------------
(In thousands)
Net cash provided by
(used in) operating
activities............. $(137,748) $356,725 $11,772 $ 230,749
Cash flows from
investing activities:
Purchases of rental
equipment............. (127,778) (368,805) (17,234) (513,817)
Purchases of property
and equipment......... (12,678) (41,512) (1,466) (55,656)
Proceeds from sales of
rental equipment...... 74,484 68,315 12,372 155,171
Payments of contingent
purchase price........ (851) (5,702) (6,553)
Purchases of other
companies............. (261,982) (3,102) (265,084)
--------- -------- ------- ------- ---------
Net cash used in
investing
activities.......... (328,805) (347,704) (9,430) (685,939)
Cash flows from
financing activities:
Proceeds from debt..... 1,021,375 19,653 1,041,028
Payments of debt....... (684,054) (14,037) (4,251) (702,342)
Proceeds from sale-
leaseback............. 147,515 147,515
Payments of financing
costs................. (7,155) (7,155)
Due to parent.......... 30,950 30,950
Capital contribution
by parent............. 96 96
Dividend distribution
to parent............. (45,863) (45,863)
--------- -------- ------- ------- ---------
Net cash provided by
(used in) financing
activities.......... 462,864 5,616 (4,251) 464,229
Effect of foreign
exchange rates......... 342 342
--------- -------- ------- ------- ---------
Net increase (decrease)
in cash and cash
equivalents............ (3,689) 14,637 (1,567) 9,381
Cash and cash
equivalents at
beginning of period.... $ 3,689 16,414 3,708 23,811
--------- -------- ------- ------- ---------
Cash and cash
equivalents at end of
period................. $ 31,051 $ 2,141 $ 33,192
========= ======== ======= ======= =========
Supplemental disclosure
of cash flow
information:
Cash paid for interest.. $ 89,682 $ 243 $ 1,371 $ 91,296
Cash paid for income
taxes.................. $ 55,791 $ 6,929 $ 62,720
Supplemental disclosure
of non-cash investing
and financing
activities:
The Company acquired the
net assets and assumed
certain liabilities of
other companies as
follows:
Assets, net of cash
acquired.............. $ 387,989 $ 4,884 $ 392,873
Liabilities assumed.... (100,810) (1,782) (102,592)
Less:
Amounts paid through
issuance of debt.... (25,197) (25,197)
--------- -------- ------- ------- ---------
Net cash paid...... $ 261,982 $ 3,102 $ 265,084
========= ======== ======= ======= =========
21
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Six Months Ended June 30, 1999
-----------------------------------------------------------------
Guarantor Non-guarantor
URI Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------- ------------- ------------ ------------
(In thousands)
Net cash provided by
(used in) operating
activities............. $ (242,460) $ 351,839 $ 64,845 $ 174,224
Cash flows from
investing activities:
Purchases of rental
equipment............. (349,243) (41,450) (390,693)
Purchases of property
and equipment......... (26,289) (1,658) (27,947)
Proceeds from sales of
rental equipment...... 43,029 37,558 6,607 87,194
Payments of contingent
purchase price........ (1,118) (1,118)
Purchases of other
companies............. (549,281) (38,280) (587,561)
---------- --------- -------- ----- ----------
Net cash used in
investing
activities.......... (506,252) (337,974) (75,899) (920,125)
Cash flows from
financing activities:
Proceeds from debt..... 1,258,483 12,840 12,843 1,284,166
Payments of debt....... (859,127) (17,533) (876,660)
Payments of financing
costs................. (4,657) (4,657)
Capital contribution
by parent............. 369,699 369,699
Dividend distribution
to parent............. (9,750) (9,750)
---------- --------- -------- ----- ----------
Net cash provided by
(used in) financing
activities.......... 754,648 (4,693) 12,843 762,798
Effect of foreign
exchange rates......... 2 2
---------- --------- -------- ----- ----------
Net increase in cash and
cash equivalents....... 5,936 9,172 1,791 16,899
Cash and cash
equivalents at
beginning of period.... 1,774 16,257 2,379 20,410
---------- --------- -------- ----- ----------
Cash and cash
equivalents at end of
period................. $ 7,710 $ 25,429 $ 4,170 $ 37,309
========== ========= ======== ===== ==========
Supplemental disclosure
of cash flow
information:
Cash paid for interest.. $ 38,825 $ 627 $ 153 $ 39,605
Cash paid for income
taxes.................. $ 10,717 $ 744 $ 11,461
Supplemental disclosure
of non-cash investing
and financing
activities:
The Company acquired the
net assets and assumed
certain liabilities of
other companies as
follows:
Assets, net of cash
acquired.............. $ 807,576 $ 61,947 $ 869,523
Liabilities assumed.... (251,110) (21,457) (272,567)
Less:
Amounts paid through
issuance of debt.... (7,185) (2,210) (9,395)
---------- --------- -------- ----- ----------
Net cash paid...... $ 549,281 $ 38,280 $ 587,561
========== ========= ======== ===== ==========
22
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion reviews the Company's operations for the six and
three months ended June 30, 2000 and 1999 and should be read in conjunction
with the Unaudited Consolidated Financial Statements and related Notes thereto
of the Company included herein and the Consolidated Financial Statements and
related Notes thereto included in the Company's 1999 Annual Report on Form 10-
K.
General
United Rentals, Inc. ("Holdings") is principally a holding company and
primarily conducts its operations through its wholly owned subsidiary, United
Rentals (North America), Inc. ("URI"), and subsidiaries of URI.
The acquisitions completed by the Company during 2000 and 1999 were
accounted for as "purchases" and the results of operations of the acquired
businesses are included in the Company's financial statements only from their
respective dates of acquisition. In view of the fact that the Company's
operating results for 2000 and 1999 were impacted by acquisitions that were
accounted for as purchases, the Company believes that the results of its
operations for such periods are not directly comparable.
The Company primarily derives revenues from the following sources: (i)
equipment rental (including additional fees that may be charged for equipment
delivery, fuel, repair of rental equipment, and damage waivers), (ii) the sale
of rental equipment, (iii) the sale of equipment and (iv) the sale of related
merchandise and parts and other revenue.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of rental equipment and equipment and other merchandise sold, personnel
costs, occupancy costs and supplies.
The Company records rental equipment expenditures at cost and depreciates
equipment using the straight-line method over the estimated useful life (which
ranges from 2 to 10 years), after giving effect to an estimated salvage value
of 0% to 10% of cost.
Selling, general and administrative expenses primarily include sales
commissions, advertising and marketing expenses, management salaries, and
clerical and administrative overhead.
Non-rental depreciation and amortization includes (i) depreciation expense
associated with equipment that is not offered for rent (such as vehicles,
computers and office equipment) and amortization expense associated with
leasehold improvements and (ii) the amortization of intangible assets. The
Company's intangible assets include non-compete agreements and goodwill, which
represents the excess of the purchase price of acquired companies over the
estimated fair market value of the net assets acquired.
Results of Operations
Six Months Ended June 30, 2000 and 1999
Revenues. Total revenues for the six months ended June 30, 2000 were
$1,309.0 million, representing an increase of 46.1% over total revenues of
$896.0 million for the six months ended June 30, 1999. The Company's
23
revenues in the first six months of 2000 and 1999 were attributable to: (i)
equipment rental ($911.6 million or 69.6% of revenues, in the first six months
of 2000 compared to $643.3 million, or 71.8% of revenues, in the first six
months of 1999), (ii) sales of rental equipment ($155.2 million, or 11.9% of
revenues, in the first six months of 2000 compared to $87.2 million, or 9.7%
of revenues, in the first six months of 1999) and (iii) sales of equipment and
merchandise and other revenues ($242.1 million, or 18.5% of revenues, in the
first six months of 2000 compared to $165.5 million, or 18.5% of revenues, in
the first six months of 1999).
The 46.1% increase in total revenues in the first six months of 2000
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 16.7 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 29.4 percentage points). The increase in
revenues at locations open more than one year primarily reflected (a) an
increase in the volume of rental transactions, (b) an expansion of the product
lines offered by the Company for sale, (c) an increase in the sale of related
merchandise and parts which was driven by the increase in equipment rental and
sales transactions and (d) an increase in the sale of used equipment in order
to maintain the quality of the Company's rental fleet.
Gross Profit. Gross profit increased to $477.8 million in the first six
months of 2000 from $318.1 million in the first six months of 1999. This
increase in gross profit was primarily attributable to the increase in
revenues described above. The Company's gross profit margin by source of
revenue in the first six months of 2000 and 1999 was: (i) equipment rental
(39.0% in the first six months of 2000 and 37.3% in the first six months of
1999), (ii) sales of rental equipment (41.2% in the first six months of 2000
and 42.7% in the first six months of 1999) and (iii) sales of equipment and
merchandise and other revenues (23.9% in the first six months of 2000 and
24.6% in the first six months of 1999). The increase in the gross profit
margin from rental revenues in the first six months of 2000 was primarily
attributable to greater equipment utilization rates and to economies of scale.
The decrease in the gross profit margin from the sales of rental equipment in
the first six months of 2000 primarily reflected a shift in mix towards the
sale of more late-model used equipment, which generally generates lower gross
profit margins than older equipment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $211.0 million, or 16.1% of total
revenues, during the first six months of 2000 and $149.9 million, or 16.7% of
total revenues, during the first six months of 1999. SG&A in the first six
months of 1999 included an $8.3 million charge primarily due to professional
fees incurred in connection with a terminated tender offer. Excluding this
charge, SG&A as a percentage of revenues was 15.8% in the first six months of
1999. The increase in SG&A as a percentage of revenues, after excluding the
tender offer charge, primarily reflected the increase in expenses associated
with the Company's recently acquired traffic control and northern climate
businesses, which typically generate a majority of their revenues in the
second half of the year.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $40.7 million, or 3.1% of total revenues, in the first six
months of 2000 and $26.5 million, or 3.0% of total revenues in the first six
months of 1999.
Interest Expense. Interest expense increased to $106.2 million in the first
six months of 2000 from $51.3 million in the first six months of 1999. This
increase (i) primarily reflected an increase in the Company's indebtedness,
principally to fund acquisitions, and (ii) to a lesser extent, reflected an
increase in the interest rates applicable to the Company's variable rate debt.
Preferred Dividends of a Subsidiary Trust. During the first six months of
2000 and 1999, preferred dividends of a subsidiary trust of Holdings were $9.8
million.
Other (Income) Expense. Other income was $0.3 million in the first six
months of 2000 compared to other expense of $9.2 million in the first six
months of 1999. The other expense in the first six months of 1999 was
primarily attributable to a $10.0 million charge that principally related to
fees paid by the Company for a $2.0 billion financing commitment that was
subsequently cancelled upon termination of a tender offer made by the Company
in 1999.
Income Taxes. Income taxes increased to $45.8 million, or an effective rate
of 41.5%, in the first six months of 2000 from $29.3 million, or an effective
rate of 41.0%, in the first six months of 1999.
24
Three months ended June 30, 2000 and 1999
Revenues. Total revenues for the three months ended June 30, 2000 were
$729.9 million, representing an increase of 44.9% over total revenues of
$503.7 million for the three months ended June 30, 1999. The Company's
revenues in the three months ended June 30, 2000 and 1999 were attributable
to: (i) equipment rental ($511.5 million, or 70.1% of revenues, in the three
months ended June 30, 2000 compared to $354.9 million, or 70.5% of revenues,
in the three months ended June 30, 1999), (ii) sales of rental equipment
($84.8 million, or 11.6% of revenues, in the three months ended June 30, 2000
compared to $51.3 million, or 10.2% of revenues, in the three months ended
June 30, 1999) and (iii) sales of equipment and merchandise and other revenues
($133.6 million, or 18.3% of revenues, in the three months ended June 30, 2000
compared to $97.5 million, or 19.3% of revenues, in the three months ended
June 30, 1999).
The 44.9% increase in total revenues in the three months ended June 30, 2000
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 16.8 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 28.1 percentage points). The increase in
revenues at locations open more than one year primarily reflected (a) an
increase in the volume of rental transactions, (b) an expansion of the product
lines offered by the Company for sale, (c) an increase in the sale of related
merchandise and parts which was driven by the increase in equipment rental and
sales transactions and (d) an increase in the sale of used equipment in order
to maintain the quality of the Company's rental fleet.
Gross Profit. Gross profit increased to $271.8 million in the three months
ended June 30, 2000 from $184.1 million in the three months ended June 30,
1999. This increase in gross profit was primarily attributable to the increase
in revenues described above. The Company's gross profit margin by source of
revenue in the three months ended June 30, 2000 and 1999 was: (i) equipment
rental (39.8% in the three months ended June 30, 2000 and 38.5% in the three
months ended June 30, 1999), (ii) sales of rental equipment (41.0% in the
three months ended June 30, 2000 and 43.3% in the three months ended June 30,
1999) and (iii) sales of equipment and merchandise and other revenues (25.0%
in the three months ended June 30, 2000 and 25.9% in the three months ended
June 30, 1999). The increase in the gross profit margin from rental revenues
in the three months ended June 30, 2000 was primarily attributable to greater
equipment utilization rates and to economies of scale. The decrease in the
gross profit margin from the sales of rental equipment in the three months
ended June 30, 2000 primarily reflected a shift in mix towards the sale of
more late-model used equipment, which generally generates lower gross profit
margins than older equipment.
Selling, General and Administrative Expenses. SG&A was $109.1 million, or
14.9% of total revenues, during the three months ended June 30, 2000 and $84.6
million, or 16.8% of total revenues, during the three months ended June 30,
1999. SG&A for the three months ended June 30, 1999, includes an $8.3 million
charge primarily due to professional fees incurred in connection with a
terminated tender offer. Excluding this charge, SG&A as a percentage of
revenues was 15.2% for the three months ended June 30, 1999. The decrease in
SG&A as a percentage of revenues in the three months ended June 30, 2000,
principally reflected economies of scale related to the increase in revenues.
The impact of such economies of scale was partially offset by an increase in
expenses associated with the Company's recently acquired traffic control and
northern climate businesses, which typically generate a majority of their
revenues in the second half of the year.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $20.7 million, or 2.8% of total revenues, in the three months
ended June 30, 2000 and $14.4 million, or 2.8% of total revenues, in the three
months ended June 30, 1999.
Interest Expense. Interest expense increased to $56.5 million in the three
months ended June 30, 2000 from $26.9 million in the three months ended June
30, 1999. This increase (i) primarily reflected an increase in the Company's
indebtedness, principally to fund acquisitions, and (ii) to a lesser extent,
reflected an increase in the interest rates applicable to the Company's
variable rate debt.
Preferred Dividends of a Subsidiary Trust. During the three months ended
June 30, 2000 and 1999, preferred dividends of a subsidiary trust of Holdings
were $4.9 million.
25
Other (Income) Expense. Other income was $0.1 million in the three months
ended June 30, 2000 compared to other expense of $9.4 million in the three
months ended June 30, 1999. The other expense in the three months ended June
30, 1999 was primarily attributable to a $10.0 million charge that principally
related to fees paid by the Company for a $2.0 billion financing commitment
that was subsequently cancelled upon termination of a tender offer made by the
Company in 1999.
Income Taxes. Income taxes increased to $33.5 million, or an effective rate
of 41.5%, in the three months ended June 30, 2000 from $18.0 million, or an
effective rate of 41.0%, in the three months ended June 30, 1999.
Liquidity and Capital Resources
Recent Financing
In June 2000, URI obtained a $100.0 million term loan from a financial
institution (the "Term Loan D"). The Term Loan D matures in June 2006. Prior
to maturity, quarterly installments of principal in the amount of $0.3 million
are due on the last day of each calendar quarter, commencing September 30,
2000. The amount due at maturity is $94.3 million. The Term Loan D accrues
interest, at URI's option, at either (a) the Base Rate (which is equal to the
greater of (i) the Federal Funds Rate plus 0.5% or (ii) Bank of America's
reference rate) plus a margin of 0.625% per annum, or (b) the Eurodollar Rate
(which is equal to Bank of America's reserve adjusted eurodollar rate) plus a
margin of 2.5% per annum. The Term Loan D is secured pari passu with the
Company's revolving credit facility, and the agreement governing the Term Loan
D contains restrictive covenants substantially similar to those provided under
such credit facility.
Sources and Uses of Cash
During the first six months of 2000, the Company (i) generated cash from
operations of approximately $262.8 million, (ii) generated cash from the sale
of rental equipment of approximately $155.2 million and (iii) obtained net
proceeds from financing activities of approximately $448.2 million. The
Company used cash during this period principally to (i) pay consideration for
acquisitions (approximately $265.1 million), (ii) purchase rental equipment
(approximately $513.8 million) and (iii) purchase other property and equipment
(approximately $69.2 million).
Certain Balance Sheet Changes
The acquisitions and the equipment purchases made by the Company in the
first six months of 2000 (and the financing of such acquisitions and
purchases) were the principal reasons for the increase in all asset and
liability accounts at June 30, 2000 compared with December 31, 1999.
Certain Information Concerning the Company's Credit Facility
URI has a revolving credit facility (the "Credit Facility") that enables URI
to borrow up to $872.5 million on a revolving basis and permits a Canadian
subsidiary of URI to directly borrow up to $40.0 million under the Credit
Facility (provided that the aggregate borrowings of URI and the Canadian
subsidiary do not exceed $872.5 million). The Credit Facility terminates on
September 26, 2003, at which time all outstanding indebtedness is due. As of
August 3, 2000, there was $685.0 million of indebtedness outstanding under the
Credit Facility (not including undrawn outstanding letters of credit in the
amount of $1.9 million). In May 2000, in connection with certain amendments to
the agreement governing the Credit Facility, the Eurodollar Rate applicable to
borrowings under the Credit Facility was increased by 0.25%.
Cash Requirements Related to Operations
The Company's principal existing sources of cash are borrowings available
under the Credit Facility ($185.6 million available as of August 3, 2000) and
cash generated from operations.
26
The Company expects that its principal needs for cash relating to its
existing operations over the next 12 months will be to fund (i) operating
activities and working capital, (ii) the purchase of rental equipment and
inventory of items offered for sale and (iii) debt service. The Company plans
to fund such cash requirements relating to its existing operations from its
existing sources of cash described above.
The Company estimates that rental equipment expenditures over the next 12
months will be approximately $850.0 million for the existing operations of the
Company. These expenditures are comprised of approximately $510.0 million of
expenditures to maintain the average age of the Company's rental fleet and
$340.0 million of discretionary expenditures to increase the size of the
Company's rental fleet. The Company expects that it will fund such
expenditures from a combination of approximately $370.0 million of proceeds
expected to be generated from the sale of used equipment, cash generated from
operations and, if required, borrowings available under the Credit Facility.
In addition, the Company expects that it will be required to make equipment
expenditures in connection with new acquisitions. The Company cannot quantify
at this time the amount of equipment expenditures that will be required in
connection with new acquisitions.
In addition to the Company's continued emphasis on internal growth, the
Company expects to continue to expand through a disciplined acquisition
program and the opening of new rental locations. The Company expects to pay
for future acquisitions using cash, capital stock, notes and/or assumption of
indebtedness. To the extent that the Company's existing sources of cash
described above are not sufficient to fund such future acquisitions, the
Company will require additional financing and, consequently, the Company's
indebtedness may increase as the Company implements its growth strategy. There
can be no assurance, however, that any additional financing will be available
or, if available, will be on terms satisfactory to the Company.
Based upon the terms of the Company's currently outstanding indebtedness,
the Company is scheduled to repay debt principal of approximately $38.2
million during the period from July 1, 2000 to June 30, 2001.
Relationship Between Holdings and URI
Holdings is principally a holding company and primarily conducts its
operations through its wholly owned subsidiary URI and subsidiaries of URI.
Holdings provides certain services to URI in connection with its operations.
These services principally include: (i) senior management services, (ii)
finance related services and support, (iii) information technology systems and
support and (iv) acquisition related services. In addition, Holdings leases
certain equipment and real property that are made available for use by URI and
its subsidiaries. URI has made, and expects to continue to make, certain
payments to Holdings in respect of the services provided by Holdings to the
Company. The expenses relating to URI's payments to Holdings are reflected on
URI's financial statements as selling, general and administrative expenses. In
addition, although not legally obligated to do so, URI has in the past, and
expects that it will in the future, make distributions to Holdings to, among
other things, enable Holdings to pay dividends on certain preferred securities
(the "Trust Preferred Securities") that were issued by a subsidiary trust of
Holdings in August 1998.
The Trust Preferred Securities are the obligation of a subsidiary trust of
Holdings and are not the obligation of URI. As a result, the dividends payable
on these securities are reflected as an expense on the consolidated financial
statements of Holdings, but are not reflected as an expense on the
consolidated financial statements of URI. This is the principal reason why the
net income reported on the consolidated financial statements of URI is higher
than the net income reported on the consolidated financial statements of
Holdings.
Year 2000
In prior years, the Company discussed the nature of its plans to become Year
2000 compliant. As a result of those planning and implementation efforts, the
Company experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from
27
Year 2000 issues, either with its equipment, its internal systems, or the
products and services of third parties. The Company will continue to monitor
its mission critical computer applications and those of its suppliers and
vendors throughout the Year 2000.
Inflation
Although the Company cannot accurately anticipate the effect of inflation on
its operations, the Company believes that inflation has not had, and is not
likely in the foreseeable future to have, a material impact on its results of
operations.
Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133". This standard delays the effective date of SFAS
No. 133, "Accounting for Derivative Instrument and Hedging Activities", for
one year, to fiscal years beginning after June 15, 2000. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". This standard amends
SFAS No. 133 and addresses a limited number of issues causing implementation
difficulties. The adoption of SFAS No. 138 is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
Factors that May Influence Future Results and Accuracy of Forward-Looking
Statements
Sensitivity to Changes in Construction and Industrial Activities
Our equipment is principally used in connection with construction and
industrial activities. Consequently, a downturn in construction or industrial
activity may lead to a decrease in demand for our equipment, which could
adversely affect our business. We have identified below certain of the factors
which may cause such a downturn, either temporarily or long-term:
. a general slow-down of the economy;
. an increase in interest rates;
. adverse weather conditions which may temporarily affect a particular
region; or
. government funding for highway and other construction projects does not
reach expected levels.
Dependence on Additional Capital to Finance Growth
We will require substantial capital in order to execute our growth strategy.
We will require capital for, among other purposes, purchasing rental
equipment, completing acquisitions, and establishing new rental locations. If
the cash that we generate from our business, together with cash that we may
borrow under our credit facility, is not sufficient to fund our capital
requirements, we will require additional debt and/or equity financing. We
cannot, however, be certain that any additional financing will be available
or, if available, will be available on terms that are satisfactory to us. If
we are unable to obtain sufficient additional capital in the future, our
ability to implement our growth strategy could be limited.
Certain Risks Relating to Acquisitions
The making of acquisitions entails certain risks, including:
. acquired companies could have hidden liabilities that we fail to
discover during our due diligence investigations;
28
. we may have difficulty in assimilating the operations and personnel of
the acquired company with our existing operations;
. we may lose key employees of the acquired company; and
. we may have difficulty maintaining uniform standards, controls,
procedures and policies.
Dependence on Management
We are highly dependent upon our senior management team. Consequently, our
business could be adversely affected in the event that we lose the services of
any member of senior management. Furthermore, if we lose the services of
certain members of senior management, it is an event of default under the
agreements governing our credit facility and certain of our other
indebtedness, unless we appoint replacement officers satisfactory to the
lenders within 30 days. We do not maintain "key man" life insurance with
respect to members of senior management.
Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include small, independent businesses with one or two
rental locations; regional competitors which operate in one or more states;
public companies or divisions of public companies; and equipment vendors and
dealers who both sell and rent equipment directly to customers. We may in the
future encounter increased competition from our existing competitors or from
new companies. In addition, certain equipment manufacturers may commence (or
increase their existing efforts relating to) renting and selling equipment
directly to our customers.
Fluctuations of Operating Results
We expect that our revenues and operating results may fluctuate from quarter
to quarter or over the longer term due to a number of factors, including:
. seasonal rental patterns of our customers--with rental activity tending
to be lower in the winter;
. the timing of expenditures for new equipment and the disposition of used
equipment;
. changes in demand for our equipment or the prices therefor due to
changes in economic conditions, competition or other factors; and
. increases in the interest rates applicable to our floating rate debt.
Liability and Insurance
We are exposed to various possible claims relating to our business. These
include claims relating to (1) personal injury or death caused by equipment
rented or sold by us, (2) motor vehicle accidents involving our delivery and
service personnel and (3) employment related claims. We carry a broad range of
insurance for the protection of our assets and operations. However, such
insurance may not fully protect us for a number of reasons, including:
. our coverage is subject to a deductible of $1.0 million and limited to a
maximum of $97 million per occurrence;
. we do not maintain coverage for environmental liability, since we
believe that the cost for such coverage is high relative to the benefit
that it provides; and
29
. certain types of claims, such as claims for punitive damages or for
damages arising from intentional misconduct, which are often alleged in
third party lawsuits, might not be covered by our insurance.
We cannot be certain that insurance will continue to be available to us on
economically reasonable terms, if at all.
Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing
environmental protection and occupational health and safety matters. These
include laws and regulations that govern wastewater discharges, the use,
treatment, storage and disposal of solid and hazardous wastes and materials,
air quality and the remediation of contamination associated with the release
of hazardous substances. Under these laws, an owner or lessee of real estate
may be liable for, among other things, (1) the costs of removal or remediation
of hazardous or toxic substances located on, in, or emanating from, the real
estate, as well as related costs of investigation and property damage and
substantial penalties, and (2) environmental contamination at facilities where
its waste is or has been disposed. These laws often impose liability whether
or not the owner or lessee knew of the presence of the hazardous or toxic
substances and whether or not the owner or lessee was responsible for these
substances. Our activities that are or may be affected by these laws include
our use of hazardous materials to clean and maintain equipment and our
disposal of solid and hazardous waste and wastewater from equipment washing.
We also dispense petroleum products from underground and above-ground storage
tanks located at certain rental locations, and at times we must remove or
upgrade tanks to comply with applicable laws. Furthermore, we have acquired or
lease certain locations which have or may have been contaminated by leakage
from underground tanks or other sources and are in the process of assessing
the nature of the required remediation. Based on the conditions currently
known to us, we believe that any unreserved environmental remediation and
compliance costs required with respect to those conditions will not have a
material adverse effect on our business. However, we cannot be certain that we
will not identify adverse environmental conditions that are not currently
known to us, that all potential releases from underground storage tanks
removed in the past have been identified, or that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. If we are required to incur environmental
compliance or remediation costs that are not currently anticipated by us, our
business could be adversely affected depending on the magnitude of the cost.
Risks Related to International Operations
Our operations outside the United States are subject to risks normally
associated with international operations. These include the need to convert
currencies, which could result in a gain or loss depending on fluctuations in
exchange rates, and the need to comply with foreign laws.
Dependence on Information Technology System
Our ability to monitor and control our operations depends to a large extent
on the proper functioning of our information technology system. Any disruption
in this system or the failure of this system to operate as expected could,
depending on the magnitude and duration of the problem, adversely affect our
business and our ability to implement our growth strategy.
Restrictive Covenants
The agreements governing our existing long-term indebtedness contain, and
future agreements governing our long-term indebtedness may also contain,
certain restrictive financial and operating covenants which affect, and in
many respects significantly limit or prohibit, among other things, our ability
to incur indebtedness, make prepayments of certain indebtedness, make
investments, create liens, make acquisitions, sell assets and engage in
mergers and consolidations. These covenants may significantly limit our
operating and financial flexibility.
30
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to changes in interest rates and foreign currency
exchanges rates were reported in Item 7A of the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. There has been no material
change in these market risks since the end of the fiscal year 1999.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material effect on the business or financial
condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities
Set forth below is certain information concerning sales by the Company of
unregistered securities during the second quarter of 2000. The issuances by
the Company of the securities sold in the transactions referenced below were
not registered under the Securities Act of 1933, pursuant to the exemption
contemplated by Section 4(2) thereof for transactions not involving a public
offering.
1. In April 2000, the Company issued 2,969 shares of common stock to an
executive officer pursuant to an employment agreement.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on June 1, 2000. The
holders of 60,131,918 common shares, 300,000 Series A Perpetual Convertible
Preferred Shares ("Series A Preferred") and 105,252 Series B-1 Perpetual
Convertible Preferred Shares ("Series B-1 Preferred") were present either in
person or by proxy. There were no broker non-votes at the meeting. The
following three matters were voted on and approved at such meeting.
1. The election of three members to the Board of Directors by the holders
of the Company's common stock and Series B-1 Preferred (where each share
of Series B-1 Preferred is entitled to 33 1/3 votes).
For Withheld
---------- --------
William F. Berry.............................. 63,568,903 71,415
Ronald M. DeFeo............................... 63,568,903 71,415
Richard J. Heckmann........................... 63,568,903 71,415
2. The election of two members to the Board of Directors by the holders of
the Series A Preferred.
For
----------
Leon D. Black................................. 300,000
Michael S. Gross.............................. 300,000
3. The ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31,
2000 by the holders of the Company's common stock, Series B-1 Preferred
(where each share of Series B-1 Preferred is entitled to 33 1/3 votes)
and Series A Preferred (where each share of Series A Preferred is
entitled to 40 votes).
For Abstain Against
---------- -------- -------
75,606,064 9,111 25,143
31
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description of Exhibit
------- ----------------------
3(a) Amended and Restated Certificate of Incorporation of United Rentals,
Inc., in effect as of the date hereof (incorporated by reference to
exhibit 3.1 of United Rentals, Inc. Report on Form 10-Q for the
quarter ended June 30, 1998)
3(b) Certificate of Amendment to the United Rentals, Inc. Certificate of
Incorporation dated September 29, 1998 (incorporated by reference to
Exhibit 4.2 to the United Rentals, Inc. Registration Statement on Form
S-3, No. 333-70151)
3(c) By-laws of United Rentals, Inc., in effect as of the date hereof
(incorporated by reference to exhibit 3.2 of United Rentals, Inc.
Report on Form 10-Q for the quarter ended June 30, 1998)
3(d) Form of Certificate of Designation for Series A Perpetual Convertible
Preferred Stock (incorporated by reference to Exhibit 4(k) to the
United Rentals, Inc. Registration Statement on Form S-3,
No. 333-64463) together with a certificate of amendment thereto
(incorporated by reference to exhibit A of the United Rentals, Inc.
Proxy Statement on Schedule 14A dated July 22, 1999)
3(e) Form of Certificate of Designation for Series B Perpetual Convertible
Preferred Stock (incorporated by reference to exhibit B of the United
Rentals, Inc. Proxy Statement on Schedule 14A dated July 22, 1999)
3(f) Amended and Restated Certificate of Incorporation of United Rentals
(North America), Inc., in effect as of the date hereof (incorporated
by reference to Exhibit 3.3 of the United Rentals (North America),
Inc. Report on Form 10-Q for the quarter ended June 30, 1998)
3(g) By-laws of United Rentals (North America), Inc., in effect as of the
date hereof (incorporated by reference to Exhibit 3.4 of the United
Rentals (North America), Inc. Report on Form 10-Q for the quarter
ended June 30, 1998)
10(a)* Term loan agreement dated as of June 9, 2000 among United Rentals,
Inc., United Rentals (North America), Inc., various financial
institutions, Goldman Sachs Credit Partners, L.P., as Syndication
Agent and Bank of America, N.A., as Administrative Agent
10(b)* Fourth amendment dated as of May 12, 2000, to Credit Agreement dated
as of September 29, 1998, between United Rentals, Inc., United Rentals
(North America), Inc., various financial institutions, Bank of America
as Canadian Agent, and Bank of America, N.A. (formerly known as Bank
of America National Trust and Savings Association), as U.S. Agent
10(c)* Amended and Restated Term Loan Agreement dated as of May 12, 2000,
amending and restating Term Loan Agreement dated as of July 10, 1998,
between United Rentals, Inc., United Rentals (North America), Inc.,
various financial institutions, Fleet National Bank, as Documentation
Agent, and Bank of America, N.A., as Administrative Agent
10(d)* Amended and Restated Term Loan Agreement dated as of May 12, 2000,
amending and restating Term Loan Agreement dated as of July 15, 1999,
between United Rentals, Inc., United Rentals (North America), Inc.,
various financial institutions and Bank of America, N.A., as
Administrative Agent
10(e)* Amendment No. 1 to Employment Agreement with Robert Miner, dated as of
August 2, 2000
27* Financial Data Schedule
27.1* Financial Data Schedule
- --------
*Filed herewith.
(b) Reports on Form 8-K: none
32
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
United Rentals, Inc.
Dated: August 10, 2000 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: August 10, 2000 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
United Rentals (North America), Inc.
Dated: August 10, 2000 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: August 10, 2000 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
33