SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 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 Number 1-14387
United Rentals, Inc.
Commission File Number 1-13663
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
Delaware 06-1522496
Delaware 06-1493538
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Nos.)
Five Greenwich Office Park,
Greenwich, Connecticut 06830
(Address of Principal Executive Offices) (Zip code)
Registrants' telephone number, including area code: (203) 622-3131
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
Common Stock, $.01 par value, of United Rentals, Inc. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
ng requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 22, 2002, there were 75,420,254 shares of United Rentals, Inc.
common stock outstanding. The aggregate market value of such common stock held
by non-affiliates of the registrant at March 22, 2002 was approximately
$1,541.7 million. Such aggregate market value was calculated by using the
closing price of such common stock as of such date on the New York Stock
Exchange of $26.35. 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.
Documents incorporated by reference: Certain sections of the Proxy
Statement of United Rentals, Inc. to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 within 120 days of the registrant's fiscal
year are incorporated by reference into Part III of this Form 10-K.
This combined Form 10-K 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 (I)(1) (a) and (b) of Form 10-K and
is therefore filing this form with the reduced disclosure format permitted by
such instruction.
FORM 10-K REPORT INDEX
10-K Part
and Item No. Page No.
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PART I
Item 1 Business.................................................................. 1
Item 2 Properties................................................................ 8
Item 3 Legal Proceedings......................................................... 9
Item 4 Submission of Matters to a Vote of Security Holders....................... 9
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters. 9
Item 6 Selected Financial Data................................................... 10
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 12
Item 7A Quantitative and Qualitative Disclosures About Market Risk................ 26
Item 8 Financial Statements and Supplementary Data............................... 27
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 86
PART III
Item 10 Directors and Executive Officers of the Registrant........................ 86
Item 11 Executive and Director Compensation....................................... 86
Item 12 Security Ownership of Certain Beneficial Owners and Management............ 86
Item 13 Certain Relationships and Related Transactions............................ 86
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 86
Certain 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 such risks and uncertainties are
discussed below under Item 7--"Management's Discussion and Analysis of
Financial Condition and Result of Operations--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.
PART I
Unless otherwise indicated, the information under Items 1 and 2 is as of
March 1, 2002.
Item 1. Business
General
United Rentals is the largest equipment rental company in the world. We
offer for rent over 600 types of equipment--everything from heavy machines to
hand tools--through our network of more than 740 rental locations in the United
States, Canada and Mexico. Our customers include construction and industrial
companies, manufacturers, utilities, municipalities, homeowners and others. In
2001, we served more than 1.4 million customers, completed over 8.4 million
rental transactions and generated revenues of $2.9 billion.
Our fleet of rental equipment, the largest in the world, includes over
500,000 units having an original purchase price of approximately $3.6 billion.
The 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; and
. 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.
In addition to renting equipment, we sell used rental equipment, act as a
dealer for new equipment and sell related merchandise, parts and service.
Industry Background
We estimate that 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
14.5%. Industry data for 2001 is not yet available, but we expect that industry
growth during the recession was significantly lower than the historical
long-term growth rate. We believe that long-term industry growth, in addition
to reflecting general economic expansion, is being driven by 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;
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. 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.
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 and/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.
Operating Efficiencies. We benefit from the following operating
efficiencies:
Equipment Sharing Among Branches. We generally group our branches into
clusters of 10 to 30 locations that are in the same geographic area. Each
branch within a cluster can access all available equipment in the cluster area.
This increases equipment utilization because equipment that is idle at one
branch can be marketed and rented through other branches. In 2001, the sharing
of equipment among branches accounted for approximately 10.2%, or $226 million,
of our total rental revenue.
Ability to Transfer Equipment Among Branches. The size of our branch
network allows us to transfer equipment from branches that may have
underutilized equipment to branches that require additional equipment. For
example, in 2001, we transferred $793 million of equipment among our branches.
Consolidation of Common Functions. We reduce costs through the
consolidation of functions that are common to our more than 740 branches, such
as payroll, accounts payable and credit and collection, into 18 credit offices
and three service centers.
State-of-the-Art Information Technology Systems. We have state-of-the-art
information technology systems that facilitate our ability to make rapid and
informed decisions, respond quickly to changing market conditions, and share
equipment among branches. We have an in-house team of approximately 100
information technology specialists that supports our systems.
Geographic and Customer Diversity. We have more than 740 branches in 47
states, seven Canadian provinces and Mexico and serve customers that range from
Fortune 500 companies to small companies and homeowners. In 2001, we served
more than 1.4 million customers and our top ten customers accounted for less
than 3% 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,
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(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.
National Account Program. Our National Account sales force is dedicated to
establishing and expanding relationships with large 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, a
wide selection of equipment and a single point of contact for all their
equipment needs. Our National Account team includes 34 professionals serving
approximately 1,700 National Account customers. Our revenues from National
Account customers increased more than 50%, to $372 million, in 2001 from $245
million in 2000. We estimate that these revenues will increase to approximately
$450 million in 2002.
Risk Management and Safety Programs. We believe that we have one of the
most comprehensive risk management and safety programs in the industry. Our
risk management department is staffed by 41 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.
Strong and Motivated Branch Management. Each of our branches has a
full-time branch manager who is supervised by one of our 59 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 branch matters.
Senior management closely tracks branch, district and regional performance with
extensive systems and controls, including performance benchmarks and detailed
monthly operating reviews. The compensation of branch managers and other branch
personnel is linked to their branch's financial performance and return on
assets. This incentivizes branch personnel to control costs, optimize pricing,
share equipment with other branches and manage their fleet efficiently.
Strategy
Key elements of our business strategy include:
Continue to Increase Rental Revenues. Despite the recession, we increased
total rental revenues in 2001 by 7.6% and same store rental revenues by 5.6%.
We also added 300,000 new rental customers. We will continue to promote this
growth by:
. actively managing the composition and size of our fleet to meet customer
needs, respond to local demand and adjust to changing economic conditions;
. promoting equipment sharing and cross-marketing of equipment specialties;
. focusing on providing outstanding customer service and support;
. marketing our services to existing and potential National Account
customers that can benefit from our ability to provide a broad selection
of equipment and a consistently high level of service throughout
North America; and
. marketing our extensive fleet of specialized lines of equipment,
including (1) aerial work platforms, (2) traffic control equipment and
(3) trench safety equipment.
Increase Merchandise Sales. We generated about $175 million of revenues in
2001 from our business of selling merchandise--such as drill bits, gloves, hard
hats and safety equipment--that can be used with our equipment. Approximately
50% of our 2001 merchandise revenues were generated by less than 15% of our
branch locations. Towards the end of 2001, we initiated efforts to encourage
all of our branches to aggressively build this business. Our goal is to double
the size of this business over the next two to three years.
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Continue to Control Expenses. We reduced selling, general and
administrative expenses in 2001 by $12.6 million. We are seeking to continue to
control these expenses in a number of ways, including further reducing
administrative costs, further consolidating credit and collection centers and
streamlining advertising.
Selectively Open New Branches and Make Acquisitions. We intend to continue
to selectively open new branches and make acquisitions that will expand our
geographic reach, enhance our operating efficiency and increase our market
share. In seeking acquisition candidates, we generally focus on those that will
have the potential to be accretive to earnings.
Continue Flexible Business Model. We have a flexible business model. When
the economy is strong, we increase investment in our fleet to support strong
revenue and earnings growth. During a recessionary environment, we reduce the
rate at which we invest in new equipment, which increases free cash flow
available to pay down debt. Although reducing fleet investment ages our fleet
somewhat, we have the flexibility to do so because the fleet investment that we
make during the up-part of the business cycle results in the age of our fleet
being at the low end of our target range as we enter a downturn. In view of the
recessionary environment, we reduced fleet investment in 2001. This enabled us
to generate $346 million in free cash flow, after capital expenditures of $497
million, and to pay down almost $250 million of debt. We expect to pay down an
additional $250 million of debt in 2002. As the economy improves, we will
resume operating the business for significant revenue and earnings growth and
again accelerate the rate at which we invest in new equipment to support
aggressive growth.
Products and Services
Our principal products and services are described below. For financial
information concerning our foreign and domestic operations, see Note 15 of the
Notes to Consolidated Financial Statements included elsewhere in this Report.
Equipment Rental. We offer for rent over 600 different types of equipment
on a daily, weekly or monthly basis. The types of equipment that we offer
include general construction and industrial equipment; aerial work platforms;
traffic control equipment; trench safety equipment; and general tools and light
equipment.
Our fleet of rental equipment is the largest in the world and includes over
500,000 units having an original purchase price of approximately $3.6 billion.
We estimate that each of the following categories accounted for 10% or more of
our equipment rental revenues in 2001: (i) aerial lift equipment (approximately
29%), (ii) earth moving equipment (approximately 15%) and (iii) forklifts
(approximately 11%).
Our fleet of rental equipment, which currently has a weighted average age
of 31 months, is one of the newest and best maintained in the industry. Based
on the rate at which we expect to purchase new equipment and sell used
equipment this year, we expect that the average age will increase to
approximately 37 months in 2002. Over the longer term we plan to maintain the
average age of our fleet in the 35 to 45 month range.
Used Equipment Sales. We routinely sell used rental equipment and invest
in new equipment in order to manage the age, composition and size of our fleet.
We also sell used equipment in response to customer demand for this equipment.
The rate at which we replace used equipment with new equipment depends on a
number of factors, including changing general economic conditions, growth
opportunities, the need to adjust fleet composition to meet customer
requirements and local demand, and the age of the fleet.
We principally sell used equipment through (1) our national sales force,
which can access many resale markets across North America and (2) our web site
(www.unitedrentals.com), which includes an online database
4
of used equipment available for sale. We also dispose of our used equipment in
other ways, including sales to used equipment dealers, sales through public
auctions, and trade-ins to our vendors when we buy new equipment.
New Equipment Sales. We are a dealer for many leading equipment
manufacturers. The manufacturers that we represent and the brands that we carry
include: Genie Industries, Inc., JLG Industries, Inc., and SkyJack, Inc.
(aerial lifts); Multiquip, Inc. (compaction equipment, generators, pumps and
concrete equipment); Bomag and Wacker (compaction equipment); Sullair
Corporation (compressors); Skytrak and Lull (rough terrain reach forklifts);
Scattrak (skid-steer loaders and mini-excavators); Terex Corporation (off-road
dump trucks and telehandlers); and Honda USA (pumps and generators). Typically,
dealership agreements do not have a specific term and may be terminated at any
time. The type of new equipment that we sell varies by location.
Related Merchandise, Parts and Other Services. At most of our branches, we
sell a variety of supplies and merchandise such as saw blades, fasteners, drill
bits, hard hats, gloves and other safety equipment and we also offer repair and
maintenance services and sell parts for equipment that is owned by our
customers.
Our Rentalman(TM) Software. We have a subsidiary that develops and markets
Rentalman/TM/ software for use by equipment rental companies in managing and
operating multiple branch locations. This software package developed by this
subsidiary is used by many of the largest equipment rental companies.
Customers
Our customer base is highly diversified and ranges from Fortune 500
companies to small businesses and homeowners. Our largest customer accounted
for approximately 1% of our revenues in 2001 and our top 10 customers accounted
for less than 3% of our revenues in 2001.
Our customer base varies by branch and is determined by several factors,
including the equipment mix and marketing focus of the particular branch and
the business composition of the local economy. Our customers include:
. construction companies that use equipment for building and renovating
commercial buildings, warehouses, industrial and manufacturing plants,
office parks, airports, residential developments and other facilities;
. industrial companies--such as manufacturers, chemical companies, paper
mills, railroads, ship builders and utilities--that use equipment for
plant maintenance, upgrades, expansion and construction;
. municipalities that require equipment for a variety of purposes, such as
traffic control and highway construction and maintenance; and
. homeowners and other individuals that use equipment for projects that
range from simple repairs to major renovations.
Sales and Marketing
We market our products and services through multiple channels as described
below.
Sales Force. As of March 1, 2002, we had a total of 2,418 salespeople,
including 1,171 store-based customer service representatives and 1,247
field-based salespeople. Our sales force calls on existing and potential
customers and assists our customers in planning for their equipment needs.
National Account Program. Our National Account sales force is dedicated to
establishing and expanding relationships with large customers, particularly
those with a national or multi-regional presence. The National
5
Account team closely coordinates its efforts with the local sales force in each
area. Our National Account team currently includes 34 sales professionals.
E-Rental Store(TM). Our customers can rent or buy equipment online 24
hours a day seven days a week at our E-Rental Store(TM), which is part of our
web site. Our customers can also use our URdata(TM) application to access
up-to-the-minute reports on their business activity with us.
Advertising. We promote our business through local and national
advertising in various media, including trade publications, yellow pages, the
Internet, radio and direct mail. We also regularly participate in industry
trade shows and conferences and sponsor a variety of local promotional events.
Suppliers
We have been making ongoing efforts to consolidate our vendor base in order
to further increase our purchasing power. We estimate that our largest supplier
accounted for approximately 31% of our equipment purchases in 2001, and that
our top 10 largest suppliers accounted for approximately 87% of our equipment
purchases during that period. We believe that we have alternative sources of
supply for each of our material equipment categories.
Information Technology Systems
We have advanced information technology systems, which facilitate rapid and
informed decision-making and enable us to respond quickly to changing market
conditions. Each branch is equipped with one or more workstations that are
electronically linked to our other locations and to our AS/400 system located
at our data center. All rental transactions are entered at these workstations
and processed on a real-time basis. Management and branch personnel can access
the systems 24 hours a day.
These systems:
. allow management to obtain a wide range of operating and financial data;
. enable branch personnel to (1) determine equipment availability, (2)
access all equipment within a geographic region and arrange for equipment
to be delivered from anywhere in the region directly to the customer, (3)
monitor business activity on a real-time basis and (4) obtain customized
reports on a wide range of operating and financial data, including
equipment utilization, rental rate trends, maintenance histories and
customer transaction histories; and
. permit customers to access their accounts online.
Our information technology systems and our web site are supported by our
in-house group of approximately 100 information technology specialists. This
group trains our personnel at the branch location; upgrades and customizes our
systems; provides hardware and technology support; operates a support desk to
assist branch personnel in the day-to-day use of the systems; extends the
systems to newly acquired locations; and manages our web site.
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 believe
that, in general, large companies enjoy significant competitive advantages
compared to smaller operators, including greater purchasing power, a lower cost
of capital, the ability to provide customers with a broader range of equipment
and services and with newer and better maintained
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equipment, and greater flexibility to transfer equipment among locations in
response to customer demand. For additional information, see "--Competitive
Advantages."
Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing
environmental protection and occupational health and safety. Under these laws,
an owner or lessee of real estate may be liable on a no-fault basis for, among
other things, (1) the costs of removal or remediation of hazardous or toxic
substances located on, in, or emanating from, the real estate, as well as
related costs of investigation and property damage and substantial penalties,
and (2) environmental contamination at facilities where its waste is or has
been disposed. Activities that are or may be affected by these laws include our
use of hazardous materials to clean and maintain equipment and our disposal of
solid and hazardous waste and wastewater from equipment washing. We also
dispense petroleum products from underground and aboveground storage tanks
located at certain locations, and at times we must remove or upgrade tanks to
comply with applicable laws. We have acquired or lease certain locations, which
have or may have been contaminated by leakage from underground tanks or other
sources, and we are in the process of assessing the nature of the required
remediation. Based on the conditions currently known to us, we believe that any
unreserved environmental remediation and compliance costs required with respect
to those conditions will not have a material adverse effect on our business.
However, we cannot be certain that we will not identify adverse environmental
conditions that are not currently known to us, that all potential releases from
underground storage tanks removed in the past have been identified, or that
environmental and safety requirements will not become more stringent or be
interpreted and applied more stringently in the future. If we are required to
incur environmental compliance or remediation costs that are not currently
anticipated by us, our business could be adversely affected depending on the
magnitude of the cost.
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Employees
As of March 1, 2002, we had 13,606 employees. Of these employees, 3,935 are
salaried personnel and 9,671 are hourly personnel. Collective bargaining
agreements relating to 68 separate locations cover approximately 1,013 of our
employees.
Item 2. Properties
We currently operate 741 locations. Of these locations, 662 are in the
United States, 78 are in Canada and one is in Mexico. The number of locations
in each state or province is shown below.
United States
. Alabama (11) . Louisiana (8) . Oklahoma (7)
. Alaska (5) . Maine (3) . Oregon (24)
. Arizona (21) . Maryland (19) . Pennsylvania (16)
. Arkansas (3) . Massachusetts (11) . Rhode Island (2)
. California (102) . Michigan (5) . South Carolina (9)
. Colorado (18) . Minnesota (14) . South Dakota (7)
. Connecticut (10) . Mississippi (2) . Tennessee (7)
. Delaware (5) . Missouri (12) . Texas (55)
. Florida (36) . Montana (2) . Utah (9)
. Georgia (22) . Nebraska (5) . Virginia (12)
. Idaho (2) . Nevada (15) . Washington (32)
. Illinois (18) . New Hampshire (2) . Wisconsin (8)
. Indiana (17) . New Jersey (9) . Wyoming (2)
. Iowa (13) . New Mexico (5)
. Kansas (5) . New York (19)
. Kentucky (6) . North Carolina (23)
. North Dakota (11)
. Ohio (13)
Canada Mexico
. Alberta (3) . Nuevo Leon (1)
. British Columbia (17)
. Manitoba (2)
. Newfoundland (9)
. Ontario (34)
. Quebec (11)
. Saskatchewan (2)
Our branch locations generally include facilities for displaying equipment
and, depending on the location, may include separate equipment service areas
and storage areas.
We own 90 of our rental locations and lease the other locations. In
addition to our rental locations we also lease non-rental locations, for
example district offices, region offices and service centers. Our leases
provide for varying terms and include 30 leases that are on a month-to-month
basis and 30 leases that provide for a remaining term of less than one year and
do not provide a renewal option. We are currently negotiating renewals for most
of the leases that provide for a remaining term of less than one year.
We maintain a fleet of approximately 13,000 vehicles. These vehicles are
used for delivery, maintenance and sales functions. We own a portion of this
fleet and lease a portion.
Our corporate headquarters are located in Greenwich, Connecticut, where we
occupy approximately 28,000 square feet under (1) a lease for approximately
12,000 square feet that extends until 2003 and (2) a lease for approximately
16,000 square feet that extends until 2004 (subject to extension rights).
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Item 3. Legal Proceedings
We are party to various litigation matters, in most cases involving
ordinary and routine claims incidental to our business. We cannot estimate with
certainty our ultimate legal and financial liability with respect to such
pending litigation matters. However, we believe, based on our examination of
such matters, that our ultimate liability will not have a material adverse
effect on our financial position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 2001, no matter was submitted to a vote of our
security holders.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our common stock trades on the New York Stock Exchange under the symbol
"URI." The following table sets forth, for the periods indicated, the high and
low sales prices for our common stock, as reported by the New York Stock
Exchange.
High Low
------ ------
2001:
First Quarter.. $19.44 $13.19
Second Quarter. 26.25 15.19
Third Quarter.. 25.48 16.46
Fourth Quarter. 24.49 16.97
2000:
First Quarter.. $21.25 $13.75
Second Quarter. 19.69 13.25
Third Quarter.. 24.13 17.38
Fourth Quarter. 24.31 12.00
As of March 22, 2002, there were approximately 348 holders of record of our
common stock. We believe that the number of beneficial owners is substantially
greater than the number of record holders, because a large portion of our
common stock is held of record in broker "street names."
Dividend Policy
We intend to retain all earnings for the foreseeable future for use in the
operation and expansion of our business and, accordingly, we currently have no
plans to pay dividends on our common stock. The payment of any future dividends
will be determined by the Board of Directors in light of conditions then
existing, including our earnings, financial condition and capital requirements,
restrictions in financing agreements, business conditions and other factors.
Under the terms of certain agreements governing our outstanding indebtedness,
we are prohibited or restricted from paying dividends on our common stock. In
addition, under Delaware law, we are prohibited from paying any dividends
unless we have capital surplus or net profits available for this purpose.
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PART II
Item 6. Selected Financial Data
You should read the following data together with our Consolidated Financial
Statements and related Notes included elsewhere in this Report and
Item 7--"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We completed a number of acquisitions during the periods presented below.
We accounted for certain of these acquisitions, including our 1998 merger with
U.S. Rentals, as poolings-of-interests. This means that, for accounting and
financial reporting purposes, the acquired company is treated as having been
combined with us at all times since the inception of the acquired company.
Accordingly, we have restated our accounts to include the accounts of the
businesses that we acquired in these pooling-of-interests transactions, except
in one case where the transaction was not material. We accounted for our other
acquisitions as purchases. This means that the results of operations of the
acquired company are included in our financial statements only from the date of
acquisition. We believe that our results for the periods presented below are
not directly comparable because of the impact of the acquisitions accounted for
as purchases. For additional information, see Note 3 of the Notes to
Consolidated Financial Statements included elsewhere in this Report.
Year Ended December 31
-------------------------------------------------------
1997 1998 1999 2000 2001
-------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share data)
Income statement data:
Total revenues..................................................... $489,838 $1,220,282 $2,233,628 $2,918,861 $2,886,605
Total cost of revenues............................................. 340,546 796,834 1,408,710 1,830,291 1,847,135
-------- ---------- ---------- ---------- ----------
Gross profit....................................................... 149,292 423,448 824,918 1,088,570 1,039,470
Selling, general and administrative expenses....................... 70,835 195,620 352,595 454,330 441,751
Restructuring charge............................................... 28,922
Merger-related expenses............................................ 47,178
Non-rental depreciation and amortization........................... 13,424 35,248 62,867 86,301 106,763
Termination cost of deferred compensation agreements............... 20,290
-------- ---------- ---------- ---------- ----------
Operating income................................................... 44,743 145,402 409,456 547,939 462,034
Interest expense................................................... 11,847 64,157 139,828 228,779 221,563
Preferred dividends of a subsidiary trust.......................... 7,854 19,500 19,500 19,500
Other (income) expense, net........................................ (2,021) (4,906) 8,321 (1,836) 6,421
-------- ---------- ---------- ---------- ----------
Income before provision for income taxes and extraordinary items... 34,917 78,297 241,807 301,496 214,550
Provision for income taxes......................................... 29,508 43,499 99,141 125,121 91,977
-------- ---------- ---------- ---------- ----------
Income before extraordinary items.................................. 5,409 34,798 142,666 176,375 122,573
Extraordinary items, net (1)....................................... 1,511 21,337 11,317
-------- ---------- ---------- ---------- ----------
Net income......................................................... $ 3,898 $ 13,461 $ 142,666 $ 176,375 $ 111,256
======== ========== ========== ========== ==========
Pro forma provision for income taxes before extraordinary items (2) $ 14,176 $ 44,386
Pro forma income before extraordinary items (2).................... 20,741 33,911
Basic earnings before extraordinary items per share................ $ 0.12 $ 0.53 $ 2.00 $ 2.48 $ 1.70
Diluted earnings before extraordinary items per share.............. $ 0.11 $ 0.48 $ 1.53 $ 1.89 $ 1.30
Basic earnings per share (3)....................................... $ 0.08 $ 0.20 $ 2.00 $ 2.48 $ 1.54
Diluted earnings per share (3)..................................... $ 0.08 $ 0.18 $ 1.53 $ 1.89 $ 1.18
Other financial data:
Depreciation and amortization...................................... $ 95,521 $ 211,158 $ 343,508 $ 414,432 $ 427,726
Dividends on common stock.......................................... -- -- -- -- --
December 31
----------------------------------------------------
1997 1998 1999 2000 2001
-------- ---------- ---------- ---------- ----------
(dollars in thousands)
Balance sheet data:
Cash and cash equivalents..................................... $ 72,411 $ 20,410 $ 23,811 $ 34,384 $ 27,326
Rental equipment, net......................................... 461,026 1,143,006 1,659,733 1,732,835 1,747,182
Goodwill, net(4).............................................. 73,648 922,065 1,853,279 2,215,532 2,199,774
Total assets.................................................. 826,010 2,634,663 4,497,738 5,123,933 5,061,516
Total debt.................................................... 264,573 1,314,574 2,266,148 2,675,367 2,459,522
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust............................. 300,000 300,000 300,000 300,000
Series A and B preferred stock(5)............................. 430,800 430,800
Stockholders' equity.......................................... 446,388 726,230 966,686 1,115,143 1,625,510
10
- --------
(1)The charge in 1997 resulted from the prepayment of certain debt by U.S.
Rentals. The charge in 1998 resulted from the early extinguishment of
certain debt and primarily reflected prepayment penalties on certain debt of
U.S. Rentals. The charge in 2001 resulted from the refinancing of certain
debt and primarily reflected the write-off of deferred financing fees.
(2)U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and another company that we acquired in a
pooling-of-interests transaction was taxed as a Subchapter S Corporation
until being acquired by us in 1998. In general, the income or loss of a
Subchapter S Corporation is passed through to its owners rather than being
subjected to taxes at the entity level. Pro forma provision for income taxes
before extraordinary items and pro forma income before extraordinary items
reflect a provision for income taxes as if all such companies were liable
for federal and state income taxes as taxable corporate entities for all
periods presented.
(3)Our earnings during 1997 were impacted by $20.3 million ($0.40 per diluted
share) of expenses relating to the termination of certain deferred
compensation expenses in connection with U.S. Rentals' initial public
offering, a $7.5 million ($0.15 per diluted share) charge to recognize
deferred tax liabilities of U.S. Rentals and an extraordinary item (net of
income taxes) of $1.5 million ($0.03 per diluted share). Our earnings during
1998 were impacted by merger-related expenses of $47.2 million ($33.2
million net of taxes or $0.45 per diluted share), a $4.8 million ($0.07 per
diluted share) charge to recognize deferred tax liabilities of a company
acquired in a pooling-of-interests transaction and an extraordinary item
(net of income taxes) of $21.3 million ($0.30 per diluted share). Our
earnings during 1999 were impacted by $18.2 million ($10.8 million net of
taxes or $0.12 per diluted share) of expenses incurred related to a
terminated tender offer. Our earnings during 2001 were impacted by a
restructuring charge of $28.9 million ($19.2 million net of taxes or $0.20
per diluted share), a $7.8 million ($5.2 million net of taxes or $0.06 per
diluted share) charge, recorded in other expense, relating to refinancing
costs of a synthetic lease and an extraordinary item (net of income taxes)
of $11.3 million ($0.12 per diluted share).
(4)Goodwill is defined as the excess of cost over the fair value of
identifiable net assets of businesses acquired and is amortized on a
straight-line basis over forty years. Beginning January 1, 2002, in
accordance with the adoption of a new accounting standard, goodwill will no
longer be amortized. See Item 7--"Management's Discussion and Analysis of
Financial Condition and Results of Operations--Changes in Accounting
Treatment for Goodwill and Other Intangible Assets" and Note 2 to the Notes
to Consolidated Financial Statements included elsewhere in this Report.
(5)We issued series A and B perpetual convertible preferred stock in 1999 and
included such preferred stock 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. Under this guidance, the
series A and 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, we entered into an agreement
effecting the exchange of new series C and D perpetual convertible preferred
stock for the series A and B preferred. The series C and D preferred is not
subject to mandatory redemption on a hostile change of control, and is
included in stockholders' equity under the recent SEC guidance. The effect
of the foregoing is that our perpetual convertible preferred stock is
included in stockholders' equity as of September 28, 2001 and thereafter,
but is outside of stockholders' equity for earlier dates.
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
We are the largest equipment rental company in the world. Our revenues are
divided into three categories:
. Equipment rentals--This category includes our revenues from renting
equipment. This category also includes related revenues such as the fees
we charge for equipment delivery, fuel, repair of rental equipment and
damage waivers.
. Sales of rental equipment--This category includes our revenues from the
sale of used rental equipment.
. Sales of equipment and merchandise and other revenues--This category
principally includes our revenues from the following sources: (i) the
sale of new equipment, (ii) the sale of supplies and merchandise, (iv)
repair services and the sale of parts for equipment owned by customers,
and (v) the operations of our subsidiary that develops and markets
software for use by equipment rental companies in managing and operating
multiple branch locations.
Our cost of operations consists primarily of: (i) depreciation costs
relating to the rental equipment that we own and lease payments for the rental
equipment that we hold under operating leases, (ii) the cost of repairing and
maintaining rental equipment, (iii) the cost of the items that we sell
including new and used equipment and related parts, merchandise and supplies
and (iv) personnel costs, occupancy costs and supply costs.
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 goodwill and other intangible assets . Goodwill
represents the excess of the purchase price of acquired companies over the
estimated fair market value of the net assets acquired. As described below,
effective January 1, 2002, we will no longer amortize goodwill. Our other
intangible assets are principally non-compete agreements.
We completed acquisitions in each of 1999, 2000 and 2001. See Note 3 to the
Notes to our Consolidated Financial Statements included elsewhere in this
Report. In view of the fact that our operating results for these years were
affected by acquisitions, we believe that our results for these periods are not
directly comparable.
Change in Accounting Treatment for Goodwill and Other Intangible Assets
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" issued by
the Financial Accountants Standards Board ("FASB"). Under this standard, our
goodwill, which we previously amortized over 40 years, will no longer be
amortized. We amortized $58.4 million of goodwill in 2001. Our approximately
$15.8 million of other intangible assets, which consist of non-compete
agreements, will continue to be amortized over their estimated useful lives. We
will be required to review our goodwill for impairment during the first six
months of 2002 and at least annually thereafter. In general, this means that we
must determine whether the fair value of the goodwill, determined in accordance
with applicable accounting standards, is at least equal to the recorded value
shown on our balance sheet. If the fair value of the goodwill falls below the
recorded value, we will be required to write-off the excess goodwill and to
12
treat this write-off as an expense. We are currently performing the initial
impairment analysis required by the new accounting standard and estimate that
we will record a non-cash charge in the first quarter of 2002 of approximately
$350 million. This charge will be recorded on the income statement as a
"Cumulative Effect of Change in Accounting Principle" and will reduce our
stockholders' equity by the amount of the charge.
Critical Accounting Policies
We prepare our financial statements in accordance with accounting
principles generally accepted in the United States. A summary of our
significant accounting policies is contained in Note 2 to the Notes to our
Consolidated Financial Statements included elsewhere in this Report. In
applying many accounting principles, we need to make assumptions, estimates
and/or judgments. These assumptions, estimates and judgments are often
subjective and may change based on changing circumstances or changes in our
analysis. Material changes in these assumptions, estimates and judgments have
the potential to materially alter our results of operations. We have identified
below those of our accounting policies that we believe could potentially
produce materially different results were we to change underlying assumptions,
estimates and judgments.
Allowance for Doubtful Accounts. We maintain allowances for doubtful
accounts. This allowance reflects our estimate of the amount of our receivables
that we will be unable to collect. Our estimate could require change based on
changing circumstances, including changes in the economy or in the particular
circumstances of individual customers. Accordingly, we may be required to
increase or decrease our allowance.
Useful Lives of Rental Equipment and Property and Equipment. We depreciate
rental equipment and property and equipment over their estimated useful lives,
after giving effect to an estimated salvage value of 0% to 10% of cost. The
useful life of an asset is determined based on our estimate of the period the
asset will generate revenues, and the salvage value is determined based on our
estimate of the minimum value we could realize from the asset after such
period. We may be required to change these estimates based on changes in our
industry or other changing circumstances. If these estimates change in the
future, we may be required to recognize increased or decreased depreciation
expense for these assets.
Impairment of Goodwill. As described above, we must periodically determine
whether the fair value of our goodwill is at least equal to the recorded value
shown on our balance sheet. See "Change in Accounting Treatment for Goodwill
and Other Intangible Assets." We must make estimates and assumptions in
evaluating the fair value of goodwill. We may be required to change these
estimates and assumptions based on changes in our business prospects or other
changing circumstances. If these estimates change in the future, we may be
required to record impairment charges for goodwill not previously recorded.
Restructuring. During 2001, we recorded reserves in connection with the
restructuring plan described below. These reserves include estimates pertaining
to workforce reduction costs and costs of vacating facilities and related
settlements of contractual obligations. Although we do not anticipate
significant changes, the actual costs may differ from these estimates and we
may be required to record additional expense not previously recorded.
Restructuring Plan in 2001
During 2001, we adopted a restructuring plan involving the following
principal elements: (i) 31 underperforming branches were closed or consolidated
with other locations; (ii) five administrative offices were closed or
consolidated with other locations; (iii) the reduction of our workforce by 489
through the termination of branch and administrative personnel (including 440
terminated as of December 31, 2001) and (iv) certain information technology
hardware and software was no longer used.
The aggregate annual revenues from the 31 branches that were eliminated
amounted to approximately $82 million. We expect that we will retain
approximately $54 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.
13
We recorded, in the second quarter of 2001, a restructuring charge of
approximately $28.9 million relating to the restructuring plan described above.
During 2001, total activity was approximately $21.9 million consisting of
approximately $11.0 million of cash payments and approximately $10.9 million of
non-cash charges. Of the remaining $7.0 million of this charge, approximately
$3.6 million will be paid by December 31, 2002 and approximately $3.4 million
will be paid in future periods.
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:
Balance
Amount of Activity December 31,
Components of Restructuring Charge Charge in 2001 (1) 2001 (2)
---------------------------------- --------- ----------- ------------
Cost to vacate facilities..... $18,291 $14,753 $3,538
Workforce reduction costs..... 5,666 3,611 2,055
Information technology costs... 4,965 3,548 1,417
------- ------- ------
Total..................... $28,922 $21,912 $7,010
======= ======= ======
- --------
(1)Represents the non-cash component of the charge plus the cash component that
was paid through December 31, 2001.
(2)Represents the portion of the cash component of the charge that had not been
paid as of December 31, 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 under "--Liquidity and Capital
Resources--Financing Transactions in 2001." 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) that relates
to the refinancing of indebtedness and primarily reflects the write-off of
deferred financing fees 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
General Overview of 2001
Our revenues were $2,886.6 million in 2001 compared with $2,918.9 million
in 2000. The 1.1% decrease in 2001 revenues was due to lower sales of used
rental equipment. As further described below, in response to the recession, we
slowed investment in new equipment and held existing equipment longer. Our
other revenue categories increased in 2001. Rental revenues increased 7.6% and
revenues from "sale of equipment, and merchandise and other revenues" increased
2.4%. Growth in rental revenues at locations open more than one year, or same
store rental revenues, was 5.6% for 2001 and 3.0% in the fourth quarter of
2001. Rental rates for 2001 and the fourth quarter of 2001 were down 0.8% and
1.1%, respectively, compared to the corresponding prior year periods.
In response to weakness in the economy, we slowed investment in new
equipment and held existing equipment longer. This enabled us to increase free
cash flow and repay debt. We generated approximately $346 million of free cash
flow in 2001, after capital expenditures of approximately $497 million, and
used a portion of this cash to pay down approximately $247 million of debt and
synthetic lease obligations. Because we slowed our sale of used equipment, our
revenues from the sales of rental equipment was down $200.6 million, or 57.7%,
in 2001. Prices for used equipment were somewhat lower in the second half of
2001 than at the beginning of 2001.
14
The decrease in revenues from sales of rental equipment and the $28.9
million restructuring charge described above are the principal reasons for the
decrease in our operating income to $462.0 million in 2001 from $547.9 million
in 2000. This decrease in operating income and the $7.8 million pre-tax charge
described above relating to the refinancing of a synthetic lease are the
principal reasons for the decrease in our income before extraordinary item to
$122.6 million in 2001 from $176.4 million in 2000.
If the economy improves, we should have the potential to increase same
store revenue growth. However, we believe that our results will not reflect the
effects of a strengthening economy until the second half of 2002 at the
earliest. In addition, as described above under "--Change in Accounting
Treatment for Goodwill and Other Intangible Assets," we expect to incur a
charge in the first quarter associated with a change in accounting treatment.
Even without that charge, which will depress first quarter earnings, we would
not expect an increase in earnings per share for 2002 over 2001 levels (other
than earnings increases attributable to elimination of goodwill amortization
under the new accounting treatment).
Additional Information
Years Ended December 31, 2001 and 2000
Revenues. We had total revenues of $2,886.6 million in 2001, representing
a decrease of 1.1% from total revenues of $2,918.9 million in 2000. The
different components of our revenues are discussed below:
1. Equipment Rentals. Our revenues from equipment rentals was $2,212.9
million 2001, representing an increase of 7.6% from $2,056.7 million in 2000.
These revenues accounted for 76.7% of our total revenues in 2001 compared with
70.5% of our total revenues in 2000. The increase in rental revenues reflected
the following:
. We increased our revenues at locations open more than one year. This
increase accounted for approximately 5.6 percentage points of the total
increase of 7.6%. The increase in revenues at these locations was due to
an increase in the volume of transactions, which was more than sufficient
to offset a decline in rental rates. As described above, rental rates for
full year 2001 and fourth quarter 2001 were down 0.8% and 1.1%,
respectively, compared to the corresponding year ago periods.
. We also had additional revenues because we added new rental locations
through start-ups and acquisitions. These additional revenues, net of
revenues lost due to locations sold or closed, accounted for
approximately 2.0 percentage points of the total increase of 7.6%.
2. Sales of Rental Equipment. Our revenues from the sale of rental
equipment were $147.1 million in 2001, representing a decrease of 57.7% from
$347.7 million in 2000. These revenues accounted for 5.1% of our total revenues
in 2001 compared with 11.9% of our total revenues in 2000. This decrease
principally reflected our decision discussed above to slow investment in new
equipment and hold existing equipment longer during a recessionary environment.
3. Sales of Equipment and Merchandise and Other Revenues. Our revenues
from "sale of equipment, and merchandise and other revenues" were $526.6
million in 2001, representing an increase of 2.4% from $514.5 million in 2000.
These revenues accounted for 18.2% of our total revenues in 2001 compared with
17.6% of our total revenues in 2000. The 2.4% increase in sales of equipment
and merchandise and other revenues was attributable to the increase in the
volume of transactions.
Gross Profit. Our gross profit decreased to $1,039.5 million in 2001 from
$1,088.6 million in 2000. This decrease reflected the decrease in total
revenues discussed above, as well as the decrease in gross profit margin
described below from equipment rental and the sales of rental equipment.
Information concerning our gross profit margin by source of revenue is set
forth below:
1. Equipment Rentals. Our gross profit margin from equipment rental
revenues was 37.9% in 2001 and 39.9% in 2000. The decrease in 2001 principally
reflected: (i) an increase in our cost of equipment rental, which was
principally attributable to an increase in the amount of equipment that we hold
under operating leases rather than owning, and (ii) the decrease in rental
rates described above.
15
2. Sales of Rental Equipment. Our gross profit margin from the sales of
rental equipment was 39.7% in 2001 and 40.1% in 2000. This decrease was
primarily the result of modest price declines in some geographic areas.
3. Sales of Equipment and Merchandise and Other Revenues. Our gross profit
margin from "sales of equipment and merchandise and other revenues" was 27.1%
in 2001 and 24.9% in 2000. The increase in the gross profit margin in 2001
primarily reflected: (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 and merchandise sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A) were $441.8 million, or 15.3% of total
revenues, during 2001 and $454.3 million, or 15.6% of total revenues, during
2000. The decrease in SG&A in 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 2001. See "--Restructuring Plan in 2001" for additional information.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $106.8 million, or 3.7% of total revenues, in 2001 and $86.3
million, or 3.0% of total revenues, in 2000. The increase in the dollar amount
of non-rental depreciation and amortization in 2001 primarily reflected (1) the
amortization of goodwill attributable to acquisitions completed during 2000 and
(2) additional non-rental vehicles which generally have shorter useful lives.
Interest Expense. Interest expense decreased to $221.6 million in 2001
from $228.8 million in 2000. This decrease primarily reflected lower interest
rates on our variable rate debt.
Preferred Dividends of a Subsidiary Trust. During 2001 and 2000, preferred
dividends of a subsidiary trust were $19.5 million.
Other (Income) Expense. Other expense was $6.4 million in 2001 compared
with other income of $1.8 million in 2000. The increase in other expense in
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."
Income Taxes. Income taxes were $92.0 million, or an effective rate of
42.9%, in 2001 compared to $125.1 million, or an effective rate of 41.5%, in
2000. The increase in the effective rate in 2001 was primarily attributable to
the non-deductibility for income tax purposes of certain costs included in the
restructuring charge.
Extraordinary Item. We recorded an extraordinary charge of $18.1 million
($11.3 million, net of tax) in 2001. See "--Debt Refinancing and Extraordinary
Item" for additional information.
Years Ended December 31, 2000 and 1999
Revenues. We had total revenues of $2,918.9 million in 2000, representing
an increase of 30.7% over total revenues of $2,233.6 million in 1999. Our
revenues in 2000 and 1999 by source were as follows: (i) equipment rental
revenues were $2,056.7 million, or 70.5% of revenues, in 2000 compared to
$1,581.0 million, or 70.8% of revenues, in 1999; (ii) revenues from the sale of
rental equipment were $347.7 million, or 11.9% of revenues, in 2000 compared to
$235.7 million, or 10.6% of revenues, in 1999; and (iii) revenues from "sales
of equipment and merchandise and other revenues" were $514.5 million, or 17.6%
of revenues, in 2000 compared to $416.9 million, or 18.7% of revenues, in 1999.
16
The 30.7% increase in total revenues in 2000 reflected the following:
. We increased our revenues at locations open more than one year. This
increase accounted for approximately 12.9 percentage point of the total
increase of 30.7%. This same store growth was attributable to (i)
increases in the volume of transactions and utilization rates, which
accounted for 10.9 of the 12.9 percentage points, and (ii) price
increases, which accounted for 2.0 of the 12.9 percentage points. The
increase in volume primarily reflected (a) an increase in rental
transactions, (b) an increase in the sale of related merchandise and
parts which was driven by the increase in equipment rental transactions
and (c) an increase in the sale of used equipment.
. We also had additional revenues because we added new rental locations
through start-ups and acquisitions. These additional revenues, net of
revenues lost due to locations sold or closed, accounted for
approximately 17.8 percentage point of the total increase of 30.7%.
Gross Profit. Gross profit increased to $1,088.6 million in 2000 from
$824.9 million in 1999. This increase in gross profit was primarily
attributable to the increase in revenues described above. Our gross profit
margin by source of revenue in 2000 and 1999 was: (i) equipment rental (39.9%
in 2000 and 39.4% in 1999); (ii) sales of rental equipment (40.1% in 2000 and
42.0% in 1999); and (iii) sales of equipment and merchandise and other revenues
(24.9% in 2000 and 24.6% in 1999). The increase in the gross profit margin from
rental revenues in 2000 was primarily attributable to greater equipment
utilization rates and to economies of scale. The decrease in the gross profit
margin from the sales of rental equipment in 2000 reflected a change in the age
mix of the used equipment sold. In general, the sale of relatively new
equipment generates lower gross profit margins than the sale of somewhat older
equipment.
Selling, General and Administrative Expenses. SG&A was $454.3 million, or
15.6% of total revenues, during 2000 and $352.6 million, or 15.8% of total
revenues, during 1999. SG&A in 1999 included an $8.3 million charge primarily
due to professional fees incurred in connection with a terminated tender offer.
Excluding this charge, SG&A as a percentage of revenues was 15.4% in 1999.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $86.3 million, or 3.0% of total revenues, in 2000 and $62.9
million, or 2.8% of total revenues, in 1999.
Interest Expense. Interest expense increased to $228.8 million in 2000
from $139.8 million in 1999. This increase primarily reflected (i) an increase
in our indebtedness, principally to fund acquisitions, and (ii) an increase in
the interest rates applicable to our variable rate debt.
Preferred Dividends of a Subsidiary Trust. During 2000 and 1999, preferred
dividends of a subsidiary trust were $19.5 million.
Other (Income) Expense. Other income was $1.8 million in 2000 compared to
$8.3 million of other expense in 1999. The other expense in 1999 was
attributable to a $9.9 million charge that principally related to fees that we
paid for a $2.0 billion financing commitment that was subsequently cancelled
upon termination of a tender offer made by us in 1999.
Income Taxes. Income taxes increased to $125.1 million, or an effective
rate of 41.5%, in 2000 from $99.1 million, or an effective rate of 41.0%, in
1999.
Liquidity and Capital Resources
Financing Transactions in 2001
Set forth below is information concerning certain financing transactions
completed in 2001:
Refinancing Transaction. In April 2001, we refinanced all of the
indebtedness that was then outstanding on our old revolving credit facility and
term loans. In order to effect this refinancing, we:
. issued $450.0 million of 10 3/4% Senior Notes Due 2008 (the "103/4%
Notes");
17
. obtained a new senior secured credit facility comprised of a $750.0
million term loan and a $750.0 million revolving credit facility; and
. used the proceeds from the 103/4% Notes, the new term loan and borrowings
under the new revolving credit facility to (i) permanently repay the
outstanding balance under our old revolving credit facility ($476.0
million); (ii) repay outstanding term loans ($1,188.5 million) and (iii)
repay an outstanding synthetic lease ($31.2 million).
Receivables Securitization. We have an accounts receivable securitization
facility under which one of our subsidiaries can borrow up to $250 million
against a collateral pool of accounts receivable. During 2001, this subsidiary
increased its outstanding borrowings under this facility by $101.5 million. For
additional information, see "--Certain Information Concerning Receivables
Securitization."
Certain Balance Sheet Changes
The decrease in debt at December 31, 2001 compared to December 31, 2000 was
attributable to increased principal payments due to increased cash flow from
operations during 2001. The increase in additional paid in capital at December
31, 2001 compared to December 31, 2000 was primarily attributable to our
perpetual convertible preferred stock being included in Stockholders' Equity on
the December 31, 2001 balance sheet but not on the December 31, 2000 balance
sheet (see Note 2 to Notes to Consolidated Financial Statements included
elsewhere in this Report).
Sources and Uses of Cash
During 2001, we (i) generated cash from operations of approximately $696.7
million, and (ii) generated cash from the sale of rental equipment of
approximately $147.1 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
$54.8 million), (ii) purchase rental equipment (approximately $449.8 million),
(iii) purchase other property and equipment (approximately $47.5 million), (iv)
repay debt and a synthetic lease obligation (approximately $247.0 million), (v)
purchase and retire shares of our outstanding common stock (approximately $14.3
million, net of proceeds from option exercises), and (vi) pay financing fees
related to the refinancing of certain of our debt (approximately $29.0 million).
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 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 December 31, 2001, borrowings under the revolving credit facility by
URI 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 1.25% or (B) an adjusted LIBOR
rate plus a margin of 2.25%. The above interest rate margins are 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. 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.
18
Certain Information Concerning Receivables Securitization
We have an accounts receivable securitization facility under which one of
our subsidiaries can borrow up to $250 million against a collateral pool of
accounts receivable. The borrowings under the facility and the receivables in
the collateral pool are included in the liabilities and assets, respectively,
reflected on our consolidated balance sheet. Key terms of this facility include:
. borrowings may be made only to the extent that the face amount of the
receivables in the collateral pool exceeds the outstanding loans by a
specified amount;
. the facility is structured so that the receivables in the collateral pool
are the lenders only source of repayment;
. prior to expiration or early termination of the facility, amounts
collected on the receivables may, subject to certain conditions, be
retained by the borrower, provided that the remaining receivables in the
collateral pool are sufficient to secure the then outstanding borrowings;
and
. after expiration or early termination of the facility, we will repay the
borrowings.
As of December 31, 2001, (i) the outstanding borrowings under the facility
were approximately $201.5 million and (ii) the aggregate face amount of the
receivables in the collateral pool was approximately $337.6 million. The
agreement governing this facility, which was amended in June 2001, contemplates
that the term of the facility may extend for up to three years from the date of
the amended facility. However, on each anniversary of such date, the consent of
the lender is required for the facility to renew for the next year. The next
anniversary date is in June 2002. We plan to seek the lender's approval for
renewal.
Certain Information Concerning Operating Leases
From time to time we have entered into operating leases pursuant to which
we lease, as lessee, equipment or real estate. Certain of these leases were
entered into as part of sale and lease-back transactions. In 2001, we were the
seller-lessee in sale-leaseback transactions with unrelated third parities in
which we sold rental equipment and real estate for aggregate proceeds of $51.0
million. For additional information concerning lease payment obligations under
our operating leases, see "-Certain Information Concerning Contractual
Obligations" and Note 14 to the Notes to our Consolidated Financial Statements
included elsewhere in this Report.
Certain Information Concerning Trust Preferred Securities
In August 1998, a subsidiary trust of United Rentals, Inc. sold six million
shares of 6% Convertible Quarterly Income Preferred Securities ("Trust
Preferred Securities") for aggregate consideration of $300 million. During
2002, we repurchased 335,000 of these shares (having an aggregate liquidation
preference of approximately $16.8 million) for aggregate consideration of
approximately $11.5 million.
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 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
19
distributions to Holdings to, among other things, enable Holdings to pay
dividends on the Trust Preferred Securities that were issued by a subsidiary
trust of Holdings as described above .
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.
Cash Requirements Related to Operations
Our principal existing sources of cash are cash generated from operations
and borrowings available under our revolving credit facility. As of March 12,
2002, we had $502.6 million of borrowing capacity available under our $750
million revolving credit facility (reflecting outstanding loans of
approximately $167.5 million and outstanding letters of credit in the amount of
approximately $79.9 million). We believe that our existing sources of cash will
be sufficient to support our existing operations over the next 12 months.
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) payments due under operating leases, (iv) debt service
and (v) 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 equipment.
As described above, the annual renewal of our accounts receivable
securitization facility requires the lender's consent. If we do not obtain this
consent, then the facility will terminate in June 2002 and we will repay the
borrowings thereunder. In addition, we are required to make principal payments
of approximately $21.3 million in 2002 in respect of other indebtedness. We may
also elect to repay debt that is not due.
The amount of our capital expenditures during 2002 will depend on a number
of factors, including general economic conditions and growth prospects. Based
on current conditions, we estimate that capital expenditures for the year 2002
will be approximately $435 million for our existing operations. These
expenditures are comprised of approximately (i) $280 million of expenditures to
replace rental equipment sold, (ii) $115 million of discretionary expenditures
to increase the size of our rental fleet and (iii) $40 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.
We estimate that the weighted average age of our rental fleet, which
currently is approximately 31 months, will increase up to approximately 37
months in 2002 as a result of the rate at which we purchase new equipment and
sell used equipment. We ultimately plan to maintain an average age ranging from
35 to 45 months.
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 debt or equity financing
and, consequently, our indebtedness may increase or the ownership of existing
stockholders may be diluted 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.
For information on amounts due under operating leases in 2002, see
"--Certain Information Concerning Operating Lease."
20
Certain Information Concerning Contractual Obligations
The table below provides certain information concerning the payments coming
due under our existing contractual obligations described in the footnotes below:
2002 2003 2004 2005 2006 Thereafter Total
--------- -------- -------- -------- -------- ---------- ----------
(in thousands)
Debt (1)............. $222,784(3) $ 16,013 $ 25,088 $ 8,351 $254,071 $1,933,215 $2,459,522
Operating leases (2):
Real estate......... 61,139 57,356 52,955 45,573 41,081 125,506 383,610
Rental equipment.... 84,486 72,813 69,346 57,551 48,199 23 332,418
Other equipment..... 24,314 22,131 16,733 4,973 334 68,485
--------- -------- -------- -------- -------- ---------- ----------
Total................ $ 392,723 $168,313 $164,122 $116,448 $343,685 $2,058,744 $3,244,035
========= ======== ======== ======== ======== ========== ==========
- --------
(1)Represents the scheduled maturities of our debt for each of the next five
years and thereafter as of December 31, 2001. For additional information on
our debt, see Note 8 to the Notes to Consolidated Financial Statements
included elsewhere in this Report.
(2)Represents the future minimum lease payments under our noncancellable
operating leases with initial or remaining terms of one year or more for
each of the next five years and thereafter as of December 31, 2001. For
additional information on our operating leases, see Note 14 to the Notes to
Consolidated Financial Statements included elsewhere in this Report.
(3)Includes $201.5 million that is payable should our accounts receivable
securitization facility terminate in 2002. As described under "--Certain
Information Concerning Receivables Securitization,'' subject to lender's
consent being obtained, the term of this facility will be extended.
Extension of the facility in 2002 would reduce the debt payable in 2002 from
$222.8 million to $21.3 million and increase by a corresponding amount the
debt payable in the year during which the extended facility terminates.
Fluctuations in Operating Results
We expect that our revenues and operating results may fluctuate from
quarter to quarter or over the longer term. Certain of the general factors that
may cause such fluctuations are discussed under "--Factors that May Influence
Future Results and Accuracy of Forward Looking Statements--Fluctuations of
Operating Results."
Accounting For Certain Expenses Relating to Potential Acquisitions
In accordance with accounting principles generally accepted in the United
States, we capitalize certain direct out-of-pocket expenditures (such as legal
and accounting fees) relating to potential or pending acquisitions. Indirect
acquisition costs, such as executive salaries, general corporate overhead,
public affairs and other corporate services, are expensed as incurred. Our
policy is to charge against earnings any capitalized expenditures relating to
any potential or pending acquisition that we determine will not be consummated.
There can be no assurance that in future periods we will not be required to
incur a charge against earnings in accordance with such policy, which charge,
depending upon the magnitude thereof, could adversely affect our results of
operations.
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 businesses that specialize in renting traffic control
equipment. These businesses 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.
21
Impact of Recently Issued Accounting Standards
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. Effectve July 1, 2001, the Company
adopted SFAS No. 141.
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 other intangible assets are acquired after June 30,
2001. Under this standard, goodwill and other intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests. For additional information, see "Change in Accounting
Treatment For Goodwill and Other Intangible Assets."
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 our 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 due to a recession or other reasons may lead to a decrease in the
demand for our equipment or the prices that we can charge. Any such decrease
could adversely affect our revenues and operating results. For example, as
discussed above, we expect that until the economy strengthens our same store
rental revenues and pricing will be down on a year-over-year basis due to the
current recessionary environment.
We have identified below certain factors that may cause a further downturn
in construction and industrial activity, either temporarily or long-term:
. a continuation or a worsening of the current recessionary environment;
. 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")
does not reach expected levels. A recent proposal by the President would, if
enacted by Congress, reduce TEA-21 spending by up to approximately $8.6 billion
beginning in late 2002.
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. These
factors include:
. seasonal rental patterns of our customers, with rental activity tending
to be lower in the winter;
. completion of acquisitions;
. changes in the amount of revenue relating to renting traffic control
equipment, since revenues from this equipment category tend to be more
seasonal than the rest of our business;
22
. changes in the size of our rental fleet or in the rate at which we sell
our 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 the adoption of new
accounting standards, store consolidations or closings or the refinancing
of existing indebtedness.
Substantial Indebtedness
At December 31, 2001, our total indebtedness was approximately $2,459.5
million. 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 be sure that any of these strategies could be effected on
favorable terms or at all.
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
interest rates would increase our interest expense and our debt service
obligations. At December 31, 2001, we had $1,017.2 million of variable rate
indebtedness.
Dependence on Additional Capital
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.
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.
23
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;
. 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.
Substantial Goodwill
At December 31, 2001, we had on our balance sheet net goodwill in the
amount of $2,199.8 million, which represented approximately 43.5% 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 would
adversely affect our results. For information concerning a charge relating to
goodwill that we expect to take in the first quarter of 2002, see "--Change in
Accounting Treatment For Goodwill and Other Intangible Assets."
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 this team 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 strategy. We do not maintain "key man" life insurance on the lives of
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, 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.
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
disruptions 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.
24
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 $1.0 million and limited to a
maximum of $98.0 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 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.
Labor Matters
We have 1,013 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.
Operations Outside the United States
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.
25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk primarily consists of (1) interest rate risk
associated with our variable rate debt and (2) foreign currency exchange rate
risk primarily associated with our Canadian operations.
Interest Rate Risk. We periodically utilize interest rate swap agreements
to manage and mitigate our exposure to changes in interest rates. At December
31, 2001, we had interest rate protection in the form of swap agreements with
an aggregate notional amount of $500.0 million. The effect of some of these
agreements is to limit the interest rate exposure to 9.5% on $200.0 million of
our term loan. The effect of the remainder of these agreements is to convert
$300.0 million of our fixed rate 9 1/4% Notes to a floating rate instrument
through 2009.
We have the following indebtedness that bears interest at a variable rate:
(i) all borrowings under our $750 million revolving credit facility ($71.3
million outstanding as of December 31, 2001); (ii) our term loan ($744.4
million remaining outstanding as of December 31, 2001); and (iii) all
borrowings under our $250 million accounts receivable securitization facility
($201.5 million outstanding as of December 31, 2001). The weighted average
interest rates applicable to our variable rate debt as of December 31, 2001
were (i) 4.5% for the revolving credit facility, (ii) 5.3% for the term loan
and (iii) 2.6% for the receivables securitization facility. Based upon the
amount of variable rate debt outstanding, taking into account our interest rate
swap agreements, as of December 31, 2001 (approximately $1.12 billion in the
aggregate), our net income would decrease by approximately $6.8 million for
each one percentage point increase in the interest rates applicable to our
variable rate debt. The amount of our variable rate indebtedness may fluctuate
significantly as a result of changes in the amount of indebtedness outstanding
under the revolving credit facility from time to time. For additional
information concerning the terms of our variable rate debt, see Note 8 of the
Notes to Consolidated Financial Statements included elsewhere in this Report.
Currency Exchange Risk. The functional currency for our Canadian
operations is the Canadian dollar. As a result, our future earnings could be
affected by fluctuations in the exchange rate between the U.S. and Canadian
dollars. Based upon the current level of our Canadian operations, a 10% change
in this exchange rate would not have a material impact on our earnings. In
addition, we periodically enter into foreign exchange contracts to hedge our
transaction exposures. At December 31, 2001, we had no outstanding foreign
exchange contracts. We do not engage in purchasing forward exchange contracts
for speculative purposes.
26
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
----
(1) Consolidated Financial Statements:
Report of Independent Auditors........................................................... 28
United Rentals, Inc. Consolidated Balance Sheets--December 31, 2001 and 2000............. 29
United Rentals, Inc. Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999....................................................... 30
United Rentals, Inc. Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999....................................................... 31
United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999....................................................... 32
Notes to Consolidated Financial Statements............................................... 34
Report of Independent Auditors........................................................... 66
United Rentals (North America), Inc. Consolidated Balance Sheets--December 31, 2001
and 2000............................................................................... 67
United Rentals (North America), Inc. Consolidated Statements of Operations for the years
ended December 31, 2001, 2000 and 1999................................................. 68
United Rentals (North America), Inc. Consolidated Statements of Stockholder's Equity for
the years ended December 31, 2001, 2000 and 1999....................................... 69
United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999................................................. 70
Notes to Consolidated Financial Statements............................................... 71
(2) Financial Statement Schedules:
Report of Independent Auditors on Financial Statement Schedules.......................... 80
Schedule I Condensed Financial Information of the Registrant............................. 81
Schedule II Valuation and Qualifying Accounts............................................ 85
Schedules other than those listed are omitted as they are not applicable or
the required or equivalent information has been included in the financial
statements or notes thereto.
27
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc.
We have audited the accompanying consolidated balance sheets of United
Rentals, Inc. as of December 31, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2001. These consolidated financial
statements are the responsibility of the management of United Rentals, Inc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals, Inc. at December 31, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 19, 2002
28
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
December 31
--------------------------------
2001 2000
---------- ----------
(In thousands, except share data)
ASSETS
Cash and cash equivalents......................................................... $ 27,326 $ 34,384
Accounts receivable, net of allowance for doubtful accounts of $47,744 in 2001 and
$55,624 in 2000................................................................. 450,273 469,594
Inventory......................................................................... 85,764 133,380
Prepaid expenses and other assets................................................. 133,217 104,493
Rental equipment, net............................................................. 1,747,182 1,732,835
Property and equipment, net....................................................... 410,053 422,239
Goodwill, net of accumulated amortization of $161,570 in 2001 and
$103,219 in 2000................................................................ 2,199,774 2,215,532
Other intangible assets, net...................................................... 7,927 11,476
---------- ----------
$5,061,516 $5,123,933
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable............................................................... $ 204,773 $ 260,155
Debt........................................................................... 2,459,522 2,675,367
Deferred taxes................................................................. 297,024 206,243
Accrued expenses and other liabilities......................................... 174,687 136,225
---------- ----------
Total liabilities.......................................................... 3,136,006 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, 73,361,407
shares issued and outstanding in 2001 and 71,065,707 in 2000................. 734 711
Additional paid-in capital..................................................... 1,243,586 765,529
Deferred compensation.......................................................... (55,794)
Retained earnings.............................................................. 467,106 355,850
Accumulated other comprehensive loss........................................... (30,127) (6,947)
---------- ----------
Total stockholders' equity................................................. 1,625,510 1,115,143
---------- ----------
$5,061,516 $5,123,933
========== ==========
See accompanying notes.
29
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
----------------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands, except per share amounts)
Revenues:
Equipment rentals.................................... $2,212,900 $2,056,683 $1,581,026
Sales of rental equipment............................ 147,101 347,678 235,678
Sales of equipment and merchandise and other revenues 526,604 514,500 416,924
---------- ---------- ----------
Total revenues........................................ 2,886,605 2,918,861 2,233,628
Cost of revenues:
Cost of equipment rentals, excluding depreciation.... 1,053,635 907,477 676,972
Depreciation of rental equipment..................... 320,963 328,131 280,641
Cost of rental equipment sales....................... 88,742 208,182 136,678
Cost of equipment and merchandise sales and other
operating costs.................................... 383,795 386,501 314,419
---------- ---------- ----------
Total cost of revenues................................ 1,847,135 1,830,291 1,408,710
---------- ---------- ----------
Gross profit.......................................... 1,039,470 1,088,570 824,918
Selling, general and administrative expenses.......... 441,751 454,330 352,595
Restructuring charge.................................. 28,922
Non-rental depreciation and amortization.............. 106,763 86,301 62,867
---------- ---------- ----------
Operating income...................................... 462,034 547,939 409,456
Interest expense...................................... 221,563 228,779 139,828
Preferred dividends of a subsidiary trust............. 19,500 19,500 19,500
Other (income) expense, net........................... 6,421 (1,836) 8,321
---------- ---------- ----------
Income before provision for income taxes and
extraordinary item.................................. 214,550 301,496 241,807
Provision for income taxes............................ 91,977 125,121 99,141
---------- ---------- ----------
Income before extraordinary item...................... 122,573 176,375 142,666
Extraordinary item, net of tax benefit of $6,759...... 11,317
---------- ---------- ----------
Net income............................................ $ 111,256 $ 176,375 $ 142,666
========== ========== ==========
Earnings per share--basic:
Income before extraordinary item..................... $ 1.70 $ 2.48 $ 2.00
Extraordinary item, net.............................. 0.16
---------- ---------- ----------
Net income........................................... $ 1.54 $ 2.48 $ 2.00
========== ========== ==========
Earnings per share--diluted:
Income before extraordinary item..................... $ 1.30 $ 1.89 $ 1.53
Extraordinary item, net.............................. 0.12
---------- ---------- ----------
Net income........................................... $ 1.18 $ 1.89 $ 1.53
========== ========== ==========
See accompanying notes.
30
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
--------------
Series C Series D
Perpetual Perpetual
Convertible Convertible Number Additional Compre-
Preferred Preferred of Paid-in Deferred Retained hensive
Stock Stock Shares Amount Capital Compensation Earnings Income
----------- ----------- ------ ------ ---------- ------------ -------- --------
(In thousands)
Balance, December 31, 1998.............. 68,428 $ 684 $ 689,018 $ 36,809
Comprehensive income:
Net income........................... 142,666 $142,666
Other comprehensive income:
Foreign currency translation
adjustments........................ 598
--------
Comprehensive income.................. $143,264
========
Issuance of common stock.............. 2,292 23 64,678
Exercise of common stock options...... 1,331 14 32,477
----- ----- ------ ------ ---------- -------- --------
Balance, December 31, 1999.............. 72,051 721 786,173 179,475
Comprehensive income:
Net income........................... 176,375 $176,375
Other comprehensive income:
Foreign currency translation
adjustments........................ (7,264)
--------
Comprehensive income.................. $169,111
========
Issuance of common stock.............. 774 8 9,867
Exercise of common stock options...... 26 421
Shares repurchased and retired........ (1,785) (18) (30,932)
----- ----- ------ ------ ---------- -------- --------
Balance, December 31, 2000.............. 71,066 711 765,529 355,850
Comprehensive income:.................
Net income........................... 111,256 $111,256
Other comprehensive income:
Foreign currency translation
adjustments........................ (16,137)
Cumulative effect on equity of
adopting FAS 133, net of tax of
$1,784............................. (2,516)
Derivatives qualifying as hedges,
net of tax of $3,212............... (4,527)
--------
Comprehensive income.................. $ 88,076
========
Issuance of common stock under
deferred compensation plans.......... 2,928 29 61,941 (61,970)
Amortization of deferred
compensation......................... 6,176
Issuance of Series C perpetual
convertible preferred stock.......... $ 3 286,734
Issuance of Series D perpetual
convertible preferred stock.......... $ 2 143,667
Issuance of common stock.............. 3 50
Exercise of common stock options...... 715 8 10,409
Shares repurchased and retired........ (1,351) (14) (24,744)
----- ----- ------ ------ ---------- -------- --------
Balance, December 31, 2001.............. $ 3 $ 2 73,361 $ 734 $1,243,586 $(55,794) $467,106
===== ===== ====== ====== ========== ======== ========
Accumulated
Other
Comprehensive
(Loss) Income
-------------
Balance, December 31, 1998.............. $ (281)
Comprehensive income:
Net income...........................
Other comprehensive income:
Foreign currency translation
adjustments........................ 598
Comprehensive income..................
Issuance of common stock..............
Exercise of common stock options......
--------
Balance, December 31, 1999.............. 317
Comprehensive income:
Net income...........................
Other comprehensive income:
Foreign currency translation
adjustments........................ (7,264)
Comprehensive income..................
Issuance of common stock..............
Exercise of common stock options......
Shares repurchased and retired........
--------
Balance, December 31, 2000.............. (6,947)
Comprehensive income:.................
Net income...........................
Other comprehensive income:
Foreign currency translation
adjustments........................ (16,137)
Cumulative effect on equity of
adopting FAS 133, net of tax of
$1,784............................. (2,516)
Derivatives qualifying as hedges,
net of tax of $3,212............... (4,527)
Comprehensive income..................
Issuance of common stock under
deferred compensation plans..........
Amortization of deferred
compensation.........................
Issuance of Series C perpetual
convertible preferred stock..........
Issuance of Series D perpetual
convertible preferred stock..........
Issuance of common stock..............
Exercise of common stock options......
Shares repurchased and retired........
--------
Balance, December 31, 2001.............. $(30,127)
========
See accompanying notes.
31
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
-----------------------------------
2001 2000 1999
----------- --------- -----------
(In thousands)
Cash Flows From Operating Activities:
Net income....................................................................... $ 111,256 $ 176,375 $ 142,666
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 427,726 414,432 343,508
Gain on sales of rental equipment.............................................. (58,359) (139,496) (99,000)
Gain on sales of businesses.................................................... (4,084) (1,842)
Amortization of deferred compensation.......................................... 6,176
Restructuring charge........................................................... 10,893
Extraordinary item............................................................. 18,076
Deferred taxes................................................................. 100,683 109,280 41,820
Changes in operating assets and liabilities:
Accounts receivable............................................................ 24,888 8,613 (93,716)
Inventory...................................................................... 87,084 69,706 (6,544)
Prepaid expenses and other assets.............................................. 8,148 (29,848) 7,257
Accounts payable............................................................... (58,713) (16,091) 64,453
Accrued expenses and other liabilities......................................... 18,852 (76,166) 22,758
----------- --------- -----------
Net cash provided by operating activities..................................... 696,710 512,721 421,360
----------- --------- -----------
Cash Flows From Investing Activities:
Purchases of rental equipment.................................................... (449,770) (808,204) (718,112)
Purchases of property and equipment.............................................. (47,548) (153,770) (123,649)
Proceeds from sales of rental equipment.......................................... 147,101 347,678 235,678
Proceeds from sales of businesses................................................ 19,246 6,521
Purchases of other companies..................................................... (54,838) (347,337) (986,790)
Payments of contingent purchase price............................................ (2,103) (16,266) (8,216)
In-process acquisition costs..................................................... (2,485) (4,285) (1,002)
----------- --------- -----------
Net cash used in investing activities......................................... (409,643) (962,938) (1,595,570)
----------- --------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net of issuance costs.................... 64,701
Proceeds from the issuance of Series A Preferred, net of issuance costs.......... 287,000
Proceeds from the issuance of Series B Preferred, net of issuance costs.......... 143,800
Proceeds from debt............................................................... 2,053,467 456,202 1,083,616
Payments on debt................................................................. (2,300,507) (134,599) (497,650)
Proceeds from sale-leaseback..................................................... 12,435 193,478 88,000
Payments of financing costs...................................................... (29,042) (16,408) (19,443)
Proceeds from the exercise of common stock options............................... 10,417 331 26,989
Shares repurchased and retired................................................... (24,758) (30,950)
----------- --------- -----------
Net cash provided by (used in) financing activities........................... (277,988) 468,054 1,177,013
Effect of foreign exchange rates................................................. (16,137) (7,264) 598
----------- --------- -----------
Net increase (decrease) in cash and cash equivalents............................. (7,058) 10,573 3,401
Cash and cash equivalents at beginning of year................................... 34,384 23,811 20,410
----------- --------- -----------
Cash and cash equivalents at end of year......................................... $ 27,326 $ 34,384 $ 23,811
=========== ========= ===========
See accompanying notes.
32
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Year Ended December 31
-------------------------------
2001 2000 1999
-------- --------- ----------
(In thousands)
Supplemental disclosure of cash flow information:
Cash paid for interest............................................... $230,385 $ 248,763 $ 124,285
Cash paid for taxes, net of refunds.................................. $(30,799) $ 23,746 $ 17,509
Supplemental schedule 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........................................ $ 21,465 $ 529,204 $1,468,567
Liabilities assumed................................................. (4,612) (133,120) (472,382)
Less:
Amounts paid in common stock...................................... (10,000)
Amounts paid through issuance of debt............................. (600) (65,500) (9,395)
-------- --------- ----------
16,253 320,584 986,790
Due to seller and other payments.................................... 38,585 26,753
-------- --------- ----------
Net cash paid........................................................ $ 54,838 $ 347,337 $ 986,790
======== ========= ==========
See accompanying notes.
33
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
United Rentals, Inc. is principally a holding company ("Holdings") and
conducts its operations primarily through its wholly owned subsidiary United
Rentals (North America), Inc. ("URI") and subsidiaries of URI. Holdings was
incorporated in July 1998 and became the parent of URI on August 5, 1998,
pursuant to the reorganization of the legal structure of URI. Prior to such
reorganization, the name of URI was United Rentals, Inc. References herein to
the "Company" refer to Holdings and its subsidiaries, with respect to periods
following the reorganization, and to URI and its subsidiaries, with respect to
periods prior to the reorganization. As a result of the reorganization,
Holdings' primary asset is its sole ownership of all issued and outstanding
shares of common stock of URI. URI's various credit agreements and debt
instruments place restrictions on its ability to transfer funds to its
shareholder.
The Company rents a broad array of equipment to a diverse customer base
that includes construction and industrial companies, manufacturers, utilities,
municipalities, homeowners and others in the United States, Canada and Mexico.
In addition to renting equipment, the Company sells used rental equipment, acts
as a dealer for new equipment and sell related merchandise, parts and service.
The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Therefore, the
accompanying balance sheets are presented on an unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, giving retroactive effect for
the reorganization for all periods presented. All significant intercompany
accounts and transactions have been eliminated.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts. This allowance
reflects the Company's estimate of the amount of its receivables that it will
be unable to collect.
Inventory
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of cost or market and is net of a
reserve for obsolescence and shrinkage of $9.4 million and $15.5 million at
December 31, 2001 and 2000, respectively. Cost is determined on either a
weighted average or first-in, first-out method.
Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
estimated useful lives for rental equipment is two to ten years. Rental
equipment is depreciated to a salvage value of zero to ten percent of cost.
Ordinary repair and maintenance costs are charged to operations as incurred.
34
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of estimated
useful lives for property and equipment is two to thirty-nine years. Ordinary
repair and maintenance costs are charged to operations as incurred. Leasehold
improvements are amortized using the straight-line method over their estimated
useful lives or the remaining life of the lease, whichever is shorter.
Goodwill
Goodwill consists of the excess of cost over the fair value of identifiable
net assets of businesses acquired and is amortized on a straight-line basis
over forty years. Beginning January 1, 2002, goodwill will no longer be
amortized, but will be tested on at least an annual basis for impairment, see
"--Impact of Recently Issued Accounting Standards" for further information.
Other Intangible Assets
Other intangible assets consists of non-compete agreements. The non-compete
agreements are being amortized on a straight-line basis for a period ranging
from three to eight years.
Long-Lived Assets
Long-lived assets are recorded at the lower of amortized cost or fair
value. As part of an ongoing review of the valuation of long-lived assets, the
Company assesses the carrying value of such assets if facts and circumstances
suggest they may be impaired. If this review indicates that the carrying value
of these assets may not be recoverable, as determined by a nondiscounted cash
flow analysis over the remaining useful life, the carrying value would be
reduced to its estimated fair value. There have been no material impairments
recognized in these financial statements.
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. Derivative financial instruments are periodically
used by the Company in the management of its interest rate and foreign currency
exposures. Derivative financial instruments are not used for trading purposes.
Translation of Foreign Currency
Assets and liabilities of the Company's subsidiaries operating outside the
United States which account in a functional currency other than U.S. dollars
are translated into U.S. dollars using exchange rates at the end of the year.
Revenues and expenses are translated at average exchange rates effective during
the year. Foreign currency translation gains and losses are included as a
component of accumulated other comprehensive loss within shareholders' equity.
35
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for accounts
receivable, accounts payable, accrued expenses and other liabilities
approximate fair value due to the immediate to short-term maturity of these
financial instruments. The fair values of the revolving credit facility, term
loan, and receivables securitization are determined using current interest
rates for similar instruments as of December 31, 2001 and 2000 and approximate
the carrying value of these financial instruments due to the fact that the
underlying instruments include provisions to adjust interest rates to
approximate fair market value. The estimated fair value of the Company's other
financial instruments at December 31, 2001 and 2000 are based upon available
market information and are as follows:
2001 2000
-------------------------- --------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
(In thousands)
Redeemable convertible preferred
securities........................ $ 300,000 $ 204,480 $300,000 $133,125
Senior and senior subordinated notes 1,401,653 1,427,850 951,153 702,500
Other debt.......................... 40,717 40,717 94,086 94,086
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 stock 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
10). The Series C Preferred and Series D Preferred stock is not subject to
mandatory redemption on a hostile change of control, and is 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, but is classified outside of stockholders' equity for earlier
dates. Accordingly, the Company has restated the 2000 balance sheet to show its
$430.8 million of perpetual convertible preferred stock under "Series A and B
Preferred Stock" rather than under "Stockholders' Equity." The Company has also
made a corresponding change to the related Consolidated Statements of
Stockholders' Equity. In all other respects, the financial statements remain
unchanged, including total assets and liabilities, revenues, operating income,
net income and earnings per share.
Revenue Recognition
Revenue related to the sale of equipment and merchandise is recognized at
the time of delivery to, or pick-up by, the customer. Revenue related to rental
equipment is recognized over the contract term.
36
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising Expense
The Company advertises primarily through trade publications and yellow
pages. Advertising costs are expensed as incurred and totaled $11.9 million,
$23.8 million and $19.0 million for the years ended December 31, 2001, 2000 and
1999, respectively.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be
in effect when the differences are expected to reverse. Recognition of deferred
tax assets is limited to amounts considered by management to be more likely
than not realized in future periods.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant estimates include restructuring
charges, allowance for doubtful accounts, useful lives for depreciation,
goodwill and other asset impairments, loss contingencies and fair values of
financial instruments. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions.
Concentration of credit risk with respect to accounts receivable are
limited because a large number of geographically diverse customers make up the
Company's customer base. No single customer represents greater than 1% of total
accounts receivable. The Company controls credit risk through credit approvals,
credit limits, and monitoring procedures.
Stock-Based Compensation
The Company accounts for its stock based compensation arrangements under
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees". Since stock options are granted by
the Company with exercise prices at or greater than the fair value of the
shares at the date of grant, no compensation expense is recognized.
Insurance
The Company is insured for general liability, workers' compensation, and
group medical claims up to a specified claim and aggregate amounts (subject to
a deductible of one million dollars). Insured losses subject to this deductible
are accrued based upon the aggregate liability for reported claims incurred and
an estimated liability for claims incurred but not reported. These liabilities
are not discounted.
37
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impact of Recently Issued Accounting Standards
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. Effective July 1, 2001, the Company
adopted SFAS No. 141.
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. Goodwill amortization for the year ended December 31, 2001 was
approximately $58.4 million. The Company is currently performing impairment
tests in connection with the adoption of this standard on January 1, 2002 and
estimates the non-cash transition charge to be approximately $350 million,
which will be recognized in the first quarter of 2002. This charge will be
recorded on the income statement as a "Cumulative Effect of Change in
Accounting Principle" and will reduce our stockholders' equity by the amount of
the charge.
In August 2001, the FA 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.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2001
presentation.
3. Acquisitions
The acquisitions completed during the years ended December 31, 2001, 2000
and 1999 include 3, 53 and 102 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 aggregate initial consideration paid by the Company for 2001
acquisitions that were accounted for as purchases was $12.1 million and
consisted of approximately $11.5 million in cash and $0.6 million in seller
notes. In addition, the Company repaid or assumed outstanding indebtedness in
the aggregate amount of approximately $4.9 million.
During 2000, the Company purchased the outstanding stock and certain assets
of (i) Liddell Brothers Inc., in February, (ii) Safety Lites Sales and Leasing,
Inc., in March, (iii) Durante Equipment Corp., Inc., in June, (iv) Horizon High
Reach, Inc., in September, and (v) Wiese Planning & Engineering Inc., in
December. The aggregate initial consideration paid for these five acquisitions
that were accounted for as purchases was approximately $153.1 million and
consisted of $83.8 million in cash and 761,905 shares of common stock and $59.3
million in seller notes. In addition, the Company repaid or assumed outstanding
indebtedness of these companies acquired in the aggregate amount of
approximately $5.5 million.
38
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate initial consideration paid by the Company for other 2000
acquisitions that were accounted for as purchases was $210.2 million and
consisted of approximately $184.6 million in cash and $6.2 million in seller
notes. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in the other 2000 acquisitions in the aggregate amount
of $77.5 million.
During 1999, the Company purchased the outstanding stock and certain assets
of (i) National Equipment Finance Company, in June, (ii) Mi-Jack Products, Inc.
and related entities, in May, (iii) Elmen Rent All, Inc., in June (iv) Forte,
Inc., in March, and (v) Arayco, Inc. in June. The aggregate
initial consideration paid for these five acquisitions that were accounted for
as purchases was approximately $275.4 million and consisted of $270.4 million
in cash and $5.0 million in seller notes. In addition, the Company repaid or
assumed outstanding indebtedness of these companies acquired in the aggregate
amount of approximately $99.8 million.
The aggregate initial consideration paid by the Company for other 1999
acquisitions accounted for as purchases was $663.6 million and consisted of
approximately $659.2 million in cash and $4.4 million in seller notes. In
addition, the Company repaid or assumed outstanding indebtedness of the
companies acquired in the other 1999 acquisitions in the aggregate amount of
approximately $239.3 million.
The purchase prices for all acquisitions accounted for as purchases 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.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the year ended December 31,
2000 as though each acquisition described above was made on January 1, 2000 (in
thousands, except per share data).
Revenues.................. $3,095,872
Net income................ 182,342
Basic earnings per share.. $ 2.54
==========
Diluted earnings per share $ 1.94
==========
Since the acquisitions made during the year ended December 31, 2001 had an
insignificant impact on the Company's pro forma results of operations, the pro
forma results of operations for the year ended December 31, 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.
Other Costs
The results of operations for the year ended December 31, 1999 include
pre-tax expenses related to a terminated tender offer totaling approximately
$18.2 million ($10.8 million after tax), primarily consisting of $8.3 million
in professional fees recorded in selling, general and administrative expense
and $9.9 million in financing commitment fees recorded in other (income)
expense, net.
39
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. 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 the abandonment of certain
information technology projects. During 2001, total activity was approximately
$21.9 million consisting of approximately $11.0 million of cash payments and
approximately $10.9 million of non-cash charges. Of the remaining $7.0 million
of this charge, approximately $3.6 million will be paid by December 31, 2002
and approximately $3.4 million will be paid in future periods.
Components of the restructuring charge are as follows:
Activity Balance
Restructuring in December 31,
Charge 2001 2001
------------- -------- ------------
(In thousands)
Costs to vacate facilities............... $18,291 $14,753 $3,538
Workforce reduction costs................ 5,666 3,611 2,055
Information technology costs............. 4,965 3,548 1,417
------- ------- ------
$28,922 $21,912 $7,010
======= ======= ======
Under the restructuring plan, 31 underperforming branches and five
administrative offices were closed or consolidated as of December 31, 2001, the
Company's workforce will be reduced by 489 through the termination of branch
and administrative personnel (including 440 terminated as of December 31,
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). 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).
5. Rental Equipment
Rental equipment consists of the following:
December 31
----------------------
2001 2000
---------- ----------
(In thousands)
Rental equipment................................. $2,485,573 $2,281,994
Less accumulated depreciation.................... (738,391) (549,159)
---------- ----------
Rental equipment, net............................ $1,747,182 $1,732,835
---------- ----------
40
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Property and Equipment
Property and equipment consist of the following:
December 31
--------------------
2001 2000
--------- ---------
(In thousands)
Land..................................................... $ 45,050 $ 53,612
Buildings................................................ 91,097 104,925
Transportation equipment................................. 247,548 228,265
Machinery and equipment.................................. 47,672 36,587
Furniture and fixtures................................... 61,573 56,109
Leasehold improvements................................... 61,194 48,952
--------- ---------
554,134 528,450
Less accumulated depreciation and amortization........... (144,081) (106,211)
--------- ---------
Property and equipment, net.............................. $ 410,053 $ 422,239
========= =========
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
December 31
-----------------
2001 2000
-------- --------
(In thousands)
Accrued profit sharing...................................... $ 40,412 $ 39,485
Accrued insurance........................................... 18,559 15,428
Accrued interest............................................ 47,671 36,993
Other....................................................... 68,045 44,319
-------- --------
$174,687 $136,225
======== ========
41
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Debt
Debt consists of the following:
December 31
---------------------
2001 2000
---------- ----------
(In thousands)
Credit Facility, interest payable at a weighted average rate of
4.5% and 7.8% at December 31, 2001 and 2000,
respectively.................................................. $ 71,259 $ 337,000
Term Loan, interest payable at 5.3% at December 31, 2001........ 744,375
Term Loan B, interest payable at 8.9% at
December 31, 2000............................................. 246,875
Term Loan C, interest payable at 9.3% at
December 31, 2000............................................. 748,125
Term Loan D, interest payable at a weighted average rate of
9.2% at December 31, 2000..................................... 198,128
9 1/2% Senior Subordinated Notes, interest payable
semi-annually................................................. 200,000 200,000
8.8% Senior Subordinated Notes, interest payable semi-annually.. 201,653 201,153
9 1/4% Senior Subordinated Notes, interest payable
semi-annually................................................. 300,000 300,000
9% Senior Subordinated Notes, interest payable semi-annually.... 250,000 250,000
10 3/4% Senior Notes, interest payable semi-annually............ 450,000
Receivables securitization, interest payable at 2.6% and 7.4% at
December 31, 2001 and 2000, respectively...................... 201,518 100,000
Other debt, interest payable at various rates ranging from 5.3%
to 10% and 4% to 11% at December 31, 2001 and 2000,
respectively, due through 2005................................ 40,717 94,086
---------- ----------
$2,459,522 $2,675,367
========== ==========
Refinancing Transaction. In April 2001, the Company obtained the new
senior secured credit facility and issued the 10 3/4% senior notes both
described below. The proceeds from the senior secured credit facility and
senior notes 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.
42
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
New Senior Secured Credit Facility. The new senior secured credit facility
that the Company obtained in April 2001 is comprised of a revolving credit
facility and a term loan.
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 ($65.5 million outstanding as of December 31, 2001). The
revolving credit facility will mature and terminate on October 20, 2006.
As of December 31, 2001, borrowings under the revolving credit facility
accrue interest, at the Company's 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 1.25% or (B) an adjusted LIBOR
rate plus a margin of 2.25%. The above interest rate margins are adjusted
quarterly based on the Company's 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.
As of December 31, 2001, borrowings by the Canadian subsidiary under the
revolving credit facility 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 1.25% or (Y) the B/A rate (which is equal
to the Chase Manhattan Bank of Canada's B/A rate) plus a margin of 2.25%. The
above interest rate margins are adjusted quarterly based on the Company's
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.
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 URI's 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%.
43
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Covenants. The agreements governing the new senior secured credit facility
contain certain covenants that require 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.
Guarantees and Security. 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 the Company's other Canadian subsidiaries and
secured by substantially all of the assets of this Canadian subsidiary and the
stock of its subsidiaries.
10 3/4% Senior Notes. URI issued $450 million aggregate principal amount
of 10 3/4% Senior Notes (the "10 3/4% Notes") which are due April 15, 2008. The
net proceeds from the sale of the 10 3/4% Notes were approximately $439.9
million (after deducting the initial purchasers' discount and offering
expenses). The 10 3/4% Notes are unsecured and are guaranteed by Holdings and
URI's domestic subsidiaries. The 10 3/4% Notes mature on April 15, 2008 and may
be redeemed by URI on or after April 15, 2005, at specified redemption prices
that 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 10 3/4% Notes at
a redemption price of 110.75%. The indenture governing the 10 3/4% 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.
Senior Subordinated Notes. The senior subordinated notes shown in the debt
table above were issued by URI, are unsecured, and are guaranteed by URI's
domestic subsidiaries. The 9 1/2% Senior Subordinate Notes mature on June 1,
2008 and may be redeemed by URI on or after June 1, 2003, at specified
redemption prices that range from 104.75% in 2003 to 100.0% in 2006 and
thereafter. The 8.80% Senior Subordinated Notes mature on August 15, 2008 and
may be redeemed by URI on or after August 15, 2003, at specified redemption
prices that range from 104.4% in 2003 to 100.0% in 2006 and thereafter. The
9 1/4% Senior Subordinated Notes mature on January 15, 2009 and may be redeemed
by URI on or after June 15, 2004, at specified redemption prices that range
from 104.625% in 2004 to 100.0% in 2007 and thereafter. The 9% Senior
Subordinated Notes mature on April 1, 2009 and may be redeemed by URI on or
after April 1, 2004, at specified redemption prices that range from 104.5% in
2004 to 100.0% in 2007 and thereafter.
The indentures governing URI's senior subordinated notes contain 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.
44
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Receivables Securitization. The Company has an accounts receivable
securitization facility under which one of its subsidiaries can borrow up to
$250 million against a collateral pool of accounts receivable. The borrowings
under the facility and the receivables in the collateral pool are included in
the liabilities and assets, respectively, reflected on the Company's
consolidated balance sheet. Key terms of this facility include: (i) borrowings
may be made only to the extent that the face amount of the receivables in the
collateral pool exceeds the outstanding loans by a specified amount, (ii) the
facility is structured so that the receivables in the collateral pool are the
lenders only source of repayment, (iii) prior to expiration or early
termination of the facility, amounts collected on the receivables may, subject
to certain conditions, be retained by the borrower, provided that the remaining
receivables in the collateral pool are sufficient to secure the then
outstanding borrowings and (iv) after expiration or early termination of the
facility, we will repay the borrowings.
As of December 31, 2001, (i) the outstanding borrowings under the facility
were approximately $201.5 million and (ii) the aggregate face amount of the
receivables in the collateral pool was approximately $337.6 million. The
agreement governing this facility, which was amended in June 2001, contemplates
that the term of the facility may extend for up to three years from the date of
the amended facility. However, on each anniversary of such date, the consent of
the lender is required for the facility to renew for the next year. The next
anniversary date is in June 2002. The Company plans to seek the lender's
approval for renewal.
Interest Rate Swap Agreements. As of December 31, 2001, the Company had
outstanding interest rate swap agreements that convert $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. Changes in the fair values of
the Company's cash flow hedges are recorded in other comprehensive income and
reclassified into earnings in the same periods during which the hedged
transactions affect earnings. The Company also had outstanding interest rate
swap agreements that convert $300.0 million of its fixed rate 9 1/4% Notes to a
floating rate instrument through 2009. These swap agreements are designated as
fair value hedges. Changes in the fair values of the Company's fair value
hedges, as well as the offsetting fair value changes in the hedged items, are
recorded in current income. The Company estimates the amount that will be
reclassified into earnings in 2002 is approximately $2.8 million. There is no
ineffectiveness related to the Company's hedges.
Maturities. Maturities of the Company's debt for each of the next five
years at December 31, 2001 are as follows (In thousands):
2002...... $ 222,784
2003...... 16,013
2004...... 25,088
2005...... 8,351
2006...... 254,071
Thereafter 1,933,215
The maturities in 2002 are comprised primarily of amounts outstanding under
the accounts receivable securitization facility. As described above, the annual
renewal of the Company's accounts receivable securitization facility requires
the lender's consent. If the Company does not obtain this consent, then the
facility will terminate in June 2002 and the Company will repay the borrowings
thereunder.
45
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Income Taxes
The provision for federal, state and provincial income taxes is as follows:
Year ended December 31
------------------------
2001 2000 1999
------- -------- -------
(In thousands)
Historical:
Domestic federal:
Current............ $ 10,419 $39,643
Deferred........... $81,507 97,756 37,598
------- -------- -------
81,507 108,175 77,241
Domestic state:
Current............ 1,978 3,587 10,405
Deferred........... 4,570 6,815 3,437
------- -------- -------
6,548 10,402 13,842
------- -------- -------
Total domestic..... 88,055 118,577 91,083
Foreign federal:
Current............ 1,626 1,061 4,917
Deferred........... 1,603 3,590 465
------- -------- -------
3,229 4,651 5,382
Foreign provincial:
Current............ 774 2,356
Deferred........... 693 1,119 320
------- -------- -------
693 1,893 2,676
------- -------- -------
Total foreign...... 3,922 6,544 8,058
------- -------- -------
$91,977 $125,121 $99,141
======= ======== =======
A reconciliation of the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 35% to income before
provision for income taxes and extraordinary item is as follows:
Year ended December 31
-------------------------
2001 2000 1999
------- -------- -------
(In thousands)
Computed tax rate at statutory tax rate....... $75,064 $105,524 $84,632
State income taxes, net of federal tax benefit 4,256 6,762 8,997
Non-deductible expenses....................... 13,072 9,992 6,265
Other......................................... (415) 2,843 (753)
------- -------- -------
$91,977 $125,121 $99,141
======= ======== =======
46
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of deferred income tax assets (liabilities) are as follows:
December 31
--------------------
2001 2000
--------- ---------
(In thousands)
Property and equipment..................... $(431,515) $(298,058)
Intangibles................................ (48,163) (32,518)
Reserves and allowances.................... 38,767 37,460
Net operating loss and credit carryforwards 140,455 84,257
Other...................................... 3,432 2,616
--------- ---------
$(297,024) $(206,243)
========= =========
The current and deferred tax assets and liabilities at December 31, 2001
include the effects of certain reclassifications related to differences between
the income tax provisions and tax returns for prior years. These
reclassifications had no effect on net income.
For financial reporting purposes, income before income taxes and
extraordinary items for the Company's foreign subsidiaries was $11.6 million
and $15.6 million for the years ended December 31, 2001 and 2000, respectively.
At December 31, 2001 and 2000, unremitted earnings of foreign subsidiaries were
approximately $30.6 million and $22.9 million, respectively. Since it is the
Company's intention to indefinitely reinvest these earnings, no United States
taxes have been provided. Determination of the amount of unrecognized deferred
tax liability on these unremitted taxes is not practicable.
The Company has net operating loss carryforwards ("NOL's") of $341.3
million for federal income tax purposes that expire through 2021.
10. Company-Obligated Mandatorily Redeemable Convertible Preferred Securities
of a Subsidiary Trust and Series A, B, C and D Preferred Stock
Trust Securities. In August 1998, a subsidiary trust (the "Trust") of
Holdings issued and sold in a private offering (the "Preferred Securities
Offering") $300.0 million of 30 year, 6 1/2% Convertible Quarterly Income
Preferred Securities (the "Preferred Securities"). The Trust used the proceeds
from the Preferred Securities Offering to purchase 6 1/2% convertible
subordinated debentures due 2028 (the "Debentures") from Holdings which
resulted in Holdings receiving all of the net proceeds of the Preferred
Securities Offering. Holdings in turn contributed the net proceeds of the
Preferred Securities Offering to URI. The Preferred Securities are non-voting
securities, carry a liquidation value of $50 per security and are convertible
into the Company's common stock at an initial rate of 1.146 shares per security
(equivalent to an initial conversion price of $43.63 per share). They are
convertible at any time at the holders' option and are redeemable, at the
Company's option, after three years, subject to certain conditions.
Holders of the Preferred Securities are entitled to preferential cumulative
cash distributions from the Trust at an annual rate of 6 1/2% of the
liquidation value, accruing from the original issue date and payable quarterly
in arrears beginning February 1, 1999. The distribution rate and dates
correspond to the interest rate and payments dates on the Debentures. Holdings
may defer interest payments on the Debentures for up to twenty consecutive
quarters, but not beyond the maturity date of the Debentures. If interest
payments on the Debentures are deferred, so are the payments on the Preferred
Securities. Under this circumstance, Holdings will be prohibited from paying
dividends on any of its capital stock or making payments with respect to its
debt that rank pari passu with or junior to the Debentures.
47
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Holdings has executed a guarantee with regard to payment of the Preferred
Securities to the extent that the Trust has sufficient funds to make the
required payments.
Series A Preferred and Series B Preferred. The Company sold 300,000 shares
of its Series A Preferred on January 7, 1999 and sold 150,000 shares of its
Series B Preferred on September 30, 1999. On September 28, 2001, the Company
entered into an agreement effecting (a) the exchange of the outstanding Series
A Preferred for an equal number of shares of Series C Preferred and (b) the
exchange of the outstanding Series B Preferred for an equal number of shares of
Series D Preferred.
Series C Preferred and Series D Preferred. There are 300,000 shares of the
Company's Series C Preferred outstanding and 150,000 shares of the Company's
Series D Preferred outstanding. The Series D Preferred includes 105,252 shares
designated as Class D-1 and 44,748 shares designated as Class D-2. The rights
of the two classes of Series D Preferred are substantially the same, except
that only the Class D-1 has the voting rights described below.
Principal terms of the Series C Preferred and Series D Preferred include
the following (subject to the special provisions described below that will
apply in the event of certain Non-Approved Change of Control transactions): (i)
each share is entitled to a liquidation preference of $1,000 per share; (ii) at
holder's option, each share of Series C Preferred is convertible into 40 shares
of common stock subject to adjustment (representing a conversion price of $25
per share based on the liquidation preference) and each share of Series D
Preferred is convertible into 33 1/3 shares of common stock subject to
adjustment (representing a conversion price of $30 per share based on the
liquidation preference); (iii) the holders of the Series C Preferred and Series
D Preferred (on an as converted basis) and the holders of the common stock vote
together as a single class on all matters (except that the Series C Preferred
may vote as a separate class as described in the next clause); (iv) the holders
of the Series C Preferred, voting separately as a single class, may elect two
directors (subject to reduction to one, if the shares of Series C Preferred
owned by specified holders cease to represent, on an as converted basis, at
least eight million shares of common stock, and reduction to zero, if such
shares of Series C Preferred cease to represent at least four million shares of
common stock), (v) there are no stated dividends on the Series C Preferred or
Series D Preferred, but the Series C Preferred and Series D Preferred, on an as
converted basis, will participate in any dividends declared on the common
stock, (vi) upon the occurrence of specified change of control transactions,
other than a Non-Approved Change of Control (as defined below), the Company
must offer to redeem the Series C Preferred and Series D Preferred at a price
per share equal to the liquidation preference plus an amount equal to 6.25% of
the liquidation preference compounded annually from the date of the issuance of
the Series A Preferred, in the case of the Series C Preferred, and the date of
the issuance of the Series B Preferred, in the case of the Series D Preferred,
to the redemption date, (vii) if the Company issues for cash, common stock (or
a series of preferred stock convertible into common stock) and the price for
the common stock is below the conversion price of the Series C Preferred, then
the Company must offer to repurchase a specified portion of the outstanding
Series C Preferred at the price per share set forth in the preceding clause,
and (viii) if the Company issues for cash, common stock (or a series of
preferred stock convertible into common stock) for a price for the common stock
below the conversion price of the Series D Preferred, then the Company must
offer to repurchase a specified portion of the outstanding Series D Preferred
at the price per share specified in the second preceding clause.
Special Rights of Series C Preferred and Series D Preferred Upon
Non-Approved Change 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,
48
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and the board does not offer the holders of the Series C Preferred and Series D
Preferred essentially the same redemption rights that apply to an Approved
Change of Control transaction: (i) the holders of the Series C Preferred would
elect a majority of the board for a specified period, (ii) the holders of the
Series C Preferred and Series D Preferred would be entitled to an additional
6.25% return on the liquidation preference, compounded annually from January
1999 for the Series C Preferred and from September 1999 for the Series D
Preferred, (iii) after the holders of the common stock receive an amount
equivalent to the liquidation preference, the holders of the Series C Preferred
and Series D Preferred would share with the holders of the common stock, on an
as converted basis, in any remaining amounts available for distribution and
(iv) the Series C Preferred and Series D Preferred would accrue dividends at a
maximum annual rate, compounded annually, equal to 18% of the liquidation
preference.
11. Capital Stock
Warrants. As of December 31, 2001 there are outstanding warrants to
purchase an aggregate of 7,139,296 shares of common stock. The weighted average
exercise price of the warrants is $11.76 per share. All warrants are currently
exercisable and may be exercised at any time through 2011.
Common Stock. The Company has a share repurchase program to acquire up to
$200 million of its issued and outstanding common stock. Share repurchases
under the program may be made from time to time, continuing through May 2003.
The Company repurchased and retired 1,350,600 and 1,785,015 shares of common
stock during 2001 and 2000, respectively.
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 not 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
December 31, 2001, 2,042,933 shares had been awarded under this plan at a
weighted-average price of $23.71 per share with vesting periods up to ten
years. 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).
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 not 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 December 31, 2001, 885,054 shares had
been awarded under this plan at a weighted-average price of
$15.30 per share with vesting periods up to three years. 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 common 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
49
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
related vesting period. Amortization expense recognized for the year ended
December 31, 2001 for the awards of the above stock plans was approximately
$6.2 million.
1997 Stock Option Plan. The Company's 1997 Stock Option Plan provides for
the granting of options to purchase not more than an aggregate of 5,000,000
shares of common stock. Some or all of such options may be "incentive stock
options" within the meaning of the Internal Revenue Code. All officers,
directors and employees of the Company and other persons who perform services
on behalf of the Company are eligible to participate in this plan. Each option
granted pursuant to this plan must provide for an exercise price per share that
is at least equal to the fair market value per share of common stock on the
date of grant. No options may be granted under this plan after August 31, 2007.
As of December 31, 2001 and 2000, options to purchase an aggregate of 4,845,783
shares and 4,950,536 shares of common stock, respectively, were outstanding
under this plan. The exercise price of each option, the period during which
each option may be exercised and other terms and conditions of each option are
determined by the Board of Directors (or by a committee appointed by the Board
of Directors).
1998 Stock Option Plan. The Company's 1998 Stock Option Plan provides for
the granting of options to purchase not more than an aggregate of 4,200,000
shares of common stock. Some or all of the options issued under the 1998 Stock
Option Plan may be "incentive stock options" within the meaning of the Internal
Revenue Code. All officers and directors of the Company and its subsidiaries
are eligible to participate in the 1998 Stock Option Plan. Each option granted
pursuant to the 1998 Stock Option Plan must provide for an exercise price per
share that is at least equal to the fair market value per share of common stock
on the date of grant. No options may be granted under the 1998 Stock Option
Plan after August 20, 2008. As of December 31, 2001 and 2000, options to
purchase an aggregate of 3,686,667 shares and 4,200,000 shares of common stock,
respectively, were outstanding pursuant to this plan to executive officers and
directors. The exercise price of each option, the period during which each
option may be exercised and other terms and conditions of each option are
determined by the Board of Directors (or by a committee appointed by the Board
of Directors).
1998 Supplemental Stock Option Plan. The Company has adopted a stock
option plan pursuant to which options, for up to an aggregate of 5,600,000
shares of common stock, may be granted to employees who are not officers or
directors and to consultants and independent contractors who perform services
for the Company or its subsidiaries. As of December 31, 2001 and 2000, options
to purchase an aggregate of 5,342,097 shares and 5,373,509 shares of common
stock, respectively, were outstanding pursuant to this plan. The exercise price
of each option, the period during which each option may be exercised and other
terms and conditions of each option are determined by the Board of Directors
(or by a committee appointed by the Board of Directors).
1997 Performance Award Plan. Effective February 20, 1997, U.S. Rentals
adopted the 1997 Performance Award Plan under which stock options and other
awards could be granted to key employees and directors at prices and terms
established by U.S. Rentals at the date of grant. The options expire in 2007.
As a result of the Merger, all outstanding options to purchase shares of U.S.
Rentals common stock became fully vested and were converted into options to
purchase the Company's common stock. As of December 31, 2001 and 2000, options
to purchase an aggregate of 2,547,467 shares and 2,572,050 shares of common
stock, respectively, were outstanding pursuant to this plan.
50
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the transactions within the Company's stock option plans
follows:
Weighted
Average
Exercise
Shares Price
---------- --------
Outstanding at December 31, 1998 14,044,814 19.60
Granted...................... 3,092,462 26.77
Exercised.................... (1,331,528) 20.74
Canceled..................... (152,506) 26.70
---------- ------
Outstanding at December 31, 1999 15,653,242 20.86
Granted...................... 1,921,125 16.56
Exercised.................... (26,307) 16.91
Canceled..................... (451,965) 27.03
---------- ------
Outstanding at December 31, 2000 17,096,095 20.23
Granted...................... 633,400 19.78
Exercised.................... (715,143) 14.24
Canceled..................... (592,338) 23.94
---------- ------
Outstanding at December 31, 2001 16,422,014 $20.22
========== ======
Exercisable at December 31, 2001 13,765,239 $20.37
========== ======
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Amount Contractual Exercise Amount Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
------------------------ ----------- ----------- -------- ----------- --------
$10.00 - $15.00..... 4,227,133 6.7 years $12.39 4,016,649 $12.29
15.01 - 20.00..... 2,169,527 8.2 years 16.59 654,585 17.50
20.01 - 25.00..... 7,183,892 6.2 years 21.78 6,767,840 21.73
25.01 - 30.00..... 1,549,963 7.2 years 27.31 1,158,408 27.21
30.01 - 50.00..... 1,291,499 6.3 years 34.84 1,167,757 35.18
---------- ----------
16,422,014 6.7 years 20.22 13,765,239 20.37
========== ==========
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for stock-based employee compensation arrangements
whereby no compensation cost related to stock options is deducted in
determining net income. Had compensation cost for the Company's stock option
plans been determined pursuant to SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have
differed. The weighted average fair value of options granted was $7.34, $7.70
and $10.99 during 2001, 2000 and 1999, respectively. The fair value is
estimated on the date of grant using the Black-Scholes option pricing model
which uses subjective assumptions which can materially affect fair value
estimates and, therefore, does not necessarily provide a single measure of fair
value of options. Using the Black-Scholes option pricing model and a risk-free
interest rate average of 3.74%, 5.15% and 6.29% in 2001, 2000 and 1999,
respectively, a volatility factor for the market price of the Company's common
stock of 49%, 69% and 52% in 2001, 2000 and 1999, respectively, and a
weighted-average expected life of options of approximately three years in 2001,
2000 and 1999, the Company's net income, basic earnings per share and diluted
earnings per share would have been $103.1 million, $1.43 and $1.09,
51
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
respectively, for the year ended December 31, 2001, $156.4 million, $2.20 and
$1.69, respectively, for the year ended December 31, 2000 and $104.3 million,
$1.46 and $1.12, respectively, for the year ended December 31, 1999. For
purposes of these pro forma disclosures, the estimated fair value of options is
amortized over the options' vesting period. Since the number of options granted
and their fair value may vary significantly from year to year, the pro forma
compensation expense in future years may be materially different.
At December 31, 2001 there are (i) 7,139,296 shares of common stock
reserved for the exercise of warrants, (ii) 16,422,014 shares of common stock
reserved for issuance pursuant to options granted and that may be granted in
the future under the Company's stock option plans, (iii) 6,875,580 shares of
common stock reserved for the issuance of outstanding preferred securities of a
subsidiary trust, (iv) 17,000,000 shares of common stock reserved for the
issuance of Series C and Series D preferred stock and (v) 371,168 shares of
common stock reserved for the conversion of convertible debt.
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
deferring 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.
12. Comprehensive Income
The following table sets forth the Company's comprehensive income:
Year Ended
December 31
------------------
2001 2000
-------- --------
(In thousands)
Net income................................................................ $111,256 $176,375
Other comprehensive gain (loss):
Foreign currency translation adjustment............................... (16,137) (7,264)
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 $3,212................. (4,527)
-------- --------
Comprehensive income...................................................... $ 88,076 $169,111
======== ========
52
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Earnings Per Share
The following table sets forth the computation of historical basic and
diluted earnings per share:
Year Ended December 31
-----------------------------------
2001 2000 1999
----------- ----------- -----------
(In thousands, except share and
per share data)
Numerator:
Income before extraordinary item............ $ 122,573 $ 176,375 $ 142,666
Plus: preferred dividends of a subsidiary
trust, net of taxes....................... 11,406
----------- ----------- -----------
Income available to common stockholders..... $ 122,573 $ 187,781 $ 142,666
=========== =========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average shares................... 72,141,128 71,069,174 71,353,127
Effect of dilutive securities:
Employee stock options.................... 1,507,820 1,517,015 4,651,237
Warrants.................................. 3,738,239 2,791,387 3,978,536
Series A Preferred........................ 12,000,000 11,802,740
Series B Preferred........................ 5,000,000 1,250,000
Series C Preferred........................ 12,000,000
Series D Preferred........................ 5,000,000
Company-obligated mandatorily
redeemable convertible preferred
securities of a subsidiary trust........ 6,876,003
----------- ----------- -----------
Denominator for dilutive earnings per share-
adjusted weighted-average shares.......... 94,387,187 99,253,579 93,035,640
=========== =========== ===========
Earnings per share-basic:
Income before extraordinary item............ $ 1.70 $ 2.48 $ 2.00
Extraordinary item, net..................... 0.16
----------- ----------- -----------
Net income.................................. $ 1.54 $ 2.48 $ 2.00
=========== =========== ===========
Earnings per share-diluted:
Income before extraordinary item............ $ 1.30 $ 1.89 $ 1.53
Extraordinary item, net..................... 0.12
----------- ----------- -----------
Net income.................................. $ 1.18 $ 1.89 $ 1.53
=========== =========== ===========
53
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Commitments and Contingencies
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the
Company to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, by year and in
the aggregate, for noncancellable operating leases with initial or remaining
terms of one year or more are as follows at December 31, 2001:
Real Rental Other
Estate Equipment Equipment
Leases Leases Leases
-------- --------- ---------
(In thousands)
2002...... $ 61,139 $ 84,486 $24,314
2003...... 57,356 72,813 22,131
2004...... 52,955 69,346 16,733
2005...... 45,573 57,551 4,973
2006...... 41,081 48,199 334
Thereafter 125,506 23
-------- -------- -------
$383,610 $332,418 $68,485
======== ======== =======
The Company was the seller-lessee in sale-leaseback transactions with
unrelated third parties in which it sold rental equipment and real estate for
aggregate proceeds of $51.0 million in 2001, rental equipment for aggregate
proceeds of $218.8 million in 2000, and rental equipment for aggregate proceeds
of $88.0 million in 1999. For the 2001 transactions, the Company leased back
the real estate over a 10-year period and the rental equipment for a minor
period of one to eight months. For the 2000 transactions, the Company leased
back a portion of the rental equipment for a minor period of one to eight
months, and the balance over a five-year period. For the 1999 transactions, the
Company leased back the rental equipment over a five-year period. The total
gains related to these transactions in 2001, 2000 and 1999 were, respectively,
approximately $21.6 million of which $1.4 million was deferred, approximately
$16.5 million of which $4.0 million was deferred, and approximately $6.3
million all of which was deferred. The deferred gains are being amortized over
the respective lease periods on a straight-line basis.
Rent expense under non-cancelable operating leases totaled $170.9 million,
$137.3 million and $65.5 million for the years ended December 31, 2001, 2000
and 1999, respectively. The Company's real estate leases provide for varying
terms and include 30 leases that are on a month-to-month basis and 30 leases
that provide for a remaining term of less than one year and do not provide a
renewal option.
Employee Benefit Plans
The Company currently sponsors one defined contribution 401(k) retirement
plan which is subject to the provisions of ERISA. The Company also sponsors a
deferred profit sharing plan for the benefit of the full time employees of its
Canadian subsidiaries. Under these plans, the Company matches a percentage of
the participants contributions up to a specified amount. Company contributions
to the plans were $6.0 million, $6.2 million and $4.6 million for the years
ended December 31, 2001, 2000 and 1999, respectively.
54
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Legal Matters
The Company is party to legal proceedings and potential claims arising in
the ordinary course of its business. In the opinion of management, the Company
has adequate legal defenses, reserves, or insurance coverage with respect to
these matters so that the ultimate resolution will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows. The Company had accrued $7.6 million at December 31, 2001 and 2000, to
cover the uninsured portion of estimated costs arising from these pending
claims and other potential unasserted claims.
Environmental Matters
The Company and its operations are subject to various laws and related
regulations governing environmental matters. Under such laws, an owner or
lessee of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in, or emanating from, such
property, as well as investigation of property damage. The Company incurs
ongoing expenses associated with the removal of underground storage tanks and
the performance of appropriate remediation at certain of its locations. The
Company believes that such removal and remediation will not have a material
adverse effect on the Company's financial position, results of operations, or
cash flows.
15. Segment Information
Each of the Company's branch locations is an operating segment which
consists of the rental and sales of equipment and related merchandise and
parts. Certain of the Company's branches also provide speciality traffic
control services as a product line and the amount of revenue attributable to
such services was $272.2 million, $245.0 million and $79.3 million during the
years ended December 31, 2001, 2000 and 1999, respectively. All of the
Company's branches have been aggregated into one reportable segment because
they offer similar products and services in similar markets and the factors
determining strategic decisions are comparable.
55
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company operates in the United States, Canada and Mexico. Revenues are
attributable to countries based upon the location of the customers. Geographic
area information for the years ended December 31, 2001, 2000 and 1999 is as
follows:
Year ended December 31
--------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands)
Revenues from external customers
Domestic................................................... $2,740,694 $2,753,266 $2,086,808
Foreign.................................................... 145,911 165,595 146,820
---------- ---------- ----------
Total revenues from external customers...................... $2,886,605 $2,918,861 $2,233,628
========== ========== ==========
Rental equipment, net
Domestic................................................... $1,630,411 $1,604,191 $1,537,199
Foreign.................................................... 116,771 128,644 122,534
---------- ---------- ----------
Total consolidated rental equipment, net.................... $1,747,182 $1,732,835 $1,659,733
========== ========== ==========
Property and equipment, net
Domestic................................................... $ 393,541 $ 405,873 $ 285,456
Foreign.................................................... 16,512 16,366 19,451
---------- ---------- ----------
Total consolidated property and equipment, net.............. $ 410,053 $ 422,239 $ 304,907
========== ========== ==========
Goodwill and other intangible assets, net
Domestic................................................... $2,086,481 $2,092,882 $1,740,326
Foreign.................................................... 121,220 134,126 123,046
---------- ---------- ----------
Total consolidated goodwill and other intangible assets, net $2,207,701 $2,227,008 $1,863,372
========== ========== ==========
56
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Quarterly Financial Information (Unaudited)
Selected Financial Data
The following table of quarterly financial information has been prepared
from unaudited financial statements of the Company, and reflects adjustments
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented.
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In thousands, except per share data)
For the year ended December 31, 2001:
Total revenues............................ $619,104 $768,013 $795,483 $704,005
Gross profit.............................. 202,567 286,063 305,242 245,598
Income before extraordinary item.......... 3,412 24,935 62,052 32,174
Extraordinary item........................ 11,317
Net income................................ 3,412 13,618 62,052 32,174
Basic earnings before extraordinary item
per share............................... $ 0.05 $ 0.35 $ 0.85 $ 0.45
Diluted earnings before extraordinary item
per share............................... 0.04 0.26 0.63 0.34
For the year ended December 31, 2000:
Total revenues............................ $578,962 $729,946 $859,033 $750,920
Gross profit.............................. 205,984 271,798 340,704 270,084
Net income................................ 17,411 47,199 75,391 36,374
Basic earnings per share.................. $ 0.24 $ 0.66 $ 1.07 $ 0.51
Diluted earnings per share................ 0.19 0.51 0.79 0.40
57
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. 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 that such information would not be material to
investors. However, condensed consolidating financial information as of
December 31, 2001 and 2000, and for each of the three years in the period ended
December 31, 2001, are presented. The condensed consolidating financial
information of the Company and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
December 30, 2001
Non-
Guarantor Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
---------- ---------- ------------ ------------ ------------ ------------
(In thousands)
ASSETS
Cash and cash equivalents......... $ 6,385 $ 19,798 $ 1,143 $ 27,326
Accounts receivable, net.......... 7,142 418,260 24,871 450,273
Intercompany receivable
(payable)....................... 89,612 39,548 (129,160)
Inventory......................... 36,335 46,410 3,019 85,764
Prepaid expenses and other
assets.......................... 57,764 64,699 1,935 8,819 133,217
Rental equipment, net............. 885,442 744,969 116,771 1,747,182
Property and equipment, net....... $ 26,793 135,240 231,508 16,512 410,053
Investment in subsidiaries........ 1,904,000 2,414,710 (4,318,710)
Intangible assets, net............ 855,360 1,231,121 121,220 2,207,701
---------- ---------- ---------- --------- ----------- ----------
$1,930,793 $4,487,990 $2,796,313 $ 156,311 $(4,309,891) $5,061,516
========== ========== ========== ========= =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable............... $ 38,436 $ 155,029 $ 11,308 $ 204,773
Debt........................... $ 300,000 2,193,380 203,896 62,246 $ (300,000) 2,459,522
Deferred income taxes.......... 296,974 50 297,024
Accrued expenses and
other liabilities............. 5,283 57,108 96,793 12,253 3,250 174,687
---------- ---------- ---------- --------- ----------- ----------
Total liabilities............ 305,283 2,585,898 455,768 85,807 (296,750) 3,136,006
Commitments and contingencies
Company-obligated
mandatorily redeemable
convertible preferred securities
of a subsidiary trust........... 300,000 300,000
Stockholders' equity:
Preferred stock................ 5 5
Common stock................... 734 734
Additional paid-in capital..... 1,243,586 1,498,655 1,840,604 65,970 (3,405,229) 1,243,586
Deferred compensation.......... (55,794) (55,794)
Retained earnings.............. 467,106 410,480 499,941 27,618 (938,039) 467,106
Accumulated other
comprehensive loss........... (30,127) (7,043) (23,084) 30,127 (30,127)
---------- ---------- ---------- --------- ----------- ----------
Total stockholders'
equity..................... 1,625,510 1,902,092 2,340,545 70,504 (4,313,141) 1,625,510
---------- ---------- ---------- --------- ----------- ----------
$1,930,793 $4,487,990 $2,796,313 $ 156,311 $(4,309,891) $5,061,516
========== ========== ========== ========= =========== ==========
58
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2000
Guarantor Non-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
STOCKHOLDER'S 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 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
Stockholder's 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 stockholder's
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
========== ========== ========== ========== =========== ==========
59
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001
Non-
Guarantor Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
-------- ---------- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals................ $ 907,070 $1,201,439 $104,391 $2,212,900
Sales of rental equipment........ 63,612 70,331 13,158 147,101
Sales of equipment and
merchandise and other
revenues........................ 244,020 254,222 28,362 526,604
-------- ---------- ---------- -------- --------- ----------
Total revenues..................... 1,214,702 1,525,992 145,911 2,886,605
Cost of revenues:
Cost of equipment rentals,
excluding depreciation.......... 376,634 626,867 50,134 1,053,635
Depreciation of rental equipment. 150,619 149,868 20,476 320,963
Cost of rental equipment sales... 38,702 42,088 7,952 88,742
Cost of equipment and
merchandise sales and other
operating costs................. 177,659 185,223 20,913 383,795
-------- ---------- ---------- -------- --------- ----------
Total cost of revenues............. 743,614 1,004,046 99,475 1,847,135
-------- ---------- ---------- -------- --------- ----------
Gross profit....................... 471,088 521,946 46,436 1,039,470
Selling, general and administrative
expenses.......................... 192,640 224,707 24,404 441,751
Restructuring charge............... 8,877 17,096 2,949 28,922
Non-rental depreciation and
amortization...................... $ 7,862 42,012 51,014 5,875 106,763
-------- ---------- ---------- -------- --------- ----------
Operating income (loss)............ (7,862) 227,559 229,129 13,208 462,034
Interest expense................... 19,500 211,220 7,834 2,509 $ (19,500) 221,563
Preferred dividends of a subsidiary
trust............................. 19,500 19,500
Other (income) expense, net........ 25,586 (21,202) 2,037 6,421
-------- ---------- ---------- -------- --------- ----------
Income (loss) before provision
(benefit) for income taxes and
extraordinary item................ (27,362) (9,247) 242,497 8,662 214,550
Provision (benefit) for income
taxes............................. (11,355) (1,226) 100,636 3,922 91,977
-------- ---------- ---------- -------- --------- ----------
Income (loss) before extraordinary
item and equity in net earnings
of subsidiaries................... (16,007) (8,021) 141,861 4,740 122,573
Extraordinary item................. 11,317 11,317
-------- ---------- ---------- -------- --------- ----------
Income (loss) before equity in net
earnings of subsidiaries.......... (16,007) (19,338) 141,861 4,740 111,256
Equity in net earnings of
subsidiaries...................... 127,263 146,601 (273,864)
-------- ---------- ---------- -------- --------- ----------
Net income......................... $111,256 $ 127,263 $ 141,861 $ 4,740 $(273,864) $ 111,256
======== ========== ========== ======== ========= ==========
60
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
Guarantor Non-Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
-------- ---------- ------------ ------------- ------------ ------------
(In thousands)
Revenues:
Equipment rentals............... $ 851,541 $1,094,613 $ 110,529 $2,056,683
Sales of rental equipment....... 145,519 178,576 23,583 347,678
Sales of equipment and
merchandise and other
revenues....................... 253,798 229,219 31,483 514,500
-------- ---------- ---------- ---------- ---------- ----------
Total revenues.................... 1,250,858 1,502,408 165,595 2,918,861
Cost of revenues:
Cost of equipment rentals,
excluding depreciation......... 364,047 494,350 49,080 907,477
Depreciation of rental
equipment...................... 152,640 155,239 20,252 328,131
Cost of rental equipment sales.. 87,161 106,617 14,404 208,182
Cost of equipment and
merchandise sales and other
operating costs................ 197,190 164,186 25,125 386,501
-------- ---------- ---------- ---------- ---------- ----------
Total cost of revenues............ 801,038 920,392 108,861 1,830,291
-------- ---------- ---------- ---------- ---------- ----------
Gross profit...................... 449,820 582,016 56,734 1,088,570
Selling, general and
administrative expenses.......... 184,135 245,431 24,764 454,330
Non-rental depreciation and
amortization..................... $ 7,718 33,692 39,618 5,273 86,301
-------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)........... (7,718) 231,993 296,967 26,697 547,939
Interest expense.................. 19,500 217,904 135 10,740 $ (19,500) 228,779
Preferred dividends of a
subsidiary trust................. 19,500 19,500
Other (income) expense, net....... 2,129 (4,285) 320 (1,836)
-------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes....... (27,218) 11,960 301,117 15,637 301,496
Provision (benefit) for income
taxes............................ (11,295) 4,908 124,964 6,544 125,121
-------- ---------- ---------- ---------- ---------- ----------
Income (loss) before equity in net
earnings of subsidiaries......... (15,923) 7,052 176,153 9,093 176,375
Equity in net earnings of
subsidiaries..................... 192,298 185,246 $ (377,544)
-------- ---------- ---------- ---------- ---------- ----------
Net income........................ $176,375 $ 192,298 $ 176,153 $ 9,093 $ (377,544) $ 176,375
======== ========== ========== ========== ========== ==========
61
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
Guarantor Non-Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
-------- -------- ------------ ------------- ------------ ------------
(In thousands)
Revenues:
Equipment rentals..................... $600,431 $ 880,182 $100,413 $1,581,026
Sales of rental equipment............. 113,982 106,737 14,959 235,678
Sales of equipment and merchandise
and other revenues................... 195,647 189,829 31,448 416,924
-------- -------- ---------- -------- --------- ----------
Total revenues.......................... 910,060 1,176,748 146,820 2,233,628
Cost of revenues:
Cost of equipment rentals,
excluding depreciation............... 250,959 381,718 44,295 676,972
Depreciation of rental equipment...... 116,385 146,622 17,634 280,641
Cost of rental equipment sales........ 62,972 64,945 8,761 136,678
Cost of equipment and merchandise
sales and other operating costs...... 161,902 128,328 24,189 314,419
-------- -------- ---------- -------- --------- ----------
Total cost of revenues.................. 592,218 721,613 94,879 1,408,710
-------- -------- ---------- -------- --------- ----------
Gross profit............................ 317,842 455,135 51,941 824,918
Selling, general and administrative
expenses............................... $ 8,267 144,341 177,456 22,531 352,595
Non-rental depreciation and
amortization........................... 4,926 29,667 24,617 3,657 62,867
-------- -------- ---------- -------- --------- ----------
Operating income (loss)................. (13,193) 143,834 253,062 25,753 409,456
Interest expense........................ 19,500 132,929 1,428 5,471 $ (19,500) 139,828
Preferred dividends of a subsidiary
trust.................................. 19,500 19,500
Other (income) expense, net............. 9,689 (1,549) (524) 427 278 8,321
-------- -------- ---------- -------- --------- ----------
Income (loss) before provision (benefit)
for income taxes....................... (42,382) 12,454 252,158 19,855 (278) 241,807
Provision (benefit) for income taxes.... (17,487) 3,039 105,531 8,058 99,141
-------- -------- ---------- -------- --------- ----------
Income (loss) before equity in net
earnings of subsidiaries............... (24,895) 9,415 146,627 11,797 (278) 142,666
Equity in net earnings of subsidiaries.. 167,561 158,424 (325,985)
-------- -------- ---------- -------- --------- ----------
Net income.............................. $142,666 $167,839 $ 146,627 $ 11,797 $(326,263) $ 142,666
======== ======== ========== ======== ========= ==========
62
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2001
Non-
Guarantor Guarantor Other and
Parent URI Subsidiaries Subsidiaries Eliminations Consolidated
-------- ----------- ------------ ------------ ------------ ------------
(In thousands)
Net cash provided by (used in) operating
activities...................................... $(16,826) $ 622,289 $ 97,695 $ (8,933) $ 2,485 $ 696,710
Cash flows from investing activities:
Purchases of rental equipment................. (277,032) (148,125) (24,613) (449,770)
Purchases of property and equipment........... (2,674) (13,159) (28,214) (3,501) (47,548)
Proceeds from sales of rental equipment....... 63,612 70,331 13,158 147,101
Capital contributed to subsidiary............. (10,417) 10,417
Purchases of other companies.................. (53,565) (1,273) (54,838)
Payments of contingent purchase price......... (2,103) (2,103)
In-process acquisition costs.................. (2,485) (2,485)
-------- ----------- --------- -------- -------- -----------
Net cash used in investing activities....... (13,091) (282,247) (106,008) (16,229) 7,932 (409,643)
Cash flows from financing activities:
Proceeds from debt............................ 2,008,644 65 44,758 2,053,467
Payments of debt.............................. (2,292,186) (1,687) (6,634) (2,300,507)
Proceeds from sale-leaseback.................. 12,435 12,435
Payments of financing costs................... (28,709) (333) (29,042)
Capital contributions by parent............... 10,417 (10,417)
Dividend distributions to parent.............. (44,258) 44,258
Shares repurchased and retired................ (24,758) (24,758)
Proceeds from the exercise of common stock
options...................................... 10,417 10,417
Proceeds from dividends from subsidiary....... 44,258 (44,258)
-------- ----------- --------- -------- -------- -----------
Net cash provided by (used in)
financing activities...................... 29,917 (333,657) (1,622) 37,791 (10,417) (277,988)
Effect of foreign exchange rates.............. (16,137) (16,137)
-------- ----------- --------- -------- -------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 6,385 (9,935) (3,508) (7,058)
Cash and cash equivalents at beginning of period. 29,733 4,651 34,384
-------- ----------- --------- -------- -------- -----------
Cash and cash equivalents at end of period....... $ 6,385 $ 19,798 $ 1,143 $ 27,326
======== =========== ========= ======== ======== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest...................... $ 19,500 $ 197,315 $ 10,561 $ 3,009 $ 230,385
Cash paid for income taxes, net of
refunds..................................... $ (31,122) $ 323 $ (30,799)
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.................. $ 20,264 $ 1,201 $ 21,465
Liabilities assumed........................... (4,468) (144) (4,612)
Less:
Amounts paid through issuance of
debt...................................... (600) (600)
-------- ----------- --------- -------- -------- -----------
15,196 1,057 16,253
Due to seller and other payments.............. 38,369 216 38,585
-------- ----------- --------- -------- -------- -----------
Net cash paid............................... $ 53,565 $ 1,273 $ 54,838
======== =========== ========= ======== ======== ===========
63
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2000
Guarantor Non-Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
-------- --------- ------------ ------------- ------------ ------------
(In thousands)
Net cash provided by (used in) operating
activities................................ $ (6,429) $ 243,759 $ 227,855 $ 43,066 $ 4,470 $ 512,721
Cash flows from investing activities:
Purchases of rental equipment........... (489,259) (283,488) (35,457) (808,204)
Purchases of property and equipment..... (13,071) (34,477) (102,510) (3,712) (153,770)
Proceeds from sales of rental
equipment.............................. 145,519 178,576 23,583 347,678
Proceeds from sale of businesses........ 16,246 3,000 19,246
Payments of contingent purchase
price.................................. (3,030) (13,236) (16,266)
Purchases of other companies............ (337,257) (10,080) (347,337)
Capital contributed to subsidiary....... (331) 331
In-process acquisition costs............ (4,285) (4,285)
-------- --------- --------- -------- -------- ---------
Net cash used in investing
activities.......................... (13,402) (702,258) (217,658) (25,666) (3,954) (962,938)
Cash flows from financing activities:
Shares repurchased and retired.......... (30,950) (30,950)
Dividend distributions to parent........ (50,450) 50,450
Proceeds from debt...................... 452,912 3,290 456,202
Repayments of debt...................... (125,238) (168) (9,193) (134,599)
Proceeds from sale-leaseback............ 193,478 193,478
Payments of financing costs............. (16,223) (185) (16,408)
Capital contributions by parent......... 331 (331)
Proceeds from the exercise of stock
options................................ 331 331
Proceeds from dividends from
subsidiary............................. 50,450 (50,450)
-------- --------- --------- -------- -------- ---------
Net cash provided by (used in)
financing activities................ 19,831 454,810 3,122 (9,193) (516) 468,054
Effect of foreign exchange rates........ (7,264) (7,264)
-------- --------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents............................... (3,689) 13,319 943 10,573
Cash and cash equivalents at beginning
of period................................. 3,689 16,414 3,708 23,811
-------- --------- --------- -------- -------- ---------
Cash and cash equivalents at end of
period.................................... $ $ 29,733 $ 4,651 $ 34,384
======== ========= ========= ======== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest.................. $ 19,500 $ 218,346 $ 135 $ 10,782 $ 248,763
Cash paid for income taxes.............. $ 19,833 $ 3,913 $ 23,746
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......... $ 518,167 $ 11,037 $ 529,204
Liabilities assumed.................. (132,163) (957) (133,120)
Less:
Amounts paid in common
stock of parent.................. (10,000) (10,000)
Amounts paid through
issuance of debt................. (65,500) (65,500)
-------- --------- --------- -------- -------- ---------
310,504 10,080 320,584
Due to seller and other payments..... 26,753 26,753
-------- --------- --------- -------- -------- ---------
Net cash paid..................... $ 337,257 $ 10,080 $ 347,337
======== ========= ========= ======== ======== =========
64
65
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 1999
Guarantor Non-Guarantor Other and Consolidated
Parent URI Subsidiaries Subsidiaries Eliminations Total
--------- ----------- ------------ ------------- ------------ ------------
(In thousands)
Net cash provided by (used in) operating
activities.............................. $ (4,824) $ 292,412 $ 13,185 $ 119,585 $ 1,002 $ 421,360
Cash flows from investing activities:
Purchases of rental equipment......... (539,775) (99,365) (78,972) (718,112)
Purchases of property and equipment... (14,181) (74,634) (20,366) (14,468) (123,649)
Proceeds from sales of rental
equipment............................ 113,982 106,737 14,959 235,678
Proceeds from sale of
businesses........................... 1,040 2,354 3,127 6,521
Payments of contingent purchase
price................................ (2,387) (4,265) (1,564) (8,216)
Purchases of other companies.......... (915,937) (70,853) (986,790)
Capital contributed to subsidiary..... (522,985) 522,985
In-process acquisition costs.......... (1,002) (1,002)
--------- ----------- -------- --------- --------- -----------
Net cash used in investing
activities......................... (537,166) (1,417,711) (14,905) (147,771) 521,983 (1,595,570)
Cash flows from financing activities:
Dividend distributions to parent...... (19,500) 19,500
Proceeds from debt.................... 1,025,843 26,524 31,249 1,083,616
Repayments of debt.................... (474,808) (20,958) (1,884) (497,650)
Proceeds from sale-leaseback.......... 88,000 88,000
Payments of financing costs........... (18,995) (448) (19,443)
Capital contributions by parent....... 522,985 (522,985)
Proceeds from issuance of common
stock and warrants, net of issuance
costs................................ 64,701 64,701
Proceeds from issuance of Series A
and B preferred stock, net of
issuance costs....................... 430,800 430,800
Proceeds from the exercise of stock
options.............................. 26,989 26,989
Proceeds from dividends from
subsidiary........................... 19,500 (19,500)
--------- ----------- -------- --------- --------- -----------
Net cash provided by financing
activities......................... 541,990 1,123,525 5,566 28,917 (522,985) 1,177,013
Effect of foreign exchange rates...... 598 598
--------- ----------- -------- --------- --------- -----------
Net increase (decrease) in cash and cash
equivalents............................. (1,774) 3,846 1,329 3,401
Cash and cash equivalents at beginning of
period.................................. 1,774 16,257 2,379 20,410
--------- ----------- -------- --------- --------- -----------
Cash and cash equivalents at end of
period.................................. $ $ $ 20,103 $ 3,708 $ 23,811
========= =========== ======== ========= ========= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest................ $ 19,500 $ 98,728 $ 1,194 $ 4,863 $ 124,285
Cash paid for income taxes............ $ 16,372 $ 1,137 $ 17,509
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........ $ 1,371,807 $ 96,760 $ 1,468,567
Liabilities assumed................. (448,685) (23,697) (472,382)
Less:
Amounts paid through
issuance of debt................ (7,185) (2,210) (9,395)
--------- ----------- -------- --------- --------- -----------
Net cash paid.................... $ 915,937 $ 70,853 $ 986,790
========= =========== ======== ========= ========= ===========
65
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc. (Parent Company of United Rentals (North America), Inc.)
We have audited the accompanying consolidated balance sheets of United
Rentals (North America), Inc. as of December 31, 2001 and 2000 and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the management of
United Rentals (North America), Inc. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals (North America), Inc. at December 31, 2001 and 2000, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 19, 2002
66
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
December 31
----------------------
2001 2000
---------- ----------
(In thousands,
except share data)
Assets
Cash and cash equivalents............................................................ $ 27,326 $ 34,384
Accounts receivable, net of allowance for doubtful accounts of $47,744 and $55,624 at
2001 and 2000, respectively........................................................ 450,273 469,594
Inventory............................................................................ 85,764 133,380
Prepaid expenses and other assets.................................................... 124,398 104,493
Rental equipment, net................................................................ 1,747,182 1,732,835
Property and equipment, net.......................................................... 383,260 387,432
Goodwill, net of accumulated amortization of $161,570 and $103,219 at 2001 and
2000, respectively................................................................. 2,199,774 2,215,532
Other intangible assets, net......................................................... 7,927 11,476
---------- ----------
$5,025,904 $5,089,126
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Accounts payable.................................................................. $ 204,773 $ 260,155
Debt.............................................................................. 2,459,522 2,675,367
Deferred taxes.................................................................... 297,024 206,243
Accrued expenses and other liabilities............................................ 166,154 119,172
---------- ----------
Total liabilities............................................................. 3,127,473 3,260,937
Commitments and contingencies
Stockholder's equity:
Common stock--$.01 par value, 3,000 shares authorized, 1,000 shares issued
and outstanding.................................................................
Additional paid-in capital........................................................ 1,518,078 1,507,661
Retained earnings................................................................. 410,480 327,475
Accumulated other comprehensive loss.............................................. (30,127) (6,947)
---------- ----------
Total stockholder's equity.................................................... 1,898,431 1,828,189
---------- ----------
$5,025,904 $5,089,126
========== ==========
See accompanying notes.
67
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
---------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands)
Revenues:
Equipment rentals.................................... $2,212,900 $2,056,683 $1,581,026
Sales of rental equipment............................ 147,101 347,678 235,678
Sales of equipment and merchandise and other revenues 526,604 514,500 416,924
---------- ---------- ----------
Total revenues........................................ 2,886,605 2,918,861 2,233,628
Cost of revenues:
Cost of equipment rentals, excluding depreciation.... 1,053,635 907,477 676,972
Depreciation of rental equipment..................... 320,963 328,131 280,641
Cost of rental equipment sales....................... 88,742 208,182 136,678
Cost of equipment and merchandise sales and other
operating costs.................................... 383,795 386,501 314,419
---------- ---------- ----------
Total cost of revenues................................ 1,847,135 1,830,291 1,408,710
---------- ---------- ----------
Gross profit.......................................... 1,039,470 1,088,570 824,918
Selling, general and administrative expenses.......... 441,751 454,330 344,328
Restructuring charge.................................. 28,922
Non-rental depreciation and amortization.............. 98,901 78,583 57,941
---------- ---------- ----------
Operating income...................................... 469,896 555,657 422,649
Interest expense...................................... 221,563 228,779 139,828
Other (income) expense, net........................... 6,421 (1,836) (1,646)
---------- ---------- ----------
Income before provision for income taxes and
extraordinary item.................................. 241,912 328,714 284,467
Provision for income taxes............................ 103,332 136,416 116,628
---------- ---------- ----------
Income before extraordinary item...................... 138,580 192,298 167,839
Extraordinary item, net of tax benefit of $6,759...... 11,317
---------- ---------- ----------
Net income............................................ $ 127,263 $ 192,298 $ 167,839
========== ========== ==========
See accompanying notes.
68
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Common Stock Accumulated
---------------- Additional Other
Number Paid-in Retained Comprehensive Comprehensive
of Shares Amount Capital Earnings Income (Loss) Income
--------- ------ ---------- -------- ------------- -------------
(In thousands except share amounts)
Balance, December 31, 1998............. 1,000 $ 984,345 $ 37,288 $ (281)
Comprehensive income:
Net income.......................... 167,839 $167,839
Other comprehensive income:
Foreign currency translation
adjustments..................... 598 598
--------
Comprehensive income................ $168,437
========
Contributed capital from parent..... 522,985
Dividend distributions to parent.... (19,500)
----- - ---------- -------- --------
Balance, December 31, 1999............. 1,000 1,507,330 185,627 317
Comprehensive income:
Net income.......................... 192,298 $192,298
Other comprehensive income:
Foreign currency translation
adjustments..................... (7,264) (7,264)
--------
Comprehensive income................ $185,034
========
Contributed capital from parent..... 331
Dividend distributions to parent.... (50,450)
----- - ---------- -------- --------
Balance, December 31, 2000............. 1,000 1,507,661 327,475 (6,947)
Comprehensive income:...............
Net income.......................... 127,263 $127,263
Other comprehensive income:.........
Foreign currency translation
adjustments..................... (16,137) (16,137)
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 $3,212.................. (4,527) (4,527)
--------
Comprehensive income................ $104,083
========
Contributed capital from parent..... 10,417
Dividend distributions to parent.... (44,258)
----- ---------- -------- --------
Balance, December 31, 2001............. 1,000 $1,518,078 $410,480 $(30,127)
===== ========== ======== ========
See accompanying notes.
69
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
-----------------------------------
2001 2000 1999
----------- --------- -----------
(In thousands)
Cash Flows From Operating Activities:
Net income....................................................................... $ 127,263 $ 192,298 $ 167,839
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 419,864 406,714 342,403
Gain on sales of rental equipment.............................................. (58,359) (139,496) (99,000)
Gain on sale of businesses..................................................... (4,084) (1,842)
Restructuring charge........................................................... 10,893
Extraordinary item............................................................. 18,076
Deferred taxes................................................................. 100,683 109,280 41,820
Changes in operating assets and liabilities:
Accounts receivable........................................................... 24,888 8,613 (93,716)
Inventory..................................................................... 87,084 69,706 (6,544)
Prepaid expenses and other assets............................................. 11,657 (77,579) 34,701
Accounts payable.............................................................. (58,713) 14,290 47,586
Accrued expenses and other liabilities........................................ 27,715 (65,062) (8,065)
----------- --------- -----------
Net cash provided by operating activities.................................. 711,051 514,680 425,182
----------- --------- -----------
Cash Flows From Investing Activities:
Purchases of rental equipment.................................................... (449,770) (808,204) (718,112)
Purchases of property and equipment.............................................. (44,874) (140,699) (109,468)
Proceeds from sales of rental equipment.......................................... 147,101 347,678 235,678
Proceeds from sale of businesses................................................. 19,246 6,521
Purchases of other companies..................................................... (54,838) (347,337) (986,790)
Payments of contingent purchase price............................................ (2,103) (16,266) (8,216)
----------- --------- -----------
Net cash used in investing activities...................................... (404,484) (945,582) (1,580,387)
----------- --------- -----------
Cash Flows From Financing Activities:
Capital contributions by Parent.................................................. 10,417 331 522,985
Proceeds from debt............................................................... 2,053,467 456,202 1,083,616
Payments on debt................................................................. (2,300,507) (134,599) (497,650)
Proceeds from sale-leaseback..................................................... 12,435 193,478 88,000
Dividend distributions to Parent................................................. (44,258) (50,450) (19,500)
Payments of financing costs...................................................... (29,042) (16,223) (19,443)
----------- --------- -----------
Net cash provided by financing activities.................................. (297,488) 448,739 1,158,008
Effect of foreign exchange rates................................................. (16,137) (7,264) 598
----------- --------- -----------
Net increase (decrease) in cash and cash equivalents............................. (7,058) 10,573 3,401
Cash and cash equivalents at beginning of year................................... 34,384 23,811 20,410
----------- --------- -----------
Cash and cash equivalents at end of year......................................... $ 27,326 $ 34,384 $ 23,811
=========== ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest........................................................... $ 210,885 $ 229,263 $ 104,785
Cash paid for taxes, net of refunds.............................................. $ (30,799) $ 23,746 $ 17,509
Supplemental schedule 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................................................... $ 21,465 $ 529,204 $ 1,468,567
Liabilities assumed............................................................ (4,612) (133,120) (472,382)
Less:
Amounts paid in common stock of the parent.................................... (10,000)
Amounts paid through issuance of debt......................................... (600) (65,500) (9,395)
----------- --------- -----------
16,253 320,584 986,790
Due to seller and other payments............................................... 38,585 26,753
----------- --------- -----------
Net cash paid.................................................................... $ 54,838 $ 347,337 $ 986,790
=========== ========= ===========
See accompanying notes.
70
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
United Rentals (North America), Inc., ("URI") and subsidiaries is a wholly
owned subsidiary of United Rentals, Inc., which is principally a holding
company ("Holdings" or "Parent"). Holdings was incorporated in July 1998 and
became the parent of URI on August 5, 1998, pursuant to the reorganization of
the legal structure of URI. Prior to such reorganization, the name of URI was
United Rentals, Inc. References herein to the "Company" refer to URI and its
subsidiaries.
Certain footnotes are not provided for the accompanying financial
statements as the information in Notes 1 through 9, 11, 12 and 14 through 16 to
the consolidated financial statements of United Rentals, Inc. included
elsewhere in this report is substantially equivalent to that required for the
consolidated financial statements of URI and its subsidiaries. Earnings per
share data is not provided for the operating results of URI and subsidiaries,
as they are wholly owned subsidiaries of Holdings. URI's various credit
agreements and debt instruments place restrictions on its ability to transfer
funds to its shareholder.
Holdings provides certain services to URI in connection with its
operations. These services principally include: (i) senior management services,
(ii) finance related services and support, (iii) information technology systems
and support and (iv) acquisition related services. In addition, Holdings leases
certain equipment and real property that are made available for use by URI and
its subsidiaries. URI has made, and expects to continue to make, certain
payments to Holdings in respect of the services provided by Holdings to the
Company. The expenses relating to URI's payments to Holdings are reflected on
URI's financial statements as selling, general and administrative expenses. In
addition, although not legally obligated to do so, URI has in the past made,
and expects that it will in the future make, distributions to Holdings for,
among other things, enabling Holdings to pay dividends on its preferred
securities.
2. Capital Stock and Contributions
At December 31, 2001, the Company has authorized 3,000 shares of its $0.01
par value common stock of which 1,000 shares are issued and outstanding. All of
the issued and outstanding common shares are owned by its Parent.
Pursuant to the reorganization described in Note 1, the net proceeds from
the Company's initial public offering completed in December 1997 and the public
offering completed in March 1998 have been reflected as Contributed Capital
from the Parent in the accompanying statement of stockholder's equity. Holdings
also contributed the net proceeds from the issuance of redeemable convertible
preferred securities in August 1998 to URI. During 1999, Holdings contributed
the net proceeds from the issuance of common stock in a public offering and the
net proceeds from the issuance of perpetual convertible preferred stock to URI.
3. Condensed Consolidating Financial Information of Guarantor Subsidiaries
Certain indebtedness of URI is guaranteed by URI's United States
subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's
foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor
subsidiaries are all wholly-owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination
provisions and subject to a standard limitation which provides that the maximum
amount guaranteed by each guarantor will not exceed the maximum amount that can
be guaranteed without making the guarantee void under fraudulent
71
72
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
conveyance laws). Separate consolidated financial statements of the guarantor
subsidiaries have not been presented because management believes that such
information would not be material to investors. However, condensed
consolidating financial information as of December 31, 2001 and 2000, and for
each of the three years in the period ended December 31, 2001, are presented.
The condensed consolidating financial information of URI and its subsidiaries
are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2001
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------- ------------ ------------
(In thousands)
ASSETS
Cash and cash equivalents.................. $ 6,385 $ 19,798 $ 1,143 $ 27,326
Accounts receivable, net................... 7,142 418,260 24,871 450,273
Intercompany receivable (payable).......... 89,612 39,548 (129,160)
Inventory.................................. 36,335 46,410 3,019 85,764
Prepaid expenses and other assets.......... 57,764 64,699 1,935 124,398
Rental equipment, net...................... 885,442 744,969 116,771 1,747,182
Property and equipment, net................ 135,240 231,508 16,512 383,260
Investment in subsidiaries................. 2,414,710 $(2,414,710)
Intangible assets, net..................... 855,360 1,231,121 121,220 2,207,701
---------- ---------- ---------- ----------- ----------
$4,487,990 $2,796,313 $ 156,311 $(2,414,710) $5,025,904
========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Liabilities:
Accounts payable........................ $ 38,436 $ 155,029 $ 11,308 $ 204,773
Debt.................................... 2,193,380 203,896 62,246 2,459,522
Deferred taxes.......................... 296,974 50 297,024
Accrued expenses and other liabilities.. 57,108 96,793 12,253 166,154
---------- ---------- ---------- ----------- ----------
Total liabilities.................... 2,585,898 455,768 85,807 3,127,473
Commitments and contingencies
Stockholder's equity:
Common stock............................
Additional paid-in capital.............. 1,498,655 1,840,604 65,970 $(1,887,151) 1,518,078
Retained earnings....................... 410,480 499,941 27,618 (527,559) 410,480
Accumulated other comprehensive
loss................................... (7,043) (23,084) (30,127)
---------- ---------- ---------- ----------- ----------
Total stockholder's equity........... 1,902,092 2,340,545 70,504 (2,414,710) 1,898,431
---------- ---------- ---------- ----------- ----------
$4,487,990 $2,796,313 $ 156,311 $(2,414,710) $5,025,904
========== ========== ========== =========== ==========
72
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2000
Guarantor Non-Guarantor Consolidated
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................ 139,871 231,195 16,366 387,432
Investment in subsidiaries................. 2,257,692 $(2,257,692)
Intangible assets, net..................... 960,444 1,132,438 134,126 2,227,008
---------- ---------- ---------- ----------- ----------
$4,814,131 $2,397,305 $ 135,382 $(2,257,692) $5,089,126
========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Liabilities:
Accounts payable........................ $ 78,623 $ 165,677 $ 15,855 $ 260,155
Debt.................................... 2,647,144 3,484 24,739 2,675,367
Deferred taxes.......................... 186,091 20,702 (550) 206,243
Accrued expenses and other liabilities.. 86,560 18,862 13,750 119,172
---------- ---------- ---------- ----------- ----------
Total liabilities.................... 2,998,418 208,725 53,794 3,260,937
Commitments and contingencies
Stockholder's equity:
Common stock............................
Additional paid-in capital.............. 1,488,238 1,830,500 65,657 $(1,876,734) 1,507,661
Retained earnings....................... 327,475 358,080 22,878 (380,958) 327,475
Accumulated other comprehensive
loss................................... ( 6,947) ( 6,947)
---------- ---------- ---------- ----------- ----------
Total stockholder's equity........... 1,815,713 2,188,580 81,588 (2,257,692) 1,828,189
---------- ---------- ---------- ----------- ----------
$4,814,131 $2,397,305 $ 135,382 $(2,257,692) $5,089,126
========== ========== ========== =========== ==========
73
74
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001
Non-
Guarantor Guarantor Other and Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals.......................... $ 907,070 $1,201,439 $104,391 $2,212,900
Sales of rental equipment.................. 63,612 70,331 13,158 147,101
Sales of equipment and merchandise and
other revenues............................ 244,020 254,222 28,362 526,604
---------- ---------- -------- --------- ----------
Total revenues................................ 1,214,702 1,525,992 145,911 2,886,605
Cost of revenues:
Cost of equipment rentals, excluding
depreciation............................... 376,634 626,867 50,134 1,053,635
Depreciation of rental equipment........... 150,619 149,868 20,476 320,963
Cost of rental equipment sales............. 38,702 42,088 7,952 88,742
Cost of equipment and merchandise sales
and other operating costs.................. 177,659 185,223 20,913 383,795
---------- ---------- -------- --------- ----------
Total cost of revenues........................ 743,614 1,004,046 99,475 1,847,135
---------- ---------- -------- --------- ----------
Gross profit.................................. 471,088 521,946 46,436 1,039,470
Selling, general and administrative expenses.. 192,640 224,707 24,404 441,751
Restructuring charge.......................... 8,877 17,096 2,949 28,922
Non-rental depreciation and amortization...... 42,012 51,014 5,875 98,901
---------- ---------- -------- --------- ----------
Operating income.............................. 227,559 229,129 13,208 469,896
Interest expense.............................. 211,220 7,834 2,509 221,563
Other (income) expense, net................... 25,586 (21,202) 2,037 6,421
---------- ---------- -------- --------- ----------
Income (loss) before provision (benefit) for
income taxes and extraordinary item........... (9,247) 242,497 8,662 241,912
Provision (benefit) for income taxes.......... (1,226) 100,636 3,922 103,332
---------- ---------- -------- --------- ----------
Income (loss) before extraordinary item and
equity in net earnings of subsidiaries....... (8,021) 141,861 4,740 138,580
Extraordinary item............................ 11,317 11,317
---------- ---------- -------- --------- ----------
Income (loss) before equity in net earnings of
subsidiaries.................................. (19,338) 141,861 4,740 127,263
Equity in net earnings of subsidiaries........ 146,601 $(146,601)
---------- ---------- -------- --------- ----------
Net income.................................... $ 127,263 $ 141,861 $ 4,740 $(146,601) $ 127,263
========== ========== ======== ========= ==========
74
75
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals......................... $ 851,541 $1,094,613 $110,529 $2,056,683
Sales of rental equipment................. 145,519 178,576 23,583 347,678
Sales of equipment and merchandise and
other revenues........................... 253,798 229,219 31,483 514,500
---------- ---------- -------- --------- ----------
Total revenues.............................. 1,250,858 1,502,408 165,595 2,918,861
Cost of revenues:
Cost of equipment rentals, excluding
depreciation............................. 364,047 494,350 49,080 907,477
Depreciation of rental equipment.......... 152,640 155,239 20,252 328,131
Cost of rental equipment sales............ 87,161 106,617 14,404 208,182
Cost of equipment and merchandise sales
and other operating costs................ 197,190 164,186 25,125 386,501
---------- ---------- -------- --------- ----------
Total cost of revenues...................... 801,038 920,392 108,861 1,830,291
---------- ---------- -------- --------- ----------
Gross profit................................ 449,820 582,016 56,734 1,088,570
Selling, general and administrative expenses 184,135 245,431 24,764 454,330
Non-rental depreciation and amortization.... 33,692 39,618 5,273 78,583
---------- ---------- -------- --------- ----------
Operating income............................ 231,993 296,967 26,697 555,657
Interest expense............................ 217,904 135 10,740 228,779
Other (income) expense, net................. 2,129 (4,285) 320 (1,836)
---------- ---------- -------- --------- ----------
Income before provision for income taxes.... 11,960 301,117 15,637 328,714
Provision for income taxes.................. 4,908 124,964 6,544 136,416
---------- ---------- -------- --------- ----------
Income before equity in net earnings of
subsidiaries................................ 7,052 176,153 9,093 192,298
Equity in net earnings of subsidiaries...... 185,246 $(185,246)
---------- ---------- -------- --------- ----------
Net income.................................. $ 192,298 $ 176,153 $ 9,093 $(185,246) $ 192,298
========== ========== ======== ========= ==========
75
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
-------- ------------ ------------- ------------ ------------
(In thousands)
Revenues:
Equipment rentals......................... $600,431 $ 880,182 $100,413 $1,581,026
Sales of rental equipment................. 113,982 106,737 14,959 235,678
Sales of equipment and merchandise and
other revenues........................... 195,647 189,829 31,448 416,924
-------- ---------- -------- --------- ----------
Total revenues.............................. 910,060 1,176,748 146,820 2,233,628
Cost of revenues:
Cost of equipment rentals, excluding
depreciation............................. 250,959 381,718 44,295 676,972
Depreciation of rental equipment.......... 116,385 146,622 17,634 280,641
Cost of rental equipment sales............ 62,972 64,945 8,761 136,678
Cost of equipment and merchandise sales
and other operating costs................ 161,902 128,328 24,189 314,419
-------- ---------- -------- --------- ----------
Total cost of revenues...................... 592,218 721,613 94,879 1,408,710
-------- ---------- -------- --------- ----------
Gross profit................................ 317,842 455,135 51,941 824,918
Selling, general and administrative expenses 144,341 177,456 22,531 344,328
Non-rental depreciation and amortization.... 29,667 24,617 3,657 57,941
-------- ---------- -------- --------- ----------
Operating income............................ 143,834 253,062 25,753 422,649
Interest expense............................ 132,929 1,428 5,471 139,828
Other (income) expense, net................. (1,549) (524) 427 (1,646)
-------- ---------- -------- --------- ----------
Income before provision for income taxes.... 12,454 252,158 19,855 284,467
Provision for income taxes.................. 3,039 105,531 8,058 116,628
-------- ---------- -------- --------- ----------
Income before equity in net earnings of
subsidiaries............................... 9,415 146,627 11,797 167,839
Equity in net earnings of subsidiaries...... 158,424 $(158,424)
-------- ---------- -------- --------- ----------
Net income.................................. $167,839 $ 146,627 $ 11,797 $(158,424) $ 167,839
======== ========== ======== ========= ==========
76
77
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2001
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
----------- ------------ ------------- ------------ ------------
(In thousands)
Net cash provided by operating activities..... $ 622,289 $ 97,695 $ (8,933) $ 711,051
Cash flows from investing activities:
Purchases of rental equipment.............. (277,032) (148,125) (24,613) (449,770)
Purchases of property and equipment........ (13,159) (28,214) (3,501) (44,874)
Proceeds from sales of rental equipment.... 63,612 70,331 13,158 147,101
Payments of contingent purchase price...... (2,103) (2,103)
Purchases of other companies............... (53,565) (1,273) (54,838)
----------- --------- -------- ------- -----------
Net cash used in investing
activities............................. (282,247) (106,008) (16,229) (404,484)
Cash flows from financing activities:
Dividend distributions to parent........... (44,258) (44,258)
Proceeds from debt......................... 2,008,644 65 44,758 2,053,467
Repayments of debt......................... (2,292,186) (1,687) (6,634) (2,300,507)
Proceeds from sale-leaseback............... 12,435 12,435
Payments of financing costs................ (28,709) (333) (29,042)
Capital contributions by parent............ 10,417 10,417
----------- --------- -------- ------- -----------
Net cash provided by (used in)
financing activities................... (333,657) (1,622) 37,791 (297,488)
Effect of foreign exchange rates........... (16,137) (16,137)
----------- --------- -------- ------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 6,385 (9,935) (3,508) (7,058)
Cash and cash equivalents at beginning of
period....................................... 29,733 4,651 34,384
----------- --------- -------- ------- -----------
Cash and cash equivalents at end of
period....................................... $ 6,385 $ 19,798 $ 1,143 $ 27,326
=========== ========= ======== ======= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest..................... $ 197,315 $ 10,561 $ 3,009 $ 210,885
Cash paid for income taxes................. $ (31,122) $ 323 $ (30,799)
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............ $ 20,264 $ 1,201 $ 21,465
Liabilities assumed..................... (4,468) (144) (4,612)
Less:
Amounts paid through issuance
of debt............................. (600) (600)
----------- --------- -------- ------- -----------
15,196 1,057 16,253
Due to seller and other payments........ 38,369 216 38,585
----------- --------- -------- ------- -----------
Net cash paid........................ $ 53,565 $ 1,273 $ 54,838
=========== ========= ======== ======= ===========
77
78
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2000
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------ ------------
(In thousands)
Net cash provided by operating activities........ $ 243,759 $ 227,855 $ 43,066 $ 514,680
Cash flows from investing activities:
Purchases of rental equipment................. (489,259) (283,488) (35,457) (808,204)
Purchases of property and equipment........... (34,477) (102,510) (3,712) (140,699)
Proceeds from sales of rental equipment....... 145,519 178,576 23,583 347,678
Proceeds from sale of businesses.............. 16,246 3,000 19,246
Payments of contingent purchase price......... (3,030) (13,236) (16,266)
Purchases of other companies.................. (337,257) (10,080) (347,337)
--------- --------- -------- ------- ---------
Net cash used in investing
activities................................ (702,258) (217,658) (25,666) (945,582)
Cash flows from financing activities:
Dividend distributions to parent.............. (50,450) (50,450)
Proceeds from debt............................ 452,912 3,290 456,202
Repayments of debt............................ (125,238) (168) (9,193) (134,599)
Proceeds from sale-leaseback.................. 193,478 193,478
Payments of financing costs................... (16,223) (16,223)
Capital contributions by parent............... 331 331
--------- --------- -------- ------- ---------
Net cash provided by (used in)
financing activities...................... 454,810 3,122 (9,193) 448,739
Effect of foreign exchange rates.............. (7,264) (7,264)
--------- --------- -------- ------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... (3,689) 13,319 943 10,573
Cash and cash equivalents at beginning of
period.......................................... 3,689 16,414 3,708 23,811
--------- --------- -------- ------- ---------
Cash and cash equivalents at end of
period.......................................... $ $ 29,733 $ 4,651 $ 34,384
========= ========= ======== ======= =========
Supplemental disclosure of cash flow
information:
Cash paid for interest........................ $ 218,346 $ 135 $ 10,782 $ 229,263
Cash paid for income taxes.................... $ 19,833 $ 3,913 $ 23,746
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............... $ 518,167 $ 11,037 $ 529,204
Liabilities assumed........................ (132,163) (957) (133,120)
Less:
Amounts paid in common stock
of parent.............................. (10,000) (10,000)
Amounts paid through issuance
of debt................................ (65,500) (65,500)
--------- --------- -------- ------- ---------
310,504 10,080 320,584
Due to seller and other payments........ 26,753 26,753
--------- --------- -------- ------- ---------
Net cash paid........................... $ 337,257 $ 10,080 $ 347,337
========= ========= ======== ======= =========
78
79
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 1999
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
----------- ------------ ------------- ------------ ------------
(In thousands)
Net cash provided by operating activities..... $ 292,412 $ 13,185 $ 119,585 $ 425,182
Cash flows from investing activities:
Purchases of rental equipment.............. (539,775) (99,365) (78,972) (718,112)
Purchases of property and equipment........ (74,634) (20,366) (14,468) (109,468)
Proceeds from sales of rental
equipment................................. 113,982 106,737 14,959 235,678
Proceeds from sale of businesses........... 1,040 2,354 3,127 6,521
Payments of contingent purchase price...... (2,387) (4,265) (1,564) (8,216)
Purchases of other companies............... (915,937) (70,853) (986,790)
----------- -------- --------- --------- -----------
Net cash used in investing
activities............................. (1,417,711) (14,905) (147,771) (1,580,387)
Cash flows from financing activities:
Dividend distributions to parent........... (19,500) (19,500)
Proceeds from debt......................... 1,025,843 26,524 31,249 1,083,616
Repayments of debt......................... (474,808) (20,958) (1,884) (497,650)
Proceeds from sale-leaseback............... 88,000 88,000
Payments of financing costs................ (18,995) (448) (19,443)
Capital contributions by parent............ 522,985 522,985
----------- -------- --------- --------- -----------
Net cash provided by financing
activities............................. 1,123,525 5,566 28,917 1,158,008
Effect of foreign exchange rates........... 598 598
----------- -------- --------- --------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. (1,774) 3,846 1,329 3,401
Cash and cash equivalents at beginning of
period....................................... 1,774 16,257 2,379 20,410
----------- -------- --------- --------- -----------
Cash and cash equivalents at end of
period....................................... $ $ 20,103 $ 3,708 $ 23,811
=========== ======== ========= ========= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest..................... $ 98,728 $ 1,194 $ 4,863 $ 104,785
Cash paid for income taxes................. $ 16,372 $ 1,137 $ 17,509
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............ $ 1,371,807 $ 96,760 $ 1,468,567
Liabilities assumed..................... (448,685) (23,697) (472,382)
Less:
Amounts paid through issuance
of debt............................. (7,185) (2,210) (9,395)
----------- -------- --------- --------- -----------
Net cash paid........................ $ 915,937 $ 70,853 $ 986,790
=========== ======== ========= ========= ===========
79
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
United Rentals, Inc.
We have audited the consolidated financial statements of United Rentals,
Inc. as of December 31, 2001 and 2000, and for each of the three years in the
period ended December 31, 2001, and have issued our report thereon dated
February 26, 2002, included elsewhere in this Form 10-K. Our audits also
included the financial statement schedules listed in Item 14(a)(2). These
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 19, 2002
80
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED BALANCE SHEET
December 31
----------------------
2001 2000
---------- ----------
(In thousands)
Assets
Property and equipment, net............... $ 26,793 $ 34,807
Investment in and advances to subsidiaries 1,904,000 1,839,952
---------- ----------
$1,930,793 $1,874,759
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Debt................................... $ 300,000 $ 300,000
Accrued expenses and other liabilities. 5,283 28,816
---------- ----------
Total liabilities.................. 305,283 328,816
Commitments and contingencies
Series A and B preferred stock............ 430,800
Stockholders' equity:
Series C and D preferred stock......... 5
Common stock........................... 734 711
Additional paid-in capital............. 1,243,586 765,529
Deferred compensation.................. (55,794)
Retained earnings...................... 467,106 355,850
Accumulated other comprehensive loss... (30,127) (6,947)
---------- ----------
Total stockholders' equity......... 1,625,510 1,115,143
---------- ----------
$1,930,793 $1,874,759
========== ==========
See accompanying notes.
81
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31
----------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Selling, general and administrative expenses...... $ 8,267
Non-rental depreciation and amortization.......... $ 7,862 $ 7,718 4,926
-------- -------- --------
Operating loss.................................... (7,862) (7,718) (13,193)
Interest expense.................................. 19,500 19,500 19,500
Other (income) expense, net....................... 9,689
-------- -------- --------
Loss before benefit for income taxes.............. (27,362) (27,218) (42,382)
Benefit for income taxes.......................... 11,355 11,295 17,487
-------- -------- --------
Net loss before equity in earnings of subsidiaries (16,007) (15,923) (24,895)
Equity in earnings of subsidiaries................ 127,263 192,298 167,561
-------- -------- --------
Net income........................................ $111,256 $176,375 $142,666
======== ======== ========
See accompanying notes.
82
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED CASH FLOW INFORMATION
Year Ended December 31,
------------------------------
2001 2000 1999
--------- -------- ---------
(In thousands)
Net cash used in operating activities................. $ $
(16,826) (6,429) $ (4,824)
Cash flows from investing activities:
Purchase of property and equipment................. (2,674) (13,071) (14,181)
Capital contributed to subsidiary.................. (10,417) (331) (522,985)
--------- -------- ---------
Net cash used in investing activities.......... (13,091) (13,402) (537,166)
Cash flows from financing activities:
Proceeds from issuance of common stock and
warrants, net of issuance costs.................. 64,701
Proceeds from the issuance of preferred stock, net
of issuance costs................................ 430,800
Proceeds from debt.................................
Shares repurchased and retired..................... (24,758) (30,950)
Proceeds from the exercise of stock options........ 10,417 331 26,989
Proceeds from dividends from subsidiary............ 44,258 50,450 19,500
--------- -------- ---------
Net cash provided by financing activities...... 29,917 19,831 541,990
--------- -------- ---------
Net increase in cash and cash equivalents.............
Cash and cash equivalents at beginning of period......
--------- -------- ---------
Cash and cash equivalents at end of period............ $ -- $ -- $ --
========= ======== =========
See accompanying notes.
83
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
United Rentals, Inc. is principally a holding company ("Holdings") and
conducts its operations primarily through its wholly owned subsidiary United
Rentals (North America), Inc. ("URI") and subsidiaries. In the parent
company-only financial statements, Holdings, investment in subsidiaries is
stated at cost plus equity in undistributed earnings of subsidiaries since the
date of acquisition. Holdings share of net income of its unconsolidated
subsidiaries is included in consolidated income using the equity method. The
parent company-only financial statements should be read in conjunction with the
Company's consolidated financial statements.
2. Debt
See Note 10 to the Consolidated Financial Statements for information
concerning debt.
3. Guarantee
See Note 10 to the Consolidated Financial Statements for information
concerning the guarantee.
84
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
UNITED RENTALS, INC.
Additions
------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Other Deductions of Period
----------- ---------- ---------- ------- ---------- ---------
(In thousands)
Year ended December 31, 2001:
Allowance for doubtful accounts.................. $55,624 $31,194 $ 906(a) $39,980(c) $47,744
Reserve for inventory obsolescence and shrinkage. 15,461 9,229 554(b) 15,839(d) 9,395
Insurance reserves............................... 15,428 87,238 84,107(e) 18,559
Year ended December 31, 2000:
Allowance for doubtful accounts.................. $58,376 $38,431 $14,791(a) $55,974(c) $55,624
Reserve for inventory obsolescence and shrinkage. 16,782 9,124 11,302(b) 21,747(d) 15,461
Insurance reserves............................... 22,750 63,728 71,050(e) 15,428
Year ended December 31, 1999:
Allowance for doubtful accounts.................. 43,481 46,121 23,568(a) 54,794(c) 58,376
Reserve for inventory obsolescence and shrinkage. 9,288 6,857 11,975(b) 11,338(d) 16,782
Insurance reserves............................... 20,553 47,087 44,890(e) 22,750
- --------
(a)Represents allowance for doubtful accounts established through acquisitions.
(b)Represents reserve for inventory obsolescence and shrinkage assumed through
acquisitions.
(c)Represents write-offs of accounts, net of recoveries.
(d)Represents write-offs of inventory items.
(e)Represents payments.
85
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to the
applicable information in the 2002 Proxy Statement, including the information
set forth under the captions "Election of Directors" and "Compliance with
Section 11(A) of the Securities Exchange Act of 1934". The "2002 Proxy
Statement" refers to the Company's definitive Proxy Statement for its 2002
Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended, prior to April 30, 2002.
Item 11. Executive and Director Compensation
The information required by this Item is incorporated by reference to the
applicable information in the 2002 Proxy Statement, including the information
set forth under the captions "Executive and Director Compensation" and
"Compensation Committee Interlocks and Insider Participation".
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to the
applicable information in the 2002 Proxy Statement, including the information
set forth under the caption "Security Ownership of Certain Beneficial Owners
and Management".
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
applicable information in the 2002 Proxy Statement, including the information
set forth under the caption "Certain Transactions".
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1)Consolidated Financial Statements:
Report of Independent Auditors
United Rentals, Inc. Consolidated Balance Sheets--December 31, 2001 and
2000
United Rentals, Inc. Consolidated Statements of Operations for the years
ended December 31, 2001, 2000, and 1999
United Rentals, Inc. Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2001, 2000, and 1999
United Rentals, Inc. Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
Report of Independent Auditors
United Rentals (North America), Inc. Consolidated Balance
Sheets--December 31, 2001 and 2000
United Rentals (North America), Inc. Consolidated Statements of
Operations for the years ended December 31, 2001, 2000, and 1999
86
United Rentals (North America), Inc. Consolidated Statements of
Stockholder's Equity for the years ended December 31, 2001, 2000, and 1999
United Rentals (North America), Inc. Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
Report of Independent Auditors on Financial Statement Schedules
Schedule I Condensed Financial Information of Registrant
Schedule II Valuation and Qualifying Accounts
Schedules other than those listed are omitted as they are not applicable
or the required or equivalent information has been included in the financial
statements or notes thereto.
(a)(3) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
2(a) Amended and Restated Agreement and Plan of Merger dated as of August 31, 1998,
among United Rentals, Inc., UR Acquisition Corporation and U.S. Rentals, Inc.
(incorporated by reference to Exhibit 2 of United Rentals, Inc. Registration Statement on
Form S-4, Registration No. 333-63171)
3(a) Amended and Restated Certificate of Incorporation of United Rentals, Inc., (incorporated
by reference to exhibit 3.1 of United Rentals, Inc. Report on Form 10-Q for the quarter
ended June 30, 1998)
3(b) Certificate of Amendment to the United Rentals, Inc. Amended and Restated 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., (incorporated by reference to exhibit 3.2 of United Rentals,
Inc. Report on Form 10-Q for the quarter ended June 30, 1998)
3(d) Form of Certificate of Designation for Series A Perpetual Convertible Preferred Stock
(incorporated by reference to Exhibit 4(k) to the United Rentals, Inc. Registration
Statement on Form S-3, No. 333-64463) together with a certificate of amendment thereto
(incorporated by reference to exhibit A of the United Rentals, Inc. Proxy Statement dated
July 22, 1999)
3(e) Form of Certificate of Designation for Series B Perpetual Convertible Preferred Stock
(incorporated by reference to exhibit B of the United Rentals, Inc. Proxy Statement on
Schedule 14A dated July 22, 1999)
3(f) Form of Certificate of Designation for Series C Perpetual Convertible Preferred Stock
(incorporated by reference to exhibit 3(f) of United Rentals, Inc. Report on Form 10-Q for
the quarter ended September 30, 2001)
3(g) Form of Certificate of Designation for Series D Perpetual Convertible Preferred Stock
(incorporated by reference to exhibit 3(g) of United Rentals, Inc. Report on Form 10-Q for
the quarter ended September 30, 2001)
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 on October 5, 2001)
87
Exhibit
Number Description of Exhibit
- ------ ----------------------
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 of the
United Rentals, Inc. Current Report on Form 8-K filed on October 5, 2001)
3(j) Amended and Restated Certificate of Incorporation of United Rentals (North America),
Inc., (incorporated by reference to Exhibit 3.3 of the United Rentals (North America), Inc.
Report on Form 10-Q for the quarter ended June 30, 1998)
3(k) By-laws of United Rentals (North America), Inc., (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)
4(a) Form of certificate representing United Rentals, Inc. Common Stock (incorporated by
reference to Exhibit 4 of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)
4(b) Certificate of Trust of United Rentals Trust I (incorporated by reference to Exhibit 4(a) of
the United Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-64463)-
4(c) Amended and Restated Trust Agreement dated August 5, 1998 among United Rentals,
Inc., The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee, and the Administrative Trustees named therein (incorporated by
reference to Exhibit 10(ii) of United Rentals, Inc. Registration Statement on Form S-4,
Registration No. 333-63171)
4(d) Indenture dated August 5, 1998 by and between United Rentals, Inc. and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 10(hh) of United Rentals, Inc.
Registration Statement on Form S-4, Registration No. 333-63171)
4(e) Guarantee Agreement dated August 5, 1998 between United Rentals, Inc. and The Bank
of New York (incorporated by reference to Exhibit 10(jj) of United Rentals, Inc.
Registration Statement on Form S-4, Registration No. 333-63171)
4(f) Form of Certificate representing 6 1/2% Convertible Quarterly Income Preferred Securities
(incorporated by reference to Exhibit 4(e) of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-64463)
4(g) Form of Certificate representing 6 1/2% Convertible Subordinated Debentures
(incorporated by reference to Exhibit 4(f) of the United Rentals, Inc. Registration
Statement on Form S-1, Registration No. 333-64463)
4(h) Indenture dated May 22, 1998, among United Rentals (North America), Inc., the
Guarantors named therein and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 4(b) of the Registration Statement on Form S-4 filed
by United Rentals (North America), Inc., Registration No. 333-60467)
4(i) Indenture dated August 12, 1998, among United Rentals (North America), Inc., the
Guarantors named therein and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 10(bb) of United Rentals, Inc. Registration
Statement on Form S-4, Registration No. 333-63171)
4(j) Indenture dated December 15, 1998, among United Rentals (North America), Inc., the
Guarantors named therein and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 10(uu) to Amendment No. 1 to the United Rentals
(North America), Inc. Registration Statement on Form S-4, No. 333-64227)
88
Exhibit
Number Description of Exhibit
- ------ ----------------------
4(k) Indenture dated March 23, 1999 among United Rentals (North America), Inc., the
Guarantors named therein and The Bank of New York, as trustee (incorporated by
reference to exhibit 4(q) of the United Rentals, Inc. Annual Report on Form 10-K for the
Year Ended December 31, 1998)
4(l) Indenture dated as of April 20, 2001 among United Rentals (North America), Inc., the
Guarantors named therein and The Bank of New York, as Trustee (incorporated by
reference to Exhibit 10(b) to United Rentals, Inc. Report on Form 10-Q for the quarterly
period ended March 31, 2001)
4(m) Form of Registration Rights Agreement relating to the Series B Perpetual Convertible
Preferred Stock between United Rentals, Inc. and Chase Equity Associates, LP
(incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999)
4(n) Amended and Restated Registration Rights Agreement relating to Series A Perpetual
Convertible Preferred Stock and Series B Perpetual Convertible Preferred Stock among
United Rentals, Inc., Bradley S. Jacobs, Apollo Investment Fund IV, LP and Apollo
Overseas Partners IV, LP (incorporated by reference to exhibit D of the United Rentals,
Inc. Proxy Statement dated July 22, 1999)
10(a) Amended and Restated Credit Agreement dated as of April 20, 2001 between United
Rentals, Inc., United Rentals (North America), Inc., various financial institutions, and The
Chase manhattan Bank, as U.S. Administrative Agent (incorporated by reference to
Exhibit 10(a) to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended
March 31, 2001)
10(b) Form of Warrant Agreement (incorporated by reference to exhibit 10(c) of United Rentals,
Inc. Registration Statement on Form S-1, Registration No. 333-39117)(1)++
10(c) Form of Indemnification Agreement for Officers and Directors (incorporated by reference
to exhibit 10(f) of United Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-39117)++
10(d) 1997 Stock Option Plan (incorporated by reference to exhibit 10(b) of United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)++
10(e) 1998 Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 99.1
to United Rentals, Inc. Registration Statement on Form S-4, Registration
No. 333-63171)++
10(f) 1998 Supplemental Stock Option Plan of United Rentals, Inc. (incorporated by reference
to Exhibit 4.6 to the United Rentals, Inc. Registration Statement on Form S-8,
No. 333-70345)
10(g) 2001 Senior Stock Plan of United Rentals, Inc. (incorporated by reference to Appendix B
to United Rentals, Inc. Definitive Proxy Statement dated April 30, 2001)++
10(h) 2001 Stock Plan of United Rentals, Inc. (incorporated by reference to Exhibit 4.6 to United
Rentals, Inc. Registration Statement on Form S-8, No. 333-60458)++
10(i) Employment Agreement with Bradley S. Jacobs, dated as of September 19, 1997
(incorporated by reference to exhibit 10(g) of United Rentals, Inc. Registration Statement
on Form S-1, Registration No. 333-39117)++
10(j) Amendment No. 1 to Employment Agreement with Bradley S. Jacobs, dated as of
December 24, 1999 (incorporated by reference to exhibit 10(p) of the United Rentals
Annual Report on Form 10-K for the year ended December 31, 1999)++
89
Exhibit
Number Description of Exhibit
- ------ ----------------------
10(k) Employment Agreement with John N. Milne, dated as of September 19, 1997
(incorporated by reference to exhibit 10(h) of United Rentals, Inc. Registration Statement
on Form S-1, Registration No. 333-39117)++
10(l) Amendment No. 1 to Employment Agreement with John N. Milne, dated as of December
24, 1999 (incorporated by reference to exhibit 10(r) of the United Rentals Annual Report
on Form 10-K for the year ended December 31, 1999)++
10(m) Employment Agreement with Michael J. Nolan, dated as of October 14, 1997
(incorporated by reference to exhibit 10(i) of United Rentals, Inc. Registration Statement
on Form S-1, Registration No. 333-39117)++
10(n) Amendment No. 1 to Employment Agreement with Michael J. Nolan, dated as of
December 24, 1999 (incorporated by reference to exhibit 10(t) of the United Rentals
Annual Report on Form 10-K for the year ended December 31, 1999)++
10(o) Subscription Agreement dated November 14, 1997, from Wayland R. Hicks (Incorporated
by reference to exhibit 10(r) of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)++
10(p) Agreement dated November 14, 1997, with Wayland R. Hicks (incorporated by reference
to exhibit 10(s) of United Rentals, Inc., Registration Statement on Form S-1, Registration
No. 333-39117)++
10(q) Amendment No. 1 to Employment Agreement with Wayland R. Hicks, dated as of
December 24, 1999 (incorporated by reference to exhibit 10(y) of the United Rentals
Annual Report on Form 10-K for the year ended December 31, 1999)++
10(r) Amendment No. 2 to Employment Agreement with Wayland R. Hicks, dated as of
November 14, 2000 (incorporated by reference to exhibit 10(z) of the United Rentals
Annual Report on Form 10-K for the year ended December 31, 2000)++
10(s) Senior Restricted Stock Agreement with Bradley S. Jacobs, dated June 5, 2001
(incorporated by reference to Exhibit 10.1 of United Rentals, Inc. Registration Statement
on Form S-3, Registration No. 333-64662)++
10(t) Senior Restricted Stock Agreement with Wayland R. Hicks, dated June 5, 2001
(incorporated by reference to Exhibit 10.2 of United Rentals, Inc. Registration Statement
on Form S-3, Registration No. 333-64662)++
10(u) Senior Restricted Stock Agreement with John N. Milne, dated June 5, 2001 (incorporated
by reference to Exhibit 10.3 of United Rentals, Inc. Registration Statement on Form S-3,
Registration No. 333-64662)++
10(v) Senior Restricted Stock Agreement with Michael J. Nolan, dated June 5, 2001
(incorporated by reference to Exhibit 10.4 of United Rentals, Inc. Registration Statement
on Form S-3, Registration No. 333-64662)++
10(w) Preferred Stock Purchase Agreement dated December 21, 1998 between United Rentals,
Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (incorporated
by reference to exhibit 10(y) of the United Rentals, Inc. Annual Report on Form 10-K for
the Year Ended December 31, 1998)
10(x) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock,
dated June 28, 1999, among United Rentals, Inc., Apollo Investment Fund IV, L.P. and
Apollo Overseas Partners IV, L.P., together with an Amendment dated as of July 16, 1999
(incorporated by reference to exhibit C of the United Rentals, Inc. Proxy Statement dated
July 22, 1999)
90
Exhibit
Number Description of Exhibit
- ------ ----------------------
10(y) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock
dated July 16, 1999 between United Rentals, Inc. and Chase Equity Associates, L.P.
(incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999)
10(z) Purchase Agreement dated April 12, 2001 relating to the initial sale by United Rentals
(North America), Inc. of $450 million aggregate principal amount of 103/4% Senior Notes
due 2008 (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Report on
Form 10-Q for the quarter ended March 31, 2001)
10(aa) 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 the exchange of Series B Perpetual
Convertible Preferred Stock for Series D Perpetual Convertible Preferred Stock
(incorporated by reference to Exhibit 10 of the United Rentals, Inc. Report on Form 8-K
filed on October 5, 2001)
10(bb) Purchase and Lock-Up Agreement among Richard D. Colburn and AYR Inc. and United
Rentals, Inc., dated March 17, 2002 (incorporated by reference to Exhibit 99.1 of the
United Rentals, Inc. Report on Form 8-K filed on March 18, 2002)
10(cc) Purchase and Lock-Up Agreement between Colburn Music Fund and United Rentals,
Inc., dated March 17, 2002 (incorporated by reference to Exhibit 99.2 of the United
Rentals, Inc. Report on Form 8-K filed on March 18, 2002)
10(dd)* Underwriting Agreement dated March 19, 2002, among United Rentals, Inc., Bradley S.
Jacobs, Bradley Jacobs LLC, John Milne, Michael Nolan, Wayland Hicks and Credit
Suisse First Boston Corporation
21* Subsidiaries of United Rentals, Inc.
23* Consent of Ernst & Young LLP
- --------
* Filed herewith.
++This document is a management contract or compensatory plan or arrangement.
(1)United Rentals, Inc. issued a warrant in this form to the following current
and former officers and other employees of United Rentals, Inc. (or in
certain cases to an entity controlled by such officer) for the number of
shares indicated: Bradley S. Jacobs (5,000,000); John N. Milne (714,286);
Michael J. Nolan (285,715); others (342,847).
(b) Reports on Form 8-K:
1. Form 8-K filed on October 5, 2001 (earliest event reported September
28, 2001); Items 5 and 7 were reported.
2. Form 8-K filed on October 29, 2001 (earliest event reported October
25, 2001); Items 7 and 9 were reported.
3. Form 8-K filed on November 15, 2001 (earliest event reported November
12, 2001); Items 7 and 9 were reported.
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNITED RENTALS, INC.
Date: March 28, 2002
By: /s/ Michael J. Nolan
Michael J. Nolan
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
/S/ BRADLEY S. JACOBS Chairman of the Board of Directors and March 28, 2002
----------------------- Chief Executive Officer (Principal
Bradley S. Jacobs Executive Officer)
/s/ WAYLAND R. HICKS Director March 28, 2002
-----------------------
Wayland R. Hicks
/S/ JOHN N. MILNE Director March 28, 2002
-----------------------
John N. Milne
/S/ JOHN S. MCKINNEY Director March 28, 2002
-----------------------
John S. McKinney
/S/ LEON D. BLACK Director March 28, 2002
-----------------------
Leon D. Black
/S/ RICHARD D. COLBURN Director March 28, 2002
-----------------------
Richard D. Colburn
/S/ RONALD M. DEFEO Director March 28, 2002
-----------------------
Ronald M. DeFeo
/S/ MICHAEL S. GROSS Director March 28, 2002
-----------------------
Michael S. Gross
92
Signatures Title Date
---------- ----- ----
/S/ RICHARD J. HECKMANN Director March 28, 2002
------------------------
Richard J. Heckmann
/S/ TIMOTHY J. TULLY Director March 28, 2002
------------------------
Timothy J. Tully
/S/ CHRISTIAN M. WEYER Director March 28, 2002
------------------------
Christian M. Weyer
/S/ MICHAEL J. NOLAN Chief Financial Officer (Principal March 28, 2002
------------------------ Financial Officer)
Michael J. Nolan
/S/ JOSEPH B. SHERK Vice President, Corporate March 28, 2002
------------------------ Controller (Principal
Joseph B. Sherk Accounting Officer)
93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNITED RENTALS (NORTH AMERICA), INC.
Date: March 28, 2002 /s/ MICHAEL J. NOLAN
By: _______________________________
Michael J. Nolan
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
/S/ BRADLEY S. JACOBS Chairman of the Board March 28, 2002
----------------------- of Directors and Chief
Bradley S. Jacobs Executive Officer (Principal
Executive Officer)
/S/ WAYLAND R. HICKS Director March 28, 2002
-----------------------
Wayland R. Hicks
/S/ JOHN N. MILNE Director March 28, 2002
-----------------------
John N. Milne
/S/ JOHN S. MCKINNEY Director March 28, 2002
-----------------------
John S. McKinney
/S/ LEON D. BLACK Director March 28, 2002
-----------------------
Leon D. Black
/S/ RICHARD D. COLBURN Director March 28, 2002
-----------------------
Richard D. Colburn
/S/ RONALD M. DEFEO Director March 28, 2002
-----------------------
Ronald M. DeFeo
/S/ MICHAEL S. GROSS Director March 28, 2002
-----------------------
Michael S. Gross
94
Signatures Title Date
---------- ----- ----
/S/ RICHARD J. HECKMANN Director March 28, 2002
- ------------------------
Richard J. Heckmann
/S/ DAVID C. KATZ Director March 28, 2002
- ------------------------
David C. Katz
/S/ TIMOTHY J. TULLY Director March 28, 2002
- ------------------------
Timothy J. Tully
/S/ CHRISTIAN M. WEYER Director March 28, 2002
- ------------------------
Christian M. Weyer
/S/ MICHAEL J. NOLAN Chief Financial Officer (Principal Financial March 28, 2002
- ------------------------ Officer)
Michael J. Nolan
/S/ JOSEPH B. SHERK Vice President, Corporate Controller March 28, 2002
- ------------------------ (Principal Accounting Officer)
Joseph B. Sherk
95