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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-14387
United Rentals, Inc.
Commission File No. 1-13663
United Rentals (North America), Inc.
(Exact names of registrants as specified in their charters)
Delaware 06-1522496
Delaware 06-1493538
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Nos.)
Four Greenwich Office Park,
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
(203) 622-3131
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
X Yes No
As of August 6, 1999, there were 72,047,671 shares of the United Rentals,
Inc. common stock, $.01 par value outstanding. There is no market for the
common stock of United Rentals (North America), Inc., all outstanding shares
of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and
(ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary
of United Rentals, Inc.). United Rentals (North America), Inc. meets the
conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and
is therefore filing this form with the reduced disclosure format permitted by
such instruction.
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UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements
United Rentals, Inc. Consolidated Balance Sheets as of June 30,
1999 and
December 31, 1998 (unaudited).................................. 5
United Rentals, Inc. Consolidated Statements of Operations for
the Six and Three Months Ended June 30, 1999 and 1998
(unaudited).................................................... 6
United Rentals, Inc. Consolidated Statement of Stockholders'
Equity for the Six Months Ended June 30, 1999 (unaudited)...... 7
United Rentals, Inc. Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1999 and 1998 (unaudited)........ 8
United Rentals (North America), Inc. Consolidated Balance Sheets
as of June 30, 1999
and December 31, 1998 (unaudited).............................. 9
United Rentals (North America), Inc. Consolidated Statements of
Operations for the
Six and Three Months Ended June 30, 1999 and 1998 (unaudited).. 10
United Rentals (North America), Inc. Consolidated Statement of
Stockholder's Equity for the Six Months Ended June 30, 1999
(unaudited).................................................... 11
United Rentals (North America), Inc. Consolidated Statements of
Cash Flows for the
Six Months Ended June 30, 1999 and 1998 (unaudited)............ 12
Notes to Unaudited Consolidated Financial Statements............ 13
Management's Discussion and Analysis of Financial Condition and
Item 2 Results of Operations.......................................... 25
Item 3 Quantitative and Qualitative Disclosures about Market Risk...... 36
PART II OTHER INFORMATION
Item 1 Legal Proceedings............................................... 36
Item 2 Changes in Securities and Use of Proceeds....................... 36
Item 4 Submission of Matters to a Vote of Security Holders............. 37
Item 6 Exhibits and Reports on Form 8-K................................ 37
Signatures...................................................... 39
Certain of the statements contained in this Report are forward looking in
nature. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy. You are cautioned that our business and operations
are subject to a variety of risks and uncertainties and, consequently, our
actual results may materially differ from those projected by any forward-
looking statements. Certain of these factors are discussed in Item 2 of Part I
of this Report under the caption "--Factors that May Influence Future Results
and Accuracy of Forward-Looking Statements." We make no commitment to revise
or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.
UNITED RENTALS
United Rentals is the largest equipment rental company in North America with
637 branch locations in 43 states, six Canadian provinces and Mexico. We offer
for rent over 600 different types of equipment on a daily, weekly or monthly
basis and serve customers that include construction industry participants,
industrial companies and homeowners. We also sell used rental equipment, act
as a dealer for many types of new equipment, and sell related merchandise and
parts. In the past year, we have served over one million customers.
We have one of the most comprehensive and newest equipment rental fleets in
the industry. The types of rental equipment that we offer include a broad
range of light to heavy construction and industrial equipment, such as
backhoes, aerial lifts, skid-steer loaders, forklifts, compressors, pumps and
generators, as well as a variety of smaller tools and equipment. Our equipment
fleet has an original purchase price of approximately $2.5 billion and a
weighted average age of approximately 25 months (based on original purchase
price).
We began operations in October 1997 and have grown through a combination of
internal growth, acquisitions and the opening of new rental locations. We have
an ongoing acquisition program and have completed 153 acquisitions through
July 27, 1999, including our merger with U.S. Rentals, Inc. ("U.S. Rentals")
in September 1998. At the time of the merger, U.S. Rentals was the second
largest equipment rental company in the United States based on 1997 rental
revenues.
COMPETITIVE ADVANTAGES
We believe that we benefit from the following competitive advantages:
Full Range of Rental Equipment. We have the largest and most comprehensive
equipment rental fleet in the industry, which enables us to:
. attract customers by providing the benefit of "one-stop" shopping;
. serve a diverse customer base, which reduces our dependence on any
particular customer or group of customers;
. serve large customers that require assurance that substantial quantities
of different types of equipment will be available as required on a
continuing basis;
. minimize lost sales due to equipment being unavailable; and
. serve attractive specialty equipment rental markets, such as trench
shoring, traffic safety and portable tanks.
Operating Efficiencies. We generally group our branches into clusters of 10
to 30 locations that are in the same area. Our management information system
enables each branch to track equipment at any other branch and to access all
available equipment within a cluster. We believe that our cluster strategy
produces significant operating efficiencies by enabling us to:
. market the equipment within a cluster through multiple branches, rather
than a single branch, which increases our equipment utilization rate;
. cross-market the equipment specialties of different branches within each
cluster, which increases revenues without increasing marketing expenses;
1
. reduce costs by centralizing common functions such as payroll, credit
and collection, and certain equipment delivery into 22 regional service
centers; and
. consolidate overlapping operations to better serve our customers.
In the second quarter of 1999, approximately 8.5% of our rental revenue was
attributable to equipment sharing among branches.
Significant Purchasing Power. We have significant purchasing power because
of our volume purchases. As a result, we can generally buy new equipment and
related merchandise and parts at prices that are significantly lower than
prices paid by smaller companies. We can also buy many other products and
services--such as insurance, telephone and fuel--at attractive rates.
Information Technology Systems. We have modern information technology
systems which facilitate decision-making and enable us to respond to changing
market conditions. These systems provide management with a wide range of
operating and financial data, including reports on inventory, receivables,
customers, vendors, fleet utilization and price and sales trends. These
systems are designed to enable branch personnel to search for needed equipment
throughout a geographic region, determine its closest location and arrange for
delivery to a customer's work site. These systems include software developed
by our Wynne Systems subsidiary, which is the leading provider of proprietary
software for use by equipment rental companies in managing and operating
multiple branch locations. We have an in-house staff of specialists that
supports our information technology systems and extends the systems to new
locations.
Customer Diversity. Our customer base is highly diversified and ranges from
Fortune 100 companies to small contractors and homeowners. We estimate that
our top ten customers accounted for approximately 4% of our revenues during
1998 (on a pro forma basis as if the acquisitions that we completed in 1998
and 1999 had been completed at the beginning of 1998).
Geographic Diversity. We have branches in 43 states, six Canadian provinces
and Mexico. We believe that our geographic diversity should reduce the impact
that fluctuations in regional economic conditions have on our overall
financial performance. Our geographic diversity and large network of branch
locations also give us the ability to serve national accounts and access used
equipment re-sale markets across the country.
Experienced Senior Management. Our senior management combines executives who
have extensive operating experience in the equipment rental industry with
executives who have proven track records in other industries. Our senior
management includes former officers of United Waste Systems, Inc., which was a
publicly-traded solid waste management company that successfully executed a
growth strategy combining a disciplined acquisition program, the integration
and optimization of acquired facilities, and internal growth. Our senior
management also includes former executives of U.S. Rentals who have extensive
experience in the equipment rental industry.
Strong and Motivated Branch Management. Each of our branches has a full-time
branch manager who is supervised by one of our 50 district managers and eight
regional vice presidents. We believe that our branch and district managers,
who average over 20 years of experience in the equipment rental industry, are
among the most knowledgeable and experienced in the industry. We encourage
entrepreneurship at the branch level by giving branch managers a high degree
of autonomy relating to day-to-day operations. For example, each branch
manager is empowered to make decisions--within budgetary guidelines--
concerning staffing, pricing and equipment purchasing. We also promote
entrepreneurship at the branch level, as well as equipment sharing among
branches, through our profit sharing program which directly ties the
compensation of branch personnel to their branch's financial performance and
equipment utilization rates. We balance the autonomy that we grant branch
managers with systems through which senior management closely tracks branch
performance. We also share information across branches so that each branch can
measure its operating performance relative to other branches and benefit from
the best practices developed throughout our organization.
2
Professional Acquisition Team. Our 25-person acquisition team is engaged in
identifying and evaluating acquisition candidates and executing our
acquisition program. The core of this group consists of seasoned acquisition
professionals--most of whom were members of the acquisition team at United
Waste Systems, where they completed over 200 acquisitions. The team also
includes former owners of businesses that we acquired, who have extensive
industry experience and contacts with potential acquisition candidates.
GROWTH STRATEGY
Our plan for future growth includes the following key elements:
Continue Strong Internal Growth. We are seeking to sustain our strong
internal growth by:
. increasing the cross-marketing of our equipment specialties at different
locations;
. increasing our advertising and marketing--which become increasingly
cost-effective as we grow because the benefits are spread over a larger
number of branches;
. expanding our national accounts program--which dedicates a portion of
our sales force to establishing and expanding relationships with large
customers that have a national or multi-regional presence;
. increasing our rentals to industrial companies by developing a
comprehensive marketing program specifically aimed at this sector; and
. expanding and modernizing our equipment fleet.
Execute Disciplined Acquisition Program. We intend to continue our
disciplined acquisition program. We generally seek to acquire multiple
locations within the regions that we enter, with the goal of creating clusters
of locations that can share various resources, including equipment, marketing
resources, back office functions and certain equipment delivery. We are
seeking to acquire companies of varying sizes, including relatively large
companies to serve as platforms for new regional clusters and smaller
companies to complement existing or anticipated locations. In considering
whether to buy a company, we evaluate a number of factors, including purchase
price, anticipated impact on earnings, the quality of the target's rental
equipment and management, the opportunities to improve operating margins and
increase internal growth at the target, the economic prospects of the region
in which the target is located, the potential for additional acquisitions in
the region, and the competitive landscape in the target's markets.
Open New Rental Locations. Because most of the businesses that we acquired
grew through developing start-up rental locations, many of our managers have
substantial experience in this area. We intend to leverage this experience by
selectively opening new rental locations in attractive markets where there are
no suitable acquisition targets available or where the economics of a start-up
location are more attractive than buying an existing business.
Increase Cost Savings. We work to reduce costs by efficiently integrating
new and existing operations, eliminating duplicative costs, centralizing
common functions, consolidating locations that serve the same areas, and using
our purchasing power to negotiate discounts from suppliers.
Continue to Emphasize Management Systems and Controls. We intend to further
strengthen our management systems and controls, which currently include:
. an audit group that is responsible for ensuring that we have adequate
financial, operating, and management information controls throughout our
organization;
. a team of regional and district controllers that monitors each branch
for compliance with financial and accounting procedures established at
corporate headquarters; and
. a risk management and safety department that is responsible for: (1)
developing and implementing safety programs and procedures, (2)
developing our customer and employee training programs and (3)
investigating and managing any claims that may be asserted against us.
3
INDUSTRY BACKGROUND
Industry Size and Growth
We estimate that the U.S. equipment rental industry generates annual
revenues in excess of $20 billion. The combined equipment rental revenues of
the 100 largest equipment rental companies have increased at an estimated
compound annual rate of approximately 25.2% from 1993 through 1998 (based upon
revenues, reported by the Rental Equipment Register, an industry trade
publication). In addition to reflecting general economic growth, we believe
that the growth in the equipment rental industry reflects the following
trends:
Recognition of Advantages of Renting. Equipment users are increasingly
recognizing the many advantages that equipment rental may offer compared
with ownership. They recognize that by renting they can:
. avoid the large capital investment required for equipment purchases;
. reduce storage and maintenance costs;
. supplement owned equipment thereby increasing the range and number
of jobs that can be worked on;
. access a broad selection of equipment and select the equipment best
suited for each particular job;
. obtain equipment as needed and minimize the costs associated with
idle equipment; and
. access the latest technology without investing in new equipment.
These advantages frequently allow equipment users to reduce their overall
costs by renting rather than buying equipment.
Increase in Rentals by Contractors. There has been a fundamental shift in
the way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for
peak period capacity, meet specific job requirements or replace broken
equipment--many contractors are now also using rental equipment on an
ongoing basis to meet their long-term equipment requirements.
Although growth in the equipment rental industry has to date been largely
driven by the increase in rentals by the construction industry, we believe
that other equipment users may increasingly contribute to future industry
growth. For example, many industrial companies require equipment for
operating, repairing, maintaining and upgrading their facilities, and renting
this equipment will often be more cost-effective than purchasing because
typically this equipment is not used full-time. We believe that the cost and
other advantages of renting, together with the general trend toward the
corporate outsourcing of non-core competencies, may increasingly lead
industrial companies to rent equipment. We also believe that these same
considerations may lead other equipment users--such as municipalities,
government agencies and utilities--to increasingly rent equipment. Because the
penetration of these markets by the equipment rental industry is very low in
comparison to its penetration of the construction market, we believe there is
significant potential for additional growth in these markets.
Industry Fragmentation
The equipment rental industry is highly fragmented. It consists of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses that serve discrete local markets.
This fragmentation is reflected in the following data:
. in 1998, there were only 12 equipment rental companies that had
equipment rental revenues in excess of $100 million and approximately
100 equipment rental companies that had equipment rental revenues
between $5 million and $100 million (based upon rental revenues for 1998
as provided by the Rental Equipment Register, an industry trade
publication);
. we estimate that there are more than 20,000 companies with annual
equipment rental revenues of less than $5 million; and
. we estimate that the 100 largest equipment rental companies combined
have less than a 25% share of the market.
We believe that the fragmented nature of the industry presents substantial
consolidation and growth opportunities for companies with access to capital
and the ability to implement a disciplined acquisition program. We also
believe that our management team's extensive experience in acquiring and
effectively integrating acquisition targets should enable us to capitalize on
these opportunities.
4
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
---------------- ------------------
(In thousands, except share data)
ASSETS
Cash and cash equivalents................ $ 19,828 $ 20,410
Accounts receivable, net of allowance for
doubtful accounts of $44,781 in 1999 and
$41,201 in 1998......................... 355,592 233,282
Inventory................................ 149,267 70,994
Prepaid expenses and other assets........ 114,357 59,395
Rental equipment, net.................... 1,626,494 1,143,006
Property and equipment, net.............. 244,677 185,511
Intangible assets, net of accumulated
amortization of $30,249 in 1999 and
$14,520 in 1998......................... 1,381,739 922,065
---------------- ----------------
$ 3,891,954 $ 2,634,663
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable....................... $ 249,221 $ 121,940
Debt................................... 1,947,876 1,314,574
Deferred income taxes.................. 63,674 43,560
Accrued expenses and other
liabilities........................... 189,441 128,359
---------------- ----------------
Total liabilities.................... 2,450,212 1,608,433
Commitments and contingencies
Company-obligated mandatorily redeemable
convertible preferred securities of
a subsidiary trust...................... 300,000 300,000
Stockholders' equity:
Preferred stock--$.01 par value,
5,000,000 shares authorized:..........
Series A perpetual convertible
preferred stock--$300,000 liquidation
preference, 300,000 shares issued and
outstanding in 1999.................. 3
Common stock--$.01 par value,
500,000,000 shares authorized in 1999
and 1998, 71,580,118 in 1999 and
68,427,999 in 1998 shares issued and
outstanding........................... 716 684
Additional paid-in capital............. 1,062,404 689,018
Retained earnings...................... 78,920 36,809
Accumulated other comprehensive
income................................ (301) (281)
---------------- ----------------
Total stockholders' equity........... 1,141,742 726,230
---------------- ----------------
$ 3,891,954 $ 2,634,663
================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
5
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
----------------- -------------------
1999 1998 1999 1998
-------- -------- --------- ---------
(In thousands, except per share data)
Revenues:
Equipment rentals.................... $643,302 $309,683 $ 354,917 $ 183,072
Sales of rental equipment............ 87,194 43,223 51,251 27,175
Sales of new equipment, merchandise
and other revenues.................. 165,475 72,282 97,494 43,800
-------- -------- --------- ---------
Total revenues........................ 895,971 425,188 503,662 254,047
Cost of revenues:
Cost of equipment rentals, excluding
depreciation........................ 279,146 143,934 153,327 80,738
Depreciation of rental equipment..... 124,067 67,017 64,954 37,737
Cost of rental equipment sales....... 49,919 22,559 29,077 14,545
Cost of new equipment and merchandise
sales and other operating costs..... 124,784 56,345 72,240 33,605
-------- -------- --------- ---------
Total cost of revenues................ 577,916 289,855 319,598 166,625
-------- -------- --------- ---------
Gross profit.......................... 318,055 135,333 184,064 87,422
Selling, general and administrative
expenses............................. 149,861 68,351 84,601 42,197
Non-rental depreciation .............. 10,791 9,351 5,598 4,868
Amortization.......................... 15,729 3,141 8,752 2,128
-------- -------- --------- ---------
Operating income...................... 141,674 54,490 85,113 38,229
Interest expense...................... 51,306 15,245 26,933 9,458
Preferred dividends of a subsidiary
trust................................ 9,750 4,875
Other (income) expense, net........... 9,224 (4,232) 9,430 (3,436)
-------- -------- --------- ---------
Income before provision for income
taxes................................ 71,394 43,477 43,875 32,207
Provision for income taxes............ 29,283 16,458 17,989 11,892
-------- -------- --------- ---------
Net income............................ $ 42,111 $ 27,019 $ 25,886 $ 20,315
======== ======== ========= =========
Basic earnings per share.............. $ 0.60 $ 0.43 $ 0.36 $ 0.31
======== ======== ========= =========
Diluted earnings per share............ $ 0.46 $ 0.39 $ 0.28 $ 0.28
======== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Series A
Perpetual Convertible
Preferred Stock Common Stock
--------------------- -----------------
Accumulated
Additional Other
Number Number Paid-in Retained Comprehensive Comprehensive
of Shares Amount of Shares Amount Capital Earnings Income Income
------------ --------- ---------- ------ ---------- -------- ------------- -------------
(In thousands, except share data)
Balance, December 31,
1998................... 68,427,999 $684 $ 689,018 $36,809 $(281)
Comprehensive income:
Net income............. 42,111 $42,111
Other comprehensive
income:
Foreign currency
translation
adjustments........... (20) (20)
-------
Comprehensive income.... $42,091
=======
Issuance of Series A
perpetual convertible
preferred stock........ 300,000 $ 3 286,997
Issuance of common
stock.................. 2,279,319 23 65,175
Exercise of common stock
options................ 872,800 9 21,214
------------ -------- ---------- ---- ---------- ------- -----
Balance, June 30, 1999.. 300,000 $ 3 71,580,118 $716 $1,062,404 $78,920 $(301)
============ ======== ========== ==== ========== ======= =====
The accompanying notes are an integral part of these consolidated financial
statements.
7
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
---------------------
1999 1998
---------- ---------
(In thousands)
Cash Flows From Operating Activities:
Net income............................................. $ 42,111 $ 27,019
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 150,587 79,509
Amortization of original issue discount and deferred
financing fees....................................... 1,894
Gain on sale of rental equipment...................... (37,275) (20,664)
Gain on sale of business.............................. (3,644)
Deferred income taxes................................. 18,808 8,279
Changes in operating assets and liabilities:
Accounts receivable................................... (62,203) (21,254)
Inventory............................................. (37,858) (3,040)
Prepaid expenses and other assets..................... (47,143) (3,090)
Accounts payable...................................... 97,856 27,862
Accrued expenses and other liabilities................ 46,720 (2,519)
---------- ---------
Net cash provided by operating activities......... 173,497 88,458
Cash Flows From Investing Activities:
Purchases of rental equipment.......................... (390,693) (259,158)
Purchases of property and equipment.................... (52,805) (36,574)
Proceeds from sale of rental equipment................. 87,194 43,223
In-process acquisition costs........................... (1,644) (3,495)
Payments of contingent purchase price.................. (1,118) (2,255)
Purchases of other companies........................... (587,561) (378,878)
---------- ---------
Net cash used in investing activities............. (946,627) (637,137)
Cash Flows From Financing Activities:
Proceeds from the issuance of common stock, net of
issuance costs........................................ 65,198 206,555
Proceeds from the issuance of Series A Preferred, net
of issuance costs..................................... 287,000
Proceeds from debt..................................... 1,284,166 890,463
Payments of debt....................................... (876,660) (583,584)
Payment of debt financing costs........................ (4,657) (8,115)
Proceeds from the exercise of common stock options..... 17,501 521
Distribution to stockholders........................... (1,244)
---------- ---------
Net cash provided by financing activities......... 772,548 504,596
---------- ---------
Net decrease in cash and cash equivalents.............. (582) (44,083)
Cash and cash equivalents at beginning of period....... 20,410 72,411
---------- ---------
Cash and cash equivalents at end of period............. $ 19,828 $ 28,328
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest................................. $ 39,605 $ 8,184
Cash paid for income taxes............................. $ 11,461 $ 9,126
Supplemental disclosure of non-cash investing and
financing activities:
The Company acquired the net assets and assumed certain
liabilities of other companies as follows:
Assets, net of cash acquired.......................... $ 869,523 $ 691,069
Liabilities assumed................................... (272,567) (264,656)
Less:
Amounts paid in common stock and warrants........... (47,535)
Amounts paid through issuance of debt............... (9,395)
---------- ---------
Net cash paid..................................... $ 587,561 $ 378,878
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
8
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
---------- ------------
(In thousands, except
share data)
ASSETS
Cash and cash equivalents............................ $ 37,309 $ 20,410
Accounts receivable, net of allowance for doubtful
accounts of $44,781 in 1999 and $41,201 in 1998..... 355,592 233,282
Inventory............................................ 149,267 70,994
Prepaid expenses and other assets.................... 89,275 43,176
Rental equipment, net................................ 1,626,494 1,143,006
Property and equipment, net.......................... 206,506 170,537
Intangible assets, net of accumulated amortization of
$30,249 in 1999 and $14,520 in 1998................. 1,381,739 922,065
---------- ----------
$3,846,182 $2,603,470
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable................................... $ 215,148 $ 108,426
Debt............................................... 1,947,876 1,314,574
Deferred income taxes.............................. 63,674 43,560
Accrued expenses and other liabilities............. 189,114 115,558
---------- ----------
Total liabilities................................ 2,415,812 1,582,118
Commitments and contingencies
Stockholder's equity:
Common stock--$0.01 par value, 3,000 shares
authorized, 1,000 shares issued and outstanding...
Additional paid-in capital......................... 1,354,044 984,345
Retained earnings.................................. 76,627 37,288
Accumulated other comprehensive income............. (301) (281)
---------- ----------
Total stockholder's equity....................... 1,430,370 1,021,352
---------- ----------
$3,846,182 $2,603,470
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
9
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
---------------- -------------------
1999 1998 1999 1998
-------- -------- --------- ---------
(In thousands)
Revenues:
Equipment rentals.................... $643,302 $309,683 $ 354,917 $ 183,072
Sales of rental equipment............ 87,194 43,223 51,251 27,175
Sales of new equipment, merchandise
and other revenues.................. 165,475 72,282 97,494 43,800
-------- -------- --------- ---------
Total revenues........................ 895,971 425,188 503,662 254,047
Cost of revenues:
Cost of equipment rentals, excluding
depreciation........................ 279,146 143,934 153,327 80,738
Depreciation of rental equipment..... 124,067 67,017 64,954 37,737
Cost of rental equipment sales....... 49,919 22,559 29,077 14,545
Cost of new equipment and merchandise
sales and other operating costs..... 124,784 56,345 72,240 33,605
-------- -------- --------- ---------
Total cost of revenues................ 577,916 289,855 319,598 166,625
-------- -------- --------- ---------
Gross profit.......................... 318,055 135,333 184,064 87,422
Selling, general and administrative
expenses............................. 149,861 68,351 84,601 42,197
Non-rental depreciation............... 9,128 9,351 4,459 4,868
Amortization.......................... 15,729 3,141 8,752 2,128
-------- -------- --------- ---------
Operating income...................... 143,337 54,490 86,252 38,229
Interest expense...................... 51,306 15,245 26,933 9,458
Other (income) expense, net........... 8,982 (4,232) 9,328 (3,436)
-------- -------- --------- ---------
Income before provision for income
taxes................................ 83,049 43,477 49,991 32,207
Provision for income taxes............ 33,960 16,458 20,451 11,892
-------- -------- --------- ---------
Net income............................ $ 49,089 $ 27,019 $ 29,540 $ 20,315
======== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
10
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(Unaudited)
Common Stock
---------------- Additional Accumulated
Number Paid-In Retained Comprehensive Other Comprehensive
of Shares Amount Capital Earnings Income Income
--------- ------ ---------- -------- ------------- -------------------
(In thousands, except share data)
Balance, December 31,
1998................... 1,000 $ 984,345 $37,288 $(281)
Comprehensive income:
Net income............. 49,089 $49,089
Other comprehensive
income:
Foreign currency
translation
adjustments.......... (20) (20)
-------
Comprehensive income.... $49,069
=======
Contributed capital from
parent................. 369,699
Dividend distribution to
parent................. (9,750)
----- --- ---------- ------- -----
Balance, June 30, 1999.. 1,000 $1,354,044 $76,627 $(301)
===== === ========== ======= =====
The accompanying notes are an integral part of these consolidated financial
statements.
11
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June
30,
----------------------
1999 1998
---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net income............................................ $ 49,089 $ 27,019
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 148,924 79,509
Amortization of original issue discount and deferred
financing fees...................................... 1,894
Gain on sale of rental equipment..................... (37,275) (20,664)
Gain on sale of business............................. (3,644)
Deferred income taxes................................ 18,808 8,279
Changes in operating assets and liabilities:
Accounts receivable.................................. (62,203) (21,254)
Inventory............................................ (37,858) (3,040)
Prepaid expenses and other assets.................... (38,280) (3,090)
Accounts payable..................................... 77,297 27,862
Accrued expenses and other liabilities............... 55,472 (2,519)
---------- ----------
Net cash provided by operating activities.......... 175,868 88,458
Cash Flows From Investing Activities:
Purchases of rental equipment......................... (390,693) (259,158)
Purchases of property and equipment................... (27,945) (36,574)
Proceeds from sale of rental equipment................ 87,194 43,223
In-process acquisition costs.......................... (1,644) (3,495)
Payments of contingent purchase price................. (1,118) (2,255)
Purchases of other companies.......................... (587,561) (378,878)
---------- ----------
Net cash used in investing activities.............. (921,767) (637,137)
Cash Flows From Financing Activities:
Proceeds from debt.................................... 1,284,166 890,463
Payments of debt...................................... (876,660) (583,584)
Payment of debt financing costs....................... (4,657) (8,115)
Capital contributions by parent....................... 369,699 207,076
Dividend distributions to parent...................... (9,750) (1,244)
---------- ----------
Net cash provided by financing activities.......... 762,798 504,596
---------- ----------
Net increase (decrease) in cash and cash equivalents.. 16,899 (44,083)
Cash and cash equivalents at beginning of period...... 20,410 72,411
---------- ----------
Cash and cash equivalents at end of period............ $ 37,309 $ 28,328
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 39,605 $ 8,184
Cash paid for income taxes............................ $ 11,461 $ 9,126
Supplemental disclosure of non-cash investing and
financing activities:
The Company acquired the net assets and assumed
certain liabilities of other companies as follows:
Assets, net of cash acquired......................... $ 869,523 $ 691,069
Liabilities assumed.................................. (272,567) (264,656)
Less:
Amounts paid in common stock and warrants.......... (47,535)
Amounts paid through issuance of debt.............. (9,395)
---------- ----------
Net cash paid.................................... $ 587,561 $ 378,878
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
12
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
General
United Rentals, Inc., is principally a holding company ("Holdings") and
conducts its operations primarily through its wholly owned subsidiary United
Rentals (North America), Inc. ("URI") and subsidiaries of URI. URI was
incorporated in August 1997, initially capitalized in September 1997 and
commenced equipment rental operations in October 1997. Holdings was
incorporated in July 1998 and became the parent of URI on August 5, 1998,
pursuant to the reorganization of the legal structure of URI. Prior to such
reorganization, the name of URI was United Rentals, Inc. References herein to
"United Rentals" or the "Company" refer to Holdings and its subsidiaries, with
respect to periods following the reorganization, and to URI and its
subsidiaries, with respect to periods prior to the reorganization. Separate
footnote information is not presented for the financial statements of URI and
subsidiaries as that information is substantially equivalent to that presented
below. Earnings per share data is not provided for the operating results of
URI and its subsidiaries as they are wholly owned subsidiaries of Holdings.
The Company's consolidated statement of operations for the six and three
month periods ended June 30, 1998 and statement of cash flows for the six
month period ended June 30, 1998, have been restated to include the accounts
of certain acquisitions completed in 1998 that were accounted for as poolings-
of-interests (See Note 2).
The Consolidated Financial Statements of the Company included herein are
unaudited and, in the opinion of management, such financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the results of the interim periods presented. Interim financial
statements do not require all disclosures normally presented in year-end
financial statements, and, accordingly, certain disclosures have been omitted.
Results of operations for the six and three month periods ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. The Consolidated Financial Statements included
herein should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities. The Company is required to
adopt SFAS No. 133 beginning January 1, 2001. The adoption of SFAS No. 133 is
not expected to have a material effect on the Company's consolidated financial
position or results of operations.
2.Acquisitions
Acquisitions Accounted for as Poolings-of-Interests
On August 24, 1998, the Company issued 2,744,368 shares of its common stock
for all of the outstanding shares of common stock of Rental Tools and
Equipment Co. ("Rental Tools"). This transaction was accounted for as a
pooling-of-interests and, accordingly, the consolidated statement of
operations for the six and three month periods ended June 30, 1998 and
statement of cash flows for the six month period ended June 30, 1998 were
restated to include the accounts of Rental Tools.
On September 24, 1998, the Company issued 1,456,997 shares of its common
stock for all of the outstanding shares of common stock of Wynne Systems, Inc.
This transaction was accounted for as a pooling-of-interests; however, this
transaction was not material to the Company's consolidated operations and
financial position and, therefore, the Company's financial statements have not
been restated for this transaction but have been combined beginning July 1,
1998.
13
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On September 29, 1998, a merger (the "Merger") of United Rentals, Inc. and
U.S. Rentals, Inc. ("U.S. Rentals") was completed. The Merger was effected by
having a wholly owned subsidiary of United Rentals, Inc. merge with and into
U.S. Rentals. Following the Merger, United Rentals, Inc. contributed the
capital stock of U.S. Rentals to URI, a wholly owned subsidiary of United
Rentals, Inc. Pursuant to the Merger, each outstanding share of common stock
of U.S. Rentals was converted into the right to receive 0.9625 of a share of
common stock of United Rentals, Inc. An aggregate of approximately 29.6
million shares of United Rentals, Inc. common stock were issued in the Merger
in exchange for the outstanding shares of U.S. Rentals common stock. The
Merger was accounted for as a pooling-of-interests and, accordingly, the
consolidated statement of operations for the six and three month periods ended
June 30, 1998 and statement of cash flows for the six month period ended June
30, 1998 were restated to include the accounts of U.S. Rentals.
Acquisitions Accounted for as Purchases
During the six months ended June 30, 1999, the Company completed 57
acquisitions that were accounted for as purchases. The results of operations
of the businesses acquired in these acquisitions have been included in the
Company's results of operations from their respective acquisition dates.
The aggregate initial consideration paid by the Company for such
acquisitions that were accounted for as purchases was $579.4 million and
consisted of approximately $570.0 million in cash and $9.4 million in seller
notes. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in such acquisitions in the aggregate amount of $221.2
million. The Company also agreed in connection with three of such acquisitions
to pay additional amounts to the former owners based upon specified future
revenues and/or new store openings. Such amounts are limited to a specified
maximum amount which varies from $100,000 to $200,000, with the average being
$133,000.
The purchase prices for such acquisitions have been allocated to the assets
acquired and liabilities assumed based on their respective fair values at
their respective acquisition dates. However, the Company has not completed its
valuation of all of its purchases and, accordingly, the purchase price
allocations are subject to change when additional information concerning asset
and liability valuations are completed.
The following table summarizes, on an unaudited pro forma basis, the results
of operations of the Company for the six months ended June 30, 1999 and 1998
as though (i) each acquisition summarized above which was consummated during
the six months ended June 30, 1999, was made on January 1, 1999, in the case
of the results for the six months ended June 30, 1999, and (ii) each
acquisition which was consummated during the period January 1, 1998 to June
30, 1999 as described above and in Note 3 to the Notes to Consolidated
Financial Statements included in the Company's 1998 Annual Report on Form 10-K
was made on January 1, 1998 in the case of the results for the six months
ended June 30, 1998 (in thousands, except per share data):
Six Months Ended
June 30,
-------------------
1999 1998
---------- --------
Revenues.............................................. $1,090,959 $937,008
Net income............................................ 44,566 28,753
Basic earnings per share.............................. $ 0.63 $ 0.45
Diluted earnings per share............................ $ 0.48 $ 0.41
The unaudited pro forma results are based upon certain assumptions and
estimates, which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
14
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Revolving Credit Facility
URI obtained a credit facility (the "Credit Facility") dated as of September
29, 1998, with a group of financial institutions. The Credit Facility enables
URI to borrow up to $772.5 million on a revolving basis and permits a Canadian
subsidiary of URI to directly borrow up to $40 million under the Credit
Facility (provided that the aggregate borrowings of URI and the Canadian
subsidiary do not exceed $772.5 million). The Credit Facility terminates on
September 26, 2003, at which time all outstanding indebtedness is due. The
amount of indebtedness outstanding under the Credit Facility was $694.4
million at June 30, 1999.
4.Senior Subordinated Notes
On March 23, 1999, URI issued $250 million aggregate principal amount of 9%
Senior Subordinated Notes which are due April 1, 2009. URI used approximately
$102.0 million of the net proceeds from the sale of such notes to repay all of
the then outstanding indebtedness under the Credit Facility and used the
balance of such net proceeds from this offering for acquisitions, capital
expenditures and general corporate purposes.
5. Series A Perpetual Convertible Preferred Stock
On January 7, 1999, Holdings sold 300,000 shares of its Series A Perpetual
Convertible Preferred Stock ("Series A Preferred"). The net proceeds from the
sale of the Series A Preferred were approximately $287.0 million. Holdings
contributed such net proceeds to URI and URI used such net proceeds to repay
all of the then outstanding indebtedness under the Credit Facility. The Series
A Preferred is convertible into 12,000,000 shares of Holdings common stock at
$25 per share based upon the liquidation preference of $1,000 per share of
Series A Preferred, subject to adjustment.
6. Series B Perpetual Convertible Preferred Stock
On June 28, 1999, Holdings signed a definitive agreement to sell 100,000
shares of its Series B Perpetual Convertible Preferred Stock ("Series B
Preferred"). The closing of this transaction is subject to the satisfaction of
certain closing conditions. The net proceeds from the sale of the Series B
Preferred is expected to be approximately $96.0 million. The shares of Series
B Preferred to be issued in this transaction will be convertible into
3,333,334 shares of Holding's common stock at $30 per share based upon a
liquidation preference of $1,000 per share of Series B Preferred, subject to
adjustment.
7. Common Stock
On March 9, 1999, Holdings completed a public offering of 2,290,000 shares
of common stock. The net proceeds to the Company from this offering were
approximately $64.8 million (after deducting underwriting discounts and
offering expenses). Holdings contributed such net proceeds to URI and URI used
such net proceeds to repay outstanding indebtedness under the Credit Facility.
15
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
Three Months
Six Months Ended
Ended June 30, June 30,
--------------- ---------------
1999 1998 1999 1998
------- ------- ------- -------
Numerator:
Net income............................. $42,111 $27,019 $25,886 $20,315
======= ======= ======= =======
Denominator:
Denominator for basic earnings per
share weighted-average shares......... 70,304 62,321 71,570 66,061
Effect of dilutive securities:
Employee stock options............... 5,296 2,021 4,511 5,976
Warrants............................. 4,325 4,219 4,211 1,706
Series A Preferred................... 12,000 12,000
------- ------- ------- -------
Denominator for diluted earnings per
share--adjusted weighted-average
shares................................ 91,925 68,561 92,292 73,743
======= ======= ======= =======
Basic earnings per share................. $ 0.60 $ 0.43 $ 0.36 $ 0.31
======= ======= ======= =======
Diluted earnings per share............... $ 0.46 $ 0.39 $ 0.28 $ 0.28
======= ======= ======= =======
16
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Condensed Consolidating Financial Information Of Guarantor Subsidiaries
Certain indebtedness of URI is guaranteed by URI's United States
subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's
foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor
subsidiaries are all wholly owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination
provisions and subject to a standard limitation which provides that the
maximum amount guaranteed by each guarantor will not exceed the maximum amount
that can be guaranteed without making the guarantee void under fraudulent
conveyance laws). All expenses incurred by URI have been charged by URI to its
guarantor and non guarantor subsidiaries. Separate consolidated financial
statements of the guarantor subsidiaries have not been presented because
management has determined that such information would not be material to
investors. However, condensed consolidating financial information as of June
30, 1999 and December 31, 1998 and for the six and three months ended June 30,
1999 and 1998, are presented. The condensed consolidating financial
information of URI and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1999
----------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
ASSETS
Cash and cash equiva-
lents.................. $ 7,710 $ 25,429 $ 4,170 $ 37,309
Accounts receivable,
net.................... 332,684 22,908 355,592
Intercompany receivable
(payable).............. 1,344,359 (1,192,904) (151,455)
Inventory............... 137,926 11,341 149,267
Prepaid expenses and
other assets........... 32,707 48,292 8,276 89,275
Rental equipment, net... 1,542,711 83,783 1,626,494
Property and equipment,
net.................... 199,785 6,721 206,506
Investment in subsidiar-
ies.................... 2,021,220 $(2,021,220)
Intangible assets, net.. 1,285,957 95,782 $1,381,739
---------- ----------- --------- ----------- ----------
$3,405,996 $ 2,379,880 $ 81,526 $(2,021,220) $3,846,182
========== =========== ========= =========== ==========
LIABILITIES AND STOCK-
HOLDER'S EQUITY
Liabilities:
Accounts payable....... $ 192,226 $ 22,922 $ 215,148
Debt................... $1,906,126 38,147 3,603 1,947,876
Deferred income tax-
es.................... 62,883 791 63,674
Accrued expenses and
other liabilities..... 88,622 96,661 3,831 189,114
---------- ----------- --------- ----------- ----------
Total liabilities.... 1,994,748 389,917 31,147 2,415,812
Commitments and contin-
gencies
Stockholder's equity:
Common stock............
Additional paid-in capi-
tal.................... 1,334,621 1,908,910 45,356 (1,934,843) 1,354,044
Retained earnings....... 76,627 81,053 5,324 (86,377) 76,627
Accumulated other com-
prehensive income...... (301) (301)
---------- ----------- --------- ----------- ----------
Total stockholder's
equity.............. 1,411,248 1,989,963 50,379 (2,021,220) 1,430,370
---------- ----------- --------- ----------- ----------
$3,405,996 $ 2,379,880 $ 81,526 $(2,021,220) $3,846,182
========== =========== ========= =========== ==========
17
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1998
---------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
Assets
Cash and cash equiva-
lents.................. $ 1,774 $ 16,257 $ 2,379 $ 20,410
Accounts receivable,
net.................... 218,285 14,997 233,282
Intercompany receivable
(payable).............. 898,641 (820,958) (77,683)
Inventory............... 65,401 5,593 70,994
Prepaid expenses and
other assets........... 30,963 10,816 1,397 43,176
Rental equipment, net... 1,099,539 43,467 1,143,006
Property and equipment,
net.................... 165,803 4,734 170,537
Investment in subsidiar-
ies.................... 1,390,706 $(1,390,706)
Intangible assets, net.. 29 867,061 54,975 922,065
---------- ---------- ------- ----------- ----------
$2,322,113 $1,622,204 $49,859 $(1,390,706) $2,603,470
========== ========== ======= =========== ==========
Liabilities And Stock-
holder's Equity
Liabilities:
Accounts payable....... $ 3,250 $ 98,680 $ 6,496 $ 108,426
Debt................... 1,286,118 23,976 4,480 1,314,574
Deferred income tax-
es.................... 43,560 43,560
Accrued expenses and
other liabilities..... 30,535 82,112 2,911 115,558
---------- ---------- ------- ----------- ----------
Total liabilities.... 1,319,903 248,328 13,887 1,582,118
Commitments and contin-
gencies
Stockholder's equity:
Common stock...........
Additional paid-in
capital................ 964,922 1,338,576 34,265 $(1,353,418) 984,345
Retained earnings...... 37,288 35,300 1,988 (37,288) 37,288
Accumulated other com-
prehensive income...... (281) (281)
---------- ---------- ------- ----------- ----------
Total stockholder's
equity.............. 1,002,210 1,373,876 35,972 (1,390,706) 1,021,352
---------- ---------- ------- ----------- ----------
$2,322,113 $1,622,204 $49,859 $(1,390,706) $2,603,470
========== ========== ======= =========== ==========
18
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999
------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $608,996 $ 34,306 $643,302
Sales of rental equip-
ment................. 80,587 6,607 87,194
Sales of new equip-
ment, merchandise and
other revenues....... 151,564 13,911 165,475
-------- -------- -------- -------- --------
Total revenues.......... 841,147 54,824 895,971
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 261,940 17,206 279,146
Depreciation of rental
equipment............ 117,854 6,213 124,067
Cost of rental equip-
ment sales........... 45,995 3,924 49,919
Cost of new equipment
and merchandise sales
and other operating
costs................ 114,069 10,715 124,784
-------- -------- -------- -------- --------
Total cost of revenues.. 539,858 38,058 577,916
-------- -------- -------- -------- --------
Gross profit............ 301,289 16,766 318,055
Selling, general and ad-
ministrative
expenses............... 140,476 9,385 149,861
Non-rental depreciation
and amortization....... 23,358 1,499 24,857
-------- -------- -------- -------- --------
Operating income........ 137,455 5,882 143,337
Interest expense........ 51,153 153 51,306
Other (income) expense,
net.................... 9,407 (425) 8,982
-------- -------- -------- -------- --------
Income before provision
for income taxes ...... 76,895 6,154 83,049
Provision for income
taxes.................. 31,142 2,818 33,960
-------- -------- -------- -------- --------
Income before equity in
net earnings
of subsidiaries........ 45,753 3,336 $(49,089)
Equity in net earnings
of subsidiaries........ $ 49,089 49,089
-------- -------- -------- -------- --------
Net income.............. $ 49,089 $ 45,753 $ 3,336 $(49,089) $ 49,089
======== ======== ======== ======== ========
19
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
-----------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $301,965 $7,718 $309,683
Sales of rental equip-
ment................. 41,602 1,621 43,223
Sales of new equip-
ment, merchandise and
other revenues....... 67,060 5,222 72,282
------- -------- ------ -------- --------
Total revenues.......... 410,627 14,561 425,188
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 140,695 3,239 143,934
Depreciation of rental
equipment............ 65,767 1,250 67,017
Cost of rental equip-
ment sales........... 21,521 1,038 22,559
Cost of new equipment
and merchandise sales
and other operating
costs................ 51,778 4,567 56,345
------- -------- ------ -------- --------
Total cost of revenues.. 279,761 10,094 289,855
------- -------- ------ -------- --------
Gross profit............ 130,866 4,467 135,333
Selling, general and ad-
ministrative
expenses............... 66,372 1,979 68,351
Non-rental depreciation
and amortization....... 12,241 251 12,492
------- -------- ------ -------- --------
Operating income........ 52,253 2,237 54,490
Interest expense........ 15,149 96 15,245
Other (income) expense,
net.................... (4,212) (20) (4,232)
------- -------- ------ -------- --------
Income before provision
for
income taxes .......... 41,316 2,161 43,477
Provision for income
taxes.................. 15,477 981 16,458
------- -------- ------ -------- --------
Income before equity in
net earnings of subsid-
iaries................. 25,839 1,180 $(27,019)
Equity in net earnings
of subsidiaries........ $27,019 27,019
------- -------- ------ -------- --------
Net income.............. $27,019 $ 25,839 $1,180 $(27,019) $ 27,019
======= ======== ====== ======== ========
20
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 1999
------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $333,959 $ 20,958 $354,917
Sales of rental equip-
ment................. 47,323 3,928 51,251
Sales of new equip-
ment, merchandise and
other revenues....... 88,719 8,775 97,494
-------- -------- -------- --------- --------
Total revenues.......... 470,001 33,661 503,662
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 143,310 10,017 153,327
Depreciation of rental
equipment............ 61,514 3,440 64,954
Cost of rental equip-
ment sales........... 26,466 2,611 29,077
Cost of new equipment
and merchandise sales
and other operating
costs................ 65,200 7,040 72,240
-------- -------- -------- --------- --------
Total cost of revenues.. 296,490 23,108 319,598
-------- -------- -------- --------- --------
Gross profit............ 173,511 10,553 184,064
Selling, general and ad-
ministrative
expenses............... 79,093 5,508 84,601
Non-rental depreciation
and amortization....... 12,355 856 13,211
-------- -------- -------- --------- --------
Operating income........ 82,063 4,189 86,252
Interest expense........ 26,875 58 26,933
Other (income) expense,
net.................... 9,548 (220) 9,328
-------- -------- -------- --------- --------
Income before provision
for income taxes ...... 45,640 4,351 49,991
Provision for income
taxes.................. 18,484 1,967 20,451
-------- -------- -------- --------- --------
Income before equity in
net earnings
of subsidiaries........ 27,156 2,384 $ (29,540)
Equity in net earnings
of subsidiaries........ $ 29,540 29,540
-------- -------- -------- --------- --------
Net income.............. $ 29,540 $ 27,156 $ 2,384 $ (29,540) $ 29,540
======== ======== ======== ========= ========
21
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 1998
-----------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
Revenues:
Equipment rentals..... $177,260 $5,452 $183,072
Sales of rental equip-
ment................. 26,068 1,107 27,175
Sales of new equip-
ment, merchandise and
other revenues....... 40,107 3,693 43,800
------- -------- ------ -------- --------
Total revenues.......... 243,795 10,252 254,047
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 78,875 1,863 80,738
Depreciation of rental
equipment............ 37,066 671 37,737
Cost of rental equip-
ment sales........... 13,915 630 14,545
Cost of new equipment
and merchandise sales
and other operating
costs................ 30,366 3,239 33,605
------- -------- ------ -------- --------
Total cost of revenues.. 160,222 6,403 166,625
------- -------- ------ -------- --------
Gross profit............ 83,573 3,849 87,422
Selling, general and ad-
ministrative
expenses............... 40,904 1,293 42,197
Non-rental depreciation
and amortization....... 6,822 174 6,996
------- -------- ------ -------- --------
Operating income........ 35,847 2,382 38,229
Interest expense........ 9,408 50 9,458
Other (income) expense,
net.................... (3,417) (19) (3,436)
------- -------- ------ -------- --------
Income before provision
for
income taxes .......... 29,856 2,351 32,207
Provision for income
taxes.................. 10,834 1,058 11,892
------- -------- ------ -------- --------
Income before equity in
net earnings of
subsidiaries........... 19,022 1,293 $(20,315)
Equity in net earnings
of subsidiaries........ $20,315 20,315
------- -------- ------ -------- --------
Net income.............. $20,315 $ 19,022 $1,293 $(20,315) $ 20,315
======= ======== ====== ======== ========
22
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Six Months Ended June 30, 1999
-----------------------------------------------------------------
Guarantor Non-guarantor
URI Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------- ------------- ------------ ------------
(In thousands)
Net cash provided by
(used in) operating
activities............. $ (169,301) $ 305,759 $39,410 $ 175,868
Cash flows from
investing activities:
Purchase of rental
equipment............. (349,243) (41,450) (390,693)
Purchase of property
and equipment......... (26,287) (1,658) (27,945)
Proceeds from sales of
rental equipment...... 80,587 6,607 87,194
In-process acquisition
costs................. (1,644) (1,644)
Payment of contingent
purchase price........ (1,118) (1,118)
Purchase of other
companies............. (587,561) (587,561)
---------- --------- -------- ------ ----------
Net cash used in
investing
activities.......... (587,561) (296,587) (37,619) (921,767)
Cash flows from
financing activities:
Proceeds from debt..... 1,284,166 1,284,166
Payments of debt....... (876,660) (876,660)
Payment of debt
financing costs....... (4,657) (4,657)
Capital contribution
by parent............. 369,699 369,699
Dividend distribution
to parent............. (9,750) (9,750)
---------- --------- -------- ------ ----------
Net cash provided by
financing
activities.......... 762,798 762,798
Net increase in cash
and cash
equivalents........... 5,936 9,172 1,791 16,899
Cash and cash
equivalents at
beginning of period... 1,774 16,257 2,379 20,410
---------- --------- -------- ------ ----------
Cash and cash
equivalents at end of
period................ $ 7,710 $ 25,429 $ 4,170 $ 37,309
========== ========= ======== ====== ==========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period:
Interest............. $ 21,099 $ 18,353 $ 153 $ 39,605
Income taxes......... $ 10,139 $ 1,322 $ 11,461
Supplemental disclosure
of non-cash investing
and financing
activities:
The Company acquired the
net assets and assumed
certain liabilities of
other companies as
follows:
Assets, net of cash
acquired.............. $ 869,523 $ 869,523
Liabilities assumed.... (272,567) (272,567)
Less:
Amounts paid through
issuance of debt.... (9,395) (9,395)
---------- --------- -------- ------ ----------
Net cash paid...... $ 587,561 $ 587,561
========== ========= ======== ====== ==========
23
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Six Months Ended June 30, 1998
----------------------------------------------------------------
Guarantor Non-guarantor
URI Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------- ------------ ------------
(In thousands)
Net cash provided by
(used in) operating
activities............. $ (37,512) $ 123,388 $ 2,582 $ 88,458
Cash flows from
investing activities:
Purchase of rental
equipment............. (255,307) (3,851) (259,158)
Purchase of property
and equipment......... (35,042) (1,532) (36,574)
Proceeds from sales of
rental equipment...... 41,602 1,621 43,223
In-process acquisition
costs................. (3,495) (3,495)
Payments of contingent
purchase price........ (1,055) (1,200) (2,255)
Purchase of other
companies............. (369,534) (9,344) (378,878)
--------- --------- ------- ------- ---------
Net cash used in
investing
activities.......... (369,534) (262,641) (4,962) (637,137)
Cash flows from
financing activities:
Proceeds from debt..... 613,796 266,687 9,980 890,463
Payments of debt....... (467,399) (108,585) (7,600) (583,584)
Payment of debt
financing costs....... (8,115) (8,115)
Capital contribution
by parent............. 207,076 207,076
Dividend distribution
to parent............. (1,244) (1,244)
--------- --------- ------- ------- ---------
Net cash provided by
financing
activities.......... 345,358 156,858 2,380 504,596
Net increase
(decrease) in cash
and cash
equivalents........... (61,688) 17,605 (44,083)
Cash and cash
equivalents at
beginning of period... 68,608 3,803 72,411
--------- --------- ------- ------- ---------
Cash and cash
equivalents at end of
period................ $ 6,920 $ 21,408 $ 28,328
========= ========= ======= ======= =========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period:
Interest............. $ 5,641 $ 2,476 $ 67 $ 8,184
Income taxes......... $ 7,434 $ 1,692 $ 9,126
Supplemental disclosure
of non-cash investing
and financing
activities:
The Company acquired the
net assets and assumed
certain liabilities of
other companies as
follows:
Assets, net of cash
acquired.............. $ 681,725 $ 9,344 $ 691,069
Liabilities assumed.... (264,656) (264,656)
Less:
Amounts paid in
common stock and
warrants............ (47,535) (47,535)
--------- --------- ------- ------- ---------
Net cash paid...... $ 369,534 $ 9,344 $ 378,878
========= ========= ======= ======= =========
10. Subsequent Events
Completed Acquisitions
Subsequent to June 30, 1999 (through July 27, 1999), the Company completed
the acquisitions of six equipment rental companies. The aggregate
consideration paid by the Company for these acquisitions was $17.0 million in
cash. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in such acquisitions in the aggregate amount of $2.7
million. The Company funded the consideration for these acquisitions with
borrowings under the Company's Credit Facility.
Series B Perpetual Convertible Preferred Stock
On July 16, 1999, Holdings signed a definitive agreement to sell an
aggregate of 50,000 additional shares of its Series B Preferred. The closing
of this transaction is subject to certain closing conditions. The net proceeds
from the sale of the Series B Preferred to be issued in this transaction is
expected to be approximately $48.0
24
million. The Series B Preferred to be issued in this transaction will be
convertible into 1,666,667 shares of Holdings common stock at $30.00 per share
based upon a liquidation preference of $1,000 per share of Series B Preferred,
subject to adjustment.
Term Loan
In July and August 1999, URI obtained, in aggregate, a $450 million term
loan from a group of financial institutions (the "Term Loan C"). The Term Loan
C matures in July 2006. URI used the net proceeds from the Term Loan C to
repay a portion of the outstanding indebtedness under the Credit Facility.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion reviews the Company's operations for the six and
three months ended June 30, 1999 and 1998 and should be read in conjunction
with the Unaudited Consolidated Financial Statements and related Notes thereto
of the Company included herein and the Consolidated Financial Statements and
related Notes thereto included in the Company's 1998 Annual Report on Form 10-
K.
Introduction
The Company commenced equipment rental operations in October 1997 and has
completed 153 acquisitions (through July 27, 1999), including a merger with
U.S. Rentals (the "U.S. Rentals Merger") which was completed in September
1998.
Three of the acquisitions completed by the Company (including the U.S.
Rentals Merger) were accounted for as "poolings-of-interests," and the
Company's financial statements have been restated to include the accounts of
two of the companies acquired in such transactions (but were not restated for
one that was not material, which has been combined with the Company effective
July 1, 1998). See Note 2 to the Notes to the Unaudited Consolidated Financial
Statements of the Company included elsewhere herein. The other 150
acquisitions completed by the Company were accounted for as "purchases". The
results of operations of the businesses acquired in these acquisitions are
included in the Company's financial statements only from their respective
dates of acquisition. In view of the fact that the Company's operating results
for 1999 and 1998 were impacted by acquisitions that were accounted for as
purchases, the Company believes that the results of its operations for such
periods are not directly comparable.
United Rentals, Inc. ("Holdings") is principally a holding company and
primarily conducts its operations through its wholly owned subsidiary, United
Rentals (North America), Inc. ("URI"), and subsidiaries of URI.
General
The Company primarily derives revenues from the following sources: (i)
equipment rental (including additional fees that may be charged for equipment
delivery, fuel, repair of rental equipment, and damage waivers), (ii) the sale
of rental equipment, (iii) the sale of new equipment and (iv) the sale of
related merchandise and parts.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of rental and new equipment sold, personnel costs, occupancy costs and
supplies.
The Company records rental equipment expenditures at cost and depreciates
equipment using the straight-line method over the estimated useful life (which
ranges from 2 to 10 years), after giving effect to an estimated salvage value
of 0% to 10% of cost.
Selling, general and administrative expenses primarily include sales
commissions, advertising and marketing expenses, management salaries, and
clerical and administrative overhead.
25
Non-rental depreciation and amortization includes (i) depreciation expense
associated with equipment that is not offered for rent (such as vehicles,
computers and office equipment) and amortization expense associated with
leasehold improvements and (ii) the amortization of intangible assets. The
Company's intangible assets include non-compete agreements and goodwill, which
represents the excess of the purchase price of acquired companies over the
estimated fair market value of the net assets acquired.
Results of Operations
Six Months Ended June 30, 1999 and 1998
Revenues. Total revenues for the six months ended June 30, 1999 were $896.0
million, representing an increase of 110.7% over total revenues of $425.2
million for the six months ended June 30, 1998. The Company's revenues in the
first six months of 1999 and 1998 were attributable to: (i) equipment rental
($643.3 million, or 71.8% of revenues, in the first six months of 1999
compared to $309.7 million, or 72.8% of revenues, in the first six months of
1998), (ii) sales of rental equipment ($87.2 million, or 9.7% of revenues, in
the first six months of 1999 compared to $43.2 million, or 10.2% of revenues,
in the first six months of 1998) and (iii) sales of new equipment, merchandise
and other revenues ($165.5 million, or 18.5% of revenues, in the first six
months of 1999 compared to $72.3 million, or 17.0% of revenues, in the first
six months of 1998).
The 110.7% increase in total revenues in the first six months of 1999
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 23.8 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 86.9 percentage points). The increase in
revenues at locations open more than one year primarily reflected (a) an
increase in the volume of rental transactions, (b) an expansion of the product
lines offered by the Company for sale, (c) an increase in the sale of related
merchandise and parts which was driven by the increase in equipment rental and
sales transactions and (d) an increase in the sale of used equipment in order
to maintain the quality of the Company's rental fleet.
Gross Profit. Gross profit increased to $318.1 million in the first six
months of 1999 from $135.3 million in the first six months of 1998. This
increase in gross profit was primarily attributable to the increase in
revenues described above. The Company's gross profit margin by source of
revenue in the first six months of 1999 and 1998 was: (i) equipment rental
(37.3% in the first six months of 1999 and 31.9% in the first six months of
1998), (ii) sales of rental equipment (42.7% in the first six months of 1999
and 47.8% in the first six months of 1998) and (iii) sales of new equipment,
merchandise and other revenues (24.6% in the first six months of 1999 and
22.0% in the first six months of 1998). The increase in the gross profit
margin from rental revenues in the first six months of 1999 was primarily
attributable to greater equipment utilization rates and to economies of scale.
The decrease in the gross profit margin from the sales of rental equipment in
the first six months of 1999 primarily reflected a shift in mix towards more
late-model used equipment, which generally generates lower gross profit
margins than somewhat older equipment. The increase in the gross profit margin
from sales of new equipment, merchandise and other revenue in the first six
months of 1999 primarily reflected the benefits of greater purchasing power
and a shift in the sales mix to higher margin items.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $149.9 million, or 16.7% of total
revenues, during the first six months of 1999 and $68.4 million, or 16.1% of
total revenues, during the first six months of 1998. The increase in SG&A as a
percentage of revenues in the first six months of 1999 principally reflected
an $8.3 million charge primarily due to professional fees incurred in
connection with the Company's terminated tender offer and consent and proxy
solicitation for Rental Service Corporation, ("RSC"), which offset certain
economies of scale related to the increase in revenues described above.
Non-rental Depreciation. Non-rental depreciation was $10.8 million, or 1.2%
of total revenues, in the first six months of 1999 and $9.4 million, or 2.2%
of total revenues, in the first six months of 1998. Non-rental depreciation
primarily consists of depreciation expense attributable to equipment not
offered for rent and to rental
26
facility locations. The decrease in non-rental depreciation as a percentage of
sales in 1999 primarily reflected economies of scale related to the increase
in revenues described above.
Amortization. Amortization was $15.7 million, or 1.8% of total revenues,
during the first six months of 1999, and $3.1 million, or 0.7% of total
revenues, during the first six months of 1998. The increase in amortization in
1999 primarily reflected the amortization of goodwill attributable to the
acquisitions completed subsequent to June 30, 1998.
Interest Expense. Interest expense increased to $51.3 million in the first
six months of 1999 from $15.2 million in the first six months of 1998. This
increase primarily reflected the fact that the Company's indebtedness
significantly increased in 1999, principally to fund acquisitions.
Preferred Dividends of a Subsidiary Trust. During the first six months of
1999, preferred dividends of a subsidiary trust of Holdings were $9.8 million.
These dividends relate to preferred securities issued in August 1998 by such
subsidiary trust.
Other (Income) Expense. Other expense was $9.2 million in the first six
months of 1999 compared with $4.2 million in other income in the first six
months of 1998. The increase in other expense in the first six months of 1999
primarily reflected a $10.0 million charge that was principally due to
commitment fees incurred in connection with a $2.0 billion financing
commitment that was cancelled upon the termination of the Company's tender
offer for RSC.
Income Taxes. Income taxes increased to $29.3 million, or an effective rate
of 41.0%, in the first six months of 1999 from $16.5 million, or an effective
rate of 37.9%, in the first six months of 1998. The lower effective tax rate
in the first six months of 1998 primarily reflected the fact that a business
that the Company acquired in 1998 in a transaction that was accounted for as a
pooling-of-interests was taxed as a Subchapter S Corporation for federal and
state tax purposes prior to being acquired.
Three Months Ended June 30, 1999 and 1998
Revenues. Total revenues for the three months ended June 30, 1999 were
$503.7 million, representing an increase of 98.3% over total revenues of
$254.0 million for the three months ended June 30, 1998. The Company's
revenues in the three months ended June 30, 1999 and 1998 were attributable
to: (i) equipment rental ($354.9 million, or 70.5% of revenues, in the three
months ended June 30, 1999 compared to $183.1 million, or 72.1% of revenues,
in the three months ended June 30, 1998), (ii) sales of rental equipment
($51.3 million, or 10.2% of revenues, in the three months ended June 30, 1999
compared to $27.2 million, or 10.7% of revenues, in the three months ended
June 30, 1998) and (iii) sales of new equipment, merchandise and other
revenues ($97.5 million, or 19.3% of revenues, in the three months ended June
30, 1999 compared to $43.8 million, or 17.2% of revenues, in the three months
ended June 30, 1998).
The 98.3% increase in total revenues in the three months ended June 30, 1999
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 22.2 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 76.1 percentage points). The increase in
revenues at locations open more than one year primarily reflected (a) an
increase in the volume of rental transactions, (b) an expansion of the product
lines offered by the Company for sale, (c) an increase in the sale of related
merchandise and parts which was driven by the increase in equipment rental and
sales transactions and (d) an increase in the sale of used equipment in order
to maintain the quality of the Company's rental fleet.
Gross Profit. Gross profit increased to $184.1 million in the three months
ended June 30, 1999 from $87.4 million in the three months ended June 30,
1998. This increase in gross profit was primarily attributable to the
27
increase in revenues described above. The Company's gross profit margin by
source of revenue in the three months ended June 30, 1999 and 1998 was: (i)
equipment rental (38.5% in the three months ended June 30, 1999 and 35.3% in
the three months ended June 30, 1998), (ii) sales of rental equipment (43.3%
in the three months ended June 30, 1999 and 46.5% in the three months ended
June 30, 1998) and (iii) sales of new equipment, merchandise and other
revenues (25.9% in the three months ended June 30, 1999 and 23.3% in the three
months ended June 30, 1998). The increase in the gross profit margin from
rental revenues in the three months ended June 30, 1999 was primarily
attributable to greater equipment utilization rates and to economies of scale.
The decrease in the gross profit margin from the sales of rental equipment in
the three months ended June 30, 1999 primarily reflected a shift in mix
towards more late-model used equipment, which generally generates lower gross
profit margins than somewhat older equipment. The increase in the gross profit
margin from sales of new equipment, merchandise and other revenue in the three
months ended June 30, 1999 primarily reflected the benefits of greater
purchasing power and a shift in the sales mix to higher margin items.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $84.6 million, or 16.8% of total
revenues, during the three months ended June 30, 1999 and $42.2 million, or
16.6% of total revenues, during the three months ended June 30, 1998. The
increase in SG&A as a percentage of revenues in the three months ended June
30, 1999, principally reflected an $8.3 million charge primarily due to
professional fees incurred in connection with the Company's terminated tender
offer and consent and proxy solicitation for RSC, which offset certain
economies of scale related to the increase in revenues.
Non-rental Depreciation. Non-rental depreciation was $5.6 million, or 1.1%
of total revenues, in the three months ended June 30, 1999 and $4.9 million,
or 1.9% of total revenues, in the three months ended June 30, 1998. Non-rental
depreciation primarily consists of depreciation expense attributable to
equipment not offered for rent and to rental facility locations. The decrease
in non-rental depreciation as a percentage of sales in 1999 primarily
reflected economies of scale related to the increase in revenues described
above.
Amortization. Amortization was $8.8 million, or 1.7% of total revenues,
during the three months ended June 30, 1999, and $2.1 million, or 0.8% of
total revenues, during the three months ended June 30, 1998. The increase in
amortization in 1999 primarily reflected the amortization of goodwill
attributable to the acquisitions completed subsequent to June 30, 1998.
Interest Expense. Interest expense increased to $26.9 million in the three
months ended June 30, 1999 from $9.5 million in the three months ended June
30, 1998. This increase primarily reflected the fact that the Company's
indebtedness significantly increased in 1999, principally to fund
acquisitions.
Preferred Dividends of a Subsidiary Trust. During the three months ended
June 30, 1999, preferred dividends of a subsidiary trust of Holdings were $4.9
million. These dividends relate to preferred securities issued in August 1998
by such subsidiary trust.
Other (Income) Expense. Other expense was $9.4 million in the three months
ended June 30, 1999 compared with $3.4 million in other income in the three
months ended June 30, 1998. The increase in other expense in the three months
ended June 30, 1999, primarily reflected a $10.0 million charge principally
due to commitment fees incurred in connection with a $2.0 billion financing
commitment that was cancelled upon the termination of the Company's tender
offer for RSC.
Income Taxes. Income taxes increased to $18.0 million, or an effective rate
of 41.0%, in the three months ended June 30, 1999 from $11.9 million, or an
effective rate of 36.9%, in the three months ended June 30, 1998. The lower
effective tax rate in the three months ended June 30, 1998 primarily reflected
the fact that a business that the Company acquired in 1998 in a transaction
that was accounted for as a pooling-of-interests was taxed as a Subchapter S
Corporation for federal and state tax purposes prior to being acquired.
28
Liquidity and Capital Resources
Recent Financings
Set forth below is certain information concerning certain financing
transactions entered into by the Company during 1999.
Series A Perpetual Convertible Preferred Stock. In January 1999, Holdings
sold 300,000 shares of its Series A Perpetual Convertible Preferred Stock
("Series A Preferred") to Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P. (collectively "Apollo"). The net proceeds from the sale of
the Series A Preferred were approximately $287.0 million (after deducting
issuance fees and expenses).
Common Stock. In March 1999, Holdings completed a public offering of
2,290,000 shares of its common stock. The net proceeds to the Company from
this offering were approximately $64.8 million (after deducting underwriting
discounts and offering expenses).
9% Senior Subordinated Notes. In March 1999, URI sold $250 million aggregate
principal amount of 9% Senior Subordinated Notes Due 2009 ("9% Notes") for
aggregate consideration of $245.0 million (after deducting the initial
purchaser's discount and offering expenses). The 9% Notes are unsecured. URI
may, at its option, redeem the 9% Notes on or after April 1, 2004 at specified
redemption prices which range from 104.50% in 2004 to 100.00% in 2007 and
thereafter. In addition, on or prior to April 1, 2002, URI may, at its option,
use the proceeds of a public equity offering by Holdings to redeem up to 35%
of the outstanding 9% Notes, at a redemption price of 109.00%. The indenture
governing the 9% Notes contains certain restrictive covenants, including (i)
limitations on additional indebtedness, (ii) limitations on restricted
payments, (iii) limitations on liens, (iv) limitations on dividends and other
payment restrictions, (v) limitations on preferred stock of certain
subsidiaries, (vi) limitations on transactions with affiliates, (vii)
limitations on the disposition of proceeds of asset sales and (viii)
limitations on the ability of the Company to consolidate, merge or sell all or
substantially all of its assets.
Series B Perpetual Convertible Preferred Stock. The Company has entered into
(i) a definitive agreement with Apollo which provides for the Company to sell
to Apollo 100,000 shares of the Company's Series B Perpetual Convertible
Preferred Stock ("Series B Preferred") and (ii) a definitive agreement with
Chase Equity Associates, L.P. ("Chase") which provides for the Company to sell
to Chase 50,000 shares of Series B Preferred. The closing of each of these
transactions is subject to the satisfaction of certain closing conditions. The
Company expects that it will receive net proceeds of $96 million from the
transaction with Apollo and $48 million from the transaction with Chase. Each
share of Series B Preferred will be convertible into 33 1/3 shares of the
Company's Common Stock (representing a conversion price of $30 per share based
on the liquidation preference of $30 per share of Series B Preferred), subject
to adjustment.
Term Loan. In July and August 1999, URI obtained in aggregate, a $450
million term loan from a group of financial institutions (the "Term Loan C").
The Term Loan C matures in June 2006. URI used the net proceeds from the Term
Loan C to repay a portion of the outstanding indebtedness under the Company's
revolving credit facility (the "Credit Facility"). Prior to maturity,
quarterly installments of principal in the amount of $1,125,000 are due on the
last day of each calendar quarter, commencing September 30, 2000. The amount
due at maturity is $424,125,000. The Term Loan C accrues interest, at URI's
option, at either (a) the Base Rate (which is equal to the greater of (i) the
Federal Funds Rate plus 0.5% or (ii) Bank of America's referenced rate) plus a
margin of 0.625% per annum, or (b) the Eurodollar Rate (which for borrowings
by URI is equal to Bank of America's reserve adjusted eurodollar rate) plus a
margin of 2.50% per annum. If at any time an event of default exists, the
interest rate applicable to URI's existing term loan and the Term Loan C will
increase by 2% per annum. The Term Loan C is secured pari passu with the
Credit Facility and URI's existing term loan, and the agreement governing the
Term Loan C contains restrictive covenants substantially similar to those
provided by the Credit Facility and URI's existing term loan.
29
Sources and Uses of Cash
During the first six months of 1999, the Company (i) generated cash from
operations of approximately $173.5 million, (ii) generated cash from the sale
of rental equipment of approximately $87.2 million, (iii) received net
proceeds of $287.0 million from the sale of the Series A Preferred, (iv)
received net proceeds of $65.2 million from the issuance of common stock and
(v) received net proceeds of $245.0 million from the sale of the 9% Notes. The
Company used cash during this period principally to (i) pay consideration for
acquisitions (approximately $587.6 million), (ii) purchase rental equipment
(approximately $390.7 million) and (iii) purchase other property and equipment
(approximately $52.8 million).
Certain Balance Sheet Changes
The acquisitions and the equipment purchases made by the Company in the
first six months of 1999 (and the financing of such acquisitions and
purchases) were the principal reasons for the increase in the following items
at June 30, 1999 compared with December 31, 1998: accounts receivable,
inventory, prepaid expenses and other assets, rental equipment, property and
equipment, intangible assets, accounts payable, debt and accrued expenses and
other liabilities. The financing transactions completed by the Company during
the first six months of 1999 were the principal reasons for (i) the decrease
in cash and the increase in debt at June 30, 1999, compared with December 31,
1998 and (ii) the increase in additional paid-in capital at June 30, 1999,
compared with December 31, 1998.
Certain Information Concerning the Company's Credit Facility
URI has a revolving credit facility (the "Credit Facility") that enables URI
to borrow up to $772.5 million on a revolving basis and permits a Canadian
subsidiary of URI to directly borrow up to $40.0 million under the Credit
Facility (provided that the aggregate borrowings of URI and the Canadian
subsidiary do not exceed $772.5 million). The Credit Facility terminates on
September 26, 2003, at which time all outstanding indebtedness is due. As of
August 12, 1999, there was $458.0 million of indebtedness outstanding under
the Credit Facility (not including undrawn outstanding letters of credit in
the amount of $3.8 million).
Cash Requirements Related to Operations
The Company's principal existing sources of cash are (i) borrowings
available under the Credit Facility ($310.7 million available as of August 12,
1999), (ii) cash generated from operations and (iii) the net proceeds that the
Company expects to receive from the sale of its Series B Preferred as
described above.
The Company expects that its principal needs for cash relating to its
existing operations over the next 12 months will be to fund (i) operating
activities and working capital, (ii) the purchase of rental equipment and
inventory of items offered for sale and (iii) debt service. The Company plans
to fund such cash requirements relating to its existing operations from its
existing sources of cash described above.
The Company estimates that equipment expenditures over the next 12 months
will be approximately $550.0 million for the existing operations of the
Company. These expenditures are comprised of approximately $310.0 million of
expenditures to maintain the average age of the Company's rental fleet and
$240.0 million of discretionary expenditures to increase the size of the
Company's rental fleet. The Company expects that it will fund such
expenditures from a combination of approximately $200.0 million of proceeds
expected to be generated from the sale of used equipment, cash generated from
operations and, if required, borrowings available under the Credit Facility.
In addition, the Company expects that it will be required to make equipment
expenditures in connection with new acquisitions. The Company cannot quantify
at this time the amount of equipment expenditures that will be required in
connection with new acquisitions.
30
Principal elements of the Company's strategy include continued expansion
through a disciplined acquisition program and the opening of new rental
locations. The Company expects to pay for future acquisitions using cash,
capital stock, notes and/or assumption of indebtedness. To the extent that the
Company's existing sources of cash described above are not sufficient to fund
such future acquisitions, the Company will require additional financing and,
consequently, the Company's indebtedness may increase as the Company
implements its growth strategy. There can be no assurance, however, that any
additional financing will be available or, if available, will be on terms
satisfactory to the Company.
Based upon the terms of the Company's currently outstanding indebtedness,
the Company is scheduled to repay approximately $14.3 million during 1999.
Relationship Between Holdings and URI
Holdings is principally a holding company and primarily conducts its
operations through its wholly owned subsidiary URI and subsidiaries of URI.
Holdings provides certain services to URI in connection with its operations.
These services principally include: (i) senior management services, (ii)
finance related services and support, (iii) information technology systems and
support and (iv) acquisition related services. In addition, Holdings leases
certain equipment and real property that are made available for use by URI and
its subsidiaries. URI has made, and expects to continue to make, certain
payments to Holdings in respect of the services provided by Holdings to the
Company. The expenses relating to URI's payments to Holdings are reflected on
URI's financial statements as selling, general and administrative expenses. In
addition, although not legally obligated to do so, URI has in the past, and
expects that it will in the future, make distributions to Holdings to, among
other things, enable Holdings to pay dividends on certain preferred securities
(the "Trust Preferred Securities") that were issued by a subsidiary trust of
Holdings in August 1998.
The Trust Preferred Securities are the obligation of a subsidiary trust of
Holdings and are not the obligation of URI. As a result, the dividends payable
on these securities are reflected as an expense on the consolidated financial
statements of Holdings, but are not reflected as an expense on the
consolidated financial statements of URI. This is the principal reason why the
net income reported on the consolidated financial statements of URI is higher
than the net income reported on the consolidated financial statements of
Holdings.
Year 2000 Compliance
The Company has been informed by its software vendors that the Company's
recently installed information technology systems are year 2000 compliant. The
Company has, therefore, not developed any contingency plans relating to year
2000 issues and has not budgeted any funds for year 2000 issues. Although the
Company believes that its systems are year 2000 compliant, there can be no
assurance that unanticipated year 2000 problems will not arise which,
depending on the nature and magnitude of the problem, could have a material
adverse effect on the Company's business and financial condition. Furthermore,
year 2000 problems involving third parties may have a negative impact on the
Company's customers or suppliers, the general economy or on the ability of
businesses generally to receive essential services (such as
telecommunications, banking services, etc.). Any such problem could have a
material adverse effect on the Company's business and financial condition. The
Company is unable at this time to assess the possible impact on its business
of year 2000 problems involving any third party.
Fluctuations in Operating Results
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter or over the longer term due to a number of factors,
including: seasonal rental patterns of the Company's customers (with rental
activity tending to be lower in the winter); changes in general economic
conditions in the Company's markets; the timing of acquisitions and the
opening of start-up locations and related costs; the effect of the integration
of acquired businesses and start-up locations; the timing of expenditures for
new equipment and the disposition of used equipment; changes in demand for the
Company's equipment or the prices therefor due to changes in economic
conditions, competition or other factors.
31
The Company is continually involved in the investigation and evaluation of
potential acquisitions. In accordance with generally accepted accounting
principles, the Company capitalizes certain direct out-of-pocket expenditures
(such as legal and accounting fees) relating to potential or pending
acquisitions. Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, are expensed
as incurred. The Company's policy is to charge against earnings any
capitalized expenditures relating to any potential or pending acquisition that
the Company determines will not be consummated. There can be no assurance that
the Company in future periods will not be required to incur a charge against
earnings in accordance with such policy, which charge, depending upon the
magnitude thereof, could adversely affect the Company's results of operations.
The Company will be required to incur significant start-up expenses in
connection with establishing each start-up location. Such expenses may
include, among others, pre-opening expenses related to setting up the
facility, and expenses in connection with training employees, installing
information systems and marketing. The Company expects that, in general,
start-up locations will initially operate at a loss or at less than normalized
profit levels. Consequently, the opening of a start-up location may negatively
impact the Company's margins until the location achieves normalized
profitability.
There may be a lag between the time that the Company purchases new equipment
and begins to incur the related depreciation and interest expenses and the
time that the equipment begins to generate revenues at normalized rates. As a
result, the purchase of new equipment, particularly equipment purchased in
connection with expanding and diversifying the Company's rental equipment, may
periodically reduce margins.
General Economic Conditions and Inflation
The Company's operating results may be adversely affected by (i) changes in
general economic conditions, including changes in construction and industrial
activity, or increases in interest rates, or (ii) adverse weather conditions
that may temporarily decrease construction and industrial activity in a
particular geographic area. Although the Company cannot accurately anticipate
the effect of inflation on its operations, the Company believes that inflation
has not had, and is not likely in the foreseeable future to have, a material
impact on its results of operations.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities. The Company will adopt SFAS
No. 133 beginning January 1, 2001. The adoption of SFAS No. 133 is not
expected to have a material effect on the Company's consolidated financial
position or results of operations.
Factors that May Influence Future Results and Accuracy of Forward-Looking
Statements
Sensitivity to Changes in Construction and Industrial Activities
Our equipment is principally used in connection with construction and
industrial activities. Consequently, a downturn in construction or industrial
activity may lead to a decrease in demand for our equipment, which could
adversely affect our business. We have identified below certain of the factors
which may cause such a downturn, either temporarily or long-term:
.a general slow-down of the economy;
.an increase in interest rates; or
.adverse weather conditions which may temporarily affect a particular
region.
32
Acquired Companies not Historically Operated as a Combined Business
The businesses that we acquired have been in existence an average of 29
years and some have been in existence for more than 50 years. However, these
businesses were not historically managed or operated as a single business.
Although we believe that we can successfully manage and operate the acquired
businesses as a single business, we cannot be certain of this.
Limited Operating History
We commenced equipment rental operations in October 1997 and have grown
through a combination of internal growth and the acquisition of 153 companies
(through July 27, 1999), including a merger in September 1998 with U.S.
Rentals. Due to the relatively recent commencement of our operations, we have
only a limited history upon which you can base an assessment of our business
and prospects.
Risks Relating to Growth Strategy
Key elements of our growth strategy are to continue to expand through a
combination of internal growth, a disciplined acquisition program and the
opening of new rental locations. We have identified below some of the risks
relating to our growth strategy:
Availability of Acquisition Targets and Sites for Start-Up Locations. We may
encounter substantial competition in our efforts to acquire additional rental
companies and sites for start-up locations. Such competition could have the
effect of increasing the prices that we will have to pay in order to acquire
such businesses and sites. We cannot guarantee that any additional businesses
or sites that we may wish to acquire will be available to us on terms that are
acceptable to us.
Need to Integrate New Operations. Our ability to realize the expected
benefits from completed and future acquisitions depends, in large part, on our
ability to integrate new operations with our existing operations in a timely
and effective manner. Accordingly, we devote substantial efforts to the
integration of new operations. We cannot, however, guarantee that these
efforts will always be successful. In addition, under certain circumstances,
these efforts could adversely affect our existing operations.
Debt Covenants. Certain of the agreements governing our outstanding
indebtedness provide that we may not make acquisitions unless certain
financial conditions are satisfied or the consent of the lenders is obtained.
Our ability to grow through acquisitions may be constrained as a result of
these provisions.
Certain Risks Related to Start-Up Locations. We expect that start-up
locations may initially have a negative impact on our results of operations
and margins for a number of reasons, including that (1) we will incur
significant start-up expenses in connection with establishing each start-up
location and (2) it will generally take some time following the commencement
of operations for a start-up location to become profitable. Although we
believe that start-ups can generate long-term growth, we cannot guarantee that
any start-up location will become profitable within any specific time period,
if at all.
Dependence on Additional Capital to Finance Growth
We will require substantial capital in order to execute our growth strategy.
We will require capital for, among other purposes, completing acquisitions,
establishing new rental locations, and acquiring rental equipment. If the cash
that we generate from our business, together with cash that we may borrow
under our credit facility, is not sufficient to fund our capital requirements,
we will require additional debt and/or equity financing. We cannot, however,
be certain that any additional financing will be available or, if available,
will be available on terms that are satisfactory to us. If we are unable to
obtain sufficient additional capital in the future, our ability to implement
our growth strategy could be limited.
33
Possible Undiscovered Liabilities of Acquired Companies
Prior to making an acquisition, we seek to assess the liabilities of the
target company that we will become responsible for as a result of the
acquisition. Nevertheless, we may fail to discover certain of such
liabilities. We seek to reduce our risk relating to these possible hidden
liabilities by generally obtaining the agreement of the seller to idemnify and
reimburse us in the event that we discover any material hidden liabilities.
However, this type of agreement, if obtained, may not fully protect us against
hidden liabilities because (1) the seller's obligation to reimburse us is
generally limited in duration and/or amount and (2) the seller may not have
sufficient financial resources to reimburse us. Furthermore, when we acquire a
public company (such as when we acquired U.S. Rentals) we generally do not
obtain this type of agreement.
Dependence on Management
We are highly dependent upon our senior management team. Consequently, our
business could be adversely affected in the event that we lose the services of
any member of senior management. Furthermore, if we lose the services of
certain members of senior management, it is an event of default under the
agreements governing our credit facility and certain of our other
indebtedness, unless we appoint replacement officers satisfactory to the
lenders within 30 days. We do not maintain "key man" life insurance with
respect to members of senior management.
Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include small, independent businesses with one or two
rental locations; regional competitors which operate in one or more states;
public companies or divisions of public companies; and equipment vendors and
dealers who both sell and rent equipment directly to customers. We may in the
future encounter increased competition from our existing competitors or from
new companies. In addition, certain equipment manufacturers may commence (or
increase their existing efforts relating to) renting and selling equipment
directly to our customers.
Fluctuations of Operating Results
We expect that our revenues and operating results may fluctuate from quarter
to quarter or over the longer term due to a number of factors, including:
. seasonal rental patterns of our customers--with rental activity tending
to be lower in the winter;
. changes in general economic conditions in our markets, including changes
in construction and industrial activities;
. the timing of acquisitions, new location openings, and related
expenditures;
. the effect of the integration of acquired businesses and start-up
locations;
. if we determine that a potential acquisition will not be consummated,
the need to charge against earnings any expenditures relating to such
transaction (such as financing commitment fees, merger and acquisition
advisory fees and professional fees) previously capitalized;
. the timing of expenditures for new equipment and the disposition of used
equipment; and
. changes in demand for our equipment or the prices therefor due to
changes in economic conditions, competition or other factors.
Liability and Insurance
We are exposed to various possible claims relating to our business. These
include claims relating to (1) personal injury or death caused by equipment
rented or sold by us, (2) motor vehicle accidents involving our delivery and
service personnel and (3) employment related claims. We carry a broad range of
insurance for the
34
protection of our assets and operations. However, such insurance may not fully
protect us for a number of reasons, including:
. our coverage is subject to a deductible of $0.5 million and limited to a
maximum of $97 million per occurrence;
. we do not maintain coverage for environmental liability, since we
believe that the cost for such coverage is high relative to the benefit
that it provides; and
. certain types of claims, such as claims for punitive damages or for
damages arising from intentional misconduct, which are often alleged in
third party lawsuits, might not be covered by our insurance.
We cannot be certain that insurance will continue to be available to us on
economically reasonable terms, if at all.
Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing
environmental protection and occupational health and safety matters. These
include laws and regulations that govern wastewater discharges, the use,
treatment, storage and disposal of solid and hazardous wastes and materials,
air quality and the remediation of contamination associated with the release
of hazardous substances. Under these laws, an owner or lessee of real estate
may be liable for, among other things, (1) the costs of removal or remediation
of hazardous or toxic substances located on, in, or emanating from, the real
estate, as well as related costs of investigation and property damage and
substantial penalties, and (2) environmental contamination at facilities where
its waste is or has been disposed. These laws often impose liability whether
or not the owner or lessee knew of the presence of the hazardous or toxic
substances and whether or not the owner or lessee was responsible for these
substances. Our activities that are or may be affected by these laws include
our use of hazardous materials to clean and maintain equipment and our
disposal of solid and hazardous waste and wastewater from equipment washing.
We also dispense petroleum products from underground and above-ground storage
tanks located at certain rental locations, and at times we must remove or
upgrade tanks to comply with applicable laws. Furthermore, we have acquired or
lease certain locations which have or may have been contaminated by leakage
from underground tanks or other sources and are in the process of assessing
the nature of the required remediation. Based on the conditions currently
known to us, we believe that any unreserved environmental remediation and
compliance costs required with respect to those conditions will not have a
material adverse effect on our business. However, we cannot be certain that we
will not identify adverse environmental conditions that are not currently
known to us, that all potential releases from underground storage tanks
removed in the past have been identified, or that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. If we are required to incur environmental
compliance or remediation costs that are not currently anticipated by us, our
business could be adversely affected depending on the magnitude of the cost.
Risks Related to International Operations
Our operations outside the United States are subject to risks normally
associated with international operations. These include the need to convert
currencies, which could result in a gain or loss depending on fluctuations in
exchange rates, and the need to comply with foreign laws.
Dependence on Information Technology Systems
Our ability to monitor and control our operations depends to a large extent
on the proper functioning of our recently-installed information technology
systems. Any disruption in these systems or the failure of these systems to
operate as expected could, depending on the magnitude and duration of the
problem, adversely affect our business and our ability to implement our growth
strategy.
Year 2000 Issues
Our software vendors have informed us that our recently-installed
information technology systems are year 2000 compliant. We have, therefore,
not developed any contingency plans relating to year 2000 issues and have
35
not budgeted any funds for year 2000 issues. Although we believe that our
systems are year 2000 compliant, unanticipated year 2000 problems may arise
which, depending on the nature and magnitude of the problem, could adversely
affect our business. Furthermore, year 2000 problems involving third parties
may have a negative impact on our customers or suppliers, the general economy
or on the ability of businesses generally to receive essential services (such
as telecommunications, banking services, etc.). Any such problem could
adversely affect our business. We are unable at this time to assess the
possible impact on our business of year 2000 problems involving any third
party.
Restrictive Covenants
The agreements governing our existing long-term indebtedness contain, and
future agreements governing our long-term indebtedness may also contain,
certain restrictive financial and operating covenants which affect, and in
many respects significantly limit or prohibit, among other things, our ability
to incur indebtedness, make prepayments of certain indebtedness, make
investments, create liens, make acquisitions, sell assets and engage in
mergers and consolidations. These covenants may significantly limit our
operating and financial flexibility.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to changes in interest rates and foreign currency
exchanges rates were reported in Item 7A of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. There has been no material
change in these market risks since the end of the fiscal year 1998.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Termination of Litigation Relating to Tender Offer
On April 5, 1999, the Company, through its wholly owned subsidiary, UR
Acquisition Corporation ("UR Acquisition"), commenced a tender offer to
purchase all outstanding shares of common stock of Rental Service Corporation
("RSC"). On June 28, 1999, the Company terminated this tender offer. In
connection with the tender offer, the Company became a party to three separate
actions in Delaware, Connecticut and Florida (as previously reported in the
Company's Report on Form 10-Q for the quarterly period ended March 31, 1999).
Each of these actions has been dismissed and the Company is no longer involved
in any litigation concerning the tender offer.
General Litigation
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material effect on the business or financial
condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities
Set forth below is certain information concerning sales by the Company of
unregistered securities during the second quarter of 1999. The issuances by
the Company of the securities sold in the transactions referenced below were
not registered under the Securities Act of 1933, pursuant to the exemption
contemplated by Section 4(2) thereof for transactions not involving a public
offering.
1. In April 1999, the Company issued 1,584 shares of common stock to an
executive officer pursuant to an employment agreement.
2. In May 1999, the Company issued, in connection with one acquisition,
convertible notes in the aggregate principal amount of $5,000,000 which
provide for a weighted average conversion price of $35.68 per share.
3. In May 1999, the Company issued, in connection with two acquisitions,
300,000 warrants which provide for a weighted average exercise price of
$30.42 per share.
36
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on June 3, 1999. The
holders of 65,262,231 common shares and 300,000 Series A Perpetual Convertible
Preferred Shares were present either in person or by proxy. There were no
broker non-votes at the meeting. The following three matters were voted on and
approved at such meeting.
1. The election of three members to the Board of Directors by the holders
of the Company's common stock.
For Withheld
---------- --------
Wayland R. Hicks............................... 64,557,932 704,299
John S. McKinney............................... 64,557,962 704,269
Gerald Tsai, Jr. .............................. 64,557,674 704,557
2. The election of two members to the Board of Directors by the holders of
the Company's Series A Perpetual Convertible Preferred Stock.
For Withheld
---------- --------
Leon D. Black.................................. 300,000 0
Michael S. Gross............................... 300,000 0
3. The ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31,
1999.
For Abstain Against
---------- -------- -------
64,959,340 78,050 224,841
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description of Exhibit
------- ----------------------
3(a) Amended and Restated Certificate of Incorporation of United Rentals,
Inc., in effect as of the date hereof (incorporated by reference to
exhibit 3.1 of United Rentals, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
3(b) Certificate of Amendment to the United Rentals, Inc. Certificate of
Incorporation dated September 29, 1998 (incorporated by reference to
Exhibit 4.2 to the United Rentals, Inc. Registration Statement on Form
S-3, No. 333-70151).
3(c) By-laws of United Rentals, Inc., in effect as of the date hereof
(incorporated by reference to exhibit 3.2 of United Rentals, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
3(d) Form of Certificate of Designation for Series A Perpetual Convertible
Preferred Stock (incorporated by reference to Exhibit 4(k) to the
United Rentals, Inc. Amendment No. 1 on Form S-3 to Registration
Statement on Form S-1, No. 333-64463).
3(e) Amended and Restated Certificate of Incorporation of United Rentals
(North America), Inc., in effect as of the date hereof (incorporated
by reference to Exhibit 3.3 of the United Rentals (North America),
Inc. Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
3(f) By-laws of United Rentals (North America), Inc., in effect as of the
date hereof (incorporated by reference to Exhibit 3.4 of the United
Rentals (North America), Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
37
Exhibit
Number Description of Exhibit
------- ----------------------
10(a) Commitment letter dated April 4, 1999 between United Rentals (North
America), Inc. and Goldman Sachs Credit Partners L.P. (incorporated by
reference to exhibit (b)(1) of United Rentals, Inc. Schedule 14D-1
dated April 5, 1999).
10(b) Preferred Stock Purchase Agreement, Series B Perpetual Convertible
Preferred Stock dated June 28, 1999 between United Rentals, Inc.,
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.,
including form of Certificate of Designation for Series B Perpetual
Convertible Preferred Stock and form of Amended and Restated
Registration Rights Agreement (incorporated by reference to exhibits
C, B and D of United Rentals, Inc. Proxy Statement on Schedule 14A
dated July 22, 1999).
10(c)* Preferred Stock Purchase Agreement, Series B Perpetual Convertible
Preferred Stock dated July 16, 1999 between United Rentals, Inc. and
Chase Equity Associates, L.P.
10(d)* Term Loan Agreement dated as of July 15, 1999 among United Rentals,
Inc., United Rentals (North America), Inc., various financial
institutions, Goldman Sachs Credit Partners L.P., as Syndication Agent
and Bank of America National Trust and Savings Association, as
Administrative Agent.
10(e)* First Amendment dated as of August 12, 1999, to Term Loan Agreement
dated as of July 15, 1999 among United Rentals, Inc., United Rentals
(North America), Inc., various financial institutions, Goldman Sachs
Credit Partners L.P., as syndication Agent and Bank of America
National Trust and Savings Association, as administrative Agent.
10(f)* Second Amendment dated as of July 14, 1999, to Term Loan Agreement
dated as of July 10, 1998 among United Rentals, Inc., United Rentals
(North America), Inc., various financial institutions and Bank of
America National Trust and Savings Association, as Agent.
10(g)* Second Amendment dated as of July 14, 1999, to Credit Agreement dated
as of September 29, 1998, between United Rentals, Inc., United Rentals
(North America), Inc., various financial institutions, Bank of America
Canada, as Canadian agent, and Bank of America National Trust and
Savings Association, as U.S. Agent.
27* Financial Data Schedule
27.1* Financial Data Schedule
- --------
*Filed herewith.
(b)Reports on Form 8-K: none
38
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
United Rentals, Inc.
Dated: August 12, 1999 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: August 12, 1999 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
United Rentals (North America), Inc.
Dated: August 12, 1999 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: August 12, 1999 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
39