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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) September 1, 1998
-----------------
UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
----------------------------------------
Delaware 1-14387 06-1522496
Delaware 1-13663 06-1493538
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(State or Other Jurisdiction (Commission file Numbers) (IRS Employer
of Incorporation) Identification Nos.)
Four Greenwich Office Park, Greenwich, Connecticut 06830
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(Address of Principal Executive Offices) (Zip Code)
Registrants' telephone number, including area code (203) 622-3131
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Item 2. Acquisition or Disposition of Assets
------------------------------------
On September 1, 1998, United Rentals, Inc. (the "Company") acquired the
equipment rental businesses of McClinch Inc. and Subsidiaries and McClinch
Equipment Services, Inc. (collectively, "McClinch"). This acquisition was
effected by United Rentals (North America), Inc., a subsidiary of the
Company, acquiring all of the outstanding stock of each of the aforementioned
companies. McClinch is an equipment rental company and operates eight rental
locations in six states: Connecticut (1), Delaware (1), Maryland (1), New
Jersey (2), New York (1) and Virginia (2). McClinch primarily leases the land
and buildings comprising its rental locations.
The aggregate consideration paid by the Company in respect of the
acquisition described above was $96.1 million. The consideration for the
acquisition was determined through arms-length negotiations between the
Company and the former owners of the business acquired. The Company funded
the aggregate consideration paid from borrowings under the Company's
revolving credit facility.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired
The following financial statements are included herein:
I. Consolidated Financial Statements of McClinch, Inc. and Subsidiaries
Report of Independent Accountants
Consolidated Balance Sheets - January 31, 1998 and April 30, 1998
(unaudited)
Consolidated Statements of Income and Retained Earnings for the Year
Ended January 31, 1998 and for the Three Months Ended April 30, 1997 and
1998(unaudited)
Consolidated Statements of Cash Flows for the Year Ended January 31, 1998
and for the Three Months Ended April 30, 1997 and 1998 (unaudited)
Notes to Consolidated Financial Statements
II. Financial Statements of McClinch Equipment Services, Inc.
Report of Independent Accountants
Balance Sheets - December 31, 1997 and June 30, 1998 (unaudited)
Statements of Income and Retained Earnings for the year ended
December 31, 1997 and for the Six Months Ended June 30, 1997 and 1998
(unaudited)
Statements of Income and Retained Earnings for the year ended December
31, 1997 and for the Six Months Ended June 30, 1997 and 1998 (unaudited)
Statements of Cash Flows for the Year Ended December 31, 1997 and for the
Six Months Ended June 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 - June 30, 1998 (unaudited)
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1997, and the Six Months Ended June 30, 1998.
Notes to Pro Forma Consolidated Financial Statements.
(c) Exhibits
10 Share Pruchase Agreement dated July 30, 1998 among United Rentals
(North America), Inc. and the parties listed therein for all of the
outstanding shares of McClinch, Inc. (Incorpored by reference to
Exhibit 10(dd) of the Registration Statement on Form S-4 filed by
United Rentals, Inc., Registration No. 333-63171)
10.1 Share Purchase Agreement dated July 30, 1998 among United Rentals
(North America), Inc. and the parties listed therein for all of the
outstanding shares of McClinch Equipment Services, Inc. (Incorporated
by reference to Exhibit 10(ll) of the Registration Statement on Form S-
4 filed by United Rentals, Inc., Registration No. 333-63171).
3
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 15th day of September, 1998.
UNITED RENTALS, INC.
By: Michael J. Nolan
-------------------------------
Name: Michael J. Nolan
Title: Chief Financial Officer
4
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 15th day of September, 1998.
UNITED RENTALS (NORTH AMERICA), INC.
By: Michael J. Nolan
-------------------------------
Name: Michael J. Nolan
Title: Chief Financial Officer
5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of McClinch, Inc.:
We have audited the accompanying consolidated balance sheet of McClinch Inc.
and Subsidiaries as of January 31, 1998, and the related consolidated
statements of income and retained earnings 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 consolidated financial position of McClinch,
Inc. and Subsidiaries as of January 31, 1998, and the consolidated results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 25, 1998
6
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SIX MONTHS
YEAR ENDED ENDED
JANUARY 31, JULY 31,
1998 1998
----------- -----------
(UNAUDITED)
ASSETS:
Cash and cash equivalents............................ $ 754,000 $ 697,000
Accounts receivable, less allowance for doubtful
accounts of $106,000 and $128,000................... 4,168,000 4,697,000
Due from related parties (Note 6).................... 293,000 755,000
Inventories.......................................... 1,181,000 1,276,000
Net investment in sales-type leases (Note 3)......... 32,000 12,000
Property and rental equipment, net (Note 4).......... 17,249,000 21,163,000
Other assets......................................... 217,000 230,000
----------- -----------
Total assets....................................... $23,894,000 $28,830,000
=========== ===========
LIABILITIES:
Notes payable (Note 5)............................... $10,388,000 $14,083,000
Accounts payable and accrued expenses................ 1,759,000 1,334,000
Income taxes payable................................. 1,000 79,000
Deferred income taxes................................ 2,476,000 2,836,000
----------- -----------
Total liabilities.................................. 14,624,000 18,332,000
----------- -----------
Commitments (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, issued and
outstanding, 1,000 shares........................... 26,000 26,000
Retained earnings.................................... 9,862,000 11,090,000
Treasury stock, at cost; 103 shares (Note 6)......... (618,000) (618,000)
----------- -----------
Total stockholders' equity......................... 9,270,000 10,498,000
----------- -----------
Total liabilities and stockholders' equity......... $23,894,000 $28,830,000
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
7
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED
YEAR ENDED JULY 31,
JANUARY 31, -----------------------
1998 1998 1997
----------- ----------- ----------
(UNAUDITED)
Revenues:
Equipment rentals and service (Note
6).................................... $18,474,000 $10,571,000 $8,306,000
Sales.................................. 4,659,000 3,188,000 2,640,000
----------- ----------- ----------
23,133,000 13,759,000 10,946,000
Cost of equipment rentals and service.... 11,672,000 7,154,000 5,358,000
Cost of sales............................ 2,843,000 1,944,000 1,694,000
----------- ----------- ----------
Gross profit......................... 8,618,000 4,661,000 3,894,000
Selling expenses......................... 1,484,000 788,000 629,000
General and administrative expenses...... 3,136,000 1,324,000 1,111,000
----------- ----------- ----------
3,998,000 2,549,000 2,154,000
Other income (expenses):
Interest income........................ 134,000 21,000 61,000
Interest expense....................... (1,028,000) (483,000) (495,000)
Rental of property, net (Note 9)....... 71,000 15,000 38,000
Other income........................... 44,000 1,000 1,000
----------- ----------- ----------
Income before provision for income
taxes............................... 3,219,000 2,103,000 1,759,000
Provision for income taxes (Note 7)...... 1,082,000 875,000 759,000
----------- ----------- ----------
Net income........................... 2,137,000 1,228,000 1,000,000
Retained earnings, beginning of period... 7,793,000 9,862,000 7,793,000
Dividends paid........................... (68,000) -- --
----------- ----------- ----------
Retained earnings, end of period..... $ 9,862,000 $11,090,000 $8,793,000
=========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
8
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEAR ENDED JULY 31,
JANUARY 31, ------------------------
1998 1998 1997
----------- ----------- -----------
(UNAUDITED)
Cash flows from operating activities:
Net income $ 2,137,000 $ 1,228,000 $ 1,000,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 3,387,000 1,977,000 1,623,000
Gain on sale of property and rental
equipment........................... (1,313,000) (925,000) (663,000)
Deferred income taxes................ 328,000 360,000 308,000
----------- ----------- -----------
4,539,000 2,640,000 2,268,000
Changes in assets and liabilities:
Accounts receivable................ (643,000) (529,000) (144,000)
Due to related parties for operat-
ing expenses...................... 519,000 (310,000) (174,000)
Current income taxes receivable.... 58,000 -- 58,000
Inventories........................ (201,000) (95,000) (62,000)
Other assets....................... (165,000) (13,000) (22,000)
Accounts payable and accrued ex-
penses............................ 201,000 (425,000) (123,000)
Income taxes payable............... 1,000 78,000 40,000
----------- ----------- -----------
Net cash provided by operating
activities...................... 4,309,000 1,346,000 1,841,000
----------- ----------- -----------
Cash flows from investing activities:
Advances to related parties.......... (318,000) (152,000) (147,000)
Acquisition of property and rental
equipment........................... (7,227,000) (6,581,000) (5,737,000)
Proceeds from sale of property and
rental equipment.................... 2,292,000 1,615,000 1,370,000
Net investment in sales-type leases.. 88,000 20,000 76,000
----------- ----------- -----------
Net cash used in investing activ-
ities........................... (5,165,000) (5,098,000) (4,438,000)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of notes payable.......... (8,040,000) (3,764,000) (4,383,000)
Borrowings of notes payable.......... 7,145,000 7,459,000 6,600,000
Repayment of note payable to related
party............................... (41,000) -- (41,000)
Dividends paid....................... (68,000) -- --
----------- ----------- -----------
Net cash (used in) provided by
financing activities............ (1,004,000) 3,695,000 2,176,000
----------- ----------- -----------
Net decrease in cash and cash
equivalents..................... (1,860,000) (57,000) (421,000)
Cash and cash equivalents, beginning of
period................................ 2,614,000 754,000 2,614,000
----------- ----------- -----------
Cash and cash equivalents, end of
period.......................... $ 754,000 $ 697,000 $ 2,193,000
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest........................... $ 1,029,000 $ 462,000 $ 478,000
Income taxes, net of refunds....... 695,000 422,000 353,000
The accompanying notes are an integral part of the consolidated financial
statements.
9
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
1. BUSINESS AND ORGANIZATION
The accompanying consolidated financial statements include the accounts of
McClinch, Inc. and its wholly-owned subsidiaries McClinch Leasing Corporation,
McClinch Equipment Corporation, McClinch Crane Services, Inc. and McClinch
Aviation Corporation, (the "Company").
The Company is an exclusive dealer for JLG Industries, Inc. and Genie
Industries in the State of Connecticut, metropolitan New York, Long Island,
Westchester County and other counties in New York State. The Company is also
an exclusive dealer for Lull Corporation in various counties in the States of
Connecticut and New York. In addition, the Company has distribution agreements
with other manufacturers in Connecticut and New York. The Company's revenues
are derived principally from the rental of aerialift and material handling
equipment and the sale of new and used equipment to a diversified customer
base including contractors and other users.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The consolidated balance sheet is presented on an unclassified basis since
it more properly reflects the Company's operations as a rental equipment
company.
Basis of Consolidation:
All intercompany transactions and balances have been eliminated.
Interim Financial Statements:
The accompanying balance sheet at July 31, 1998, and the statements of
income and retained earnings and cash flows for the six month periods ended
July 31, 1998 and 1997 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 consists
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
Revenue Recognition:
Operating Leases--Rental revenue is recognized over the lease term
(generally less than one year) as earned.
Sales-Type Leases--Sales are recorded at amounts equal to the present value
of the minimum lease payments at the inception of the lease. The unearned
interest income represents the difference between the minimum lease payments
and the present value of such payments. Such interest income is recognized
over the life of the lease using the interest method.
Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments, which consist principally of U.S. Treasury Notes, with
original maturities of less than 90 days. Temporary cash investments of
$144,000 as of January 31, 1998, are recorded at cost plus accrued interest
which approximates market value. The Company maintains all of its cash
balances in one institution. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000.
10
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
Inventories:
Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
Property and Rental Equipment:
Property and rental equipment, consisting principally of the Company's
rental fleet of aerialift and material handling equipment, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: buildings and building improvements, 30 years; rental equipment,
furniture and fixtures and computer equipment, 7 years; and vehicles, 5 years.
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
Income Taxes:
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
statement carrying amounts and the tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences
are expected to reverse.
Estimates:
The preparation of financial statements in confirmity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain amounts have been reclassified between balance sheet accounts in the
current year to more properly reflect the nature of the item.
3. SALES-TYPE LEASES
The net investment in sales-type leases consists of the following:
JANUARY 31, JULY 31,
1998 1998
----------- --------
Minimum lease payments receivable...................... $34,000 $13,000
Lease, Unearned interest income...................... (2,000) (1,000)
------- -------
Net investment in sales-type leases.................... $32,000 $12,000
======= =======
Minimum lease payments as of January 31, 1998 are receivable as follows:
FISCAL YEAR
-----------
1999.......................................................... $29,000
2000.......................................................... 5,000
11
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
4. PROPERTY AND RENTAL EQUIPMENT
Property and rental equipment consists of the following:
JANUARY 31, JULY 31,
1998 1998
------------ ------------
Rental equipment................................. $ 30,965,000 $ 34,412,000
Land............................................. 530,000 530,000
Buildings and improvements....................... 377,000 405,000
Vehicles......................................... 2,381,000 2,597,000
Furniture, fixtures and computer equipment....... 528,000 630,000
------------ ------------
34,781,000 38,574,000
Less, Accumulated depreciation................. (17,532,000) (17,411,000)
------------ ------------
Total........................................ $ 17,249,000 $ 21,163,000
============ ============
5. NOTES PAYABLE
Notes payable consists of the following:
JANUARY 31, JULY 31,
1998 1998
----------- -----------
Note payable to a bank syndicate bearing interest at
LIBOR plus 1 3/4%.................................. $ 9,695,000 $13,449,000
Note payable to Citicorp Dealer Finance bearing
interest at 8.5%, payable in monthly installments
of $7,839 through September 2004, including
interest........................................... 477,000 450,000
First mortgage to Edith Godwin on real property
located in Bridgeport, Connecticut, bearing
interest at 9.0%, payable in monthly installments
of $3,066 through January 2002, including
interest........................................... 123,000 110,000
Notes payable to Orix Credit Alliance bearing
interest at 8.5%, payable in monthly installments
of $3,657 through May 2000, including interest..... 93,000 74,000
----------- -----------
$10,388,000 $14,083,000
=========== ===========
The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $22,000,000, or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The line of credit includes cross-guarantees of amounts outstanding
with affiliates which amounted to approximately $17,935,000 and $23,691,000 at
January 31, 1998 and July 31, 1998, respectively. The unused portion of the
line of credit was $12,305,000 and $8,551,000 at January 31, 1998 and July 31,
1998, respectively. The Company pays a commitment fee of 1/4% per annum on the
unused portion of the line of credit.
The outstanding balance bears interest at a fluctuating 30-day LIBOR rate
plus 1 3/4% (7.38% and 7.41% at January 31, 1998 and July 31, 1998,
respectively). The Company has the option to borrow additional funds and/or
convert all or a portion of the outstanding balance to a fluctuating interest
rate equal to the lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1
3/4%, for 90, 180 or 360 days.
12
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in at least 48 monthly installments.
Although no fixed payments are required under the revolving credit
agreement, the Company expects aggregate maturities under this agreement and
other notes payable at January 31, 1998 to approximate the following:
FISCAL YEAR
---------------------------------------------------------------
1999........................................................... $2,544,000
2000........................................................... 2,554,000
2001........................................................... 2,536,000
2002........................................................... 2,530,000
2003........................................................... 78,000
Thereafter..................................................... 146,000
The lenders require, among other terms, that the Company and its affiliate
(see Note 6) on a combined basis meet certain financial ratios and obtain
approval prior to the issuing of advances or loans to stockholders or officers
which exceed certain amounts, as defined.
Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement.
6. RELATED PARTY TRANSACTIONS
Due from related parties consists of the following:
JANUARY 31, JULY 31,
1998 1998
----------- --------
Due (to) from affiliated companies..................... $(72,000) $227,000
Loans receivable from officer/stockholder.............. 365,000 528,000
-------- --------
$293,000 $755,000
======== ========
The Company rents equipment from affiliates with common ownership under
informal equipment sharing agreements for ultimate rental to customers in New
York and Connecticut. In addition, the Company rents equipment to affiliates
for ultimate rental to the affiliates' customers. The net expenses incurred
(included in cost of equipment rentals and service) by the Company under these
arrangements were $744,000 for the year ended January 31, 1998 and $598,000
and $104,000 for the six months ended July 31, 1998 and 1997, respectively. In
addition, the Company provides services to affiliates in connection with their
operations. The primary expenses incurred and paid by the Company, which are
allocated or billed to the affiliates include salaries ($2,059,000, for the
year ended January 31, 1998 and $250,000 and $416,000 for the six months ended
July 31, 1998 and 1997, respectively, deducted from general and administrative
expenses and $154,000 for the year ended January 31, 1998 and $-0- and
$104,000 for the six months ended July 31, 1998 and 1997, respectively,
deducted from selling expenses), spare parts inventory, trucking services and
insurance expenses ($699,000 for the year ended January 31, 1998 and $453,000
and $408,000 for the six months ended July 31, 1998 and 1997, respectively,
included in cost of equipment rentals and service).
During fiscal year 1998, the Company purchased $243,000 ($63,000 and
$146,000 during the six months ended July 31, 1998 and 1997, respectively) of
used machinery and equipment from an affiliate for ultimate
13
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1997
IS UNAUDITED)
sale to unrelated third parties. Additionally, the Company sold used machinery
and equipment with a selling price of $980,000 ($611,000 and $776,000 during
the six months ended July 31, 1998 and 1997, respectively) to an affiliate for
ultimate sale to unrelated third parties.
These transactions are settled in the normal course of business.
Loans to officer/stockholder are due on demand and bear interest at the
applicable federal rate (5.66%) as published by the Internal Revenue Service.
Pursuant to a stockholders agreement between the Company and certain of its
stockholders, a stockholder desiring to sell its shares of common stock must
first offer them to the Company. The repurchase price is based on a formula of
one and one-half times the Company's consolidated book value at the end of the
fiscal year preceding the date on which the sale is made.
Refer to Note 9 for commitments with related parties.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
SIX MONTHS ENDED
YEAR ENDED JULY 31,
JANUARY 31, -----------------
1998 1998 1997
----------- -------- --------
Current:
State and local.............................. $ 232,000 $156,000 $135,000
Federal...................................... 522,000 359,000 316,000
---------- -------- --------
754,000 515,000 451,000
Deferred:
State and local.............................. 57,000 108,000 92,000
Federal...................................... 271,000 252,000 216,000
---------- -------- --------
328,000 360,000 308,000
---------- -------- --------
$1,082,000 $875,000 $759,000
========== ======== ========
The components of deferred tax assets and liabilities are as follows:
JANUARY 31, JULY 31,
1998 1998
----------- -----------
Deferred tax assets:
Accounts receivable.............................. $ 37,000 $ 46,000
Deferred tax liabilities:
Property and rental equipment and other.......... (2,513,000) (2,882,000)
----------- -----------
$ 2,476,000 $ 2,836,000
=========== ===========
No valuation allowance has been recognized for deferred tax assets.
14
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
The income tax provision differs from the provision computed at the
statutory rate as follows:
SIX MONTHS
ENDED
YEAR ENDED JULY 31
JANUARY 31, -------------
1998 1998 1997
----------- ----- -----
Federal statutory tax rate........................ 34 34 34
Tax effect of state taxes......................... 9 9 9
Reduction for changes in enacted state tax rates.. (3) -- --
Cash surrender value of the insurance............. (2) -- --
Certain adjustments for prior estimates........... (4) (1) --
--- ----- -----
Provision as reported........................... 34% 42% 43%
=== ===== =====
8. PROFIT-SHARING PLAN
The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan were
$150,000 for the year ended January 31, 1998. There were no discretionary
contributions for the six months ended July 31, 1998 and 1997, respectively.
The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute 25% of employee's contributions not to exceed 6% of their annual
compensation up to $160,000. Participants vest in the Company's contribution
at the rate of 20% annually after becoming eligible. Matching contributions
under the plan by the Company were $27,000 for the year ended January 31, 1998
and $21,000 and $11,000 for the six months ended July 31, 1998 and 1997,
respectively.
9. COMMITMENTS
The Company has a formal employment agreement with an officer of the Company
which extends through February 1999. The agreement provides for a minimum
annual salary and a bonus based upon the Company's performance.
The Company owns land and buildings which it rents to a third party in the
form of an operating lease. Future minimum rental income from this
noncancelable operating lease as of January 31, 1998 amounted to approximately
$58,000 which is expected to be received as follows: 1999, $30,000; 2000,
$28,000.
The Company leases a building from an affiliated company under the terms of
a lease expiring on July 31, 1999. The Company guarantees the debt of the
affiliated company which was $1,681,000 and $1,635,000 at January 31, 1998 and
July 31, 1998, respectively. Additionally, the Company has commitments under
an operating lease, expiring in 2002, with Fleet Capital Corporation for an
aircraft. The lease provides the Company with certain end of term rights and
early purchase options. The following is a schedule of all future minimum
lease payments:
15
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
FISCAL YEAR
-----------
1999............................................................ $441,000
2000............................................................ 279,000
2001............................................................ 116,000
2002............................................................ 89,000
--------
$925,000
========
Total rent expense was $329,000, $165,000 and $165,000 for the year ended
January 31, 1998 and the six months ended July 31, 1998 and 1997,
respectively.
10. SUBSEQUENT EVENT (UNAUDITED)
On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
McClinch Equipment Services, Inc:
We have audited the accompanying balance sheet of McClinch Equipment
Services, Inc. as of December 31, 1997, and the related statements of income
and retained earnings 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 McClinch Equipment
Services, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 6, 1998.
17
MCCLINCH EQUIPMENT SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
ASSETS:
Cash and cash equivalents............................ $ 314,000 $ 439,000
Accounts receivable, less allowance for doubtful
accounts of $75,000................................. 3,611,000 2,839,000
State income taxes receivable........................ 1,000 6,000
Inventories.......................................... 354,000 459,000
Net investment in sales-type leases (Note 2)......... 49,000 130,000
Fixed assets, net (Note 3)........................... 18,631,000 22,859,000
Other assets......................................... 29,000 25,000
Due from related parties............................. 151,000 --
----------- -----------
Total assets....................................... $23,140,000 $26,757,000
=========== ===========
LIABILITIES:
Notes payable (Note 4)............................... $16,200,000 $18,021,000
Accounts payable and accrued expenses................ 1,237,000 1,193,000
Due to related parties............................... -- 822,000
Deferred state income taxes (Note 6)................. 500,000 556,000
----------- -----------
Total liabilities.................................. 17,937,000 20,592,000
----------- -----------
Commitments (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000 shares;
issued and outstanding, 100 shares................... -- --
Additional paid-in capital............................ 10,000 10,000
Retained earnings..................................... 5,193,000 6,155,000
----------- -----------
Total stockholders' equity.......................... 5,203,000 6,165,000
----------- -----------
Total liabilities and stockholders' equity.......... $23,140,000 $26,757,000
=========== ===========
The accompanying notes are an integral part of the financial statements.
18
MCCLINCH EQUIPMENT SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------
1997 1998 1997
------------ ---------- ----------
(UNAUDITED)
Revenues:
Equipment rentals and service........... $12,141,000 $6,626,000 $5,036,000
Sales................................... 4,759,000 2,415,000 2,426,000
----------- ---------- ----------
16,900,000 9,041,000 7,462,000
----------- ---------- ----------
Cost of equipment rentals and service
(Note 5)................................. 6,520,000 3,911,000 2,994,000
Cost of sales............................. 3,642,000 1,852,000 1,859,000
----------- ---------- ----------
Gross profit.......................... 6,738,000 3,278,000 2,609,000
Selling expenses (Note 5)................. 1,540,000 690,000 663,000
General and administrative expenses (Note
5)....................................... 2,445,000 966,000 627,000
----------- ---------- ----------
2,753,000 1,622,000 1,319,000
Other income (expense):
Other income............................ 410,000 39,000 207,000
Interest income......................... 56,000 12,000 23,000
Interest expense........................ (1,167,000) (651,000) (509,000)
----------- ---------- ----------
Income before provision for state in-
come taxes........................... 2,052,000 1,022,000 1,040,000
Provision for state income taxes:
Current................................. 7,000 4,000 2,000
Deferred................................ 100,000 56,000 68,000
----------- ---------- ----------
Net income............................ 1,945,000 962,000 970,000
Retained earnings, beginning of period.... 3,248,000 5,193,000 3,248,000
----------- ---------- ----------
Retained earnings, end of period...... $ 5,193,000 $6,155,000 $4,218,000
=========== ========== ==========
The accompanying notes are an integral part of the financial statements.
19
MCCLINCH EQUIPMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------
1997 1998 1997
------------ ----------- -----------
(UNAUDITED)
Cash flows from operating activities:
Net income............................ $ 1,945,000 $ 962,000 $ 970,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................ 3,215,000 1,987,000 1,476,000
Gain on sale of equipment........... (180,000) (115,000) (76,000)
Deferred state income taxes......... 100,000 56,000 68,000
----------- ----------- -----------
5,080,000 2,890,000 2,438,000
Changes in assets and liabilities:
Accounts receivable................. (1,460,000) 772,000 30,000
State income taxes receivable....... 1,000 (5,000) (4,000)
Inventories......................... (2,000) (105,000) 60,000
Other assets........................ (9,000) 4,000 --
Accounts payable and accrued
expenses........................... 449,000 (44,000) 91,000
Due to related parties.............. (243,000) 973,000 124,000
----------- ----------- -----------
Net cash provided by operating
activities....................... 3,816,000 4,485,000 2,739,000
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and rental
equipment............................ (8,814,000) (6,425,000) (5,550,000)
Net investment in sales-type leases... 26,000 (81,000) 33,000
Proceeds from the sale of equipment... 495,000 325,000 200,000
----------- ----------- -----------
Net cash used in investing
activities....................... (8,293,000) (6,181,000) (5,317,000)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under line of credit....... 8,750,000 5,800,000 5,500,000
Repayments under line of credit....... (4,050,000) (3,979,000) (2,000,000)
----------- ----------- -----------
Net cash provided by financing
activities....................... 4,700,000 1,821,000 3,500,000
----------- ----------- -----------
Net increase in cash and cash
equivalents...................... 223,000 125,000 922,000
Cash and cash equivalents, beginning of
period................................. 91,000 314,000 91,000
----------- ----------- -----------
Cash and cash equivalents, end of
period........................... $ 314,000 $ 439,000 $ 1,013,000
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................. $ 1,131,000 $ 648,000 $ 491,000
State income taxes................... 6,000 9,000 6,000
The accompanying notes are an integral part of the financial statements.
20
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Business:
McClinch Equipment Services, Inc. (the "Company") is an exclusive dealer for
JLG Industries in New Jersey, Delaware, Maryland, Washington D.C., and
Northern Virginia. The Company also has distribution agreements with other
manufacturers in New Jersey, Delaware, Maryland, Pennsylvania, Washington,
D.C. and Virginia. Revenues are derived principally from the rental of
aerialift equipment and material handling equipment and the sale of new and
used aerialift equipment to a diversified customer base including contractors
and other users.
Basis of Presentation:
The balance sheet is presented on an unclassified basis since it more
properly reflects the Company's operations as an equipment rental company.
Interim Financial Statements:
The accompanying balance sheet at June 30, 1998, and the statements of
income and retained earnings and cash flows for the six month periods June 30,
1998 and 1997 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 consists solely of
normal recurring adjustments. The results of operations for such interim
periods are not necessarily indicative of results for the full year.
Revenue Recognition:
a. Operating Leases. Rental revenue is recognized over the lease term
(generally less than one year) as earned.
b. Sales-Type Leases: Sales are recorded at amounts equal to the present
value of the minimum lease payments at the inception of the lease. The
unearned interest income represents the difference between the minimum lease
payments and the present value of such payments. Such interest income is
recognized over the life of the lease using the interest method.
Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments with original maturities of less than 90 days. These balances
are insured by the Federal Deposit Insurance Corporation up to $100,000.
Inventories:
Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
Fixed Assets:
Fixed assets, consisting principally of the Company's fleet of aerialift
equipment, primarily held for rental under operating leases, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: rental equipment, shop equipment, furniture and fixtures and
computer equipment, 7 years; vehicles, 5 years; and leasehold improvements,
over the remaining term of the lease.
21
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
Income Taxes:
The Company has elected to be taxed as a Small Business Corporation under
the Internal Revenue Code. Under this regulation the Company's income is
reported for federal income tax purposes by the stockholders on their
individual tax returns. Accordingly, the financial statements reflect no
provision or liability for federal income taxes.
The small business corporation election can be made in some of the states in
which the Company does business and accordingly, the financial statements only
reflect state income tax provisions for the states in which the election can
not be made.
The Company recognizes deferred tax assets and liabilities for the expected
future state tax consequences of events that have been recognized in the
Company's financial statements or state tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. A valuation allowance is
established when it is more likely than not that deferred tax assets will not
be realized.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain amounts have been reclassified between balance sheet accounts in the
current year to more properly reflect the nature of the item.
2. SALES-TYPE LEASES
The net investment in sales-type leases consists of the following:
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
Minimum lease payments receivable..................... $53,000 $145,000
Less, Unearned interest income...................... (4,000) (15,000)
------- --------
Net investment in sales-type leases................... $49,000 $130,000
======= ========
All future minimum lease payments are receivable during 1998 and 1999.
22
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
3. FIXED ASSETS
Fixed assets consist of the following:
DECEMBER
31, JUNE 30,
1997 1998
----------- -----------
Land and building.................................. $ -- $ 242,000
Rental equipment................................... 24,854,000 30,325,000
Vehicles........................................... 1,043,000 1,246,000
Shop equipment..................................... 35,000 79,000
Office equipment................................... 28,000 31,000
Leasehold improvements............................. -- 32,000
----------- -----------
25,960,000 31,955,000
Less, Accumulated depreciation................... (7,329,000) (9,096,000)
----------- -----------
$18,631,000 $22,859,000
=========== ===========
4. NOTES PAYABLE
The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $28,000,000 or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The unused portion of the line of credit was $11,800,000 and
$9,979,000 at December 31, 1997 and June 30, 1998, respectively.
At December 31, 1997, the outstanding balance bears interest at fluctuating
30-day LIBOR rate plus 2 1/4% (8.2% at December 31, 1997). Effective in
January 1998, the outstanding balance bears interest at the fluctuating 30-day
LIBOR rate plus 1 3/4% (7.4% at June 30, 1998) and the Company pays a
commitment fee of 1/4% per annum on the unused portion of the line of credit.
The Company has the option to borrow additional funds and/or convert all or a
portion of the outstanding balance to a fluctuating interest rate equal to the
lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1 3/4% for 90, 180 or
360 days.
The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in 48 monthly installments.
Although there are no fixed payments on the principal, the Company expects
the aggregate maturities of debt outstanding at December 31, 1997 to
approximate the following:
1998........................................................... $4,050,000
1999........................................................... 4,050,000
2000........................................................... 4,050,000
2001........................................................... 4,050,000
Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement. In addition, an affiliate of the Company
has guaranteed this debt.
The lenders require, among other terms, that the Company and its affiliate
on a combined basis meet certain financial ratios and obtain approval prior to
issuing of advances or loans to stockholders or officers which exceed certain
amounts, as defined.
23
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
5. RELATED PARTY TRANSACTIONS
An affiliate (through common ownership) provides services to the Company in
connection with its operations. The primary expenses, which are incurred and
paid by the affiliate and allocated to the Company, include salaries
($1,750,000 for the year ended December 31, 1997 and $500,000 and $330,000 for
the six months ended June 30, 1998 and 1997, respectively, included in general
and administrative expenses) and spare parts inventory, trucking services and
insurance expenses ($850,000, for the year ended December 31, 1997, and
$430,000 and $361,000 for the six months ended June 30, 1998 and June 30,
1997, respectively, included in cost of equipment rentals and service).
The Company rents equipment to the affiliate under an informal equipment
sharing agreement for ultimate rental to the affiliate's customers in New York
and Connecticut. In addition, the Company rents equipment from the affiliate
for ultimate rental to customers in its operating areas. The net revenue
earned (included in equipment rentals and service revenues) by the Company
under these arrangements for the year ended December 31, 1997 was $178,000 and
$239,000 and $230,000 for the six months ended June 30, 1998 and 1997,
respectively.
The Company purchased used rental equipment from an affiliate for ultimate
sale to unrelated third parties amounting to $964,000 for the year ended
December 31, 1997 and $574,000 and $739,000 for the six months ended June 30,
1998 and 1997, respectively. Additionally, the Company sold used rental
equipment to the affiliate for ultimate sale to unrelated third parties. The
selling price of such equipment amounted to $239,000 for the year ended
December 31, 1997 and $78,000 and $138,000 for the six months ended June 30,
1998 and 1997, respectively.
These transactions are settled in the normal course of business.
6. INCOME TAXES
Deferred state income taxes are recorded to reflect primarily the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities, principally fixed assets and accounts receivable, and
their financial reporting amounts at each year-end and for tax operating loss
carryforwards.
The components of deferred state tax assets and liabilities are as follows:
DECEMBER 31, JUNE 30,
1997 1998
------------ ---------
Deferred tax assets:
Net operating loss carryforward................... $ 22,000 $ 22,000
Accounts receivable............................... 5,000 5,000
Deferred tax liabilities:
Fixed assets...................................... (377,000) (433,000)
Other............................................. (150,000) (150,000)
--------- ---------
$(500,000) $(556,000)
========= =========
No valuation allowance has been recognized for deferred tax assets. The
Company has various state net operating loss carryforwards at December 31,
1997 of approximately $357,000 which expire from 2002 through 2012.
24
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
7. PROFIT-SHARING PLAN
The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan by
the Company were $75,000 for the year ended December 31, 1997. There were no
discretionary contributions under the plan by the Company for the six months
ended June 30, 1998 and 1997.
The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute an amount equal to 25% of employees' contributions not to exceed 6%
of their annual compensation up to $160,000. Participants vest in the
Company's contribution at the rate of 20% annually after becoming eligible.
Matching contributions under the plan by the Company were $12,000 for the year
ended December 31, 1997 and $9,000 for the six months ended June 30, 1998 and
1997.
8. COMMITMENTS
The Company leases buildings in Delaware, Virginia, Maryland and New Jersey
from unrelated parties in the form of operating leases which expire in 1998
and 1999. Total future minimum lease payments of $190,000 are as follows:
1998, $163,000; and 1999, $27,000. In addition, the Company leases buildings
in New Jersey and Virginia on a month-to-month basis. Total rent expense of
$243,000 was incurred for the year ended December 31, 1997 and $135,000 and
$110,000 for the six months ended June 30, 1998 and 1997, respectively.
9. SUBSEQUENT EVENT (UNAUDITED)
On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
25
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma consolidated balance sheet of the
Company as of June 30, 1998 gives effect to the acquisition of McClinch Inc.
and Subsidiaries and McClinch Equipment Services, Inc. (collectively,
"McClinch") 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 June 30, 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, (the "BNR Group"), Mission Valley Rentals, Inc., Power Rental
Co., Inc. ("Power"), McClinch and Equipment Supply (the "Acquired Companies")
and the financing thereof, as if all such transactions had occurred at the
beginning of the period. The accompanying unaudited pro forma consolidated
statements of operations of the Company for the six months ended June 30,
1998, gives effect to the acquisition of Access Rentals, Inc. and affiliates,
Power, McClinch 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.
26
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998
(UNAUDITED)
McCLINCH EQUIPMENT
UNITED McCLINCH INC. EQUIPMENT SUPPLY CO., AND PRO FORMA PRO FORMA
RENTALS, INC. AND SUBSIDIARIES SERVICES, INC. AFFILIATES ADJUSTMENTS CONSOLIDATED
------------- ---------------- -------------- --------------- ------------- ---------------
ASSETS
Cash and cash $ 5,486,092 $ 697,000 $ 439,000 $ 1,784,124 $ (2,920,124) (a) $ 5,486,092
equivalents
Accounts receivable, net 67,202,625 4,697,000 2,839,000 16,528,382 91,267,007
Inventory 33,255,606 1,276,000 6,000 4,507,505 39,045,111
Rental equipment, net 298,956,195 18,513,000 21,809,000 111,617,692 4,677,360 (b) 455,573,247
Property and equipment,
net 32,349,116 2,650,000 1,050,000 5,267,210 220,290 (c) 41,536,616
Intangible assets, net 429,027,657 3,639,033 171,285,833 (d) 603,952,523
Prepaid expenses and
other assets 22,887,178 997,000 614,000 7,022,229 31,520,407
------------ ----------- ----------- ------------- ------------ --------------
TOTAL ASSETS $889,164,469 $28,830,000 $26,757,000 $150,366,175 $173,263,359 $1,268,381,003
============ =========== =========== ============ ============ ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 55,855,965 $ 1,334,000 $ 1,193,000 $ 3,648,493 $ 62,031,458
Debt 389,181,344 14,083,000 18,021,000 94,818,830 $(126,922,830) (e) 737,866,776
348,685,432 (f)
Accrued expenses and
other liabilities 25,732,994 2,915,000 1,378,000 13,878,459 43,904,453
------------ ----------- ----------- ------------ ------------ --------------
TOTAL LIABILITIES 470,770,303 18,332,000 20,592,000 112,345,782 221,762,602 843,802,687
------------ ----------- ----------- ------------ ------------ --------------
Stockholders'
Equity
Common stock 341,921 1,500 (1,500) (g) 341,924
3 (h)
Additional paid-in
Capital 409,817,333 (592,000) 10,000 363,808 218,192 (g) 416,001,480
6,184,147 (h)
Retained earnings
(deficit) 8,234,912 11,090,000 6,155,000 37,655,085 (54,900,085) (g) 8,234,912
------------ ----------- ----------- ------------ ----------- --------------
TOTAL STOCKHOLDERS'
EQUITY 418,394,166 10,498,000 6,165,000 38,020,393 (48,499,243) 424,578,316
------------ ----------- ----------- ------------ ----------- --------------
Total liabilities and
stockholders' equity $889,164,469 $28,830,000 $26,757,000 $150,366,175 $173,263,359 $1,268,381,003
============ =========== =========== ============ ============ ==============
The accompanying notes are an integral part of these pro forma Consolidated
Financial Statements.
27
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)
------------- ----------- ----------- ---------- -----------
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 =====
28
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
McCLINCH EQUIPMENT
McCLINCH INC. EQUIPMENT SUPPLY CO. AND PRO FORMA PRO FORMA
AND SUBSIDIARIES SERVICES. INC. AFFILIATES ADJUSTMENTS CONSOLIDATED
---------------- -------------- -------------- ------------ -------------
REVENUES
Equipment
Rentals $14,159,000 $10,503,000 $78,141,502 $204,776,639
Sales of equipment
and merchandise and
other revenue 8,974,000 6,397,000 16,416,661 65,876,406
----------- ----------- ------------- ----------- -------------
TOTAL REVENUES 23,133,000 16,900,000 94,558,163 $270,653,045
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 5,485,000 1,531,000 23,509,529 66,920,830
Rental equipment
depreciation 2,843,000 1,279,000 20,397,030 $(8,487,629) (a) 38,591,639
Cost of sales and
other operating
expenses 6,187,000 7,352,000 11,362,048 50,869,622
---------- ---------- ----------- ------------ --------------
TOTAL COST OF
REVENUES 14,515,000 10,162,000 55,268,607 (8,487,629) 156,382,091
---------- ---------- ----------- ------------ --------------
Gross profit 8,618,000 6,738,000 39,289,556 8,487,629 114,270,954
Selling, general and
Administrative
expenses 4,574,000 3,982,000 17,874,879 (9,459,138) (b) 52,040,601
Non-rental 706,019 (c)
depreciation and
amortization 46,000 3,000 878,342 6,929,848 (d) 10,836,596
--------- --------- ----------- ----------- -------------
Operating income 3,998,000 2,753,000 20,536,335 10,310,900 51,393,757
Interest expense 1,028,000 1,167,000 11,185,934 (19,809,634) (e) 34,765,138
Other (income) 33,759,538 (f)
expense, net (249,000) (466,000) (2,858,438) (5,085,158)
--------- ---------- ----------- ----------- -------------
Income (loss) before
provision (benefit) for
income taxes 3,219,000 2,052,000 12,208,839 (3,639,004) 21,713,777
Provision (benefit) for income
taxes 1,082,000 107,000 1,242,142 3,320,798 (g) 8,902,648
---------- ---------- ----------- ----------- -------------
NET INCOME (LOSS) $2,137,000 $1,945,000 $10,966,697 $(6,959,802) $ 12,811,129
========== ========== =========== ============ =============
Basic earnings per $0.52
share =====
Diluted earnings per $0.48
share =====
The accompanying notes are an integral part of these pro forma
consolidated financial statements.
29
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
McCLINCH
UNITED ACCESS POWER McCLINCH INC EQUIPMENT
RENTALS, INC. RENTALS, INC. RENTAL CO., INC. AND SUBSIDIARIES SERVICES,INC.
-------------- -------------- --------------- ---------------- -------------
REVENUES
Equipment
Rentals $86,104,719 $2,312,580 $14,108,346 $8,003,000 $5,427,000
Sales of equipment
and merchandise and
other revenue 41,246,561 841,485 3,044,141 5,756,000 3,614,000
---------- ---------- ----------- ---------- ----------
TOTAL REVENUES 127,351,280 3,154,065 17,152,487 13,759,000 9,041,000
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 35,608,405 1,131,353 6,268,462 3,597,000 985,000
Rental equipment
depreciation 14,565,250 401,688 5,321,040 1,804,000 785,000
Cost of sales and
other operating
expenses 29,938,822 741,458 1,268,710 3,697,000 3,993,000
---------- ---------- ----------- ---------- ----------
TOTAL COST OF
REVENUES 80,112,477 2,274,499 12,858,212 9,098,000 5,763,000
----------- ----------- ----------- --------- ----------
GROSS PROFIT 47,238,803 879,566 4,294,275 4,661,000 3,278,000
Selling, general and
administrative
expenses 25,101,187 835,763 5,901,982 2,087,000 1,654,000
Non-rental
depreciation and
amortization 3,815,236 22,892 580,867 25,000 2,000
----------- ----------- ----------- --------- ----------
Operating income (loss) 18,322,380 20,911 (2,188,574) 2,549,000 1,622,000
Interest expense 4,936,708 147,387 1,298,331 483,000 651,000
Other (income)
expense, net (527,547) (52,224) (155,031) (37,000) (51,000)
--------- -------- ----------- ---------- ---------
Income (loss) before
provision (benefit)
for income taxes 13,913,219 (74,252) (3,331,874) 2,103,000 1,022,000
Provision (benefit) for
income taxes 5,693,143 875,000 60,000
---------- -------- ----------- ---------- ----------
NET INCOME (LOSS) $8,220,076 $(74,252) $(3,331,874) $1,228,000 $962,000
========== ========= ============ =========== ==========
Basic earnings per
share $0.27
=====
Diluted earnings per
share $0.23
=====
EQUIPMENT
SUPPLY CO. PRO FORMA PRO FORMA
AND AFFILIATES ADJUSTMENTS CONSOLIDATED
-------------- ----------- ------------
REVENUES
Equipment
Rentals $34,381,555 150,337,200
Sales of equipment
and merchandise and
other revenue 8,958,359 63,460,546
----------- ----------- -----------
TOTAL REVENUES 43,339,914 213,797,746
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 12,528,730 60,118,950
Rental equipment
depreciation 10,368,052 $(3,960,246)(a) 29,284,784
Cost of sales and
other operating
expenses 7,267,160 46,906,150
----------- ----------- -----------
TOTAL COST OF
REVENUES 30,163,942 (3,960,246) 136,309,884
---------- ----------- -----------
GROSS PROFIT 13,175,972 3,960,246 77,487,862
Selling, general and
administrative
expenses 9,672,514 (3,424,470)(b) 41,840,069
12,093 (c)
Non-rental
depreciation and
amortization 358,520 2,779,404 (d) 7,583,919
---------- ----------- -----------
Operating income (loss 3,144,938 4,593,219 28,063,874
Interest expense 4,220,244 (6,168,620)(e) 20,507,808
Other (income) 14,939,758 (f)
expense, net (198,381) (1,021,183)
--------- ---------- -----------
Income (loss) before
provision (benefit)
for income taxes (876,925) (4,177,919) 8,577,249
Provision (benefit) fo
income taxes
(2,637,684) 850,757 (g) 4,841,216
---------- ---------- ----------
NET INCOME (LOSS) $1,760,759 $5,028,676 $3,736,033
========== =========== ==========
Basic earnings per
share $0.11
=====
Diluted earnings per
share $0.09
=====
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
30
UNITED RENTALS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
1. BACKGROUND
The Company is a large geographically diversified equipment rental
company with operations 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 sells rental
equipment, acts as a distributor for certain new equipment, and sells
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, McClinch
and Equipment Supply as of June 30, 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 six months ended June 30, 1998
represent the results of operations of (i) the Company, Equipment Supply
and McClinch for the six months ended June 30, 1998 and (ii) Access
Rentals,Inc. and affiliate for the period from January 1, 1998 to
January 21, 1998(date of acquisition) and (iii) Power for the period
from April 1, 1998 through June 8, 1998 (date of acquisition). BNR Group
and Mission Valley Rentals, Inc. were acquired effective
January 1, 1998.
The data in these Pro Forma consolidated financial Statements are
derived from the respective financial statements of the Company and each
of the Acquired Companies.
The historical financial statements of the BNR Group are stated in
Canadian dollars and prepared in accordance with Canadian generally
accepted accounting principles. The historical financial data for the
BNR Group presented in these pro forma onsolidated 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 McClinch and
Equipment Supply (the "Acquisition Consideration") was $230.9 million
and consisted of approximately $224.7 million in cash and 305,334 shares
of Common Stock.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of McClinch 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 McClinch and Equipment Supply:
31
EQUIPMENT
SUPPLY CO., AND
McCLINCH AFFILIATES TOTAL
--------------- -------------- ------------
Purchase price $ 97,175,192 $ 133,691,684 $230,866,876
Net assets acquired 16,663,000 38,020,393 54,683,393
Fair value adjustments:
Rental equipment 2,116,642 2,560,718 4,677,360
Property and
Equipment (12,500) 232,790 220,290
-------------- --------------- -------------
Intangibles recognized $ 78,408,050 $ 92,877,783 $171,285,833
============== =============== =============
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 McClinch 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.
32
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 June 30, 1998
----------------- --------------
Basic:
Shares outstanding 23,899,119 34,192,085
Shares issued for acquisitions 866,384 305,334
--------------- -------------
24,765,503 34,497,419
=============== =============
Dilutive:
Shares outstanding
Shares issued for acquisitions 23,899,119 34,192,085
Common stock equivalents (based on the initial public 866,384 305,334
offering price of $13.50 per share for 1997) 1,792,942 5,122,060
-------------- ------------
26,558,445 39,619,479
=============== =============
33