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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JUNE 9, 1998
-----------------
UNITED RENTALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 1-13663 06-1493538
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(State or Other Jurisdiction (Commission file Number) (IRS Employer
of Incorporation) Identification No.)
Four Greenwich Office Park, Greenwich, Connecticut 06830
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 622-3131
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Item 7. Financial Statements and Pro Forma Financial Information
--------------------------------------------------------
(a) Financial Statements of Businesses Acquired
The following financial statements are included herein:
I. Financial Statements of Power Rental Co., Inc.
Report of Independent Auditors
Balance Sheets--July 31, 1997 and April 30, 1998 (unaudited)
Statement of Operations for the Year Ended July 31, 1997 and the Nine
Months Ended April 30, 1997 and 1998 (unaudited)
Statements of Stockholders' Equity for the Year Ended July 31, 1997
and for the Nine Months Ended April 30, 1998 (unaudited)
Statements of Cash Flows for the Year Ended December 31, 1997 and the Nine
Months Ended April 30, 1997 and 1998 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is included herein:
I. Pro Forma Consolidated Financial Statements of United Rentals, Inc.
Introduction
Pro Forma Consolidated Balance Sheet-- March 31, 1998
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1997, and the Three Months Ended March 31, 1998
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on this 21st day of July, 1998.
UNITED RENTALS, INC.
By: Michael J. Nolan
-------------------------------
Name: Michael J. Nolan
Title: Chief Financial Officer
3
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Power Rental Co., Inc.
We have audited the balance sheet of Power Rental Co., Inc. as of July 31,
1997 and the related statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Power Rental Co., Inc. at
July 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
June 24, 1998
F-1
POWER RENTAL CO., INC.
BALANCE SHEETS
JULY 31, APRIL 30,
1997 1998
----------- -----------
(UNAUDITED)
ASSETS
Cash................................................... $ 53,462 $ --
Accounts receivable, net of allowance for doubtful
accounts of
$200,000 and $185,000 at 1997 and 1998, respectively.. 4,193,529 3,326,134
Due from related parties............................... 612,717 1,113,580
Inventory.............................................. 51,476 63,576
Rental equipment, net.................................. 35,575,067 37,958,651
Property and equipment, net............................ 7,301,836 8,378,203
Prepaid expenses and other assets...................... 1,413,651 1,981,771
Intangible assets, net................................. 378,269 339,587
----------- -----------
Total assets....................................... $49,580,007 $53,161,502
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabili-
ties................................................ $ 4,831,620 $ 5,158,682
Debt................................................. 30,841,647 36,548,720
Deferred rent........................................ 72,200 84,800
Deferred income taxes................................ 2,921,231 2,393,231
----------- -----------
Total liabilities.................................. 38,666,698 44,185,433
Commitments and contingencies
Stockholders' equity:
Common stock--Class A voting, $1.00 par value, 10,000
shares authorized, 10 issued and outstanding........ 10 10
Common stock--Class B non-voting, $1.00 par value,
90,000 shares authorized, 20,000 issued and
outstanding......................................... 20,000 20,000
Additional paid in capital........................... 522,550 522,550
Retained earnings.................................... 10,370,749 8,433,509
----------- -----------
Total stockholders' equity......................... 10,913,309 8,976,069
----------- -----------
Total liabilities and stockholders' equity......... $49,580,007 $53,161,502
=========== ===========
See accompanying notes.
F-2
POWER RENTAL CO., INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
YEAR ENDED APRIL 30,
JULY 31, ------------------------
1997 1997 1998
----------- ----------- -----------
(UNAUDITED)
Revenues:
Equipment rentals..................... $34,943,308 $25,404,600 $24,479,049
Sales of rental equipment............. 4,484,056 3,233,915 3,456,557
Sales of parts and supplies........... 1,462,391 1,099,033 1,025,287
----------- ----------- -----------
Total revenues...................... 40,889,755 29,737,548 28,960,893
Cost of revenues:
Cost of equipment rentals, excluding
equipment rental depreciation........ 11,392,273 7,920,625 8,771,442
Depreciation, equipment rentals....... 9,753,507 7,335,000 8,710,280
Cost of sales of rental equipment..... 2,915,751 2,229,820 1,693,212
Cost of sales of parts and supplies... 1,316,267 915,469 857,161
----------- ----------- -----------
Total cost of revenues.............. 25,377,798 18,400,914 20,032,095
----------- ----------- -----------
Gross profit............................ 15,511,957 11,336,634 8,928,798
Selling, general and administrative
expenses............................... 11,865,623 8,710,834 9,392,256
Non-rental depreciation................. 1,214,796 824,300 1,076,331
----------- ----------- -----------
Operating income (loss)................. 2,431,538 1,801,500 (1,539,789)
Interest expense........................ 2,171,959 1,404,334 1,884,720
Interest income......................... (176,612) (87,866) (133,707)
Other (income), net..................... (398,159) (328,319) (165,562)
----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes....................... 834,350 813,351 (3,125,240)
Provision (benefit) for income taxes.... 317,053 309,070 (1,188,000)
----------- ----------- -----------
Net income (loss)....................... $ 517,297 $ 504,281 $(1,937,240)
=========== =========== ===========
See accompanying notes.
F-3
POWER RENTAL CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B ADDITIONAL
------------- -------------- PAID IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------- ---------- ----------
Balance at August 1, 1996.. 10 $10 20,000 $20,000 $522,550 $9,853,452
Net income............... 517,297
--- --- ------ ------- -------- ----------
Balance at July 31, 1997... 10 10 20,000 20,000 522,550 10,370,749
Net loss (unaudited)..... (1,937,240)
--- --- ------ ------- -------- ----------
Balance at April 30, 1998
(unaudited)............... 10 $10 20,000 $20,000 $522,550 $8,433,509
=== === ====== ======= ======== ==========
See accompanying notes.
F-4
POWER RENTAL CO., INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED APRIL 30,
JULY 31, --------------------------
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................... $ 517,297 $ 504,281 $ (1,937,240)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 11,018,848 8,190,183 9,825,293
Gain on equipment sales........... (1,294,474) (815,756) (1,603,959)
Gain on property and equipment
sales............................ (29,468) (47,940) (27,709)
Deferred income taxes............. 87,846 86,530 (528,000)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable..................... (135,231) 612,691 867,395
Decrease (increase) in
inventory...................... 8,973 (21,226) (12,100)
Increase in prepaid expenses and
other assets................... (648,001) (194,009) (568,120)
Increase (decrease) in accounts
payable, accrued expenses and
other liabilities 622,048 (109,060) 327,062
Increase in deferred rent....... 40,800 29,000 12,600
------------ ------------ ------------
Total adjustments............. 9,671,341 7,730,413 8,292,462
------------ ------------ ------------
Cash provided by operating
activities......................... 10,188,638 8,234,694 6,355,222
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment........ (1,769,523) (2,519,442) (245,790)
Purchase of property and equipment.. (2,757,539) (2,115,320) (846,317)
Intangibles associated with purchase
of certain assets.................. (110,000) (110,000)
Proceeds from sale of rental
equipment.......................... 3,882,235 2,956,554 3,243,356
Proceeds from sale of property and
equipment.......................... 139,723 65,562 204,980
------------ ------------ ------------
Cash provided by (used in) investing
activities......................... (615,104) (1,722,646) 2,356,229
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt.......... (9,810,236) (7,115,253) (9,574,050)
Principal payments on credit
facility........................... (26,748,605) (19,096,555) (17,625,000)
Borrowings on debt.................. 207,000 207,000 220,000
Borrowings under credit facility.... 26,726,605 19,579,955 18,715,000
Repayments from related parties..... 681,553 352,200 824,504
Advances to related parties......... (599,788) (461,550) (1,325,367)
------------ ------------ ------------
Cash used in financing activities... (9,543,471) (6,534,203) (8,764,913)
------------ ------------ ------------
Increase (decrease) in cash......... 30,063 (22,155) (53,462)
Cash balance at beginning of period. 23,399 23,399 53,462
------------ ------------ ------------
Cash balance at end of period....... $ 53,462 $ 1,244 $ --
============ ============ ============
See accompanying notes.
F-5
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
(THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS
ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Power Rental Co., Inc. (the "Company") rents, sells and repairs construction
equipment for use by contractor, industrial and homeowner markets. The rentals
are on a daily, weekly or monthly basis. The Company has eighteen locations
and their principal market area is the Pacific Northwest of the United States.
The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheets are presented on an
unclassified basis.
These financial statements are prepared on a historical cost basis and do
not include any adjustments that may result from the acquisition of the
Company by United Rentals, Inc. ("United") as more fully described in Note 10.
Interim Financial Statements
The accompanying balance sheet at April 30, 1998 and the statements of
operations, stockholders' equity and cash flows for the nine-month periods
ended April 30, 1997 and 1998 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim period are not necessarily indicative of results for the full year.
Inventory
Inventories consist primarily of general replacement parts and are stated at
the lower of cost, determined under the first-in, first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statement of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
ranging from three to seven years. Leasehold improvements are amortized using
the straight-line method over the estimated lives of the improvements or the
remaining life of the lease, whichever is shorter.
F-6
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS
ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Intangible Assets
Intangible assets are recorded at cost and consist of goodwill of $372,480
and covenants not to compete of $207,000. Accumulated amortization at July 31,
1997 and April 30, 1998 is $201,211 and $239,893, respectively. Goodwill is
being amortized by the straight-line method over its estimated useful life of
forty years. The covenants not to compete reflect agreements made regarding
confidentiality and restricting competitive activity and are being amortized
by the straight-line method over the period of the agreements, which is 5
years. Amortization expense was $50,545, $30,883 and $38,682 for the year
ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998,
respectively.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Companies advertise primarily through sponsorships, trade journals,
trade associations and phone directories. All advertising costs are expensed
as incurred. Advertising expense amounted to approximately $714,680, $551,700
and $597,810 in the year ended July 31, 1997 and for the nine months ended
April 30, 1997 and 1998, respectively.
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
F-7
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS
ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
JULY 31, APRIL 30,
1997 1998
----------- -----------
(UNAUDITED)
Rental equipment.................................. $61,168,264 $68,578,382
Less accumulated depreciation..................... 25,593,197 30,619,731
----------- -----------
Rental equipment, net............................. $35,575,067 $37,958,651
=========== ===========
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JULY 31, APRIL 30,
1997 1998
----------- -----------
(UNAUDITED)
Transportation equipment........................... $ 5,143,693 $ 5,984,589
Office and shop equipment.......................... 2,236,792 2,643,613
Leasehold improvements............................. 3,573,110 4,401,822
----------- -----------
10,953,595 13,030,024
Less accumulated depreciation and amortization..... 3,651,759 4,651,821
----------- -----------
Property and equipment, net........................ $ 7,301,836 $ 8,378,203
=========== ===========
5. DEBT
Debt consists of the following:
JULY 31, APRIL 30,
1997 1998
--------- -----------
(UNAUDITED)
Caterpillar Credit-Note with a monthly payment of $1,668
including interest of 5.6%............................. $ 24,020 $ 9,758
Ingersoll Rand--Various non-interest bearing notes with
combined monthly payments of $100,064 and $2,850 in
1997 and 1998, respectively............................ 289,690 33,025
Allegro Escrow--Two notes with combined monthly payments
of $4,297 including interest of 9.0%................... 175,653 148,018
Associates Commercial--Various notes with combined
monthly payments of $24,451 including interest from
7.6% to 8.9%........................................... 905,505 4,163,677
Case Credit--Various notes with combined monthly
payments of $211,021 including interest from 4.9% to
8.9%................................................... 3,823,564 3,216,130
J.D. Fulwiler--Note with monthly payment of $3,134
including interest of 8.0%............................. 27,285 --
Concord Commercial--Various notes with combined monthly
payments of $143,858 including interest from 8.1% to
8.9%................................................... 4,019,259 3,466,002
John Deere Credit--Various notes with combined monthly
payments of $133,615 including interest from 6.9% to
9.7%................................................... 2,399,434 1,647,305
Ford Motor Credit--Various notes with combined monthly
payments of $121,192 including interest from 8.2% to
9.2%................................................... 1,918,226 1,823,173
F-8
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS
ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
JULY 31, APRIL 30,
1997 1998
----------- -----------
(UNAUDITED)
AT&T Credit--Note with monthly payment of $2,599
including interest of 10.6%........................... $ 101,393 $ 77,829
Navistar Financial--Various notes with combined monthly
payments of $53,762 including interest from 7.3% to
9.0%.................................................. 1,271,686 958,393
Seafirst Bank--Various notes with combined monthly
payments of $523,962 including interest from 7.3% to
8.5%.................................................. 12,075,932 13,975,794
Seafirst Bank--Line of credit up to $19,000,000,
expiring in February 1999 with interest payable
monthly at 8.5%....................................... 3,810,000 4,900,000
JCB Finance--Note with monthly payment of $8,529
including interest of 8.51%........................... -- 243,440
Pacific Atlantic--Note with monthly payment of $2,610
including interest of 10.9%........................... -- 76,108
PACCAR Financial--Note with monthly payment of $3,663
including
interest of 7.8%...................................... -- 150,654
Deutsche Financial--Note with monthly payment of
$28,932 including
interest of 8.13%..................................... -- 1,439,414
Notes payable to related party--due on demand including
interest of 8.5%...................................... -- 220,000
----------- -----------
$30,841,647 $36,548,720
=========== ===========
Substantially all rental equipment collateralize the above notes.
All debt was paid off in June 1998 in connection with the acquisition
discussed in Note 10.
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
YEAR ENDED NINE MONTHS ENDED
JULY 31, APRIL 30,
1997 1997 1998
---------- -------- -----------
(UNAUDITED)
Current:
Federal................................. $229,197 $222,530 $ (660,000)
State................................... 10 10
-------- -------- -----------
229,207 222,540 (660,000)
Deferred:
Federal................................. 34,832 34,612 (493,200)
State................................... 53,014 51,918 (34,800)
-------- -------- -----------
87,846 86,530 (528,000)
-------- -------- -----------
$317,053 $309,070 $(1,188,000)
======== ======== ===========
F-9
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS
ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
Significant components of the Company's deferred tax liability at July 31,
1997 and April 30, 1998 are as follows:
JULY 31, APRIL 30,
1997 1998
---------- -----------
(UNAUDITED)
Net operating loss carryforward................... $ (469,000) $(1,125,000)
Cumulative tax depreciation in excess of book..... 3,390,231 3,518,231
---------- -----------
Deferred tax liability, net....................... $2,921,231 $ 2,393,231
========== ===========
At July 31, 1998, the Company has net operating loss carryforwards of
$1,142,326 for income tax purposes that expire in 2012.
7. RELATED PARTY TRANSACTIONS
During the year ended July 31, 1997 and the nine months ended April 30, 1997
and 1998, the Company paid $628,533, $515,765 and $497,049 for advertising
expenses to a partnership controlled by the Company's president and principal
stockholder.
The accompanying financial statements at July 30, 1997 and April 30, 1998,
reflect amounts receivable of $509,473 and $659,174, respectively, from the
president of the Company. These advances are made within the framework of a
special drawing and loan account which bears interest at 8%.
In addition, the Company is owed amounts from relatives of and related
entities controlled by the president of the Company totaling $103,244 and
$454,406 at July 31, 1997 and April 30, 1998, respectively. These advances are
non-interest bearing.
The Company conducts its operations primarily from various separate
facilities under noncancellable lease agreements. Three of these facilities
are owned either by the Company's president and principal stockholder or
related entities controlled by the president of the Company. Another facility
is leased to a limited partnership in which the general partner is the
Company's president and principal stockholder. These leases expire at various
dates through the year 2001. All of these agreements require the payment by
the Company of property taxes, maintenance and insurance. Total rent expense
paid to related parties and charged to current operations totaled $630,000,
$480,100 and $628,500 for the year ended July 31, 1997 and nine months ended
April 30, 1997 and 1998, respectively.
In connection with the acquisition discussed in Note 10, the lease terms
with related parties have been renegotiated.
The remaining lease agreements are with unrelated third parties. These
leases expire at various dates through the year 2006. Most of these agreements
contain certain renewal options and provide for first right of refusal toward
purchase. These agreements generally require the Company to pay all utilities,
insurance, taxes and maintenance. Total rent expense charged to operations on
unrelated
F-10
POWER RENTAL CO., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 31, 1997
(THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS
ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
third party leases for the year ended July 31, 1997 and nine months ended
April 30, 1997 and 1998 were $786,928, $526,118 and $589,620, respectively.
Some leases include scheduled base rent increases over the term of the
leases. The total amount of the base rent payments is being charged to expense
on a straight-line method over the terms of the leases. The Company recorded a
liability for deferred rent to reflect the excess of rent expense over cash
payments which is included in the accompanying balance sheets.
The future minimum lease commitments under all unrelated third party operating
leases that have noncancellable lease terms in excess of one year are as
follows:
Fiscal 1998.............. $ 868,660
1999.................. 667,360
2000.................. 586,600
2001.................. 449,440
2002.................. 317,940
Thereafter............ 399,030
----------
$3,289,030
==========
At July 31, 1997 and April 30, 1998 the Company was contingently liable as a
guarantor on bank loans in the amount of $1,662,098 and $1,544,070,
respectively, owed to the bank by its president and principal stockholder.
These bank loans are also secured by substantial personal and real property
assets of such stockholder.
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended July 31, 1997 and the nine months ended April 30, 1997
and 1998, total interest paid was $2,019,792, $1,398,861 and $1,887,730,
respectively.
For the year ended July 31, 1997 and the nine months ended April 30, 1997
and 1998, total taxes paid was $899,655, $899,655 and $0, respectively.
For the year ended July 31, 1997 and the nine months ended April 30, 1997
and 1998, the Company purchased $17,555,968, $12,365,796 and $13,971,123,
respectively, of equipment which was financed.
9. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) pension plan which covers
substantially all employees. The Company makes discretionary contributions.
Company contributions to the plan were $300,000, $300,000 and $0 for the year
ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998,
respectively.
10. SUBSEQUENT EVENT
On June 8, 1998, under the terms of the stock purchase agreement, United
purchased all of the issued and outstanding capital stock of the Company.
F-11
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma consolidated balance sheet of the Company
as of March 31, 1998 gives effect to the acquisition of Power Rental Co., Inc.
("Power") and Equipment Supply Co., and affiliates ("Equipment Supply")
completed by the Company subsequent to such date and the financing of each such
acquisition, as if all such transactions had occurred on March 31, 1998.
The accompanying unaudited pro forma consolidated statements of operations of
the Company for the year ended December 31, 1997, gives effect to the
acquisition of Access Rentals, Inc. and affiliates, BNR Equipment Ltd. and
affiliates, Mission Valley Rentals, Inc., Power and Equipment Supply (the
"Acquired Companies") and the financing thereof, as if all such transactions had
occurred at the beginning of the period. The unaudited pro forma consolidated
statements of operations of the Company for the three months ended March 31,
1998, gives effect to the acquisition of Access Rentals, Inc. and affiliates,
Power and Equipment Supply and the financing thereof, as if all such
transactions had occurred at the beginning of the period.
The pro forma consolidated financial statements are based upon certain
assumptions and estimates which are subject to change. These statements 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.
The pro forma consolidated financial statements should be read in conjunction
with the Company's historical Consolidated Financial Statements and related
Notes.
F-12
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998
(UNAUDITED)
EQUIPMENT
UNITED POWER SUPPLY CO., AND PRO FORMA PRO FORMA
RENTALS, INC. RENTAL CO., INC AFFILIATES ADJUSTMENTS CONSOLIDATED
------------- --------------- ---------------- ------------- -----------------
ASSETS
Cash and cash $ 54,785,007 $ 49,538 $ 2,253,311 $ (53,087,856) (a) $ 4,000,000
equivalents
Accounts receivable, net 31,443,000 6,468,737 14,599,776 52,511,513
Inventory 14,933,813 63,500 3,283,658 18,280,971
Rental equipment, net 140,743,703 37,807,396 117,008,554 (665,688) (b) 294,893,965
Property and equipment,
net 11,900,686 8,154,964 5,544,829 (199,793) (c) 25,400,686
Intangible assets, net 186,314,455 3,832,040 148,706,132 (d) 338,852,627
Prepaid expenses and
other assets 10,006,519 1,959,167 6,415,669 18,381,355
------------ ----------- ------------ ------------ ------------
TOTAL ASSETS $450,127,183 $54,503,302 $152,937,837 $ 94,752,795 $752,321,117
============ =========== ============ ============= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 28,149,318 $ 3,565,505 $ 3,476,534 $ 35,191,357
Debt 26,494,068 34,932,278 99,593,562 $(134,525,840) (e) 286,948,576
260,454,508 (f)
Accrued expenses and
other liabilities 10,850,519 6,538,653 11,974,573 29,363,745
------------ ----------- ------------ ------------ ------------
TOTAL LIABILITIES 65,493,905 45,036,436 115,044,669 125,928,668 351,503,678
------------ ----------- ------------ ------------- -----------
Stockholders'
Equity
Common stock 333,137 20,010 1,500 (21,510) (g) 339,361
6,224 (h)
Additional paid-in
Capital 381,629,839 522,550 363,808 (886,358) (g) 397,807,776
16,177,937 (h)
Retained earnings
(deficit) 2,670,302 8,924,306 37,527,860 (46,452,166) (g) 2,670,302
------------ ----------- ------------ ------------- ------------
TOTAL STOCKHOLDERS'
EQUITY 384,633,278 9,466,866 37,893,168 (31,175,873) 400,817,439
------------ ----------- ------------ ------------- ------------
Total liabilities and
stockholders' equity $450,127,183 $54,503,302 $152,937,837 $94,752,795 $752,321,117
============ =========== ============ ============= ============
F-13
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
UNITED ACCESS BNR GROUP MISSION VALLEY POWER
RENTALS, INC. RENTALS, INC. OF COMPANIES RENTALS, INC. RENTAL CO. INC.
-------------- ------------- ------------ -------------- ----------------
REVENUES
Equipment
Rentals $ 7,018,564 $42,316,423 $ 9,402,842 $7,852,751 $35,382,557
Sales of equipment
and merchandise and
other revenue 3,614,834 9,942,738 14,612,355 764,920 5,153,898
------------- ------------ ----------- ----------- -----------
Total revenues 10,633,398 52,259,161 24,015,197 8,617,671 40,536,455
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 3,203,009 12,415,655 4,662,325 3,436,601 12,677,711
Rental equipment
depreciation 1,038,947 8,480,016 1,588,710 1,746,340 9,706,225
Cost of sales and
other operating
expenses 2,580,162 8,861,832 10,360,520 517,661 3,648,399
------------- ----------- ----------- ---------- -----------
Total cost of
revenues 6,822,118 29,757,503 16,611,555 5,700,602 26,032,335
------------- ----------- ---------- ----------- -----------
Gross profit 3,811,280 22,501,658 7,403,642 2,917,069 14,504,120
Selling, general and
administrative
expenses 3,311,669 10,439,727 5,402,206 3,062,607 12,146,632
Non-rental
depreciation and
amortization 262,102 1,354,639 104,486 31,695 1,226,484
------------- ----------- ---------- ----------- -----------
Operating income (loss) 237,509 10,707,292 1,896,950 (177,233) 1,131,004
Interest expense 454,072 3,700,559 501,428 433,972 2,344,269
Other (income)
expense, net (270,701) (809,146) (61,269) (370,604)
------------- ----------- ---------- ---------- -----------
Income (loss) before
provision (benefit) for
income taxes 54,138 7,815,879 1,395,522 (549,936) (842,661)
Provision (benefit) for
income taxes 20,516 2,744,691 458,302 (72,801) 0
------------- ----------- ----------- ---------- -----------
Net income (loss) $ 33,622 $ 5,071,188 $ 937,220 $(477,135) $(842,661)
=========== =========== =========== ========== ===========
Basic earnings per $0.00
share =====
Diluted earnings per $0.00
share =====
EQUIPMENT
SUPPLY CO. AND PRO FORMA PRO FORMA
AFFILIATES ADJUSTMENTS CONSOLIDATED
--------------- ----------- ------------
REVENUES
Equipment
Rentals
Sales of equipment
and merchandise and $78,141,502 $180,114,639
other revenue 16,416,661 50,505,406
----------- ------------
TOTAL REVENUES 94,558,163 230,620,045
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 23,509,529 59,904,830
Rental equipment
depreciation
Cost of sales and 20,397,030 $(7,903,828)(a) 35,053,440
other operating
expenses 11,362,048 37,330,622
----------- ------------ ------------
TOTAL COST OF
REVENUES 55,268,607 (7,903,828) 132,288,892
----------- ------------ ------------
Gross profit 39,289,556 7,903,828 98,331,153
Selling, general and
administrative
expenses 17,874,879 (6,591,388)(b) 46,306,551
Non-rental 660,219 (c)
depreciation and
amortization 878,342 5,388,647 (d) 9,246,395
----------- ------------ ------------
Operating income 20,536,335 8,446,350 42,778,207
Interest expense 11,185,934 (17,614,634)(e) 25,283,913
Other (income) 24,278,313 (f)
expense, net (2,858,438) (4,370,158)
----------- ------------ ------------
Income before
provision for
income taxes 12,208,839 1,782,671 21,864,452
Provision for income
taxes 1,242,142 4,571,575 (g) 8,964,425
----------- ------------ ------------
NET INCOME $10,966,697 $ (2,788,904) $ 12,900,027
=========== ============ ============
Basic earnings per $0.52
share =====
Diluted earnings per $0.49
share =====
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-14
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
EQUIPMENT
UNITED ACCESS POWER SUPPLY CO. PRO FORMA PRO FORMA
RENTALS, INC. RENTALS, INC. RENTAL CO., INC. AND AFFILIATES ADJUSTMENTS CONSOLIDATED
-------------- -------------- --------------- ----------------- ----------- ------------
REVENUES
Equipment
Rentals $26,779,850 $2,312,580 $ 6,294,665 $17,169,129 $52,556,224
Sales of equipment
and merchandise and
other revenue 12,410,316 841,485 1,555,176 3,777,435 18,584,412
---------- ---------- --------- ---------- ---------- ----------
TOTAL REVENUES 39,190,166 3,154,065 7,849,841 20,946,564 71,140,636
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 11,221,504 1,131,353 3,415,560 6,170,748 21,939,165
Rental equipment
depreciation 4,583,832 401,688 2,987,280 5,356,340 $(1,924,998)(a) 11,404,142
Cost of sales and
other operating
expenses 9,231,322 741,458 637,889 2,780,698 13,391,367
---------- ---------- --------- ---------- ---------- ----------
TOTAL COST OF
REVENUES 25,036,658 2,274,499 7,040,729 14,307,786 (1,924,998) 46,734,674
----------- ----------- --------- ---------- ----------- ----------
GROSS PROFIT 14,153,508 879,566 809,112 6,638,778 1,924,998 24,405,962
Selling, general and
administrtive
expenses
Non-rental 7,806,931 835,763 3,200,016 5,589,848 (1,247,565)(b) 16,184,993
depreciation and
amortization
1,086,424 22,892 303,699 137,119 1,064,959 (d) 2,615,093
---------- --------- ---------- ---------- ----------- -----------
Operating income (loss) 5,260,153 20,911 (2,694,603) 911,811 2,107,604 5,605,876
Interest expense 1,172,718 147,387 631,587 2,360,419 (3,139,393)(e) 6,610,960
Other (income) 5,438,242 (f)
expense, net (380,703) (52,224) (94,971) (21,527) (549,425)
--------- --------- ---------- ----------- ----------- -------------
Income (loss) before
provision (benefit) for
income taxes 4,468,138 (74,252) (3,231,219) (1,427,081) (191,245) (455,659)
Provision (benefit) for
income taxes 1,829,787 (2,637,684) 621,077 (g) (186,820)
----------- ----------- ----------- ----------- ----------- -------------
NET INCOME (LOSS) $ 2,638,351 $ (74,252) $(3,231,219) $ 1,210,603 $ (812,322) $ (268,839)
=========== =========== =========== =========== ========== ==========
Basic earnings per
share $0.10 $(0.01)
Diluted earnings per ===== ======
share $0.09 $(0.01)
===== ======
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-15
UNITED RENTALS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. BACKGROUND
United Rentals, Inc. was formed in September 1997 for the purpose of
creating a large geographically diversified equipment rental company in the
United States and Canada. The Company rents a broad array of equipment to
a diverse customer base that includes construction industry participants,
industrial companies, homeowners and other individuals. The Company also
engages in related activities such as selling used rental equipment, acting
as a distributor for certain new equipment, and selling related merchandise
and parts.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial data presented in the pro forma consolidated
balance sheet represent the financial position of the Company, Power and
Equipment Supply as of March 31, 1998.
The historical financial data presented for the year ended December 31,
1997 in the pro forma consolidated statements of operations represent the
results of operations of (i) the Company for the period from August 14,
1997 (inception) to December 31, 1997 and (ii) each of the Acquired
Companies for the year ended December 31, 1997.
The historical financial data presented in the pro forma consolidated
statements of operations for the three months ended March 31, 1998
represent the results of operations of (i) the Company, Power and Equipment
Supply for the three months ended March 31, 1998 and (ii) Access Rentals,
Inc. and affiliate for the period from January 1, 1998 to January 21, 1998
(date of acquisition). BNR Group of Companies and Mission were acquired
effective January 1, 1998. Such data is derived from the respective
financial statements of the Company and each of the Acquired Companies.
The historical financial statements of the BNR Group of Companies are
stated in Canadian dollars and prepared in accordance with Canadian
generally accepted accounting principles. The historical financial data
for the BNR Group of Companies presented in these pro forma consolidated
financial statements reflect the translation of these statements into US
dollars and have been adjusted to conform to US generally accepted
accounting principles.
3. ACQUISITIONS
The aggregate consideration paid by the Company for Power and Equipment
Supply (the "Acquisition Consideration") was $195.2 million and consisted
of approximately $179.0 million in cash and 496,063 shares of Common Stock.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of Power and Equipment Supply
approximates fair value, with the exception of rental equipment and other
property and equipment, which required adjustments to reflect fair market
value. The following table presents the allocation of purchase prices of
Power and Equipment Supply:
F-16
EQUIPMENT
POWER SUPPLY CO., AND
RENTAL CO., INC. AFFILIATES TOTAL
--------------- ---------- -----
Purchase price $61,509,001 $133,691,684 $195,200,685
Net assets acquired 9,466,866 37,893,168 47,360,034
Fair value adjustments:
Rental equipment 2,164,456 (2,830,144) (665,688)
Property and
Equipment (154,964) (44,829) (199,793)
--------------- --------------- ---------------
Intangibles recognized $50,032,643 $ 98,673,489 $148,706,132
=============== =============== ===============
4. PRO FORMA ADJUSTMENTS
Balance sheet adjustments:
a. Records the portion of the Acquisition Consideration and debt repayment paid
from available cash on hand.
b. Adjusts the carrying value of rental equipment to fair market value.
c. Adjusts the carrying value of property and equipment to fair market value.
d. Records the excess of the Acquisition Consideration over the estimated fair
value of net assets acquired.
e. Records the repayment of certain indebtedness of Power and Equipment Supply.
f. Records the portion of the Acquisition Consideration and debt repayment
funded by borrowing under the Company's Credit Facility.
g. Records the elimination of the stockholders' equity of Power and Equipment
Supply.
h. Records the portion of the Acquisition Consideration paid in the form of
Common Stock.
Statement of operations adjustments:
a. Adjusts the depreciation of rental equipment and other property and
equipment based upon adjusted carrying values utilizing the following lives
(subject to a salvage value ranging from 0 to 10%):
Rental equipment...............................2-10 years
Other property and equipment ..................2-15 years
b. Adjusts the compensation to former owners and executives of the Acquired
Companies to current levels of compensation.
F-17
c. Adjusts the lease expense for real estate utilized by the Acquired Companies
to current lease agreements.
d. Records the amortization of the excess of cost over net assets acquired
attributable to the acquisitions of the Acquired Companies using an
estimated life of 40 years.
e. Eliminates interest expense related to the outstanding indebtedness of the
Acquired Companies which was repaid by the Company.
f. Records interest expense relating to the portion of the Acquisition
Consideration funded through borrowing under the Company's Credit Facility
using a rate per annum of 7%.
g. Records a provision for income taxes at an estimated rate of 41%.
5. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net income by the weighted
average outstanding shares during the period. The weighted average
outstanding shares during the periods are calculated as follows:
December 31, 1997 March 31, 1998
----------------- --------------
Basic:
Shares outstanding 23,899,119 33,313,708
Shares issued for acquisitions 866,384 496,063
---------- ----------
24,765,503 33,809,771
========== ==========
Dilutive:
Shares outstanding 23,899,119 33,313,708
Shares issued for acquisitions 866,384 496,063
Common stock equivalents (based on the initial public 1,792,942 4,165,446
offering price of $13.50 per share for 1997) ---------- ----------
26,558,445 37,975,217
========== ==========
F-18