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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 September 30, 2001
[_] 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 (I.R.S.
jurisdictionof EmployerIdentification
incorporation or Nos.)
organization)
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 November 6, 2001, there were 73,308,256 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 SEPTEMBER 30, 2001
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements
United Rentals, Inc. Consolidated Balance Sheets as of September 30, 2001 and December 31,
2000 (unaudited)........................................................................... 4
United Rentals, Inc. Consolidated Statements of Operations for the Nine and Three Months
Ended September 30, 2001 and 2000 (unaudited).............................................. 5
United Rentals, Inc. Consolidated Statement of Stockholders' Equity for the Nine Months
Ended September 30, 2001 (unaudited)....................................................... 6
United Rentals, Inc. Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and 2000 (unaudited).................................................... 7
United Rentals (North America), Inc. Consolidated Balance Sheets as of September 30, 2001
and December 31, 2000 (unaudited).......................................................... 8
United Rentals (North America), Inc. Consolidated Statements of Operations for the
Nine and Three Months Ended September 30, 2001 and 2000 (unaudited)........................ 9
United Rentals (North America), Inc. Consolidated Statement of Stockholder's Equity for the
Nine Months Ended September 30, 2001 (unaudited)........................................... 10
United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000 (unaudited).................................. 11
Notes to Unaudited Consolidated Financial Statements....................................... 12
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...... 28
Item 3 Quantitative and Qualitative Disclosures about Market Risk................................. 39
PART II OTHER INFORMATION
Item 1 Legal Proceedings.......................................................................... 40
Item 2 Changes in Securities and Use of Proceeds.................................................. 40
Item 6 Exhibits and Reports on Form 8-K........................................................... 40
Signatures................................................................................. 42
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 "believe," "expect," "may," "will," "should," "seek,"
"on-track," "plan," "intend," or "anticipate" 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 the largest equipment rental company in North America with
more than 740 locations in 47 states, seven Canadian provinces and Mexico. We
offer for rent over 600 different types of equipment to customers that include
construction and industrial companies, manufacturers, utilities,
municipalities, homeowners and others. In 2000, we served more than 1.2 million
customers and completed over 8.4 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 $3.6 billion.
Our fleet includes:
. General construction and industrial equipment, such as backhoes,
skid-steer loaders, forklifts, earth moving equipment, material handling
equipment, compressors, pumps and generators;
. Aerial work platforms, such as scissor lifts and boom lifts;
. General tools and light equipment, such as power washers, water pumps,
heaters and hand tools;
. 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; and
. Special event equipment, such as large tents, light towers and power
units used for sporting, corporate and other events.
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. Our rental fleet is the largest and most
comprehensive in the industry, which allows 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 substantial quantities or wide varieties of
equipment.
Significant Purchasing Power. We purchase large amounts of equipment,
merchandise and other items, which enables us to negotiate favorable pricing,
warranty and other terms with our vendors.
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 systems allow 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 through all branches
within a cluster, (2) cross-market equipment specialties of different branches
within each cluster, and (3) reduce costs by consolidating functions that are
common to our more than 740 branches, such as payroll, accounts payable and
credit and collection, into 22 credit offices and three service centers. In the
third quarter of 2001, approximately 10.5% of our rental revenue was
attributable to equipment sharing among branches.
Geographic and Customer Diversity. We have more than 740 branches in 47
states, seven Canadian provinces and Mexico and served more than 1.2 million
customers in 2000. Our customers are diverse, ranging from Fortune 500
companies to small companies and homeowners, and in 2000 our top ten customers
accounted for approximately 2% of our revenues. We believe that our geographic
and customer diversity provide us with many advantages including: (1) enabling
us to better serve National Account customers with multiple locations, (2)
helping us achieve favorable resale prices by allowing us to access used
equipment resale markets across the country, (3) reducing our dependence on any
particular customer and (4) reducing the impact that fluctuations in regional
economic conditions have on our overall financial performance.
Strong and Motivated Branch Management. Each of our branches has a full-time
branch manager who is supervised by one of our 62 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 regional performance with extensive systems and
controls, including performance benchmarks and detailed monthly operating
reviews. We promote equipment sharing among branches by linking the
compensation of branch managers and other personnel to their branch's financial
performance and return on assets.
Information Technology Systems. Our information technology systems
facilitate our ability to make rapid and informed decisions, respond quickly to
changing market conditions, and share equipment among branches. These systems
allow: (1) management to obtain a wide range of operating and financial data,
(2) branch personnel to access and manage branch level data, such as customer
requirements, equipment availability and maintenance histories, and (3)
customers to access their accounts online. These systems promote equipment
sharing among branches by enabling branch personnel to locate needed equipment
within a geographic region, determine its closest location and arrange for its
delivery to a customer's work site. We have an in-house team of approximately
100 information technology specialists that supports our systems and extends
them to new locations.
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 37 professionals serving over 1,600 National
Account customers. We estimate that our revenues from National Account
customers will increase over 40% to approximately $350 million in 2001 from
$245 million in 2000.
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 50 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.
Industry Background
We estimate the U.S. equipment rental industry has grown from approximately
$6.5 billion in annual rental revenues in 1990 to over $25 billion in 2000,
representing a compound annual growth rate of approximately
2
14.5%. We believe that the principal driver of growth in the equipment rental
industry, in addition to general economic expansion, has been the increasing
recognition by equipment users of 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.
While the construction industry has to date been the principal user of
rental equipment, industrial companies, utilities and others are increasingly
using rental equipment for plant maintenance, plant turnarounds and other
functions requiring the periodic use of equipment. The market for rental
equipment is also benefiting from increased government funding for
infrastructure projects, such as funding under the U.S. Transportation Equity
Act for the 21st Century ("TEA-21") and the Aviation Investment and Reform Act
for the 21st Century ("AIR-21"). TEA-21 earmarks $175 billion for highway
construction and $42 billion for transit spending over the 1998-2003 fiscal
period, a 40% increase over the prior six-year period. AIR-21 provides for $40
billion in construction spending over three years to support the FAA's airport
improvement programs.
3
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
(In thousands, except share data)
ASSETS
Cash and cash equivalents..................................................... $ 30,516 $ 34,384
Accounts receivable, net of allowance for doubtful accounts of $50,850 in 2001
and $55,624 in 2000......................................................... 539,311 469,594
Inventory..................................................................... 105,064 133,380
Prepaid expenses and other assets............................................. 171,858 104,493
Rental equipment, net......................................................... 1,819,801 1,732,835
Property and equipment, net................................................... 425,316 422,239
Goodwill, net of accumulated amortization of $146,532 in 2001 and
$103,219 in 2000............................................................ 2,207,797 2,215,532
Other intangible assets, net.................................................. 8,583 11,476
---------- ----------
$5,308,246 $5,123,933
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable........................................................... $ 253,813 $ 260,155
Debt....................................................................... 2,698,443 2,675,367
Deferred taxes............................................................. 267,403 206,243
Accrued expenses and other liabilities..................................... 191,936 136,225
---------- ----------
Total liabilities...................................................... 3,411,595 3,277,990
Commitments and contingencies
Company-obligated mandatorily redeemable convertible preferred securities of
a subsidiary trust.......................................................... 300,000 300,000
Series A and B preferred stock................................................ 430,800
Stockholders' equity:
Preferred stock--$.01 par value, 5,000,000 shares authorized:
Series C perpetual convertible preferred stock--$300,000 liquidation
preference, 300,000 shares issued and outstanding........................ 3
Series D perpetual convertible preferred stock--$150,000 liquidation
preference, 150,000 shares issued and outstanding........................ 2
Common stock--$.01 par value, 500,000,000 shares authorized, 73,295,189
shares issued and outstanding in 2001 and 71,065,707 in 2000............. 733 711
Additional paid-in capital................................................. 1,241,748 765,529
Deferred compensation...................................................... (56,974)
Retained earnings.......................................................... 434,932 355,850
Accumulated other comprehensive loss....................................... (23,793) (6,947)
---------- ----------
Total stockholders' equity............................................. 1,596,651 1,115,143
---------- ----------
$5,308,246 $5,123,933
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- ------------------
2001 2000 2001 2000
---------- ---------- -------- --------
(In thousands, except per share data)
Revenues:
Equipment rentals....................................... $1,670,036 $1,522,131 $626,286 $610,499
Sales of rental equipment............................... 107,681 254,977 35,442 99,806
Sales of equipment and merchandise and other revenues... 404,883 390,833 133,755 148,728
---------- ---------- -------- --------
Total revenues............................................. 2,182,600 2,167,941 795,483 859,033
Cost of revenues:
Cost of equipment rentals, excluding depreciation....... 790,234 659,876 290,098 263,262
Depreciation of rental equipment........................ 239,862 246,537 81,508 87,502
Cost of rental equipment sales.......................... 63,744 149,738 21,363 58,570
Cost of equipment and merchandise sales and other
operating costs........................................ 294,888 293,304 97,272 108,995
---------- ---------- -------- --------
Total cost of revenues..................................... 1,388,728 1,349,455 490,241 518,329
---------- ---------- -------- --------
Gross profit............................................... 793,872 818,486 305,242 340,704
Selling, general and administrative expenses............... 332,671 335,461 110,956 124,492
Restructuring charge....................................... 28,922
Non-rental depreciation and amortization................... 80,289 62,610 27,051 21,889
---------- ---------- -------- --------
Operating income........................................... 351,990 420,415 167,235 194,323
Interest expense........................................... 171,315 167,268 56,726 61,058
Preferred dividends of a subsidiary trust.................. 14,625 14,625 4,875 4,875
Other (income) expense, net................................ 6,497 (796) (438) (484)
---------- ---------- -------- --------
Income before provision for income taxes and extraordinary
item...................................................... 159,553 239,318 106,072 128,874
Provision for income taxes................................. 69,154 99,317 44,020 53,483
---------- ---------- -------- --------
Income before extraordinary item........................... 90,399 140,001 62,052 75,391
Extraordinary item, net of tax benefit of $6,759........... 11,317
---------- ---------- -------- --------
Net income................................................. $ 79,082 $ 140,001 $ 62,052 $ 75,391
========== ========== ======== ========
Earnings per share--basic:
Income before extraordinary item........................ $ 1.26 $ 1.96 $ 0.85 $ 1.07
Extraordinary item, net................................. 0.16
---------- ---------- -------- --------
Net income.............................................. $ 1.10 $ 1.96 $ 0.85 $ 1.07
========== ========== ======== ========
Earnings per share--diluted:
Income before extraordinary item........................ $ 0.96 $ 1.49 $ 0.63 $ 0.79
Extraordinary item, net................................. 0.12
---------- ---------- -------- --------
Net income.............................................. $ 0.84 $ 1.49 $ 0.63 $ 0.79
========== ========== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Series C Series D
Perpetual Perpetual
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
----------------- ----------------- ------------------
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
--------- ------- --------- ------- ---------- ------
Balance, December 31,
2000...................... 71,065,707 $ 711
Comprehensive income:
Net income................
Other comprehensive
income:
Foreign currency
translation
adjustments.............
Cumulative effect on
equity of adopting
FAS 133, net of tax
of $1,784...............
Derivatives
qualifying as hedges,
net of tax of $3,759....
Comprehensive income.......
Issuance of common stock
under deferred
compensation plans........ 2,854,264 29
Amortization of deferred
compensation..............
Issuance of Series C
perpetual convertible
preferred stock........... 300,000 $ 3
Issuance of Series D
perpetual convertible
preferred stock........... 150,000 $ 2
Issuance of common stock... 2,770
Exercise of common
stock options............. 723,048 7
Shares repurchased and
retired................... (1,350,600) (14)
------- ------- ------- ------- ---------- ------
Balance, September 30,
2001...................... 300,000 $ 3 150,000 $ 2 73,295,189 $ 733
======= ======= ======= ======= ========== ======
Accumulated
Additional Other
Paid-in Deferred Retained Comprehensive Comprehensive
Capital Compensation Earnings Income Loss
---------- ------------ -------- ------------- -------------
Balance, December 31,
2000...................... $ 765,529 $355,850 $ (6,947)
Comprehensive income:
Net income................ 79,082 $79,082
Other comprehensive
income:
Foreign currency
translation
adjustments............. (9,031) (9,031)
Cumulative effect on
equity of adopting
FAS 133, net of tax
of $1,784............... (2,516) (2,516)
Derivatives
qualifying as hedges,
net of tax of $3,759.... (5,299) (5,299)
-------
Comprehensive income....... $62,236
=======
Issuance of common stock
under deferred
compensation plans........ 60,621 (60,649)
Amortization of deferred
compensation.............. 3,675
Issuance of Series C
perpetual convertible
preferred stock........... 286,734
Issuance of Series D
perpetual convertible
preferred stock........... 143,667
Issuance of common stock... 50
Exercise of common
stock options............. 9,891
Shares repurchased and
retired................... (24,744)
---------- -------- -------- --------
Balance, September 30,
2001...................... $1,241,748 $(56,974) $434,932 $(23,793)
========== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
----------------------
2001 2000
----------- ---------
(In thousands)
Cash Flows From Operating Activities:
Net income........................................................................................ $ 79,082 $ 140,001
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................... 320,151 309,147
Gain on sales of rental equipment................................................................ (43,937) (105,239)
Deferred taxes................................................................................... 54,724 84,419
Amortization of deferred compensation............................................................ 3,675
Extraordinary item............................................................................... 18,076
Restructuring charge............................................................................. 10,893
Changes in operating assets and liabilities:
Accounts receivable............................................................................ (66,549) (68,607)
Inventory...................................................................................... 39,897 12,444
Prepaid expenses and other assets.............................................................. (31,291) (49,515)
Accounts payable............................................................................... (9,986) 17,736
Accrued expenses and other liabilities......................................................... 60,139 (47,750)
----------- ---------
Net cash provided by operating activities................................................. 434,874 292,636
Cash Flows From Investing Activities:
Purchases of rental equipment..................................................................... (395,027) (681,099)
Purchases of property and equipment............................................................... (42,237) (112,153)
Proceeds from sales of rental equipment........................................................... 107,681 254,977
In-process acquisition costs...................................................................... (2,570) (3,157)
Payments of contingent purchase price............................................................. (12,748)
Purchases of other companies...................................................................... (45,200) (304,232)
----------- ---------
Net cash used in investing activities..................................................... (377,353) (858,412)
Cash Flows From Financing Activities:
Proceeds from debt................................................................................ 2,008,655 579,080
Payments of debt.................................................................................. (2,017,087) (131,382)
Proceeds from sale-leaseback...................................................................... 165,511
Payments of financing costs....................................................................... (27,946) (8,862)
Proceeds from the exercise of common stock options................................................ 8,778 179
Shares repurchased and retired.................................................................... (24,758) (30,950)
----------- ---------
Net cash (used in) provided by financing activities....................................... (52,358) 573,576
Effect of foreign exchange rates.................................................................. (9,031) 104
----------- ---------
Net (decrease) increase in cash and cash equivalents.............................................. (3,868) 7,904
Cash and cash equivalents at beginning of period.................................................. 34,384 23,811
----------- ---------
Cash and cash equivalents at end of period........................................................ $ 30,516 $ 31,715
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................................ $ 168,488 $ 179,625
Cash paid for income taxes, net of refunds........................................................ $ 1,535 $ 67,210
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................................................................... $ 12,692 $ 492,944
Liabilities assumed............................................................................ (4,767) (123,515)
Less: Amounts paid through issuance of debt.................................................... (600) (65,197)
----------- ---------
7,325 304,232
Due to seller and other payments............................................................... 37,875
----------- ---------
Net cash paid............................................................................. $ 45,200 $ 304,232
=========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
7
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
(In thousands, except share
data)
ASSETS
Cash and cash equivalents......................................................... $ 30,516 $ 34,384
Accounts receivable, net of allowance for doubtful accounts of $50,850 in 2001 and
$55,624 in 2000................................................................. 539,311 469,594
Inventory......................................................................... 105,064 133,380
Prepaid expenses and other assets................................................. 162,955 104,493
Rental equipment, net............................................................. 1,819,801 1,732,835
Property and equipment, net....................................................... 397,939 387,432
Goodwill, net of accumulated amortization of $146,532 in 2001 and
$103,219 in 2000................................................................ 2,207,797 2,215,532
Other intangible assets, net...................................................... 8,583 11,476
---------- ----------
$5,271,966 $5,089,126
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable............................................................... $ 253,813 $ 260,155
Debt........................................................................... 2,698,443 2,675,367
Deferred taxes................................................................. 267,403 206,243
Accrued expenses and other liabilities......................................... 181,147 119,172
---------- ----------
Total liabilities.......................................................... 3,400,806 3,260,937
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..................................................... 1,516,439 1,507,661
Retained earnings.............................................................. 378,514 327,475
Accumulated other comprehensive loss........................................... (23,793) (6,947)
---------- ----------
Total stockholder's equity................................................. 1,871,160 1,828,189
---------- ----------
$5,271,966 $5,089,126
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
8
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- ------------------
2001 2000 2001 2000
---------- ---------- -------- --------
(In thousands)
Revenues:
Equipment rentals...................................... $1,670,036 $1,522,131 $626,286 $610,499
Sales of rental equipment.............................. 107,681 254,977 35,442 99,806
Sales of equipment and merchandise and other...........
Sales of equipment and merchandise and other revenues.. 404,883 390,833 133,755 148,728
---------- ---------- -------- --------
Total revenues............................................ 2,182,600 2,167,941 795,483 859,033
Cost of revenues:
Cost of equipment rentals, excluding depreciation...... 790,234 659,876 290,098 263,262
Depreciation of rental equipment....................... 239,862 246,537 81,508 87,502
Cost of rental equipment sales......................... 63,744 149,738 21,363 58,570
Cost of equipment and merchandise sales and other
operating costs...................................... 294,888 293,304 97,272 108,995
---------- ---------- -------- --------
Total cost of revenues.................................... 1,388,728 1,349,455 490,241 518,329
---------- ---------- -------- --------
Gross profit.............................................. 793,872 818,486 305,242 340,704
Selling, general and administrative expenses.............. 332,671 335,461 110,956 124,492
Restructuring charge...................................... 28,922
Non-rental depreciation and amortization.................. 74,035 57,100 25,083 19,945
---------- ---------- -------- --------
Operating income.......................................... 358,244 425,925 169,203 196,267
Interest expense.......................................... 171,315 167,268 56,726 61,058
Other (income) expense, net............................... 6,497 (796) (438) (484)
---------- ---------- -------- --------
Income before provision for income taxes and extraordinary
item.................................................... 180,432 259,453 112,915 135,693
Provision for income taxes................................ 78,693 107,722 47,289 56,313
---------- ---------- -------- --------
Income before extraordinary item.......................... 101,739 151,731 65,626 79,380
Extraordinary item, net of tax benefit of $6,759.......... 11,317
---------- ---------- -------- --------
Net income................................................ $ 90,422 $ 151,731 $ 65,626 $ 79,380
========== ========== ======== ========
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 Accumulated
---------------- Additional Other
Number Paid-In Retained Comprehensive Comprehensive
of Shares Amount Capital Earnings Income Loss
--------- ------ ---------- -------- ------------- -------------
(In thousands, except share data)
Balance, December 31, 2000....................... 1,000 $1,507,661 $327,475 $ (6,947)
Comprehensive income:
Net income..................................... 90,422 $90,422
Other comprehensive income:
Foreign currency translation adjustments...... (9,031) (9,031)
Cumulative effect on equity of adopting
FAS 133, net of tax of $1,784................ (2,516) (2,516)
Derivatives qualifying as hedges, net of tax
$3,759....................................... (5,299) (5,299)
-------
Comprehensive income............................. $73,576
=======
Contributed capital from parent.................. 8,778
Dividend distributions to parent................. (39,383)
----- ---------- -------- --------
Balance, September 30, 2001...................... 1,000 $1,516,439 $378,514 $(23,793)
===== ========== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
10
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
----------------------
2001 2000
----------- ---------
(In thousands)
Cash Flows From Operating Activities:
Net income........................................................................................ $ 90,422 $ 151,731
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................... 313,897 303,637
Gain on sales of rental equipment................................................................ (43,937) (105,239)
Deferred taxes................................................................................... 54,724 84,419
Extraordinary item............................................................................... 18,076
Restructuring charge............................................................................. 10,893
Changes in operating assets and liabilities:
Accounts receivable............................................................................ (66,549) (68,607)
Inventory...................................................................................... 39,897 12,444
Prepaid expenses and other assets.............................................................. (31,023) (76,848)
Accounts payable............................................................................... (9,986) 17,884
Accrued expenses and other liabilities......................................................... 65,626 (34,549)
----------- ---------
Net cash provided by operating activities.................................................... 442,040 284,872
Cash Flows From Investing Activities:
Purchases of rental equipment..................................................................... (395,027) (681,099)
Purchases of property and equipment............................................................... (37,348) (94,544)
Proceeds from sales of rental equipment........................................................... 107,681 254,977
Payments of contingent purchase price............................................................. (12,748)
Purchases of other companies...................................................................... (45,200) (304,232)
----------- ---------
Net cash used in investing activities........................................................ (369,894) (837,646)
Cash Flows From Financing Activities:
Proceeds from debt................................................................................ 2,008,655 579,080
Payments of debt.................................................................................. (2,017,087) (131,382)
Proceeds from sale-leaseback...................................................................... 165,511
Payments of financing costs....................................................................... (27,946) (7,239)
Capital contributions by parent................................................................... 8,778 179
Dividend distributions to parent.................................................................. (39,383) (45,575)
----------- ---------
Net cash (used in) provided by financing activities.......................................... (66,983) 560,574
Effect of foreign exchange rates.................................................................. (9,031) 104
----------- ---------
Net (decrease) increase in cash and cash equivalents.............................................. (3,868) 7,904
Cash and cash equivalents at beginning of period.................................................. 34,384 23,811
----------- ---------
Cash and cash equivalents at end of period........................................................ $ 30,516 $ 31,715
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................................ $ 153,863 $ 165,000
Cash paid for income taxes, net of refunds........................................................ $ 1,535 $ 67,210
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................................................................... $ 12,692 $ 492,944
Liabilities assumed............................................................................ (4,767) (123,515)
Less: Amounts paid through issuance of debt.................................................... (600) (65,197)
----------- ---------
7,325 304,232
Due to seller and other payments............................................................... 37,875
----------- ---------
Net cash paid............................................................................. $ 45,200 $ 304,232
=========== =========
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 nine and three month periods ended September 30,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. 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, 2000.
Impact of Recently Issued Accounting Standards
In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a replacement of FASB Statement No. 125". This standard revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures. This standard
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The adoption of SFAS No. 140 did not have
a material effect on the Company's consolidated financial position or results
of operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations". This
standard addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises". All
business combinations in the scope of this Statement are to be accounted for
using one method, the purchase method. This standard is effective for all
business combinations initiated after June 30, 2001.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". This standard addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "Intangible Assets". This standard is effective for fiscal years beginning
after December 15, 2001. However, this standard is immediately effective in
cases where goodwill and intangible assets are acquired after June 30, 2001.
Under this standard, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. The Company is currently evaluating the impact SFAS No. 142 will have on
its financial statements and will perform a fair value analysis of its goodwill
in connection with the adoption of this standard on January 1, 2002. Goodwill
amortization for the nine months ended September 30, 2001 was approximately
$43.3 million.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". This standard addresses financial accounting
and reporting for the impairment or disposal of
12
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This
standard is effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS No. 144 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
Exchange of Preferred Stock
The Company issued Series A Perpetual Convertible Preferred Stock ("Series A
Preferred") and Series B Perpetual Convertible Preferred Stock ("Series B
Preferred") in 1999 and included such preferred in stockholders' equity. In
July 2001, the SEC issued guidance to all public companies as to when
redeemable preferred stock may be classified as stockholders' equity. This
guidance indicates that preferred stock that would be subject to redemption on
the occurrence of an event outside the control of the issuer may not be
classified as equity and that the probability of the event occurring is not a
factor to be considered. Under this guidance, the Series A Preferred and Series
B Preferred would not be included in stockholders' equity because this stock
would be subject to mandatory redemption on a hostile change of control. On
September 28, 2001, the Company entered into an agreement effecting the
exchange of new Series C Perpetual Convertible Preferred Stock ("Series C
Preferred") for the Series A Preferred and new Series D Perpetual Convertible
Preferred Stock ("Series D Preferred") for the Series B Preferred (see note 6).
The Series C Preferred and Series D Preferred stock is not subject to mandatory
redemption on a hostile change of control, and will be classified as
stockholders' equity under the recently issued SEC guidance.
The effect of the foregoing is that the Company's perpetual convertible
preferred stock is classified as stockholders' equity as of September 28, 2001
and thereafter, and outside of stockholders' equity for earlier dates.
Accordingly, the Company's perpetual convertible preferred stock is (i)
reflected as "Stockholders" Equity" on the accompanying balance sheet as of
September 30, 2001 and (ii) reflected under "Series A and B Preferred Stock",
rather than under "Stockholders' Equity", in the accompanying balance sheet as
of December 31, 2000.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2001
presentation.
2. Acquisitions
During the nine months ended September 30, 2001 and the year ended December
31, 2000, the Company completed three acquisitions and 53 acquisitions,
respectively, 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 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 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 preliminary purchase price
allocations that are subject to change primarily consists of rental and
non-rental equipment valuations. These allocations are finalized within 12
months of the acquisition date and are not expected to result in significant
differences between the preliminary and final allocations.
13
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes, on an unaudited pro forma basis, the results
of operations of the Company for the nine months ended September 30, 2000 as
though each acquisition which was consummated during the period January 1, 2000
to September 30, 2001 as mentioned above and in Note 3 to the Notes to
Consolidated Financial Statements included in the Company's 2000 Annual Report
on Form 10-K was made on January 1, 2000 (in thousands, except per share data):
Revenues.................. $2,354,485
Net income................ $ 148,495
Basic earnings per share.. $ 2.08
Diluted earnings per share $ 1.58
Since the acquisitions made during the nine months ended September 30, 2001
had an insignificant impact on the Company's pro forma results of operations,
the pro forma results of operations for the nine months ended September 30,
2001 are not shown.
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. Restructuring Charge
During the second quarter of 2001, the Company recorded a restructuring
charge of approximately $28.9 million. The charge primarily relates to the
closure or consolidation of underperforming branches and administrative
offices, a reduction in the Company's workforce, and certain information
technology project costs. Approximately $10.9 million of the charge is
non-cash. Approximately $7.2 million has been paid as of September 30, 2001. Of
the remaining $10.8 million of this charge, approximately $4.6 million will be
paid by December 31, 2001 and approximately $6.2 million will be paid in future
periods.
Components of the restructuring charge are as follows:
Activity Balance
Restructuring in September 30,
Charg-e 2001 2001
------------- -------- -------------
Costs to vacate facilities..... $18,291 $11,605 $ 6,686
Workforce reduction costs...... 5,666 3,092 2,574
Information technology costs... 4,965 3,414 1,551
------- ------- -------
$28,922 $18,111 $10,811
======= ======= =======
Under the restructuring plan, 31 underperforming branches and five
administrative offices will be closed or consolidated, the Company's workforce
will be reduced by 489 through the termination of branch and administrative
personnel (including 440 terminated as of September 30, 2001), and certain
information technology hardware and software will no longer be used. The
workforce reduction costs primarily represent severance. The costs to vacate
facilities primarily represent the payment of obligations under leases offset
by estimated sublease opportunities ($9.9 million), the write-off of capital
improvements made to such facilities ($2.8 million) and the write-off of
related goodwill ($5.6 million). As of September 30, 2001, 29 of the 31
underperforming branches have been closed or consolidated and the remaining 2
underperforming branches will be closed or consolidated by December 31, 2001.
The information technology costs represent the abandonment of certain
information technology projects ($2.5 million) and the payment of obligations
under equipment leases relating to such projects ($2.5 million).
14
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Refinancing of Debt
In April 2001, URI issued $450.0 million aggregate principal amount of 10
3/4% senior notes. Concurrent with the issuance of the senior notes, URI
entered into a new senior secured credit facility. The new credit facility is
comprised of a $750.0 million term loan and a $750.0 million revolving credit
facility. The proceeds from the new senior notes and new senior secured credit
facility were used to refinance outstanding secured indebtedness of
approximately $1,664.5 million and obligations under a synthetic lease of $31.2
million. As a result of the refinancing, the Company recorded an extraordinary
charge of approximately $18.1 million ($11.3 million, net of tax), primarily
related to the write-off of financing fees, and a charge of approximately $7.8
million recorded in other (income) expense, net related to refinancing costs of
the synthetic lease.
10 3/4% Senior Notes. On April 20, 2001, URI sold $450 million aggregate
principal amount of 10 3/4% Senior Notes Due 2008. The net proceeds from the
sale of the notes were approximately $439.9 million (after deducting the
initial purchasers' discount and offering expenses). The notes mature on April
15, 2008. The notes are unsecured and are guaranteed by Holdings and by URI's
domestic subsidiaries. URI may, at its option, redeem the notes on or after
April 15, 2005, at specified redemption prices which range from 105.375% in
2005 to 100.0% in 2007 and thereafter. In addition, on or prior to April 15,
2004, URI may, at its option, use the proceeds of a public equity offering to
redeem up to 35% of the outstanding notes, at a redemption price of 110.75%.
The indenture governing the notes contains certain restrictive covenants,
including limitations on (i) additional indebtedness, (ii) restricted payments,
(iii) liens, (iv) dividends and other payments, (v) preferred stock of certain
subsidiaries, (vi) transactions with affiliates, (vii) the disposition of
proceeds of asset sales and (viii) the Company's ability to consolidate, merge
or sell all or substantially all of its assets.
New Revolving Credit Facility. The revolving credit facility enables URI to
borrow up to $750 million on a revolving basis and enables one of its Canadian
subsidiaries to borrow up to $40 million (provided that the aggregate
borrowings of URI and the Canadian subsidiary may not exceed $750 million). Up
to $100 million of the revolving credit facility is available in the form of
letters of credit. The revolving credit facility will mature and terminate on
October 20, 2006. As of September 30, 2001, approximately $259.5 million was
outstanding under the revolving credit facility.
Borrowings under the revolving credit facility will until October 20, 2001,
accrue interest, at our option, at either (A) the ABR Rate (which is equal to
the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan
Bank's prime rate) plus a margin of 1.00% or (B) an adjusted LIBOR rate plus a
margin of 2.0%. From and after October 20, 2001, the above interest rate
margins will be adjusted quarterly based on our financial leverage ratio, up to
maximum margins of 1.75% and 2.75%, for revolving loans based on the ABR rate
and the adjusted LIBOR rate, respectively, and down to minimum margins of 0.75%
and 1.75%, for revolving loans based on the ABR rate and the adjusted LIBOR
rate, respectively.
Borrowings by the Canadian subsidiary under the revolving credit facility
will until October 20, 2001, accrue interest, at such subsidiary's option, at
either (X) the Prime rate (which is equal to the Chase Manhattan Bank of
Canada's prime rate) plus a margin of 1.00% or (Y) the B/A rate (which is equal
to the Chase Manhattan Bank of Canada's B/A rate) plus a margin of 2.0%. From
and after October 20, 2001, the above interest rate margins will be adjusted
quarterly based on our financial leverage ratio, up to maximum margins of 1.75%
and 2.75%, for revolving loans based on the Prime rate and the B/A rate,
respectively, and down to minimum margins of 0.75% and 1.75%, for revolving
loans based on the Prime rate and the B/A rate, respectively.
If at any time an event of default exists, the interest rate applicable to
each loan will increase by 2% per annum.
The Company is also required to pay the lenders a commitment fee equal to
0.5% per annum in respect of undrawn commitments under the revolving credit
facility.
15
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
New Term Loan. On April 20, 2001, URI obtained a $750 million term loan.
Amounts repaid in respect of the term loan may not be reborrowed. URI must
repay the principal of the term loan in installments, over six and one-half
years, as follows: (i) on June 30, 2001 and on the last day of each calendar
quarter thereafter up to and including September 30, 2006, URI must repay $1.9
million and (ii) on the last day of each calendar quarter thereafter up to and
including September 30, 2007, URI must repay $177.2 million.
Borrowings under the term loan accrue interest, at our option, at either (a)
the ABR rate (which is equal to the greater of (i) the Federal Funds Rate plus
0.5% or (ii) the Chase Manhattan Bank's prime rate) plus a margin of 2.0%, or
(b) an adjusted LIBOR rate plus a margin of 3.0%.
Covenants. The agreements governing the new senior secured credit facility
contain certain covenants that requires the Company to, among other things,
satisfy certain financial tests relating to: (a) the ratio of senior debt to
cash flow, (b) minimum interest coverage ratio, (c) the ratio of funded debt to
cash flow, and (d) the ratio of senior debt to tangible assets. These
agreements also contain various other covenants that restrict the Company's
ability to, among other things, (i) incur additional indebtedness, (ii) permit
liens to attach to its assets, (iii) pay dividends or make other restricted
payments on its common stock and certain other securities and (iv) make
acquisitions unless certain financial conditions are satisfied.
Security and Guarantees. URI's obligations under the new senior secured
facility are, subject to limited exceptions, (i) guaranteed by Holdings and
URI's United States subsidiaries and (ii) secured by substantially all of URI's
assets, the stock of URI and the stock of Holding's other United States
subsidiaries and a portion of the stock of Holding's Canadian subsidiaries. The
obligations of the Canadian subsidiary that may borrow under the revolving
credit facility are guaranteed by our other Canadian subsidiaries and secured
by substantially all of the assets of this Canadian subsidiary and the stock of
its subsidiaries.
5. Receivables Securitization
During the quarter ended September 30, 2001, the Company had obtained
additional cash through the securitization of certain of its accounts
receivable through its existing $250.0 million receivable securitization
facility. In the securitization transactions, the Company transferred accounts
receivable to a special purpose vehicle (the "SPV"), which in turn pledged
those receivables to secure borrowings that the SPV incurred to finance its
acquisition of those receivables. A portion of those borrowings generally
accrues interest at the commercial paper rate for commercial paper issued by
Atlantic Asset Securitization Corp. with a similar maturity as such borrowings
plus a margin of 0.75% per annum, and the balance of those borrowings generally
accrues interest at the blended commercial paper rate for commercial paper
issued by Gramercy Capital Corporation to fund such borrowings plus a margin of
0.75% per annum. The SPV's borrowings are an obligation of the SPV and not of
the Company or URI, and the lenders' recourse in respect of the borrowings is
generally limited to collections that the SPV receives on the receivables.
Collections on the receivables are used to service the borrowings. From time to
time prior to June 2002, subject to certain conditions, collections from the
receivables may be reinvested by the SPV in additional accounts receivable
originated by the Company. Subject to certain conditions, the receivables
securitization may be extended until December 2003 with the same terms. As of
September 30, 2001, approximately $241.5 million of borrowings were outstanding
under the receivables securitization facility.
6. Preferred Stock
New Preferred Stock. On September 28, 2001, the Company entered into an
agreement effecting an exchange of the Company's outstanding Series A Preferred
for an equal number of shares of Series C Preferred and the exchange of the
Company's Series B Preferred for an equal number of shares of Series D
Preferred.
16
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Except as described below, the material terms of the new Series C Preferred are
the same as the old Series A Preferred and the material terms of the new Series
D Preferred are the same as the old Series B Preferred.
The certificates of designation for the Series A Preferred and Series B
Preferred (the "Prior Preferred") provided that, upon the occurrence of a
Change of Control (as defined in these certificates of designation), the
Company is required to redeem the Prior Preferred. The term "Change of
Control," as defined in these certificates of designation, would have included
certain transactions that were disapproved by the Company's board. The
certificates of designation for Series C Preferred and Series D Preferred (the
"New Preferred") change these provisions by excluding from the definition of
"Change of Control" transactions that are defined as "Non-Approved Changes of
Control." In general, a Non-Approved Change of Control transaction is a change
of control transaction that the board has disapproved and which the board has
not facilitated by such actions as weakening or eliminating the Company's
Stockholder Rights Plan.
If a Non-Approved Change of Control occurs, the holders of the New Preferred
obtain the following additional rights, but only if, prior to the transaction,
the board does not elect to offer the holders of the New Preferred essentially
the same redemption rights that apply to an approved Change of Control
transaction:
. The holders of the Series C Preferred would elect a majority of the
board for a specified period and, during such period, the unanimous vote
of the board would be required to approve any optional redemption of the
New Preferred or to declare, pay, or change the accrual rate of, any
dividends on the New Preferred.
. Upon liquidation, the holders of the New Preferred would receive, in
addition to the liquidation preference and accrued dividends, an amount
equal to 6.25% of the liquidation preference, compounded annually from
the date the Series A Preferred was issued, in the case of the Series C
Preferred, or the date the Series B was issued, in the case of the
Series D Preferred, and ending on the date of the Non Approved Change of
Control. In addition, after holders of the Common Stock have received
the equivalent amount, the holders of the New Preferred would
participate with the holders of the Common Stock in any remaining
amounts available for distribution (based upon the number of shares of
Common Stock into which such Preferred shares would then be convertible).
. Dividends would begin to accrue on the New Preferred. Accrued dividends
would not be payable until liquidation or sale of the Company, unless
the board by unanimous vote approves earlier payment. The dividend rate
would be 10% per annum of the liquidation preference, compounded
annually. If these dividends are not paid quarterly, additional
dividends would accrue at the rate of 8% per annum of the liquidation
preference, compounded annually. Any regular or additional dividends
that are not paid quarterly would be added to the liquidation preference.
Stockholders Rights Plan. The Company adopted a Stockholders Rights Plan on
September 28, 2001 (with a record date of October 19, 2001). This plan and
other provisions of the Company's charter and bylaws may have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of the Company, including transactions in which the shareholders of
the Company might otherwise receive a premium for their shares over then
current market prices. The rights expire on September 27, 2011.
17
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
Nine Months Three Months
Ended Ended
September 30, September 30,
----------------- ----------------
2001 2000 2001 2000
-------- -------- -------- -------
Numerator:
Income before extraordinary item................................ $ 90,399 $140,001 $ 62,052 $75,391
Plus: preferred dividends of a subsidiary trust, net of taxes... 8,544 2,841 2,841
-------- -------- -------- -------
Income available to common stockholders......................... $90,399 $148,545 $ 64,893 $78,232
======== ======== ======== =======
Denominator:
Denominator for basic earnings per share--
weighted-average shares......................................... 71,745 71,319 73,233 70,286
Effect of dilutive securities:
Employee stock options...................................... 1,522 1,483 2,379 2,178
Warrants.................................................... 3,723 2,729 4,027 3,193
Series A perpetual convertible preferred stock.............. 12,000 12,000
Series B perpetual convertible preferred stock.............. 5,000 5,000
Series C perpetual convertible preferred stock.............. 12,000 12,000
Series D perpetual convertible preferred stock.............. 5,000 5,000
Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust.................. 6,876 6,876 6,876
-------- -------- -------- -------
Denominator for diluted earnings per share--
adjusted weighted-average shares................................ 93,990 99,407 103,515 99,533
======== ======== ======== =======
Earnings per share-basic:
Income before extraordinary item................................ $ 1.26 $ 1.96 $ 0.85 $ 1.07
Extraordinary item, net......................................... 0.16
-------- -------- -------- -------
Net Income...................................................... $ 1.10 $ 1.96 $ 0.85 $ 1.07
======== ======== ======== =======
Earnings per share-diluted:
Income before extraordinary item-............................... $ 0.96 $ 1.49 $ 0.63 $ 0.79
Extraordinary item, net......................................... 0.12
======== ======== ======== =======
Net income...................................................... $ 0.84 $ 1.49 $ 0.63 $ 0.79
======== ======== ======== =======
8. Stock Plans
2001 Senior Stock Plan. In June 2001, the Company's shareholders approved
the adoption of the 2001 Senior Stock Plan. This plan provides for the awarding
of common stock and other equity-linked awards to our officers and directors.
The maximum number of shares of common stock that can be issued under the plan
is 4,000,000. The Company records each share that is awarded under this plan at
an amount no less than 100% of the fair market value per share at the date of
the award. No shares may be awarded under this plan after June 5, 2011. As of
September 30, 2001, 2,015,000 shares had been awarded under this plan.
Determinations concerning the persons to receive awards, the form, amount and
timing of such awards and terms and provisions of such awards are made by the
Board of Directors (or a committee appointed by the Board of Directors).
18
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2001 Stock Plan. In March 2001, the Company adopted the 2001 Stock Plan.
This plan provides for the awarding of common stock and other equity-linked
awards to certain employees (other than officers and directors) and others who
render services to the Company. The maximum number of shares of common stock
that can be issued under the plan is 2,000,000. The Company records each share
that is awarded under this plan at an amount no less than 100% of the fair
market value per share at the date of the award. No shares may be awarded under
this plan after March 23, 2011. As of September 30, 2001, 839,264 shares had
been awarded under this plan. Determinations concerning the persons to receive
awards, the form, amount and timing of such awards and terms and provisions of
such awards are made by the Board of Directors (or a committee appointed by the
Board of Directors). The Company records the issuance of restricted shares at
the quoted market price on the date of the grants. Amortization of deferred
compensation is then recognized on a straight-line basis over the related
vesting period.
9. Comprehensive Income
The following table sets forth the Company's comprehensive income (in
thousands):
Nine Months Three Months
Ended Ended
September 30, September 30,-
----------------- ----------------
2001 2000 2001 2000
------- -------- ------- -------
Net income.................................................... $79,082 $140,001 $62,052 $75,391
Other comprehensive gain (loss):
Foreign currency translation adjustment................... (9,031) 104 (5,583) (238)
Cumulative effect on equity of adopting FAS No. 133,
net of tax of $1,784..................................... (2,516)
Derivatives qualifying as hedges, net of tax of $3,759..... (5,299) (3,486)
------- -------- ------- -------
Comprehensive income.......................................... $62,236 $140,105 $52,983 $75,153
======= ======== ======= =======
10. Derivative Financial Instruments
The FASB issued, and subsequently amended, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which became effective for the
Company on January 1, 2001. Under SFAS No. 133, all derivatives are required to
be recorded as assets or liabilities and measured at fair value. Gains or
losses resulting from changes in the values of derivatives are recognized
immediately or deferred, depending on the use of the derivative and whether or
not it qualifies as a hedge.
The Company occasionally uses derivative financial instruments to manage its
risk associated with fluctuations in interest rates on its debt and its risk
associated with fluctuations in foreign exchange rates related to its
liabilities denominated in foreign currencies. As of September 30, 2001, the
Company had outstanding interest rate swap agreements that converts a portion,
or $200.0 million, of its variable rate term loan to a fixed rate instrument
through 2003. These swap agreements are designated as cash flow hedges and
changes in fair value of the hedges are recorded in other comprehensive income
and reclassified into earnings in the same periods during which the hedged
transaction affects earnings. There is no ineffectiveness related to these
hedges.
19
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Condensed Consolidating Financial Information of Guarantor Subsidiaries
Certain indebtedness of URI, a wholly-owned subsidiary of Holdings (the
"Parent"), is guaranteed by URI's United States subsidiaries (the "guarantor
subsidiaries") and, in certain cases, also by Parent. However, this
indebtedness 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). Separate consolidated
financial statements of the guarantor subsidiaries have not been presented
because management believes such information would not be material to
investors. However, condensed consolidating financial information as of
September 30, 2001 and December 31, 2000 and for the nine and three months
ended September 30, 2001 and 2000, are presented. The condensed consolidating
financial information of URI and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2001
--------------------------------------------------
Non-
Guarantor Guarantor Other and
Parent URI Subsidiaries Subsidiaries Eliminations
---------- ---------- ------------ ------------ ------------
(In thousands)
ASSETS
Cash and cash equivalents............................. $ 28,250 $ 2,266
Accounts receivable, net.............................. $ 23,573 486,040 29,698
Intercompany receivable (payable)..................... 230,187 (54,955) (175,232)
Inventory............................................. 39,485 61,180 4,399
Prepaid expenses and other assets..................... 60,656 100,867 1,432 $ 8,903
Rental equipment, net................................. 938,591 759,124 122,086
Property and equipment, net........................... $ 27,377 144,069 237,256 16,614
Investment in subsidiaries............................ 1,876,813 2,388,936 (4,265,749)
Intangible assets, net................................ 865,002 1,228,197 123,181
---------- ---------- ---------- --------- -----------
$1,904,190 $4,690,499 $2,845,959 $ 124,444 $(4,256,846)
========== ========== ========== ========= ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Accounts payable................................... $ 70,323 $ 168,722 $ 14,768
Debt............................................... $ 300,000 2,435,357 244,075 19,011 $ (300,000)
Deferred income taxes.............................. 267,353 50
Accrued expenses and other liabilities............. 7,539 49,751 118,564 12,832 3,250
---------- ---------- ---------- --------- -----------
Total liabilities................................ 307,539 2,822,784 531,411 46,611 (296,750)
Commitments and contingencies
Company-obligated mandatorily redeemable
convertible preferred securities of a subsidiary trust 300,000
Stockholders' equity:
Preferred stock.................................... 5
Common stock....................................... 733
Additional paid-in capital......................... 1,241,748 1,497,015 1,839,014 65,920 (3,401,949)
Deferred compensation.............................. (56,974)
Retained earnings.................................. 434,932 378,515 475,534 27,891 (881,940)
Accumulated other comprehensive income............. (23,793) (7,815) (15,978) 23,793
---------- ---------- ---------- --------- -----------
Total stockholders' equity....................... 1,596,651 1,867,715 2,314,548 77,833 (4,260,096)
---------- ---------- ---------- --------- -----------
$1,904,190 $4,690,499 $2,845,959 $ 124,444 $(4,256,846)
========== ========== ========== ========= ===========
Consolidated
Total
------------
ASSETS
Cash and cash equivalents............................. $ 30,516
Accounts receivable, net.............................. 539,311
Intercompany receivable (payable).....................
Inventory............................................. 105,064
Prepaid expenses and other assets..................... 171,858
Rental equipment, net................................. 1,819,801
Property and equipment, net........................... 425,316
Investment in subsidiaries............................
Intangible assets, net................................ 2,216,380
----------
$5,308,246
==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Accounts payable................................... $ 253,813
Debt............................................... 2,698,443
Deferred income taxes.............................. 267,403
Accrued expenses and other liabilities............. 191,936
----------
Total liabilities................................ 3,411,595
Commitments and contingencies
Company-obligated mandatorily redeemable
convertible preferred securities of a subsidiary trust 300,000
Stockholders' equity:
Preferred stock.................................... 5
Common stock....................................... 733
Additional paid-in capital......................... 1,241,748
Deferred compensation.............................. (56,974)
Retained earnings.................................. 434,932
Accumulated other comprehensive income............. (23,793)
----------
Total stockholders' equity....................... 1,596,651
----------
$5,308,246
==========
20
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2000
-------------------------------------------------------------------------
Non-
Guarantor Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
---------- ---------- ------------ ------------ ------------ ------------
(In thousands)
Assets
Cash and cash equivalents................... $ 29,733 $ 4,651 $ 34,384
Accounts receivable, net.................... $ 216,444 143,295 109,855 469,594
Intercompany receivable (payable)........... 319,423 (55,187) (264,236)
Inventory................................... 54,022 73,979 5,379 133,380
Prepaid expenses and other assets........... 28,263 75,633 597 104,493
Rental equipment, net....................... 837,972 766,219 128,644 1,732,835
Property and equipment, net................. $ 34,807 139,871 231,195 16,366 422,239
Investment in subsidiaries.................. 1,839,952 2,257,692 $(4,097,644)
Intangible assets, net...................... 960,444 1,132,438 134,126 2,227,008
---------- ---------- ---------- --------- ----------- ----------
$1,874,759 $4,814,131 $2,397,305 $ 135,382 $(4,097,644) $5,123,933
========== ========== ========== ========= =========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable......................... $ 78,623 $ 165,677 $ 15,855 $ 260,155
Debt..................................... $ 300,000 2,647,144 3,484 24,739 $ (300,000) 2,675,367
Deferred income taxes.................... 186,091 20,702 (550) 206,243
Accrued expenses and other liabilities... 28,816 86,560 18,862 13,750 (11,763) 136,225
---------- ---------- ---------- --------- ----------- ----------
Total liabilities...................... 328,816 2,998,418 208,725 53,794 (311,763) 3,277,990
Commitments and contingencies
Company-obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust............................ 300,000 300,000
Series A and B preferred stock.............. 430,800 430,800
Stockholders' equity:
Common stock............................. 711 711
Additional paid-in capital............... 765,529 1,488,238 1,830,500 65,657 (3,384,395) 765,529
Retained earnings........................ 355,850 327,475 358,080 22,878 (708,433) 355,850
Accumulated other comprehensive loss..... (6,947) (6,947) 6,947 (6,947)
---------- ---------- ---------- --------- ----------- ----------
Total stockholders' equity............. 1,115,143 1,815,713 2,188,580 81,588 (4,085,881) 1,115,143
---------- ---------- ---------- --------- ----------- ----------
$1,874,759 $4,814,131 $2,397,305 $ 135,382 $(4,097,644) $5,123,933
========== ========== ========== ========= =========== ==========
21
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2001
-----------------------------------------------------------------------
Non-
Guarantor Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
-------- -------- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals.......................... $694,531 $ 897,985 $ 77,520 $1,670,036
Sales of rental equipment.................. 56,160 41,263 10,258 107,681
Sales of equipment and merchandise and
other revenues............................ 188,287 194,607 21,989 404,883
-------- -------- ---------- -------- --------- ----------
Total revenues................................ 938,978 1,133,855 109,767 2,182,600
Cost of revenues:
Cost of equipment rentals, excluding
depreciation............................... 293,186 459,141 37,907 790,234
Depreciation of rental equipment........... 116,552 107,965 15,345 239,862
Cost of rental equipment sales............. 35,235 22,286 6,223 63,744
Cost of equipment and merchandise sales
and other operating costs.................. 141,240 137,504 16,144 294,888
-------- -------- ---------- -------- --------- ----------
Total cost of revenues........................ 586,213 726,896 75,619 1,388,728
-------- -------- ---------- -------- --------- ----------
Gross profit.................................. 352,765 406,959 34,148 793,872
Selling, general and administrative expenses.. 142,788 171,641 18,242 332,671
Restructuring charge.......................... 28,922 28,922
Non-rental depreciation and amortization...... $ 6,254 31,066 38,567 4,402 80,289
-------- -------- ---------- -------- --------- ----------
Operating income (loss)....................... (6,254) 149,989 196,751 11,504 351,990
Interest expense.............................. 14,625 161,341 8,790 1,184 $ (14,625) 171,315
Preferred dividends of a subsidiary trust..... 14,625 14,625
Other (income) expense, net................... 18,205 (13,414) 1,706 6,497
-------- -------- ---------- -------- --------- ----------
Income (loss) before provision (benefit) for
income taxes and extraordinary item........... (20,879) (29,557) 201,375 8,614 159,553
Provision (benefit) for income taxes.......... (9,539) (8,829) 83,921 3,601 69,154
-------- -------- ---------- -------- --------- ----------
Income (loss) before extraordinary item and
equity in net earnings of subsidiaries....... (11,340) (20,728) 117,454 5,013 90,399
Extraordinary item............................ 11,317 11,317
-------- -------- ---------- -------- --------- ----------
Income (loss) before equity in net earnings of
subsidiaries.................................. (11,340) (32,045) 117,454 5,013 79,082
Equity in net earnings of subsidiaries........ 90,422 122,467 (212,889)
-------- -------- ---------- -------- --------- ----------
Net income.................................... $ 79,082 $ 90,422 $ 117,454 $ 5,013 $(212,889) $ 79,082
======== ======== ========== ======== ========= ==========
22
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2000
---------------------------------------------------------------------
Non-
Guarantor Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
-------- -------- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals............................. $622,474 $ 817,973 $ 81,684 $1,522,131
Sales of rental equipment..................... 114,596 122,502 17,879 254,977
Sales of equipment and merchandise and
other revenues................................ 195,195 171,551 24,087 390,833
-------- -------- ---------- -------- --------- ----------
Total revenues................................... 932,265 1,112,026 123,650 2,167,941
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.................................. 260,097 363,522 36,257 659,876
Depreciation of rental equipment.............. 114,571 117,599 14,367 246,537
Cost of rental equipment sales................ 65,711 72,951 11,076 149,738
Cost of equipment and merchandise sales and
other operating costs......................... 154,807 118,908 19,589 293,304
-------- -------- ---------- -------- --------- ----------
Total cost of revenues........................... 595,186 672,980 81,289 1,349,455
-------- -------- ---------- -------- --------- ----------
Gross profit..................................... 337,079 439,046 42,361 818,486
Selling, general and administrative expenses..... 133,951 183,312 18,198 335,461
Non-rental depreciation and amortization......... $ 5,510 25,639 27,390 4,071 62,610
-------- -------- ---------- -------- --------- ----------
Operating income................................. (5,510) 177,489 228,344 20,092 420,415
Interest expense................................. 14,625 165,547 224 1,497 $ (14,625) 167,268
Preferred dividends of a subsidiary trust........ 14,625 14,625
Other (income) expense, net...................... 8,943 (9,987) 248 (796)
-------- -------- ---------- -------- --------- ----------
Income (loss) before provision for income taxes.. (20,135) 2,999 238,107 18,347 239,318
Provision (benefit) for income taxes............. (8,405) 1,245 99,092 7,385 99,317
-------- -------- ---------- -------- --------- ----------
Income (loss) before equity in net earnings of
subsidiaries..................................... (11,730) 1,754 139,015 10,962 140,001
Equity in net earnings of subsidiaries........... 151,731 149,977 (301,708)
-------- -------- ---------- -------- --------- ----------
Net income....................................... $140,001 $151,731 $ 139,015 $ 10,962 $(301,708) $ 140,001
======== ======== ========== ======== ========= ==========
23
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2001
--------------------------------------------------------------------
Non-
Guarantor Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
------- -------- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals............................. $247,536 $348,035 $30,715 $626,286
Sales of rental equipment..................... 22,438 9,159 3,845 35,442
Sales of equipment and merchandise and
other revenues............................... 60,338 66,513 6,904 133,755
------- -------- -------- ------- --------- --------
Total revenues................................... 330,312 423,707 41,464 795,483
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.................................. 101,778 174,686 13,634 290,098
Depreciation of rental equipment.............. 38,682 37,628 5,198 81,508
Cost of rental equipment sales................ 14,045 4,899 2,419 21,363
Cost of equipment and merchandise sales and
other operating costs......................... 45,535 46,685 5,052 97,272
------- -------- -------- ------- --------- --------
Total cost of revenues........................... 200,040 263,898 26,303 490,241
------- -------- -------- ------- --------- --------
Gross profit..................................... 130,272 159,809 15,161 305,242
Selling, general and administrative expenses..... 48,331 56,755 5,870 110,956
Non-rental depreciation and amortization......... $ 1,968 10,775 12,842 1,466 27,051
------- -------- -------- ------- --------- --------
Operating income................................. (1,968) 71,166 90,212 7,825 167,235
Interest expense................................. 4,875 53,516 2,744 466 $ (4,875) 56,726
Preferred dividends of a subsidiary trust........ 4,875 4,875
Other (income) expense, net...................... 3,480 (4,561) 643 (438)
------- -------- -------- ------- --------- --------
Income (loss) before provision for income........ (6,843) 14,170 92,029 6,716 106,072
Provision (benefit) for income taxes............. (3,269) 5,934 38,542 2,813 44,020
------- -------- -------- ------- --------- --------
Income (loss) before equity in net earnings of
subsidiaries..................................... (3,574) 8,236 53,487 3,903 62,052
Equity in net earnings of subsidiaries........... 65,626 57,390 (123,016)
------- -------- -------- ------- --------- --------
Net income....................................... $62,052 $ 65,626 $ 53,487 $ 3,903 $(123,016) $ 62,052
======= ======== ======== ======= ========= ========
24
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2000
--------------------------------------------------------------------
Non-
Gurantor Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
------- -------- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals............................... $243,673 $333,433 $33,393 $610,499
Sales of rental equipment....................... 40,112 54,187 5,507 99,806
Sales of equipment and merchandise and other
revenues........................................ 83,154 57,350 8,224 148,728
------- -------- -------- ------- --------- --------
Total revenues..................................... 366,939 444,970 47,124 859,033
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.................................... 97,780 152,133 13,349 263,262
Depreciation of rental equipment................ 44,555 37,929 5,018 87,502
Cost of rental equipment sales.................. 21,722 33,480 3,368 58,570
Cost of equipment and merchandise sales and
other operating costs........................... 62,967 39,263 6,765 108,995
------- -------- -------- ------- --------- --------
Total cost of revenues............................. 227,024 262,805 28,500 518,329
------- -------- -------- ------- --------- --------
Gross profit....................................... 139,915 182,165 18,624 340,704
Selling, general and administrative expenses....... 41,264 76,789 6,439 124,492
Non-rental depreciation and amortization........... $ 1,944 7,727 10,793 1,425 21,889
------- -------- -------- ------- --------- --------
Operating income................................... (1,944) 90,924 94,583 10,760 194,323
Interest expense................................... 4,875 60,930 29 99 $ (4,875) 61,058
Preferred dividends of a subsidiary trust.......... 4,875 4,875
Other (income) expense, net........................ 5,014 (5,565) 67 (484)
------- -------- -------- ------- --------- --------
Income (loss) before provision (benefit) for income
taxes.............................................. (6,819) 24,980 100,119 10,594 128,874
Provision (benefit) for income taxes............... (2,830) 10,367 41,827 4,119 53,483
------- -------- -------- ------- --------- --------
Income (loss) before equity in net earnings of
subsidiaries....................................... (3,989) 14,613 58,292 6,475 75,391
Equity in net earnings of subsidiaries............. 79,380 64,767 (144,147)
------- -------- -------- ------- --------- --------
Net income......................................... $75,391 $ 79,380 $ 58,292 $ 6,475 $(144,147) $ 75,391
======= ======== ======== ======= ========= ========
25
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Nine Months Ended September 30, 2001
-------------------------------------------------------------------------
Non-
Guarantor guarantor Other and
Parent URI Subsidiaries Subsidiaries Eliminations Consolidated
-------- ----------- ------------ ------------ ------------ ------------
(In thousands)
Net cash provided by (used in) operating
activities..................................... $ (7,765) $ 289,050 $ 125,996 $ 27,593 $ 434,874
Cash flows from investing activities:
Purchases of rental equipment................ (228,579) (144,259) (22,189) (395,027)
Purchases of property and equipment.......... (4,290) (12,108) (22,948) (2,891) (42,237)
Proceeds from sales of rental equipment...... 56,160 41,263 10,258 107,681
Capital contributed to subsidiary............ (8,778) $ 8,778
Purchases of other companies................. (44,301) (899) (45,200)
In-process acquisition costs................. (2,570) (2,570)
-------- ----------- --------- -------- -------- -----------
Net cash used in investing activities...... (15,638) (228,828) (125,944) (15,721) 8,778 (377,353)
Cash flows from financing activities:
Proceeds from debt........................... 2,008,644 11 2,008,655
Payments of debt............................. (2,010,426) (1,546) (5,115) (2,017,087)
Payments of financing costs.................. (27,835) (111) (27,946)
Capital contributions by parent.............. 8,778 (8,778)
Dividend distributions to parent............. (39,383) 39,383
Shares repurchased and retired............... (24,758) (24,758)
Proceeds from the exercise of common
stock options................................ 8,778 8,778
Proceeds from the dividends from
subsidiary................................... 39,383 (39,383)
-------- ----------- --------- -------- -------- -----------
Net cash provided by (used in)
financing activities....................... 23,403 (60,222) (1,535) (5,226) (8,778) (52,358)
Effect of foreign exchange rates............. (9,031) (9,031)
-------- ----------- --------- -------- -------- -----------
Net decrease in cash and cash equivalents.... (1,483) (2,385) (3,868)
Cash and cash equivalents at beginning of
period....................................... 29,733 4,651 34,384
-------- ----------- --------- -------- -------- -----------
Cash and cash equivalents at end of period... $ 28,250 $ 2,266 $ 30,516
======== =========== ========= ======== ======== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest..................... $ 14,625 $ 140,837 $ 11,447 $ 1,579 $ 168,488
Cash paid for income taxes, net of
refunds.................................... $ 1,828 $ (293) $ 1,535
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................. $ 11,859 $ 833 $ 12,692
Liabilities assumed.......................... (4,573) (194) (4,767)
Less:
Amounts paid through issuance of
debt....................................... (600) (600)
-------- ----------- --------- -------- -------- -----------
6,686 639 7,325
Due to seller and other payments............. 37,615 260 37,875
-------- ----------- --------- -------- -------- -----------
Net cash paid.............................. $ 44,301 $ 899 $ 45,200
======== =========== ========= ======== ======== ===========
26
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Nine Months Ended September 30, 2000
-----------------------------------------------------------
Non-
Guarantor guarantor Other and
Parent URI Subsidiaries Subsidiaries Eliminations
-------- --------- ------------ ------------ ------------
(In thousands)
Net cash provided by (used in) operating activities....... $ 6,141 $(150,846) $ 424,504 $ 12,824 $ 13
Cash flows from investing activities:
Purchases of rental equipment.......................... (194,651) (467,912) (18,536)
Purchases of property and equipment.................... (17,609) (25,455) (66,152) (2,937)
Proceeds from sales of rental equipment................ 114,596 122,502 17,879
Payments of contingent purchase price.................. (1,521) (11,227)
Purchases of other companies........................... (301,130) (3,102)
Capital contributed to subsidiary...................... (179) 179
In-process acquisition costs........................... (3,157)
-------- --------- --------- -------- --------
Net cash used in investing activities................ (20,945) (408,161) (422,789) (6,696) 179
Cash flows from financing activities:
Proceeds from debt..................................... 554,413 24,667
Payments of debt....................................... (110,361) (14,575) (6,446)
Proceeds from sale-leaseback........................... 165,511
Payments of financing costs............................ (8,849) (13)
Capital contributions by parent........................ 179 (179)
Dividend distributions to parent....................... (45,575) 45,575
Proceeds from the exercise of common stock options..... 179
Proceeds from dividends from subsidiary................ 45,575 (45,575)
Shares repurchased and retired......................... (30,950)
-------- --------- --------- -------- --------
Net cash provided by (used in) financing
activities........................................... 14,804 555,318 10,092 (6,446) (192)
Effect of foreign exchange rates....................... 104
-------- --------- --------- -------- --------
Net increase (decrease) in cash and cash equivalents... (3,689) 11,807 (214)
Cash and cash equivalents at beginning of period....... 3,689 16,414 3,708
-------- --------- --------- -------- --------
Cash and cash equivalents at end of period............. $ 28,221 $ 3,494
======== ========= ========= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 14,625 $ 163,192 $ 271 $ 1,537
Cash paid for income taxes........................... $ 59,862 $ 7,348
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........................... $ 488,060 $ 4,884
Liabilities assumed.................................... (121,733) (1,782)
Less:
Amounts paid through issuance of debt................ (65,197)
-------- --------- --------- -------- --------
Net cash paid..................................... $ 301,130 $ 3,102
======== ========= ========= ======== ========
Consolidated
------------
Net cash provided by (used in) operating activities....... $ 292,636
Cash flows from investing activities:
Purchases of rental equipment.......................... (681,099)
Purchases of property and equipment.................... (112,153)
Proceeds from sales of rental equipment................ 254,977
Payments of contingent purchase price.................. (12,748)
Purchases of other companies........................... (304,232)
Capital contributed to subsidiary......................
In-process acquisition costs........................... (3,157)
---------
Net cash used in investing activities................ (858,412)
Cash flows from financing activities:
Proceeds from debt..................................... 579,080
Payments of debt....................................... (131,382)
Proceeds from sale-leaseback........................... 165,511
Payments of financing costs............................ (8,862)
Capital contributions by parent........................
Dividend distributions to parent.......................
Proceeds from the exercise of common stock options..... 179
Proceeds from dividends from subsidiary................
Shares repurchased and retired......................... (30,950)
---------
Net cash provided by (used in) financing
activities........................................... 573,576
Effect of foreign exchange rates....................... 104
---------
Net increase (decrease) in cash and cash equivalents... 7,904
Cash and cash equivalents at beginning of period....... 23,811
---------
Cash and cash equivalents at end of period............. $ 31,715
=========
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 179,625
Cash paid for income taxes........................... $ 67,210
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........................... $ 492,944
Liabilities assumed.................................... (123,515)
Less:
Amounts paid through issuance of debt................ (65,197)
---------
Net cash paid..................................... $ 304,232
=========
27
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion reviews our operations for the nine and three
months ended September 30, 2001 and 2000 and should be read in conjunction with
the Unaudited Consolidated Financial Statements and related notes included
herein and the Consolidated Financial Statements and related notes included in
our 2000 Annual Report on Form 10-K.
General
We primarily derive 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 used
rental equipment, (iii) the sale of new equipment, and (iv) the sale of related
merchandise and parts and other revenue.
Cost of operations consists primarily of depreciation costs and operating
lease payments 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.
We record rental equipment expenditures at cost and depreciate 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, (ii) the amortization of deferred financing costs and
(iii) the amortization of intangible assets. Our 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.
Accounting For Acquisitions
We completed several acquisitions in 2000 and 2001. See note 2 to the
Unaudited Consolidated Financial Statements included herein. We accounted for
these acquisitions as "purchases," which means that the results of operations
of the businesses acquired are included in our financial statements only from
their respective dates of acquisition. In view of the fact that our operating
results for 2000 and 2001 were impacted by these acquisitions, we believe that
our results of operations for these periods are not directly comparable.
Restructuring Plan
We adopted a restructuring plan during the second quarter of 2001 involving
the following principal elements: (i) 31 underperforming branches are being
closed or consolidated with other locations (comprised of 29 closed or
consolidated as of September 30, 2001 and 2 that will be closed or consolidated
by December 31, 2001); (ii) five administrative offices are being closed or
consolidated with other locations; (iii) our workforce is being reduced by 489
through the termination of branch and administrative personnel (including 440
terminated as of September 30, 2001); and (iv) certain information technology
software will no longer be used.
The aggregate annual revenues from the 31 branches that are being eliminated
amounted to approximately $82 million. We expect that we will retain
approximately $56 million of this revenue by shifting the business of some of
the closed branches to other locations. We estimate that we will realize annual
cost savings from the branch closures of approximately $33 million.
We recorded, in the second quarter of 2001, a restructuring charge of
approximately $28.9 million relating to the restructuring plan described above.
This charge is comprised of a non-cash charge in the amount of $10.9 million
and cash expenses in the amount of $18.0 million. We paid $7.2 million of these
cash expenses as of September 30, 2001. We expect to pay the balance of these
cash expenses as follows: approximately $4.6 million during the balance of 2001
and approximately $6.2 million in subsequent periods.
28
The restructuring charge includes: (1) the cost of vacating facilities,
primarily the payment of obligations under leases offset by estimated sublease
opportunities ($9.9 million), the write-off of capital improvements made to
such facilities ($2.8 million), and the write-off of related goodwill ($5.6
million), (2) workforce reduction costs, primarily severance, and (3)
information technology costs comprised of the abandonment of certain
information technology projects ($2.5 million) and the payment of obligations
under equipment leases relating to such projects ($2.5 million). The table
below provides certain information concerning the restructuring charge:
Activity
Amount through Balance
of September 30, September 30,
Components of Restructuring Charge Charge 2001(1) 2001(2)
---------------------------------- ------- ------------- -------------
Cost to vacate facilities........... $18,291 $11,605 $ 6,686
Workforce reduction costs........... 5,666 3,092 2,574
Information technology costs......... 4,965 3,414 1,551
------- ------- -------
Total........................... $28,922 $18,111 $10,811
======= ======= =======
-----
(1)Represents the non-cash component of the charge plus the cash component
that was paid through September 30, 2001.
(2)Represents the portion of the cash component of the charge that had not
been paid as of September 30, 2001.
Debt Refinancing and Extraordinary Item
We refinanced an aggregate of $1,695.7 million of indebtedness and other
obligations in April 2001, as described in note 4 to the Unaudited Consolidated
Financial Statements included elsewhere herein. We recorded the following
charges relating to this refinancing in the second quarter of 2001: (i) a
pre-tax extraordinary charge of $18.1 million ($11.3 million, net of tax) and
(ii) a pre-tax charge of $7.8 million ($5.2 million, net of tax) that is
recorded in other (income) expense, net, and relates to the refinancing of a
synthetic lease.
Results of Operations
Nine Months Ended September 30, 2001 and 2000
Revenues. Total revenues for the nine months ended September 30, 2001 were
$2,182.6 million, representing an increase of 0.7% over total revenues of
$2,167.9 million for the nine months ended September 30, 2000. Our revenues
during these periods were attributable to the following sources.
. Revenues from Equipment Rentals. These revenues were $1,670.0 million in
the first nine months of 2001, representing an increase of 9.7% from
$1,522.1 million in the first nine months of 2000. These revenues
accounted for 76.5% of our total revenues in the first nine months of
2001 compared with 70.2% of our total revenues in the first nine months
of 2000. The 9.7% increase in these revenues in the first nine months of
2001 reflected (i) increased revenues at locations open more than one
year (which accounted for approximately 6.6 percentage points) and (ii)
new rental locations acquired through acquisitions and the opening of
start-up locations, partially offset by locations sold or closed (which
accounted for approximately 3.1 percentage points). The 6.6% increase in
revenues at locations open more than one year reflected an increase in
the volume of transactions and utilization rates that would have caused
a 7.0% increase at level prices, partially offset by price decreases
that took away 0.4 percentage points.
. Revenues from the Sales of Rental Equipment. These revenues were $107.7
million in the first nine months of 2001, representing a decrease of
57.8% from $255.0 million in the first nine months of 2000. These
revenues accounted for 4.9% of our total revenues in the first nine
months of 2001 compared with 11.8% of our total revenues in the first
nine months of 2000. These revenues decreased in 2001 because, as the
economy softened, we reduced our budget for new equipment purchases in
2001 and slowed the rate at which we sell our used rental equipment. See
"--Additional Information Concerning Equipment Purchases."
29
. Revenues from the Sales of Equipment and Merchandise and Other Revenues.
These revenues were $404.9 million in the first nine months of 2001,
representing an increase of 3.6% from $390.8 million in the first nine
months of 2000. These revenues accounted for 18.6% of our total revenues
in the first nine months of 2001 compared with 18.0% of our total
revenues in the first nine months of 2000. The 3.6% increase in sales of
equipment and merchandise and other revenues was attributable to an
increase in the volume of transactions.
Gross Profit. Gross profit decreased to $793.9 million in the nine months
ended September 30, 2001, from $818.5 million in the nine months ended
September 30, 2000. This decrease reflected the decrease in gross profit margin
described below from equipment rental and the sales of rental equipment.
Our gross profit margin by source of revenues in the nine months ended
September 30, 2001 and 2000 was: (i) equipment rental (38.3% in the nine months
ended September 30, 2001 and 40.5% in the nine months ended September 30,
2000), (ii) sales of rental equipment (40.8% in the nine months ended September
30, 2001 and 41.3% in the nine months ended September 30, 2000) and (iii) sales
of equipment and merchandise and other revenues (27.2% in the nine months ended
September 30, 2001 and 25.0% in the nine months ended September 30, 2000).
The decrease in the gross profit margin from rental revenues in the nine
months ended September 30, 2001, principally reflected an increase in our cost
of equipment rental because more of our rental equipment was held by us under
operating leases rather than being owned. The decrease in the gross profit
margin from the sales of rental equipment in the nine months ended September
30, 2001, was primarily the result of a modest price decline in certain
geographic areas. The increase in the gross profit margin from sales of
equipment and merchandise and other revenue in the nine months ended September
30, 2001, primarily reflected the following: (i) lower costs resulting from our
ongoing efforts to consolidate our suppliers and further capitalize on our
purchasing power and (ii) a shift in mix which resulted in more of our sales
being attributable to higher margin areas such as providing services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $332.7 million, or 15.2% of total
revenues, during the nine months ended September 30, 2001 and $335.5 million,
or 15.5% of total revenues, during the nine months ended September 30, 2000.
The decrease in SG&A in the first nine months of 2001 primarily reflected
cost-cutting measures that we have taken, including reducing the number of
administrative personnel, reducing discretionary expenditures and consolidating
certain credit and collection facilities. We are seeking to continue to cut
costs in a number of ways, including further reducing administrative costs,
further consolidating credit and collection centers and streamlining
advertising.
Restructuring Charge. We recorded a restructuring charge of $28.9 million in
the nine months ended September 30, 2001. See "--Restructuring Plan" for
additional information.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $80.3 million, or 3.7% of total revenues, in the nine months
ended September 30, 2001 and $62.6 million, or 2.9% of total revenues, in the
nine months ended September 30, 2000. The increase in the dollar amount of
non-rental depreciation and amortization in the first nine months of 2001
primarily reflected additional non-rental vehicles which have shorter useful
lives.
Interest Expense. Interest expense increased to $171.3 million in the nine
months ended September 30, 2001 from $167.3 million in the nine months ended
September 30, 2000.
Preferred Dividends of a Subsidiary Trust. During the nine months ended
September 30, 2001 and 2000, preferred dividends of a subsidiary trust were
$14.6 million.
Other (Income) Expense. Other expense was $6.5 million in the nine months
ended September 30, 2001 compared with other income of $0.8 million in the nine
months ended September 30, 2000. The increase in other expense in the first
nine months of 2001 was primarily attributable to the $7.8 million charge we
incurred relating to the refinancing costs of a synthetic lease as described
under "--Debt Refinancing and Extraordinary Item."
30
Income Taxes. Income taxes were $69.2 million, or an effective rate of
43.3%, in the nine months ended June 30, 2001 compared to $99.3 million, or an
effective rate of 41.5%, in the nine months ended September 30, 2000. The
increase in the effective rate in the first nine months of 2001 was primarily
attributable to the non-deductibility for income tax purposes of certain costs
in the restructuring charge.
Extraordinary Item. We recorded an extraordinary charge of $18.1 million
($11.3 million, net of tax) in the nine months ended September 30, 2001. See
"--Debt Refinancing and Extraordinary Item" for additional information.
Three Months Ended September 30, 2001 and 2000
Revenues. Total revenues for the three months ended September 30, 2001 were
$795.5 million, representing a decrease of 7.4% over total revenues of $859.0
million for the three months ended September 30, 2000. Our revenues during
these periods were attributable to the following sources.
. Revenues from Equipment Rentals. These revenues were $626.3 million in
the third quarter of 2001, representing an increase of 2.6% from $610.5
million in the third quarter of 2000. These revenues accounted for 78.7%
of our total revenues in the third quarter of 2001 compared with 71.1%
of our total revenues in the third quarter of 2000. The 2.6% increase in
these revenues reflected the net effect of the following: (i) a 4.3%
increase in revenues at locations open more than one year and (ii) a
loss of revenue from rental locations closed or consolidated, partially
offset by revenues from new rental locations opened or acquired,
amounting to 1.7% of revenues in the third quarter of 2000. The 4.3%
increase in revenues at locations open more than one year reflected an
increase in the volume of transactions and utilization rates that would
have caused a 5.0% increase at level prices, partially offset by price
decreases that took away 0.7 percentage points.
. Revenues from the Sales of Rental Equipment. These revenues were $35.4
million in the third quarter of 2001, representing a decrease of 64.5%
from $99.8 million in the third quarter of 2000. These revenues
accounted for 4.5% of our total revenues in the third quarter of 2001
compared with 11.6% of our total revenues in the third quarter of 2000.
These revenues decreased in 2001 because, as the economy softened, we
reduced our budget for new equipment purchases in 2001 and slowed the
rate at which we sell our used rental equipment. See "--Additional
Information Concerning Equipment Purchases."
. Revenues from the Sales of Equipment and Merchandise and Other Revenues.
These revenues were $133.8 million in the third quarter of 2001,
representing a decrease of 10.1% from $148.7 million in the third
quarter of 2000. These revenues accounted for 16.8% of our total
revenues in the third quarter of 2001 compared with 17.3% of our total
revenues in the third quarter of 2000. The decrease in these revenues
was primarily attributable to a decrease in sales of equipment and
merchandise.
Gross Profit. Gross profit decreased to $305.2 million in the three months
ended September 30, 2001, from $340.7 million in the three months ended
September 30, 2000. This decrease reflected the decrease in gross profit margin
described below from equipment rental and the sales of rental equipment.
Our gross profit margin by source of revenues in the three months ended
September 30, 2001 and 2000 was: (i) equipment rental (40.7% in the three
months ended September 30, 2001 and 42.5% in the three months ended September
30, 2000), (ii) sales of rental equipment (39.7% in the three months ended
September 30, 2001 and 41.3% in the three months ended September 30, 2000) and
(iii) sales of equipment and merchandise and other revenues (27.3% in the three
months ended September 30, 2001 and 26.7% in the three months ended September
30, 2000). The principal reason for the decrease in the gross profit margin
from rental revenues in the three months ended September 30, 2001, was that
during the latter part of the quarter our revenues were lower than anticipated,
reflecting the weakening economy, while our cost structure, which anticipated
higher revenues, includes elements that will take a somewhat longer time to
adjust to the lower revenue base. The decrease in the gross profit margin from
the sales of rental equipment was primarily the result of a modest price
decline in some geographic areas. The increase in the gross profit margin from
sales of equipment and merchandise and
31
other revenue in the three months ended September 30, 2001, primarily reflected
the following: (i) lower costs resulting from our ongoing efforts to
consolidate our suppliers and further capitalize on our purchasing power and
(ii) a shift in mix which resulted in more of our sales being attributable to
higher margin areas such as providing services.
Selling, General and Administrative Expenses. SG&A was $111.0 million, or
13.9% of total revenues, during the three months ended September 30, 2001 and
$124.5 million, or 14.5% of total revenues, during the three months ended
September 30, 2000. The decrease in SG&A in the three months ended September
30, 2001, primarily reflected cost-cutting measures that we have taken,
including reducing the number of administrative personnel, reducing
discretionary expenditures and consolidating certain credit and collection
facilities. We are seeking to continue to cut costs in a number of ways,
including further reducing administrative costs, further consolidating credit
and collection centers and streamlining advertising.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $27.1 million, or 3.4% of total revenues, in the three months
ended September 30, 2001 and $21.9 million, or 2.5% of total revenues, in the
three months ended September 30, 2000. The increase in the dollar amount of
non-rental depreciation and amortization in the three months ended September
30, 2001 primarily reflected additional non-rental vehicles which have shorter
useful lives.
Interest Expense. Interest expense decreased to $56.7 million in the three
months ended September 30, 2001 from $61.1 million in the three months ended
September 30, 2000. This decrease primarily reflected lower interest rates on
our variable rate debt.
Preferred Dividends of a Subsidiary Trust. During the three months ended
September 30, 2001 and 2000, preferred dividends of a subsidiary trust were
$4.9 million.
Other (Income) Expense. Other income was $0.4 million in the three months
ended September 30, 2001 compared with other income of $0.5 million in the
three months ended September 30, 2000.
Income Taxes. Income taxes were $44.0 million, or an effective rate of
41.5%, in the three months ended September 30, 2001 compared to $53.5 million,
or an effective rate of 41.5%, in the three months ended September 30, 2000.
Outlook for Fourth Quarter of 2001
On September 25, 2001, we issued a press release in which we announced a
revised forecast for the fourth quarter of 2001. The revised forecast projects
that for the fourth quarter of 2001, revenues will range between $700 million
and $730 million and earnings per share will range from $0.32 to $0.37. The
revised forecast is lower than earlier estimates. The principal reason for this
revision is that the slowing economy continues to impact our business,
particularly in the western states.
Liquidity and Capital Resources
Information Concerning Financing Transactions In Third Quarter of 2001
During the third quarter of 2001, we obtained an additional $29.5 million
through the securitization of additional accounts receivable under our existing
accounts receivable securitization facility. As of September 30, 2001, the
total outstanding borrowings under this facility were $241.5 million. See note
5 to our Unaudited Consolidated Financial Statements included elsewhere herein.
Certain Information Concerning Our Credit Facility
Our revolving credit facility enables URI to borrow up to $750 million on a
revolving basis and enables one of our Canadian subsidiaries to borrow up to
$40 million (provided that the aggregate borrowings of URI and the Canadian
subsidiary may not exceed $750 million). Up to $100 million of the revolving
credit facility is available in the form of letters of credit. The revolving
credit facility will mature and terminate on October 20, 2006.
32
Borrowings under the revolving credit facility will until October 20, 2001,
accrue interest, at our option, at either (A) the ABR Rate (which is equal to
the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan
Bank's prime rate) plus a margin of 1.00% or (B) an adjusted LIBOR rate plus a
margin of 2.0%. From and after October 20, 2001, the above interest rate
margins will be adjusted quarterly based on our funded debt to cash flow ratio,
up to maximum margins of 1.75% and 2.75%, for revolving loans based on the ABR
rate and the adjusted LIBOR rate, respectively, and down to minimum margins of
0.75% and 1.75%, for revolving loans based on the ABR rate and the adjusted
LIBOR rate, respectively. If at any time an event of default exists, the
interest rate applicable to each loan will increase by 2% per annum.
We are also required to pay the lenders a commitment fee equal to 0.5% per
annum in respect of undrawn commitments under the revolving credit facility.
Sources and Uses of Cash
During the first nine months of 2001, we (i) generated cash from operations
of approximately $434.9 million, and (ii) generated cash from the sale of
rental equipment of approximately $107.7 million. We used cash during this
period principally to (i) pay consideration for acquisitions and settle certain
outstanding liabilities due to former owners of businesses that we acquired
(approximately $45.2 million), (ii) purchase rental equipment (approximately
$395.0 million), (iii) purchase other property and equipment (approximately
$42.2 million), (iv) purchase and retire shares of our outstanding common stock
(approximately $24.8 million) and (v) pay financing fees related to the
refinancing of certain of our debt as described in note 4 to our Unaudited
Consolidated Financial Statements included elsewhere herein (approximately
$27.9 million).
Certain Balance Sheet Changes
The increase in accounts receivable at September 30, 2001 compared to
December 31, 2000 was attributable to the increase in revenues in the
seasonally stronger third quarter. The decrease in inventory at September 30,
2001 compared to December 31, 2000 primarily reflected increased sales during
the second and third quarters of 2001. The increase in prepaid expenses and
other assets at September 30, 2001 compared to December 31, 2000 was primarily
attributable to payment of certain prepaid expenses during the first nine
months of 2001. The increase in deferred taxes and accrued expenses and other
liabilities at September 30, 2001 compared to December 31, 2000 was primarily
attributable to the increase in revenues in the seasonally stronger third
quarter of 2001.
The increase in rental equipment at September 30, 2001 compared to December
31, 2000 primarily reflected our equipment purchases during the first nine
months of 2001. The increase in debt at September 30, 2001 compared to December
31, 2000 primarily reflected borrowings for acquisition related payments and
equipment purchases during the first nine months of 2001. The increase in
additional paid in capital at September 30, 2001 compared to December 31, 2001,
primarily reflects the following: (i) our perpetual convertible preferred stock
is reflected as "Stockholders' Equity" on the September 30, 2001 balance sheet
and reflected under "Series A and B Preferred Stock," rather than under
"Stockholders' Equity," on the December 31, 2000 balance sheet (for the reasons
described in note 1 to our Unaudited Consolidated Financial Statements included
elsewhere herein) and (ii) restricted stock was issued under our stock plans
during 2001 (as described in note 8 to our Unaudited Consolidated Financial
Statements included elsewhere herein).
Cash Requirements Related to Operations
Our principal existing sources of cash are borrowings available under our
revolving credit facility ($434.7 million available as of November 7, 2001),
cash generated from operations and the sale of rental equipment. We believe
that our existing sources of cash will be sufficient to support our existing
operations over the next 12 months.
33
We expect that our principal needs for cash relating to our 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 items
offered for sale, (iii) debt service and (iv) costs relating to the
restructuring charge. We plan to fund such cash requirements relating to our
existing operations from our existing sources of cash described above. In
addition, we plan to seek additional financing through the securitization of
certain of our accounts receivable and equipment.
We estimate that equipment expenditures for the year 2001 will be
approximately $465 million for our existing operations. These expenditures are
comprised of approximately (i) $215 million of expenditures in order to replace
rental equipment sold, (ii) $200 million of discretionary expenditures to
increase the size of our rental fleet and (iii) $50 million of expenditures for
the purchase of non-rental equipment. We expect that we will fund such
expenditures from proceeds from the sale of used equipment, cash generated from
operations and, if required, borrowings available under our revolving credit
facility.
While emphasizing internal growth, we may also continue to expand through a
disciplined acquisition program. We expect to pay for future acquisitions using
cash, capital stock, notes and/or assumption of indebtedness. To the extent
that our existing sources of cash described above are not sufficient to fund
such future acquisitions, we will require additional financing and,
consequently, our indebtedness may increase as we implement our growth
strategy. There can be no assurance, however, that any additional financing
will be available or, if available, will be on terms that are satisfactory to
us.
The recent refinancing of $1,695.7 million of our indebtedness (described in
note 4 to our Unaudited Consolidated Financial Statements included elsewhere
herein) extended the maturities of a significant amount of our indebtedness.
Based on the scheduled maturities of our current indebtedness, we are required
to make principal payments of approximately $23.5 million over the next 12
months. We may also, at our option, make additional principal payments.
Additional Information Concerning Equipment Purchases
In the beginning of 2001, as the economy softened, we determined to purchase
less new equipment in 2001 than in 2000 ($465 million budgeted for 2001
compared to $962 million expended in 2000) and to reduce the rate at which we
sell used equipment. We expect that revenues in 2001 from the sale of used
equipment will be 50-75% lower than the level in 2000.
We estimate that the average age of our rental fleet, which currently is
approximately 29 months, will increase to approximately 32 months by the end of
the year as a result of the planned reduction in the rate at which we purchase
new equipment and sell used equipment. The rate at which we purchase new
equipment and sell used equipment next year will depend on future developments,
including the economic outlook, conditions in the used equipment market, and
our equipment utilization rates. If we continue to purchase new equipment at a
reduced rate next year, the average age of our rental fleet may further
increase to 35 or 40 months. We believe that our business will not be adversely
affected by the increases, or potential increases, in average age described
above.
Relationship Between Holdings and URI
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. 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
34
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 URI.
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.
Seasonality
Our business is seasonal with demand for our rental equipment tending to be
lower in the winter months. The seasonality of our business has been heightened
by our acquisition of companies that specialize in renting traffic control
equipment. These companies tend to generate most of their revenues and profits
in the second and third quarters of the year, slow down during the fourth
quarter and operate at a loss during the first quarter.
Inflation
Although we cannot accurately anticipate the effect of inflation on our
operations, we believe that inflation has not had, and is not likely in the
foreseeable future to have, a material impact on our results of operations.
Recently Issued Accounting Standards
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities--a
replacement of FASB Statement No. 125". This standard revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
The adoption of SFAS No. 140 did not have a material effect on our consolidated
financial position or results of operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations". This
standard addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises". All
business combinations in the scope of this Statement are to be accounted for
using one method, the purchase method. This standard is effective for all
business combinations initiated after June 30, 2001.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". This standard addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "Intangible Assets". This standard is effective for fiscal years beginning
after December 15, 2001. However, this standard is immediately effective in
cases where goodwill and intangible assets are acquired after June 30, 2001.
Under this standard, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. We are currently evaluating the impact that SFAS No. 142 will have our
financial statements and will perform a fair value analysis of goodwill in
connection with the adoption of this standard on January 1, 2002. Goodwill
amortization for the nine months ended September 30, 2001 was approximately
$43.3 million.
35
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". This standard addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". This standard is effective for
fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 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, decreases in construction or industrial
activity may lead to a decrease in the demand for our equipment, or the prices
that we can charge. For example, the current slow-down in the economy has
caused construction and industrial activity to decrease, particularly in the
western states, which required us to lower our revenue and earnings forecast
for the fourth quarter of 2001. See "Managements' Discussion and Analysis of
Financial Condition and Results of Operations--Outlook for Fourth Quarter of
2001." We have identified below certain of the factors that may cause a further
downturn in construction and industrial activity, either temporarily or
long-term:
. a continuation or worsening of the recent slow-down of the economy;
. an increase in interest rates; or
. adverse weather conditions which may temporarily affect a particular
region.
In addition, demand for our equipment may not reach projected levels in the
event that funding for highway and other construction projects under government
programs, such as the Transportation Equity Act for the 21st Century ("TEA-21")
or the Aviation Investment and Reform Act for the 21st Century ("AIR-21"), does
not reach expected levels.
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;
. our acquisition of companies that specialize in renting traffic control
equipment, which tend to operate at a loss during the first quarter;
. 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;
. changes in the interest rates applicable to our floating rate debt;
. if we determine that a potential acquisition will not be consummated,
the need to charge against earnings any expenditures relating to such
transaction (such as financing commitment fees, merger and acquisition
advisory fees and professional fees) previously capitalized; and
. the possible need, from time to time, to take other write-offs or
special charges due to a variety of occurrences, such as store
consolidations or closings or the refinancing of existing indebtedness.
Substantial Goodwill
At September 30, 2001, we had on our balance sheet net goodwill of
approximately $2.2 billion, which represents approximately 41.6% of our total
assets at such date. This goodwill is an intangible asset and represents the
excess of the purchase price that we paid for acquired businesses over the
estimated fair market value of the net assets of those businesses. If the fair
value of the goodwill, determined in accordance with applicable accounting
standards, were to fall below the recorded value shown on the balance sheet, we
would be required to write off the excess goodwill. Any write-off could
adversely affect our operating results.
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Substantial Indebtedness
Our substantial indebtedness has the potential to affect us adversely in a
number of ways. For example, it will or could:
. require us to devote a substantial portion of our cash flow to debt
service, reducing the funds available for other purposes;
. constrain our ability to obtain additional financing, particularly since
substantially all of our assets are subject to security interests relating
to existing indebtedness; or
. make it difficult for us to cope with a downturn in our business or a
decrease in our cash flow.
Furthermore, if we are unable to service our indebtedness and fund our
business, we will be forced to adopt an alternative strategy that may include:
. reducing or delaying capital expenditures;
. limiting our growth;
. seeking additional capital;
. selling assets; or
. restructuring or refinancing our indebtedness.
We cannot assure you that any of these strategies could be effected on
favorable terms or at all.
Variable Rate Indebtedness
A portion of our indebtedness bears interest at variable rates that are
linked to changing market interest rates. As a result, an increase in market
rates would increase our interest expense and our debt service obligations. On
September 30, 2001, we had approximately $1,249.1 million of variable rate
indebtedness.
Restrictive Covenants
We are subject to various restrictive financial and operating covenants
under the agreements governing our indebtedness. These covenants 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 acquisitions. These
covenants could adversely affect our business by significantly limiting our
operating and financial flexibility.
Dependence on Additional Capital
We may require additional capital for, among other purposes, purchasing
rental equipment, making acquisitions, opening new rental locations, and
refinancing existing indebtedness. 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, we may be unable to fund the capital outlays
required for the success of our business, including those relating to
purchasing equipment, making acquisitions, opening new rental locations and
refinancing existing indebtedness.
Certain Risks Relating to Acquisitions
We have grown in part through acquisitions and may continue to do so. The
making of acquisitions entails certain risks, including:
. unrecorded liabilities of acquired companies that we fail to discover
during our due diligence investigations;
37
. difficulty in assimilating the operations and personnel of the acquired
company with our existing operations;
. loss of key employees of the acquired company; and
. difficulty maintaining uniform standards, controls, procedures and
policies.
We cannot guarantee that we will realize the expected benefits from our
acquisitions or that our existing operations will not be harmed as a result of
acquisitions.
Dependence on Management
Our success is highly dependent on the experience and skills of our senior
management team. If we lose the services of any member of senior management and
are unable to find a suitable replacement, we may not have the depth of senior
management resources required to efficiently manage our business and execute
our growth strategy. 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 or potential customers. Competitive pressures could
adversely affect our revenues and operating results by decreasing our market
share or depressing the prices that we can charge.
Liability and Insurance
We are exposed to various possible claims relating to our business. These
possible claims include those 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 million and limited to a
maximum of $98 million per occurrence;
. we do not maintain coverage for environmental liability (other than
legally required fuel storage tank coverage), since we believe that the
cost for such coverage is high relative to the benefit that it provides;
and
. 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.
If we are found liable for any significant claims that are not covered by
insurance, our operating results could be adversely affected. We cannot be
certain that insurance will continue to be available to us on economically
reasonable terms, if at all.
Environmental and Safety Regulations
Our operations are subject to numerous laws governing environmental
protection and occupational health and safety matters. These laws regulate such
issues as wastewater, stormwater, solid and hazardous wastes and materials, and
air quality. Under these laws, we may be liable for, among other things, (1)
the costs of
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investigating and remediating contamination at our sites as well as sites to
which we sent hazardous wastes for disposal or treatment regardless of fault
and (2) fines and penalties for non-compliance. Our operations generally do not
raise significant environmental risks, but we use hazardous materials to clean
and maintain equipment, and dispose of solid and hazardous waste and wastewater
from equipment washing, and store and dispense petroleum products from
underground and above-ground storage tanks located at certain of our locations.
Based on the conditions currently known to us, we do not believe that any
pending or likely remediation and compliance costs will have a material adverse
effect on our business. We cannot be certain, however, as to the potential
financial impact on our business if new adverse environmental conditions are
discovered or environmental and safety requirements become more stringent. 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 the risks normally
associated with international operations. These include (1) the need to convert
currencies, which could result in a gain or loss depending on fluctuations in
exchange rates, (2) the need to comply with foreign laws and (3) the
possibility of political or economic instability in foreign countries.
Dependence on Information Technology Systems
Our information technology systems facilitate our ability to monitor and
control our operations and adjust to changing market conditions. Any disruption
in these systems or the failure of these systems to operate as expected could,
depending on the magnitude of the problem, adversely affect our operating
results by limiting our capacity to effectively monitor and control our
operations and adjust to changing market conditions.
Labor Matters
We have approximately 1,200 employees that are represented by unions and
covered by collective bargaining agreements. If we should experience a
prolonged labor dispute involving a significant number of our employees, our
ability to serve our customers could be adversely affected. Furthermore, our
labor costs could increase as a result of the settlement of actual or
threatened labor disputes.
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 our Annual Report on Form 10-K for
the year ended December 31, 2000. There has been no material change in these
market risks since the end of the fiscal year 2000.
The FASB issued, and subsequently amended, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which became effective for us
on January 1, 2001. Under SFAS No. 133, all derivatives are required to be
recorded as assets or liabilities and measured at fair value. Gains or losses
resulting from changes in the values of derivatives are recognized immediately
or deferred, depending on the use of the derivative and whether or not it
qualifies as a hedge.
We occasionally use derivative financial instruments to manage our risk
associated with fluctuations in interest rates on our debt and our risk
associated with fluctuations in foreign exchange rates related to our
liabilities denominated in foreign currencies. We currently have interest rate
swap agreements that convert a portion, or $200.0 million, of our variable rate
term loan to a fixed rate instrument through 2003. These swap agreements are
designated as cash flow hedges and changes in the fair value of the hedges are
recorded in other comprehensive income and reclassified into earnings in the
same periods during which the hedged transaction affects earnings. There is no
ineffectiveness related to these hedges.
39
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We and our subsidiaries are parties to various litigation matters involving
ordinary and routine claims incidental to our business. Our ultimate legal and
financial liability with respect to such pending litigation cannot be estimated
with certainty but we believe, based on our examination of such matters, that
such ultimate liability will not have a material effect on our business or
financial condition.
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities
Set forth below is certain information concerning sales of unregistered
securities by us during the third quarter of 2001. The issuances by us 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. We issued 450,000 shares of perpetual convertible preferred stock as
further described in note 1 to the Unaudited Consolidated Financial
Statements included elsewhere herein.
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. Quarterly 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. Quarterly 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 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 United Rentals, Inc. Proxy Statement on Schedule 14A dated July 22, 1999).
3(f) Form of Certificate of Designation for Series C Perpetual Convertible Preferred Stock.*
3(g) Form of Certificate of Designation for Series D Perpetual Convertible Preferred Stock.*
3(h) Form of Certificate of Designation for Series E Junior Participating Preferred Stock (incorporated by
reference to Exhibit A of Exhibit 4 of the United Rentals, Inc. Current report on Form 8-K filed
October 5, 2001).
3(i) Rights Agreement dated September 28, 2001 between United Rentals, Inc. and American Stock
Transfer & Trust Co., as Rights Agent (incorporated by reference to Exhibit 4 to the United Rentals,
Inc. Report on Form 8-K filed on October 5, 2001)
3(j) 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).
40
Exhibit
Number Description of Exhibit
- ------- ----------------------
3(k) 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) Agreement dated September 28, 2001 among United Rentals, Inc., Apollo Investment Fund IV, L.P.,
Apollo Overseas Partners IV, L.P., and Chase Equity Associates, L.P. relating to the exchange of
Series A Perpetual Convertible Preferred Stock for Series C Perpetual Convertible Preferred Stock and
Series B Perpetual Convertible Preferred Stock for Series D Perpetual Convertible Preferred Stock
(incorporated by reference to Exhibit 10 to the United Rentals, Inc. Report on Form 8-K filed on
October 5, 2001)
(less than)/TC
(b) Reports on Form 8-K:
1. Form 8-K filed on July 27, 2001 (earliest event reported July 25,
2001); Item 9 was reported.
2. Form 8-K filed on October 5, 2001 (earliest event reported September
28, 2001); Item 5 was reported.
- --------
* Filed herewith
41
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by
the undersigned hereunto duly authorized.
UNITED RENTALS, INC.
Dated: November 14, 2001 BY: /S/ MICHAEL J. NOLAN
_________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial
Officer and
Chief Accounting
Officer)
UNITED RENTALS (NORTH
Dated: November 14, 2001 AMERICA), INC.
By: /S/ MICHAEL J. NOLAN
_________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial
Officer and
Chief Accounting
Officer)
42