-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DMULRZ9E9Fee2M2Pzho4ziYO87GHaZNY1QQAhuTzRJgNxvKOUtOBppaXjVte2u1g YdT0QrpY5bruTdbkTEMOmg== 0000950130-00-001778.txt : 20000331 0000950130-00-001778.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950130-00-001778 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RENTALS INC /DE CENTRAL INDEX KEY: 0001067701 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 061522496 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14387 FILM NUMBER: 586492 BUSINESS ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036223131 MAIL ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RENTALS NORTH AMERICA INC CENTRAL INDEX KEY: 0001047166 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 061493538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13663 FILM NUMBER: 586493 BUSINESS ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036223131 MAIL ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: UNITED RENTALS INC DATE OF NAME CHANGE: 19971020 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 Number 1-14387 United Rentals, Inc. Commission File Number 1-13663 United Rentals (North America), Inc. (Exact Names of Registrants as Specified in Their Charters) Delaware 06-1522496 Delaware 06-1493538 State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization Identification Nos.) Four Greenwich Office Park, Greenwich, Connecticut 06830 (Address of Principal Executive Offices) (Zip code) Registrants' telephone number, including area code: (203) 622-3131 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $.01 par value, of United Rentals, Inc. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 15, 2000, there were 72,062,743 shares of United Rentals, Inc. common stock outstanding. The aggregate market value of such common stock held by non-affiliates of the registrant at March 15, 2000 was approximately $623.8 million. Such aggregate market value was calculated by using the closing price of such common stock as of such date on the New York Stock Exchange ($13.81). There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc. Documents incorporated by reference: Certain sections of the Proxy Statement of United Rentals, Inc. to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of the registrant's fiscal year are incorporated by reference into Part III of this Form 10-K. This combined Form 10-K is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in general instruction I(1) (A) and (B) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by such instruction. FORM 10-K REPORT INDEX
10-K Part and Item No. Page No. ------------ -------- PART I Item 1 Business.............................................. 1 Item 2 Properties............................................ 8 Item 3 Legal Proceedings..................................... 8 Item 4 Submission of Matters to a Vote of Security Holders... 9 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters................................... 9 Item 6 Selected Financial Data............................... 10 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................... 11 Item 7A Quantitative and Qualitative Disclosures About Market Risk.................................................. 24 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 71 PART III Item 10 Directors and Executive Officers of the Registrant.... 71 Item 11 Executive and Director Compensation................... 71 Item 12 Security Ownership of Certain Beneficial Owners and Management............................................ 71 Item 13 Certain Relationships and Related Transactions........ 71 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................... 71
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. 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 company of URI on August 5, 1998, in connection with a reorganization of URI's corporate structure that was effected in order to facilitate certain financings. As part of such reorganization, the outstanding common stock of URI was converted, on a share for share basis, into common stock of Holdings and the common stock of Holdings commenced trading on the New York Stock Exchange instead of the common stock of URI. Prior to such reorganization, the name of United Rentals (North America), Inc. was United Rentals, Inc. Unless otherwise indicated or the context otherwise clearly requires, (i) the terms "we", "United Rentals" and the "Company" refer collectively to URI and its subsidiaries, with respect to periods prior to such reorganization, and to Holdings and its subsidiaries, with respect to periods thereafter, and (ii) the term "Common Stock" refers to the common stock of URI, with respect to periods prior to such reorganization, and to the common stock of Holdings, with respect to periods thereafter. Certain statements contained in this Report are forward-looking in nature. Such statements can be identified by the use of forward-looking terminology such as "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 such risks and uncertainties are discussed below under Item 7--"Management's Discussion and Analysis of Financial Condition and Result of Operations-- Factors that May Influence Future Results and Accuracy of Forward-Looking Statements." We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. PART I Unless otherwise indicated, the information under Items 1 and 2 is as of February 29, 2000. Item 1. Business General United Rentals is North America's largest equipment rental company with over 700 branches in 45 states, six Canadian provinces and Mexico. We offer for rent more than 600 different types of equipment to customers that include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. During the past year, we completed more than 6.4 million rental transactions and served over 1.1 million customers. We have the largest fleet of rental equipment in the world, with over 500,000 units having an original purchase price of approximately $3.0 billion. Our fleet includes: . light to heavy construction and industrial equipment, such as aerial lifts, backhoes, skid-steer loaders, forklifts, ditching equipment, earth moving equipment, material handling equipment, compressors, pumps and generators; . traffic control equipment, such as barricades, cones, warning lights, message boards and pavement marking systems; . trench safety equipment for below ground work, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers, and line testing equipment; 1 . special event equipment used for sporting, corporate and other large events, such as light towers, air conditioning units, portable power units, electrical cable, temporary kitchens and tents; and . general tools and equipment, such as power washers, water pumps, heaters and hand tools. In addition to renting equipment, we sell used rental equipment, act as a dealer for a wide variety of new equipment, and sell related merchandise, parts and service. We began operations in October 1997 and have grown through a combination of internal growth, acquisitions and the opening of new rental locations. In September 1998, we merged with U.S. Rentals, Inc. 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: Large and Diverse Rental Fleet. We have the largest and most comprehensive equipment rental fleet in the industry, which enables us to: . attract customers by providing "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; and . serve attractive specialty equipment rental markets, such as the traffic control equipment market which should benefit from a portion of the more than $200 billion allocated by the Transportation Equity Act for the 21st Century ("TEA-21") for the reconstruction of the nation's transportation infrastructure. Operating Efficiencies. We generally group our branches into clusters of 10 to 30 locations that are in the same geographic area. Our information technology system enables each branch to access all available equipment within a cluster. We believe that our cluster strategy produces significant operating efficiencies by enabling us to: (1) market the equipment within a cluster through multiple branches, (2) cross-market the equipment specialties of different branches within each cluster, and (3) reduce costs by centralizing common functions such as payroll, accounts payable and credit and collection into 32 credit offices and four service centers. In 1999, approximately 9.4% of our rental revenues, or $150 million, was attributable to equipment sharing among branches. Geographic Diversity. We have branches in 45 states, six Canadian provinces and Mexico. We believe that our geographic diversity reduces 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 better serve National Account customers, better serve customers that operate at multiple locations, and access used equipment re-sale markets across the country. Customer Diversity. Our customer base is highly diversified and ranges from Fortune 500 companies to small companies and homeowners. We estimate that our top ten customers accounted for approximately 1% of our revenues during 1999. 2 Strong and Motivated Branch Management. Each of our branches has a full-time branch manager who is supervised by one of our 56 district managers and nine regional vice presidents. We believe that our managers are among the most knowledgeable and experienced in the industry, and we empower them--within budgetary guidelines--to make day-to-day decisions concerning staffing, pricing, equipment purchasing and other branch matters. Management closely tracks branch, district and region performance with extensive systems and controls, including performance benchmarks and detailed monthly operating reviews. We promote equipment sharing among branches through our profit sharing program, which directly ties the compensation of branch personnel to their branch's financial performance and return on assets. Significant Purchasing Power. We purchase large amounts of equipment and other items, which enables us to negotiate favorable terms with our vendors. We are continuing our efforts to increase our purchasing power by narrowing our vendor base. We estimate that these efforts allowed us to reduce our equipment purchase costs in 1999 by approximately $50 million, and our goal is to increase these savings to a total of $150 million in 2000. National Account Program. Our National Account sales force is dedicated to establishing and expanding relationships with large customers, particularly those with a national or multi-regional presence. We offer our National Account customers the benefits of a consistent level of service across North America and a single point of contact for all their equipment needs. We also help them improve productivity by providing them with customized reports regarding their equipment usage. Our National Account team currently includes 41 sales professionals. Revenues from National Account customers increased by approximately 300% in 1999, to $89 million. Our target is to reach $175 million in 2000. Information Technology System. Our information technology system facilitates rapid and informed decision making and enables us to respond quickly to changing market conditions. The system provides management with a wide range of operating and financial data and enables 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. An in-house group of 93 information technology specialists supports the system and extends it to new locations. The system includes software developed by our Wynne Systems(TM) subsidiary, which is the leading provider of proprietary software for use by equipment rental companies in managing and operating multiple branch locations. E-Rental Store(TM). In February 2000, we launched our business-to-business e-commerce web site. The centerpiece of our site is the E-Rental Store(TM), where customers can rent or buy equipment online, 24 hours a day, seven days a week. The E-Rental Store(TM) is staffed by experienced managers, who have in- depth product knowledge and real-time access to all our equipment. Customers can also benefit from our URdata(TM) application, which gives them up-to-the- minute reports on their business activity with us. Risk Management and Safety Programs. We place great emphasis on risk reduction and safety and believe that we have one of the most comprehensive risk management and safety programs in the industry. Our risk management department is staffed by 41 experienced professionals and is responsible for implementing our safety programs and procedures, developing our employee and customer training programs, and managing any claims asserted against us. We estimate that in 1999 we had approximately 19% fewer accidents than comparable companies, 45% lower workers' compensation claim costs and 50% lower liability claims, resulting in significant cost savings. 3 Industry Background Industry Size and Growth The U.S. equipment rental industry has grown from about $6 billion in annual rental revenues in 1989 to over $24 billion in 1999, representing a compound annual growth rate of approximately 15%. This information is based on data reported by Manfredi & Associates, Inc. In addition to reflecting general economic growth, we believe that the growth in the equipment rental industry is being driven by 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; . access a broad selection of equipment and select the equipment best suited for each particular job; . reduce storage and maintenance costs; and . access the latest technology without investing in new equipment. Outsourcing. Although growth in the equipment rental industry has to date been largely driven by an increase in rentals by the construction industry, we believe that the cost and other advantages of renting, together with the general trend toward the corporate outsourcing of non- core competencies, are increasingly leading industrial companies, municipalities, government agencies, utilities and others to rent equipment. Products and Services We offer for rent a wide variety of equipment to customers that include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. We also sell used equipment, act as a dealer for many types of new equipment, and sell related merchandise, parts and service. In addition, our Wynne Systems(TM) subsidiary develops and markets software for use by equipment rental companies in managing and operating multiple branch locations. For financial information concerning our foreign and domestic operations, see Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this report. Equipment Rental We offer for rent over 600 different types of equipment on a daily, weekly or monthly basis. The types of equipment that we offer include light to heavy construction and industrial equipment; traffic control equipment; trench safety equipment; equipment for sporting, corporate and other special events; and general tools and equipment. We believe that our equipment rental fleet is the largest in the world and one of the newest and best maintained. As of February 29, 2000, our fleet included over 500,000 units and had an original purchase price of approximately $3.0 billion and a weighted average age of approximately 25 months. We estimate that each of the following categories accounted for 8% or more of our equipment rental revenues in 1999: (i) aerial lift equipment (approximately 22%), (ii) earth moving equipment (approximately 12%) and (iii) forklifts (approximately 8%). 4 We vary our equipment mix from branch to branch in response to local market conditions and customer requirements. Most of our branches offer a general mix of equipment, while some specialize in specific equipment categories such as aerial work platforms and traffic control equipment. Used Equipment Sales In order to maintain a modern fleet and optimize our equipment mix, we routinely sell used rental equipment and invest in new equipment. We have generally been able to achieve favorable prices due to our comprehensive maintenance program and our national sales force that can access many resale markets across North America. We principally sell used equipment through our sales force and our web site (www.unitedrentals.com) which includes an online database of used equipment available for sale. We also sell our used equipment to used equipment dealers and through public auctions. In addition, we sometimes trade in used equipment to our vendors when we buy new equipment. New Equipment Sales We are a dealer for many leading tool and equipment manufacturers. These include Genie Industries, Inc., Grove Worldwide, JLG Industries, Inc., and Snorkel (aerial lifts); Multiquip, Inc. (compaction equipment and compressors); Bomag (compaction equipment); Omniquip International (forklifts, skid-steer loaders, mini-excavators); and Honda USA (pumps and generators). Typically, dealership agreements do not have a specific term and may be terminated at any time. The type of new equipment that we sell varies by location. Related Merchandise, Parts and Other Services At most of our locations, we sell equipment parts and a variety of supplies and merchandise that may be used with our rental equipment, such as saw blades, fasteners, drill bits, hard hats, gloves and other safety equipment. At some of our branches, we also offer repair and maintenance services for equipment that is owned by our customers. Our Wynne Systems(TM) Subsidiary Our Wynne Systems(TM) subsidiary develops and markets software for use by equipment rental companies in managing and operating multiple branch locations. Eight of the ten largest equipment rental companies, including United Rentals, use software developed by Wynne Systems(TM). Customers Our customer base is highly diversified and ranges from Fortune 500 companies to small businesses and homeowners. We estimate that no single customer accounted for more than 0.5% of our revenues during 1999 and that our top 10 customers accounted for approximately 1% of our revenues in 1999. Our customer base varies by branch and is determined by several factors, including the equipment mix and marketing focus of the particular branch and the business composition of the local economy. Our customers include: . construction companies that use equipment for building and renovating commercial buildings, warehouses, industrial and manufacturing plants, office parks, airports, residential developments and other facilities; 5 . industrial companies--such as manufacturers, chemical companies, paper mills, railroads, ship builders, and utilities--that use equipment for plant maintenance, upgrades, expansion and construction; . municipalities that require equipment for a variety of purposes such as traffic control and highway construction and maintenance; . sponsors of sporting, corporate, entertainment and other large special events--including events such as the Super Bowl, the U. S. Open Golf Championship, the NASCAR Brickyard 400, the PGA Championship, the Ryder Cup, concerts and charity events; and . homeowners and other individuals that use equipment for projects that range from simple repairs to major renovations. Sales and Marketing We market our products and services through multiple channels as described below. Sales Force. As of February 29, 2000, we had a total of 2,269 salespeople, including 1,139 store-based customer service representatives and 1,130 field- based salespeople. Our sales force calls on existing and potential customers and assists our customers in planning for their equipment needs. National Account Program. Our National Account sales force is dedicated to establishing and expanding relationships with large customers, particularly those with a national or multi-regional presence. The National Account team closely coordinates its efforts with the local sales force in each area. Our National Account team currently includes 41 sales professionals. E-Rental Store(TM). We recently launched a business-to-business e-commerce web site, which includes our E-Rental Store(TM) where customers can rent or buy equipment online, 24 hours a day, seven days a week. Customers can also benefit from our URdata(TM) application, which gives them an up-to-the-minute report on their business activity with us. Advertising. We promote our business through local and national advertising in various media, including trade publications, yellow pages, the Internet, and direct mail. We also regularly participate in industry trade shows and conferences and sponsor a variety of local promotional events. Suppliers We estimate that our largest supplier accounted for approximately 9% of our equipment purchases in 1999, and that our top 10 largest suppliers accounted for approximately 35% our equipment purchases during that period. Information Technology System We have an advanced information technology system which facilitates rapid and informed decision making and enables us to respond quickly to changing market conditions. Each branch is equipped with one or more workstations that are electronically linked to our other locations and to our AS/400 system located at our data center. All rental transactions are entered at these workstations and processed on a real-time basis. Personnel at each location are able to access the system 24 hours a day in order to determine equipment availability, monitor business activity on a real-time basis, and obtain a wide range of operating and financial data. Our information technology system and our web site are supported by our in- house group of 93 information technology specialists. This group trains our branch personnel, either at the branch or at 6 one of our four training centers; upgrades and customizes our system; provides hardware and technology support; operates a support desk to assist branch personnel in the day-to-day use of the system; extends the system to newly acquired locations; and manages our web site. Competition The equipment rental industry is highly fragmented and competitive. Our competitors primarily include small, independent businesses with one or two rental locations; regional competitors which operate in one or more states; public companies or divisions of public companies; and equipment vendors and dealers who both sell and rent equipment directly to customers. We believe that, in general, large companies enjoy significant competitive advantages compared to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. For additional information, see "Competitive Advantages" above. Environmental and Safety Regulations There are numerous federal, state and local laws and regulations governing environmental protection and occupational health and safety. Under these laws, an owner or lessee of real estate may be liable on a no-fault basis for, among other things, (1) the costs of removal or remediation of hazardous or toxic substances located on, in, or emanating from, the real estate, as well as related costs of investigation and property damage and substantial penalties, and (2) environmental contamination at facilities where its waste is or has been disposed. Activities that are or may be affected by these laws include our use of hazardous materials to clean and maintain equipment and our disposal of solid and hazardous waste and wastewater from equipment washing. We also dispense petroleum products from underground and above-ground storage tanks located at certain locations, and at times we must remove or upgrade tanks to comply with applicable laws. We have acquired or lease certain locations which have or may have been contaminated by leakage from underground tanks or other sources, and we are in the process of assessing the nature of the required remediation. Based on the conditions currently known to us, we believe that any unreserved environmental remediation and compliance costs required with respect to those conditions will not have a material adverse effect on our business. However, we cannot be certain that we will not identify adverse environmental conditions that are not currently known to us, that all potential releases from underground storage tanks removed in the past have been identified, or that environmental and safety requirements will not become more stringent or be interpreted and applied more stringently in the future. If we are required to incur environmental compliance or remediation costs that are not currently anticipated by us, our business could be adversely affected depending on the magnitude of the cost. Employees As of February 29, 2000, we had 13,635 employees. Of these employees, 3,591 are salaried personnel and 10,044 are hourly personnel. Collective bargaining agreements relating to 40 separate locations cover approximately 580 of our employees. 7 Item 2. Properties We currently operate 702 branch locations. Of these locations, 625 are in the United States, 76 are in Canada and one is in Mexico. The number of locations in each state or province is shown below. We intend to continue to expand our network of branches by opening new rental locations in attractive markets and continuing our disciplined acquisition program. United States . Alabama (20) . Louisiana (6) . Oklahoma (7) . Alaska (5) . Maine (1) . Oregon (24) . Arizona (24) . Maryland (16) . Pennsylvania (15) . Arkansas (3) . Massachusetts (9) . Rhode Island (3) . California (98) . Michigan (7) . South Carolina (10) . Colorado (15) . Minnesota (18) . South Dakota (10) . Connecticut (8) . Missouri (12) . Tennessee (8) . Delaware (4) . Nebraska (6) . Texas (47) . Florida (32) . Nevada (14) . Utah (9) . Georgia (20) . New Hampshire (1) . Virginia (13) . Idaho (2) . New Jersey (7) . Washington (27) . Illinois (16) . New Mexico (3) . Wisconsin (9) . Indiana (15) . New York (12) . Wyoming (1) . Iowa (15) . North Carolina (18) . Kansas (6) . North Dakota (10) . Kentucky (7) . Ohio (12) Canada Mexico . Alberta (3) . Nuevo Leon (1) . British Columbia (18) . Manitoba (2) . Newfoundland (8) . Ontario (32) . Quebec (13) Our branch locations generally include facilities for displaying equipment and, depending on the location, may include separate equipment service areas and storage areas. We own 101 of our rental locations and lease the other locations. Our leases provide for varying terms and include 38 leases that are on a month-to- month basis and 16 leases that provide for a remaining term of less than one year and do not provide a renewal option. We are currently negotiating renewals for most of the leases that provide for a remaining term of less than one year. We maintain a fleet of approximately 10,500 vehicles that is used for delivery, maintenance and sales functions. We own a portion of this fleet and lease a portion. Our corporate headquarters are located in Greenwich, Connecticut, where we occupy approximately 40,000 square feet under (1) a lease for approximately 12,000 square feet that extends until 2003 and (2) a lease for approximately 28,000 square feet that extends until 2004 (subject to extension rights). Item 3. Legal Proceedings The Company is party to various litigation matters, in most cases involving ordinary and routine claims incidental to our business. The Company cannot estimate with certainty its ultimate legal and financial liability with respect to such pending litigation matters. However, the Company believes, based on its examination of such matters, that the Company's ultimate liability will not have a material adverse effect on its financial position, results of operations or cash flows. 8 Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of 1999, no matter was submitted to a vote of the security holders of the Company. PART II Item 5. Market For Registrant's Common Equity and Related Stockholder Matters Price Range of Common Stock The Company's Common Stock trades on the New York Stock Exchange under the symbol "URI." The following table sets forth, for the periods indicated, the high and low sales prices for the Common Stock, as reported by the New York Stock Exchange.
High Low ------ ------ 1998: First Quarter................................................... $27.38 $17.25 Second Quarter.................................................. 42.00 24.13 Third Quarter................................................... 48.00 18.12 Fourth Quarter.................................................. 33.75 10.56 1999: First Quarter................................................... $35.69 $26.13 Second Quarter.................................................. 33.25 25.13 Third Quarter................................................... 31.00 21.75 Fourth Quarter.................................................. 21.94 14.31
As of March 15, 2000, there were approximately 290 holders of record of the Common Stock. The Company believes that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of the Common Stock is held of record in broker "street names." Dividend Policy The Company intends to retain all earnings for the foreseeable future for use in the operation and expansion of its business and, accordingly, the Company currently has no plans to pay dividends on its Common Stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. Under the terms of certain agreements governing the Company's outstanding indebtedness, the Company is prohibited or restricted from paying dividends on its Common Stock. In addition, under Delaware law, the Company is prohibited from paying any dividends unless it has capital surplus or net profits available for this purpose. See Item 7-- "Management's Discussion and Analysis of Financial Condition and Results of Operations--Certain Information Concerning the Credit Facility and Other Indebtedness." Sales of Unregistered Securities During the Fourth Quarter of 1999 Set forth below is a listing of all sales by the Company of unregistered equity securities during 1999, excluding sales that were previously reported on a Quarterly Report on Form 10-Q. Unless otherwise indicated (i) such sales were exempt from registration under the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act, as they were transactions not involving a public offering and (ii) the sales were made by the Company without the assistance of any underwriters. 1. In December 1999, the Company issued 1,898 shares of Common Stock to an executive officer pursuant to an employment agreement. 9 Item 6. Selected Financial Data The data presented below with respect to the Company should be read in conjunction with the Consolidated Financial Statements and related Notes thereto of the Company included elsewhere in this Report and Item 7-- "Management's Discussion and Analysis of Financial Condition and Results of Operations." During the periods presented below, the Company completed certain acquisitions that were accounted for as poolings-of-interests (including a merger in September 1998 with U.S. Rentals) and others that were accounted for as purchases. The selected financial data presented below has been restated for all periods presented to include the accounts of the businesses acquired in transactions accounted for as poolings-of-interests (excluding one such transaction which was not material) as if the Company and these businesses acquired were combined for all periods presented. The accounts of businesses acquired in transactions accounted for as purchases are included from their respective acquisition dates. In view of the fact that the Company's operating results for the periods presented below were impacted by acquisitions that were accounted for as purchases, the Company believes that its results of operations for the years presented are not directly comparable. See Note 3 of the Notes to the Consolidated Financial Statements of the Company included elsewhere in this Report.
Year Ended December 31, ---------------------------------------------------- 1995 1996 1997 1998 1999 --------- -------- -------- ---------- ---------- (dollars in thousands, except per share data) Income statement data: Total revenues.......... $ 283,432 $354,478 $489,838 $1,220,282 $2,233,628 Total cost of revenues.. 194,234 241,445 340,546 796,834 1,408,710 --------- -------- -------- ---------- ---------- Gross profit............ 89,198 113,033 149,292 423,448 824,918 Selling, general and administrative expenses............... 39,707 54,721 70,835 195,620 352,595 Merger-related expenses............... 47,178 Non-rental depreciation and amortization....... 6,916 9,387 13,424 35,248 62,867 Termination cost of deferred compensation agreements............. 20,290 --------- -------- -------- ---------- ---------- Operating income........ 42,575 48,925 44,743 145,402 409,456 Interest expense........ 7,490 11,278 11,847 64,157 139,828 Preferred dividends of a subsidiary trust....... 7,854 19,500 Other (income) expense, net.................... 1,304 (499) (2,021) (4,906) 8,321 --------- -------- -------- ---------- ---------- Income before provision for income taxes and extraordinary items.... 33,781 38,146 34,917 78,297 241,807 Provision for income taxes.................. 484 420 29,508 43,499 99,141 --------- -------- -------- ---------- ---------- Income before extraordinary items.... 33,297 37,726 5,409 34,798 142,666 Extraordinary items, net (1).................... 1,511 21,337 --------- -------- -------- ---------- ---------- Net income.............. $ 33,297 $ 37,726 $ 3,898 $ 13,461 $ 142,666 ========= ======== ======== ========== ========== Pro forma provision for income taxes before extraordinary items (2).................... $ 13,715 $ 15,487 $ 14,176 $ 44,386 Pro forma income before extraordinary items (2).................... 20,066 22,659 20,741 33,911 Basic earnings before extraordinary items per share.................. $ 1.47 $ 1.67 $ 0.12 $ 0.53 $ 2.00 Diluted earnings before extraordinary items per share.................. $ 1.47 $ 1.67 $ 0.11 $ 0.48 $ 1.53 Basic earnings per share (3).................... $ 1.47 $ 1.67 $ 0.08 $ 0.20 $ 2.00 Diluted earnings per share (3).............. $ 1.47 $ 1.67 $ 0.08 $ 0.18 $ 1.53 Other financial data: EBITDA (4).............. $ 101,438 $123,606 $160,554 $ 403,738 $ 761,230 Depreciation and amortization........... 58,863 74,681 95,521 211,158 343,508 Dividends on common stock.................. December 31, ---------------------------------------------------- 1995 1996 1997 1998 1999 --------- -------- -------- ---------- ---------- (dollars in thousands) Balance sheet data: Cash and cash equivalents............ $ 3,728 $ 2,906 $ 72,411 $ 20,410 $ 23,811 Rental equipment, net... 182,082 235,055 461,026 1,143,006 1,659,733 Total assets............ 297,994 381,228 826,010 2,634,663 4,497,738 Total debt.............. 131,771 214,337 264,573 1,314,574 2,266,148 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust.. 300,000 300,000 Stockholders' equity.... 104,392 105,420 446,388 726,230 1,397,486
10 - -------- (1) The Company recorded an extraordinary item (net of income taxes) of $1.5 million in 1997 and an extraordinary item (net of income taxes) of $21.3 million in 1998. Such charge in 1997 resulted from the prepayment of certain debt by U.S. Rentals. Such charge in 1998 resulted from the early extinguishment of certain debt and primarily reflected prepayment penalties on certain debt of U.S. Rentals. (2) U.S. Rentals was taxed as a Subchapter S Corporation until its initial public offering in February 1997, and another company acquired in a pooling-of-interests transaction was taxed as a Subchapter S Corporation until being acquired by the Company in 1998. In general, the income or loss of a Subchapter S Corporation is passed through to its owners rather than being subjected to taxes at the entity level. Pro forma provision for income taxes before extraordinary items and pro forma income before extraordinary items reflect a provision for income taxes as if all such companies were liable for federal and state income taxes as taxable corporate entities for all periods presented. (3) The Company's earnings during 1997 were impacted by $20.3 million of expenses relating to the termination of certain deferred compensation expenses in connection with U.S. Rentals' initial public offering, a $7.5 million charge to recognize deferred tax liabilities of U.S. Rentals and an extraordinary item (net of income taxes) of $1.5 million. The Company's earnings during 1998 were impacted by merger-related expenses of $47.2 million ($33.2 million net of taxes), a $4.8 million charge to recognize deferred tax liabilities of a company acquired in a pooling-of-interests transaction and an extraordinary item (net of income taxes) of $21.3 million. The Company's earnings during 1999 were impacted by $18.2 million ($10.8 million net of taxes) of expenses incurred related to a terminated tender offer. Excluding such amounts, (i) basic earnings per share for the years ended 1997, 1998 and 1999 would have been $0.70, $1.10 and $2.15, respectively, and (ii) diluted earnings per share for the years ended 1997, 1998 and 1999 would have been $0.66, $1.00 and $1.65, respectively. (4) EBITDA is defined as net income (excluding (i) non-operating income and expense, (ii) a $20.3 million non-recurring charge incurred by U.S. Rentals in 1997 arising from the termination of deferred compensation agreements with certain executives, (iii) $47.2 million in merger-related expenses in 1998 related to the three acquisitions accounted for as poolings-of- interests, including the merger with U.S. Rentals and (iv) $8.3 million of expenses that are included in selling, general and administrative expenses for 1999 and which related to a terminated tender offer), plus interest expense, income taxes and depreciation and amortization. EBITDA data is presented to provide additional information concerning the Company's ability to meet its future debt service obligations and capital expenditure and working capital requirements. However, EBITDA is not a measure of financial performance under generally accepted accounting principles. Accordingly, EBITDA should not be considered an alternative to net income or cash flows as indicators of the Company's operating performance or liquidity. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto included elsewhere in this Report. Certain of the statements contained in such discussion 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 below under "--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. 11 Introduction The Company commenced equipment rental operations in October 1997 and has completed 196 acquisitions (through February 29, 2000), including the 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 3 to the Notes to the Consolidated Financial Statements of the Company included elsewhere in this Report. As a result of such restatement, the Company's financial statements include historical financial information of these two acquired companies for periods that precede the date on which the Company commenced its own operations. The other 193 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, 1998 and 1997 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. Non-rental depreciation and amortization primarily 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 Years ended December 31, 1999 and 1998 Revenues. Total revenues for 1999 were $2,233.6 million, representing an increase of 83.0% over total revenues in 1998 of $1,220.3 million. The Company's revenues in 1999 and 1998 were attributable to: (i) equipment rental ($1,581.0 million, or 70.8% of revenues, in 1999 compared to 12 $895.5 million, or 73.4% of revenues, in 1998), (ii) sales of rental equipment ($235.7 million, or 10.6% of revenues, in 1999 compared to $119.6 million, or 9.8% of revenues, in 1998) and (iii) sales of equipment and merchandise and other revenues ($416.9 million, or 18.6% of revenues, in 1999 compared to $205.2 million, or 16.8% of revenues, in 1998). The 83.0% increase in total revenues in 1999 reflected (i) increased revenues at locations open more than one year (which accounted for approximately 21.2 percentage points) and (ii) new rental locations acquired through acquisitions and the opening of start-up locations (which accounted for approximately 61.8 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) 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 $824.9 million in 1999 from $423.4 million in 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 1999 and 1998 was: (i) equipment rental (39.4% in 1999 and 36.3% in 1998), (ii) sales of rental equipment (42.0% in 1999 and 44.7% in 1998) and (iii) sales of equipment and merchandise and other revenues (24.6% in 1999 and 22.0% in 1998). The increase in the gross profit margin from rental revenues in 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 1999 primarily reflected a shift in mix towards the sale of more late-model used equipment which generally generates lower gross profit margins than older equipment. The increase in the gross profit margin from sales of equipment and merchandise and other revenue in 1999 primarily reflected the benefits of greater purchasing power. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") were $352.6 million, or 15.8% of total revenues, during 1999 and $195.6 million, or 16.0% of total revenues, during 1998. SG&A in 1999 includes an $8.3 million charge primarily due to professional fees incurred in connection with a terminated tender offer. Excluding this charge, SG&A as a percentage of revenues decreased to 15.4% in 1999, primarily due to certain economies of scale relating to the increase in revenues described above. Merger-related Expenses. The Company incurred merger-related expenses in 1998 of $47.2 million ($33.2 million after-tax) in connection with three acquisitions completed by the Company in 1998 that were accounted for as poolings-of-interests. These expenses consisted of: (i) $18.5 million for investment banking, legal and accounting services and other merger costs, (ii) $14.5 million of expenses relating to the closing of duplicate facilities, (iii) $8.2 million for employee severance and related matters, (iv) $2.1 million for the write down of the computer systems acquired through the U.S. Rentals Merger and one of the other acquisitions accounted for as a pooling-of- interests and (v) $3.9 million in other expenses. Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $62.9 million, or 2.8% of total revenues, in 1999 and $35.2 million, or 2.9% of total revenues, in 1998. Non-rental depreciation and amortization primarily consists of (i) depreciation expense attributable to equipment not offered for rent, (ii) depreciation of rental facilities and (iii) amortization of goodwill. The increase in the dollar amount of non-rental depreciation and amortization in 1999 primarily reflected the amortization of goodwill attributable to the acquisitions completed in 1999 and in 1998. Interest Expense. Interest expense increased to $139.8 million in 1999 from $64.2 million in 1998. This increase primarily reflected the fact that the Company's indebtedness significantly increased in 1999, primarily to fund acquisitions. Preferred Dividends of a Subsidiary Trust. Preferred dividends of a subsidiary trust of Holdings were $19.5 million in 1999 compared with $7.9 million in 1998. These dividends relate to the preferred securities issued in August 1998 by such subsidiary trust. 13 Other (Income) Expense. Other expense was $8.3 million in 1999 compared with other income of $4.9 million in 1998. The increase in other expense in 1999 primarily reflected a $9.9 million charge that was principally due to fees incurred in connection with a financing commitment that was cancelled upon the termination of a tender offer. Income Taxes. Income taxes increased to $99.1 million, or an effective rate of 41.0%, in 1999 from $43.5 million, or an effective rate of 55.6%, in 1998. During 1998, the Company's high effective tax rate reflected (i) the non- deductibility of $7.4 million for income tax purposes of certain merger related expenses and (ii) a $4.8 million charge to recognize deferred tax liabilities of an acquired business, which was a Subchapter S Corporation prior to being acquired by the Company. Extraordinary Item. The Company recorded an extraordinary charge of $35.6 million ($21.3 million net of taxes) in 1998. This charge was incurred in connection with the early extinguishment of certain debt and primarily reflected prepayment penalties on certain debt of U.S. Rentals. Years Ended December 31, 1998 and 1997 Revenues. Total revenues for 1998 were $1,220.3 million, representing an increase of 149.1% over total revenues in 1997 of $489.8 million. The Company's revenues in 1998 and 1997 were attributable to: (i) equipment rental ($895.5 million, or 73.4% of revenues, in 1998 compared to $388.2 million, or 79.2% of revenues, in 1997), (ii) sales of rental equipment ($119.6 million, or 9.8% of revenues, in 1998 compared to $41.4 million, or 8.5% of revenues, in 1997) and (iii) sales of equipment and merchandise and other revenues ($205.2 million, or 16.8% of revenues, in 1998 compared to $60.3 million, or 12.3% of revenues, in 1997). The 149.1% increase in total revenues in 1998 reflected (i) increased revenues at locations open more than one year (which accounted for approximately 36.2 percentage points) and (ii) new rental locations acquired through acquisitions and the opening of start-up locations (which accounted for approximately 112.9 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) 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 $423.4 million in 1998 from $149.3 million in 1997. 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 1998 and 1997 was: (i) equipment rental (36.3% in 1998 and 30.0% in 1997), (ii) sales of rental equipment (44.7% in 1998 and 50.6% in 1997 and (iii) sales of equipment and merchandise and other revenues (22.0% in 1998 and 19.6% in 1997). The increase in the gross profit margin from rental revenues in 1998 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 1998 primarily reflected (i) a shift in mix towards more late-model used equipment, which generally generates lower gross profit margins than older equipment, and (ii) the sale of certain equipment items which were acquired through acquisitions and which were not in optimal condition for sale due to age, usage or other factors. The increase in the gross profit margin from sales of equipment and merchandise and other revenue in 1998 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 were $195.6 million, or 16.0% of total revenues, during 1998 and $70.8 million, or 14.5% of total revenues, during 1997. The increase in SG&A as a percentage of revenues in 1998 primarily reflected the additional expenses for senior management and corporate overhead that the Company began incurring in the third quarter of 1997 as it built the management team and infrastructure required to support its growth strategy. 14 Merger-related Expenses. The Company incurred merger-related expenses in 1998 of $47.2 million ($33.2 million after-tax) in connection with three acquisitions completed by the Company in 1998 that were accounted for as poolings-of-interests. These expenses consisted of: (i) $18.5 million for investment banking, legal and accounting services and other merger-related costs, (ii) $14.5 million of expenses relating to the closing of duplicate facilities, (iii) $8.2 million for employee severance and related matters, (iv) $2.1 million for the write down of the computer systems acquired through the U.S. Rentals Merger and one of the other acquisitions accounted for as a pooling-of-interests and (v) $3.9 million in other expenses. Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $35.2 million, or 2.9% of total revenues, in 1998 and $13.4 million, or 2.7% of total revenues, in 1997. The increase in the dollar amount of non-rental depreciation and amortization in 1998 primarily reflected the amortization of goodwill attributable to the acquisitions completed at the end of 1997 and in 1998. Termination Cost of Deferred Compensation Agreements. The Company's results for 1997 were impacted by $20.3 million of expenses for "termination cost of deferred compensation agreements." These expenses reflect one-time expenses that were incurred by U.S. Rentals in connection with the termination of certain deferred incentive compensation agreements in connection with its initial public offering. Interest Expense. Interest expense increased to $64.2 million in 1998 from $11.8 million in 1997. This increase primarily reflected the fact that the Company's indebtedness significantly increased in 1998, primarily to fund acquisitions. Preferred Dividends of a Subsidiary Trust. During 1998, preferred dividends of a subsidiary trust of Holdings were $7.9 million. These dividends relate to the preferred securities issued in August 1998 by such subsidiary trust. Other (Income) Expense. Other income was $4.9 million in 1998 compared with $2.0 million in 1997. The increase in other income in 1998 primarily reflected gain realized in 1998 from the disposition of certain business lines that were acquired as part of acquisitions but did not fit with the Company's strategy. Income Taxes. Income taxes increased to $43.5 million, or an effective rate of 55.6%, in 1998 from $29.5 million, or an effective rate of 84.5%, in 1997. During 1998, the Company's high effective tax rate reflected (i) the non- deductibility of $7.4 million for income tax purposes of certain merger related expenses and (ii) a $4.8 million charge to recognize deferred tax liabilities of an acquired business, which was a Subchapter S Corporation prior to being acquired by the Company. During 1997, the Company's high effective tax rate reflected (i) a $7.5 million charge to recognize deferred tax liabilities of U.S. Rentals, which was a Subchapter S Corporation prior to its initial public offering, and (ii) the non-deductibility of $7.5 million for income tax purposes of certain losses that were incurred by U.S. Rentals prior to a recapitalization effected in connection with its initial public offering. Extraordinary Item. The Company recorded an extraordinary charge of $35.6 million ($21.3 million net of taxes) in 1998 and an extraordinary charge of $2.5 million ($1.5 million net of taxes) in 1997. This charge in 1998 was incurred in connection with the early extinguishment of certain debt and primarily reflected prepayment penalties on certain debt of U.S. Rentals. This charge in 1997 was incurred by U.S. Rentals in connection with the prepayment of certain debt. Liquidity and Capital Resources Financing Transactions in 1999 Set forth below is certain information concerning certain financing transactions entered into by the Company during 1999. 15 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"). The net proceeds from the sale of the Series A Preferred were approximately $287.0 million (after deducting issuance fees and expenses). Holdings contributed such net proceeds to URI. For additional information concerning the Series A Preferred, see "--Certain Information Concerning Preferred Securities." Common Stock. In March 1999, Holdings completed a public offering of 2,290,000 shares of common stock. The net proceeds from this offering were approximately $64.7 million (after deducting underwriting discounts and offering expenses). Holdings contributed such net proceeds to URI. 9% Senior Subordinated Notes. In March 1999, URI issued $250.0 million aggregate principal amount of 9% senior subordinated notes (the "9% Notes"). The net proceeds from this issuance were approximately $245.0 million (after deducting offering fees and expenses). For additional information concerning these notes, see "--Certain Information Concerning the Credit Facility and Other Indebtedness--9% Senior Subordinated Notes." Term Loan C. In July 1999, URI obtained a $750.0 million term loan from a group of financial institutions (the "Term Loan C"). For additional information concerning this loan, see "--Certain Information Concerning the Credit Facility and Other Indebtedness--Term Loan C." Series B Perpetual Convertible Preferred Stock. In September 1999, Holdings sold 150,000 shares of its Series B Perpetual Convertible Preferred Stock ("Series B Preferred"). The net proceeds from the sale of the Series B Preferred were approximately $143.8 million (after deducting issuance fees and expenses). Holdings contributed such net proceeds to URI. For additional information concerning the Series B Preferred, see "--Certain Information Concerning Preferred Securities." Sources and Uses of Cash During 1999, the Company (i) generated cash from operations of approximately $421.4 million, (ii) generated cash from the sale of rental equipment of approximately $235.7 million and (iii) obtained net proceeds from financing activities of approximately $1,177.0 million. The Company used cash during this period principally to (i) pay consideration for acquisitions (approximately $986.8 million), (ii) purchase rental equipment (approximately $718.1 million) and (iii) purchase other property and equipment (approximately $123.6 million). Certain Balance Sheet Changes The acquisitions and the equipment purchases made by the Company in 1999 (and the financing of such acquisitions and purchases) were the principal reasons for the increase in all asset and liability accounts at December 31, 1999 compared with December 31, 1998. The increase in capital at December 31, 1999 compared with December 31, 1998, primarily reflects (i) the equity financing transactions completed in 1999 (as described under "--Financing Transactions in 1999") and (ii) the exercise of 1,331,528 common stock options. Cash Requirements Related to Operations The Company's principal existing sources of cash are borrowings available under its revolving credit facility ($334.5 million available as of March 15, 2000) and cash generated from operations. For additional information concerning the Company's credit facility (the "Credit Facility"), see "--Certain Information Concerning the Credit Facility and Other Indebtedness--Credit Facility." 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 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. 16 The Company estimates that equipment expenditures over the next 12 months will be approximately $750.0 million for the existing operations of the Company. These expenditures are comprised of approximately $450.0 million of expenditures in order to maintain the average age of the Company's rental fleet and $300.0 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 $325.0 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. 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 debt principal of approximately $30.1 million during 2000. 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 the Trust Preferred Securities (as described under "--Certain Information Concerning Preferred Securities"). 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. Certain Information Concerning the Credit Facility and Other Indebtedness Credit Facility. URI has a credit facility (the "Credit Facility") which enables URI to borrow up to $772.5 million on a revolving basis and permits a Canadian subsidiary of URI (the "Canadian Subsidiary") 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). Up to $50.0 million of the Credit Facility is available in the form of letters of credit. The agreement governing the Credit Facility requires that the aggregate commitment shall be reduced on the last day of each calendar quarter, beginning September 30, 2001 and continuing through June 30, 2003, by an amount equal to $19.3 million. The Credit Facility terminates on September 26, 2003, at which 17 time all outstanding indebtedness is due. As of March 15, 2000, there was $411.5 million of indebtedness outstanding under the Credit Facility (not including undrawn outstanding letters of credit in the amount of $26.5 million). Borrowings by URI under the Credit Facility accrue 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 reference rate) or (b) the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's reserve adjusted eurodollar rate) plus a margin ranging from 0.825% to 1.500% per annum. Borrowings by the Canadian Subsidiary under the Credit Facility accrue interest, at such subsidiary's option, at either (x) the Prime Rate (which is equal to Bank of America Canada's prime rate), (y) the BA Rate (which is equal to Bank of America Canada's BA Rate) plus a margin ranging from 0.825% to 1.500% per annum or (z) the Eurodollar Rate (which for borrowing by the Canadian Subsidiary is equal to Bank of America Canada's reserve adjusted Eurodollar Rate) plus a margin ranging from 0.825% to 1.500% per annum. If at any time an event of default (as defined in the agreement governing the Credit Facility) exists, the interest rate applicable to each loan will increase by 2% per annum. The Company is also required to pay the banks an annual facility fee equal to 0.375% of the banks' $772.5 million aggregate lending commitment under the Credit Facility (which fee may be reduced to 0.300% for periods during which the Company maintains a specified funded debt to cash flow ratio). The obligations of URI under the Credit Facility are (i) secured by substantially all of its assets, the stock of its United States subsidiaries and a portion of the stock of URI's Canadian subsidiaries and (ii) guaranteed by Holdings and secured by the stock of URI. The obligations of the Canadian Subsidiary under the Credit Facility are guaranteed by URI and secured by substantially all of the assets of the Canadian Subsidiary and the stock of the subsidiaries of the Canadian Subsidiary. The Credit Facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) maximum leverage, (b) the ratio of senior debt to cash flow, (c) minimum interest coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the ratio of senior debt to tangible assets. The agreements governing the Credit Facility also contain various other covenants that restrict the Company's ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) pay dividends or make other restricted payments on its common stock and certain other securities and (iv) make acquisitions unless certain financial conditions are satisfied. In addition, the agreement governing the Credit Facility (a) requires the Company to maintain certain financial ratios and (b) provides that failure by any two of Messrs. Jacobs, Milne, Nolan and Miner to continue to hold executive positions with the Company for a period of 30 consecutive days constitutes an event of default unless replacement officers satisfactory to the lenders are appointed. Term Loan B. In July 1998, URI obtained a $250.0 million term loan (the "Term Loan B") from a group of financial institutions. The Term Loan B matures on June 30, 2005. Prior to maturity, quarterly installments of principal in the amount of $0.6 million are due on the last day of each calendar quarter, commencing September 30, 1999. The amount due at maturity is $235.6 million. The Term Loan B accrues interest, at the Company's option, at either (a) the Base Rate (as defined with respect to the Credit Facility) plus a margin of 0.375% per annum, or (b) the Eurodollar Rate (as defined with respect to the Credit Facility for borrowings by URI) plus a margin of 2.25% per annum. If at any time an event of default exists, the interest rate applicable to the Term Loan B will increase by 2% per annum. The Term Loan B is secured pari passu with the Credit Facility and the Term Loan C (described below). The agreement governing the Term Loan B contains restrictive covenants substantially similar to those provided under the Credit Facility. Term Loan C. In July 1999, URI obtained a $750.0 million term loan (the "Term Loan C") from a group of financial institutions. The Term Loan C matures in June 2006. Prior to maturity, 18 quarterly installments of principal in the amount of $1.9 million are due on the last day of each calendar quarter, commencing September 30, 2000. The amount due at maturity is $706.3 million. The Term Loan C accrues interest, at URI's option, at either (a) the Base Rate (as defined with respect to the Credit Facility) plus a margin of 0.625% per annum, or (b) the Eurodollar Rate (as defined with respect to the Credit Facility for borrowings by URI) plus a margin of 2.50% per annum. If at any time an event of default exists, the interest rate applicable to the Term Loan C will increase by 2% per annum. The Term Loan C is secured pari passu with the Credit Facility and the Term Loan B. The agreement governing the Term Loan C contains restrictive covenants substantially similar to those provided under the Credit Facility. 9 1/2% Senior Subordinated Notes. In May 1998, URI issued $200.0 million aggregate principal amount of 9 1/2% senior subordinated notes, (the "9 1/2% Notes") which are due June 1, 2008. The 9 1/2% Notes are unsecured. URI may, at its option, redeem the 9 1/2% Notes on or after June 1, 2003 at specified redemption prices which range from 104.75% in 2003 to 100.0% in 2006 and thereafter. In addition, on or prior to June 1, 2001, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 9 1/2% Notes, at a redemption price of 109.5%. The indenture governing the 9 1/2% 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. 8.80% Senior Subordinated Notes. In August 1998, URI issued $205.0 million aggregate principal amount of 8.80% senior subordinated notes, (the "8.80% Notes") which are due August 15, 2008. The 8.80% Notes are unsecured. URI may, at its option, redeem the 8.80% Notes on or after August 15, 2003 at specified redemption prices which range from 104.4% in 2003 to 100.0% in 2006 and thereafter. In addition, on or prior to August 15, 2001, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 8.80% Notes, at a redemption price of 108.8%. The indenture governing the 8.80% Notes contains restrictions substantially similar to those applicable to the 9 1/2% Notes. 9 1/4% Senior Subordinated Notes. In December 1998, URI issued $300.0 million aggregate principal amount of 9 1/4% senior subordinated notes, (the "9 1/4% Notes") which are due January 15, 2009. The 9 1/4% Notes are unsecured. URI may, at its option, redeem the 9 1/4% Notes on or after January 15, 2004 at specified redemption prices which range from 104.625% in 2004 to 100.0% in 2007 and thereafter. In addition, on or prior to January 15, 2002, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 9 1/4% Notes, at a redemption price of 109.25%. The indenture governing the 9 1/4% Notes contains restrictions substantially similar to those applicable to the 9 1/2% Notes. 9% Senior Subordinated Notes. In March 1999, URI sold $250.0 million aggregate principal amount of 9% senior subordinated notes, (the "9% Notes") which are due on April 1, 2009. 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 104.5% in 2004 to 100.0% 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 to redeem up to 35% of the outstanding 9% Notes, at a redemption price of 109.0%. The indenture governing the 9% Notes contains restrictions substantially similar to those applicable to the 9 1/2% Notes. 19 Certain Information Concerning Preferred Securities Trust Preferred Securities In August 1998, a subsidiary trust (the "Trust") of Holdings sold $300.0 million of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Trust Preferred Securities"). The net proceeds from the sale of the Trust Preferred Securities were approximately $290.0 million. The Trust used such proceeds to purchase convertible subordinated debentures from Holdings which resulted in Holdings receiving all of the proceeds from the sale of the Trust Preferred Securities. Holdings in turn contributed the net proceeds from the sale of the Trust Preferred Securities to its wholly owned subsidiary URI. The Trust Preferred Securities are convertible into common stock of Holdings at a conversion price equivalent to $43.63 per share. Other Preferred Securities In January 1999, Holding sold 300,000 shares of its Series A Preferred. The outstanding shares of Series A Preferred are convertible into an aggregate of 12,000,000 shares of Holdings common stock, subject to adjustment (equivalent to a conversion price of $25 per shared based upon the liquidation preference of $1,000 per share of Series A Preferred). In September 1999, Holdings sold 150,000 shares of its Series B Preferred. The outstanding shares of Series B Preferred are convertible into an aggregate of 5,000,000 shares of Holdings common stock, subject to adjustment (equivalent to a conversion price of $30 per share based upon the liquidation preference of $1,000 per share of Series B Preferred). 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: (1) seasonal rental patterns of the Company's customers, with rental activity tending to be lower in the winter; (2) changes in general economic conditions in the Company's markets, including changes in construction and industrial activities; (3) the timing of acquisitions, new location openings, and related expenditures; (4) the effect of the integration of acquired businesses and start-up locations; (5) if the Company determines 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; (6) the timing of expenditures for new equipment and the disposition of used equipment; and (7) changes in demand for the company's equipment or the prices therefor due to changes in economic conditions, competition or other factors. 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. 20 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. Year 2000 In prior years, the Company discussed the nature of its plans to become Year 2000 compliant. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its equipment, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the Year 2000. Inflation 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 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133". This standard delays the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", for one year, to fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities. 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; . adverse weather conditions which may temporarily affect a particular region; or . government funding for highway and other construction projects does not reach expected levels. Fluctuations of Operating Results We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term due to a number of factors, including: . seasonal rental patterns of our customers--with rental activity tending to be lower in the winter; 21 . the timing of expenditures for new equipment and the disposition of used equipment; . changes in demand for our equipment or the prices therefor due to changes in economic conditions, competition or other factors; and . increases in the interest rates applicable to our floating rate debt. 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, establishing new rental locations, completing acquisitions, 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. Certain Risks Relating to Acquisitions We have grown, in part, through acquisitions and expect to make additional acquisitions. The making of acquisitions entails certain risks, including: . acquired companies could have hidden liabilities that we fail to discover during our due diligence investigations; . we may have difficulty in assimilating the operations and personnel of the acquired company with our existing operations; . we may lose key employees of the acquired company; and . we may have difficulty maintaining uniform standards, controls, procedures and policies. 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 22 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. 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 protection of our assets and operations. However, such insurance may not fully protect us for a number of reasons, including: . our coverage is subject to a deductible of $1.0 million and limited to a maximum of $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. 23 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 System Our ability to monitor and control our operations depends to a large extent on the proper functioning of our information technology system. Any disruption in this system or the failure of this system 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk primarily consists of (1) interest rate risk associated with our variable rate debt and (2) foreign currency exchange rate risk primarily associated with our Canadian operations. Interest Rate Risk. The Company periodically utilizes interest rate swap agreements to manage and mitigate its exposure to changes in interest rates. At December 31, 1999, the Company had interest rate protection in the form of swap agreements with an aggregate notional amount of $848.8 million. The effect of these agreements is to limit the interest rate exposure to 5.82% on the outstanding balance of Term Loan B and 5.81% on $600.0 million of Term Loan C. All borrowings under our $772.5 million Credit Facility bear interest at a variable rate of interest. The outstanding indebtedness under the Credit Facility was $243.0 million as of December 31, 1999. Our other variable rate debt primarily consists of a $248.7 million Term Loan B and a $750.0 million Term Loan C. The weighted average interest rates applicable to our variable rate debt as of December 31, 1999 were (i) 6.9% for the Credit Facility, (ii) 5.82% for the Term Loan B and (iii) 6.4% for the Term Loan C. Based upon the amount of variable debt that we had outstanding as of December 31, 1999 (approximately $1.24 billion in the aggregate), our net income would decrease by approximately $7.3 million for each one percentage point increase in the interest rates applicable to our variable rate debt. The amount of our variable rate indebtedness may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under the Credit Facility from time to time. For additional information concerning the terms of our variable rate debt, see Note 8 of the Notes to the Consolidated Financial Statements included elsewhere herein. Currency Exchange Risk. The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. Based upon the current level of our Canadian operations, a 10% change in this exchange rate would not have a material impact on our earnings. In addition, the Company periodically enters into foreign exchange contracts to hedge its transaction exposures. At December 31, 1999, the Company had no outstanding foreign exchange contracts. The Company does not engage in purchasing forward exchange contracts for speculative purposes. 24 Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS
Page ---- (1) Consolidated Financial Statements: Report of Independent Auditors.......................................... 26 United Rentals, Inc. Consolidated Balance Sheets--December 31, 1999 and 1998................................................................... 27 United Rentals, Inc. Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997................................. 28 United Rentals, Inc. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997....................... 29 United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................................. 30 Notes to Consolidated Financial Statements.............................. 32 Report of Independent Auditors.......................................... 53 United Rentals (North America), Inc. Consolidated Balance Sheets-- December 31, 1999 and 1998............................................. 54 United Rentals (North America), Inc. Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997........ 55 United Rentals (North America), Inc. Consolidated Statements of Stockholder's Equity for the years ended December 31, 1999, 1998 and 1997................................................................... 56 United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997............. 57 Notes to Consolidated Financial Statements.............................. 58 (2) Financial Statement Schedules: Report of Independent Auditors on Financial Statement Schedules......... 65 Schedule I Condensed Financial Information of the Registrant............ 66 Schedule II Valuation and Qualifying Accounts........................... 70
Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the financial statements or notes thereto. 25 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. We have audited the accompanying consolidated balance sheets of United Rentals, Inc. as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the management of United Rentals, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP MetroPark, New Jersey February 29, 2000 26 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEETS
December 31 --------------------- 1999 1998 ---------- ---------- (In thousands, except share data) Assets Cash and cash equivalents........................... $ 23,811 $ 20,410 Accounts receivable, net of allowance for doubtful accounts of $50,736 and $41,201 at 1999 and 1998, respectively....................................... 434,985 233,282 Inventory........................................... 129,473 70,994 Prepaid expenses and other assets................... 81,457 59,395 Rental equipment, net............................... 1,659,733 1,143,006 Property and equipment, net......................... 304,907 185,511 Intangible assets, net of accumulated amortization of $51,231 and $14,520 at 1999 and 1998, respectively....................................... 1,863,372 922,065 ---------- ---------- --- $4,497,738 $2,634,663 ========== ========== === Liabilities and Stockholders' Equity Liabilities: Accounts payable.................................. $ 242,946 $ 121,940 Debt.............................................. 2,266,148 1,314,574 Deferred taxes.................................... 81,229 43,560 Accrued expenses and other liabilities............ 209,929 128,359 ---------- ---------- --- Total liabilities............................... 2,800,252 1,608,433 Commitments and contingencies Company-obligated manditorily 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 Series B perpetual convertible preferred stock-- $150,000 liquidation preference, 150,000 shares issued and outstanding in 1999.................. 2 Common stock--$.01 par value, 500,000,000 shares authorized, 72,051,095 shares issued and outstanding in 1999 and 68,427,999 in 1998....... 721 684 Additional paid-in capital........................ 1,216,968 689,018 Retained earnings................................. 179,475 36,809 Accumulated other comprehensive income............ 317 (281) ---------- ---------- --- Total stockholders' equity...................... 1,397,486 726,230 ---------- ---------- --- $4,497,738 $2,634,663 ========== ========== ===
See accompanying notes. 27 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 ------------------------------------------- 1999 1998 1997 -------------- ------------- ------------- (in thousands, except per share amounts) Revenues: Equipment rentals................ $ 1,581,026 $ 895,466 $388,181 Sales of rental equipment........ 235,678 119,620 41,406 Sales of equipment and merchandise and other revenues.. 416,924 205,196 60,251 -------------- ------------- ------------ Total revenues.................... 2,233,628 1,220,282 489,838 Cost of revenues: Cost of equipment rentals, excluding depreciation.......... 676,972 394,750 189,578 Depreciation of rental equipment....................... 280,641 175,910 82,097 Cost of rental equipment sales... 136,678 66,136 20,455 Cost of equipment and merchandise sales and other operating costs........................... 314,419 160,038 48,416 -------------- ------------- ------------ Total cost of revenues............ 1,408,710 796,834 340,546 -------------- ------------- ------------ Gross profit...................... 824,918 423,448 149,292 Selling, general and administrative expenses.......... 352,595 195,620 70,835 Merger-related expenses........... 47,178 Non-rental depreciation and amortization..................... 62,867 35,248 13,424 Termination cost of deferred compensation agreements.......... 20,290 -------------- ------------- ------------ Operating income.................. 409,456 145,402 44,743 Interest expense.................. 139,828 64,157 11,847 Preferred dividends of a subsidiary trust................. 19,500 7,854 Other (income) expense, net....... 8,321 (4,906) (2,021) -------------- ------------- ------------ Income before provision for income taxes and extraordinary items.... 241,807 78,297 34,917 Provision for income taxes........ 99,141 43,499 29,508 -------------- ------------- ------------ Income before extraordinary items............................ 142,666 34,798 5,409 Extraordinary items, net of tax benefit of $14,255 in 1998 and $995 in 1997..................... 21,337 1,511 -------------- ------------- ------------ Net income........................ $ 142,666 $ 13,461 $ 3,898 ============== ============= ============ Earnings per share--basic: Income before extraordinary items........................... $ 2.00 $ 0.53 $ 0.12 Extraordinary items, net......... 0.33 0.04 -------------- ------------- ------------ Net income....................... $ 2.00 $ 0.20 $ 0.08 ============== ============= ============ Earnings per share--diluted: Income before extraordinary items........................... $ 1.53 $ 0.48 $ 0.11 Extraordinary items, net......... 0.30 0.03 -------------- ------------- ------------ Net income....................... $ 1.53 $ 0.18 $ 0.08 ============== ============= ============ Unaudited pro forma data (Note 9): Historical income before income taxes and extraordinary items... $ 78,297 $ 34,917 Pro forma income tax expense..... 44,386 14,176 ------------- ------------ Pro forma income before extraordinary items............. $ 33,911 $ 20,741 ============= ============ Pro forma basic income before extraordinary items per share... $ 0.51 $ 0.44 ============= ============ Pro forma diluted income before extraordinary items per share... $ 0.46 $ 0.42 ============= ============
See accompanying notes. 28 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A Series B Perpetual Perpetual Convertible Convertible Preferred Stock Preferred Stock Common Stock ---------------- ---------------- ------------------ Accumulated Additional Other Number Number Number Paid-in Retained Comprehensive Comprehensive of Shares Amount of Shares Amount of Shares Amount Capital Earnings Income Income --------- ------ --------- ------ ---------- ------ ---------- -------- ------------- ------------- (In thousands, except share amounts) Balance, December 31, 1996......... 22,636,765 $227 $ 13,278 $ 91,915 Issuance of common stock and warrants........ 33,602,610 335 343,797 Distribution of non-operating assets, net..... (4,219) Reclassification of Subchapter S accumulated earnings to paid-in capital......... 48,902 (48,902) Subchapter S distributions of a pooled entity.......... (2,843) Net income....... 3,898 $ 3,898 ---------- ---- ---------- -------- ======== Balance, December 31, 1997......... 56,239,375 562 401,758 44,068 Comprehensive income: Net income...... 13,461 $ 13,461 Other comprehensive income: Foreign currency translation adjustments... (281) $(281) -------- Comprehensive income.......... $ 13,180 ======== Issuance of common stock and warrants........ 10,813,255 108 267,214 Conversion of convertible notes........... 30,947 461 Cancellation of common stock.... (137,600) (1) 1 Reclassification of Subchapter S accumulated earnings to paid-in- capital......... 18,979 (18,979) Pooling-of- interests....... 1,456,997 15 (14) 1,795 Exercise of common stock options......... 25,025 619 Subchapter S distributions of a pooled entity.......... (3,536) ---------- ---- ---------- -------- ----- Balance, December 31, 1998......... 68,427,999 684 689,018 36,809 (281) Comprehensive income: Net income...... 142,666 $142,666 Other comprehensive income: Foreign currency translation adjustments... 598 598 -------- Comprehensive income.......... $143,264 ======== Issuance of Series A perpetual convertible preferred stock........... 300,000 $ 3 286,997 Issuance of Series B perpetual convertible preferred stock........... 150,000 $ 2 143,798 Issuance of common stock.... 2,291,568 23 64,678 Exercise of common stock options......... 1,331,528 14 32,477 ------- --- ------- --- ---------- ---- ---------- -------- ----- Balance, December 31, 1999......... 300,000 $ 3 150,000 $ 2 72,051,095 $721 $1,216,968 $179,475 $ 317 ======= === ======= === ========== ==== ========== ======== =====
See accompanying notes. 29 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 ----------------------------------- 1999 1998 1997 ----------- ----------- --------- (In thousands) Cash Flows From Operating Activities: Net income................................ $ 142,666 $ 13,461 $ 3,898 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............ 343,508 212,311 95,521 Gain on sale of rental equipment......... (99,000) (53,484) (20,951) Gain on sales of businesses.............. (1,842) (4,189) Write down of assets held for sale....... 4,040 Extraordinary items...................... 35,592 2,506 Deferred taxes........................... 41,820 27,345 25,075 Changes in operating assets and liabilities: Accounts receivable...................... (93,716) (53,368) (19,837) Inventory................................ (6,544) (6,392) (3,785) Prepaid expenses and other assets........ 7,257 (3,526) (9,821) Accounts payable......................... 64,453 39,251 11,704 Accrued expenses and other liabilities... 22,758 5,088 8,819 ----------- ----------- --------- Net cash provided by operating activities.............................. 421,360 216,129 93,129 ----------- ----------- --------- Cash Flows From Investing Activities: Purchases of rental equipment............. (718,112) (479,534) (268,548) Purchases of property and equipment....... (123,649) (84,617) (53,531) Proceeds from sales of rental equipment... 235,678 119,620 41,406 Proceeds from sales of businesses......... 6,521 10,640 Purchases of other companies.............. (986,790) (911,837) (115,528) Payments of contingent purchase price..... (8,216) (3,956) In-process acquisition costs.............. (1,002) (241) (129) ----------- ----------- --------- Net cash used in investing activities.... (1,595,570) (1,349,925) (396,330) ----------- ----------- --------- Cash Flows From Financing Activities: Proceeds from issuance of common stock, net of issuance costs.................... 64,701 207,005 340,738 Proceeds from the issuance of Series A Preferred, net of issuance costs......... 287,000 Proceeds from the issuance of Series B Preferred, net of issuance costs......... 143,800 Proceeds from debt........................ 2,683,616 2,363,637 308,858 Payments on debt.......................... (2,097,650) (1,785,667) (271,418) Proceeds from sale-leaseback.............. 88,000 35,000 Proceeds from the issuance of redeemable convertible preferred securities......... 300,000 Payments of financing costs............... (19,443) (34,982) (1,631) Proceeds from the exercise of common stock options.................................. 26,989 619 Subchapter S distributions of a pooled entity................................... (3,536) (2,843) Cash retained by Predecessor in connection with Recapitalization.................... (998) ----------- ----------- --------- Net cash provided by financing activities.............................. 1,177,013 1,082,076 372,706 Effect of foreign exchange rates.......... 598 (281) ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents.............................. 3,401 (52,001) 69,505 Cash and cash equivalents at beginning of year..................................... 20,410 72,411 2,906 ----------- ----------- --------- Cash and cash equivalents at end of year.. $ 23,811 $ 20,410 $ 72,411 =========== =========== =========
See accompanying notes. 30 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Year Ended December 31 -------------------------------- 1999 1998 1997 ---------- ---------- -------- (In thousands) Supplemental disclosure of cash flow information: Cash paid for interest....................... $ 124,285 $ 43,157 $ 13,090 Cash paid for taxes.......................... $ 17,509 $ 10,224 $ 11,487 Deferred compensation and bonus payments through issuance of common stock............ $ 486 Net assets retained by Predecessor in connection with Recapitalization............ $ 3,221 Supplemental schedule of non-cash investing and financing activities During the year ended December 31, 1998, convertible notes in the original principal amount of $500 were converted into 31 shares of common stock The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired................ $1,468,567 $1,501,467 $162,954 Liabilities assumed......................... (472,382) (518,861) (43,301) Less: Amounts paid in common stock and warrants... (60,304) (3,825) Amounts paid through issuance of debt....... (9,395) (10,465) (300) ---------- ---------- -------- Net cash paid................................ $ 986,790 $ 911,837 $115,528 ========== ========== ========
See accompanying notes. 31 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation United Rentals, Inc. is principally a holding company ("Holdings") and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of URI. 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 described in Note 10. Prior to such reorganization, the name of URI was United Rentals, Inc. References herein to the "Company" refer to Holdings and its subsidiaries, with respect to periods following the reorganization, and to URI and its subsidiaries, with respect to periods prior to the reorganization. As a result of the reorganization, Holdings' primary asset is its sole ownership of all issued and outstanding shares of common stock of URI. URI's various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and others in the United States, Canada and Mexico. The Company also engages in related activities such as selling rental equipment, acting as a distributor for certain new equipment and selling related merchandise and parts. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Therefore, the accompanying balance sheets are presented on an unclassified basis. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, giving retroactive effect for the reorganization for all periods presented. All significant intercompany accounts and transactions have been eliminated. The accompanying consolidated financial statements for the years ended December 31, 1998 and 1997 include the accounts of certain acquisitions completed in 1998 that were accounted for as poolings-of-interests, as described in Note 3. 2. Summary of Significant Accounting Policies Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Inventory Inventory consists of equipment, tools, parts, fuel and related supply items. Inventory is stated at the lower of cost or market and is net of a reserve for obsolescence and shrinkage of $16.8 million and $9.3 million at December 31, 1999 and 1998, respectively. Cost is determined on either a weighted average or first-in, first-out method. Rental Equipment Rental equipment is recorded at cost and depreciated over the estimated useful lives of the equipment using the straight-line method. The range of estimated useful lives for rental equipment is two to ten years. Rental equipment is depreciated to a salvage value of zero to ten percent of cost. Ordinary repair and maintenance costs are charged to operations as incurred. 32 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of estimated useful lives for property and equipment is two to thirty-nine years. Ordinary repair and maintenance costs are charged to operations as incurred. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining life of the lease, whichever is shorter. Intangible Assets Intangible assets consist of the excess of cost over the fair value of identifiable net assets of businesses acquired and non-compete agreements. The non-compete agreements are being amortized on a straight-line basis for a period ranging from three to eight years. The remaining intangible assets are being amortized on a straight-line basis over forty years. Long-Lived Assets Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of the valuation of long-lived assets, the Company assesses the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates that the carrying value of these assets may not be recoverable, as determined by a nondiscounted cash flow analysis over the remaining useful life, the carrying value would be reduced to its estimated fair value. There have been no material impairments recognized in these financial statements. Derivative Financial Instruments Derivative financial instruments, which are periodically used by the Company in the management of its interest rate and foreign currency exposures, are accounted for on an accrual basis. Income and expense are recorded in the same category as that arising from the related asset or liability. The fair value of these agreements are not recognized in the financial statements. Derivative financial instruments are not used for trading purposes. Fair Value of Financial Instruments The carrying amounts reported in the balance sheets for accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of the Credit Facility, Term Loan B, Term Loan C and certain other debt are determined using current interest rates for similar instruments as of December 31, 1999 and 1998 and approximate the carrying value of these financial instruments due to the fact that the underlying instruments include provisions to adjust interest rates to approximate fair market value. The estimated fair value of the Company's other financial instruments at December 31, 1999 and 1998 are based upon available market information and are as follows:
1999 1998 -------------------------- -------------------------- Carrying Amount Fair Value Carrying Amount Fair Value --------------- ---------- --------------- ---------- (In thousands) --- Redeemable convertible preferred securities... $300,000 $192,375 $300,000 $289,128 Senior subordinated notes.................. 950,653 906,400 700,153 705,425 Other debt.............. 73,745 73,745 37,921 37,921
Revenue Recognition Revenue related to the sale of equipment and merchandise is recognized at the point of sale. Revenue related to rental equipment is recognized over the contract term. 33 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Advertising Expense The Company advertises primarily through trade publications and yellow pages. Advertising costs are expensed as incurred and totaled $19.0 million, $13.5 million and $6.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not realized in future periods. U.S. Rentals, Inc. ("U.S. Rentals") (prior to February 20, 1997) and Rental Tools and Equipment Co. ("Rental Tools") (prior to August 24, 1998) elected to be treated as Subchapter S Corporations (See Note 9). Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions. Concentration of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company's customer base. No single customer represents greater than 10% of total accounts receivable. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. Stock-Based Compensation The Company accounts for its stock based compensation arrangements under the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". Since stock options are granted by the Company with exercise prices at or greater than the fair value of the shares at the date of grant, no compensation expense is recognized. Computation of Earnings Per Share Earnings per share is calculated under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Common stock issued for consideration below the initial public offering price ("IPO price") of $13.50 per share at which shares were sold in the Company's initial public offering (the "IPO"), and stock options and warrants granted with exercise prices below the IPO price per share during the twelve months preceding the date of the initial filing of the registration statement for the IPO are included in the calculation of common equivalent shares at the IPO price per share. 34 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Related Party Transactions As disclosed in these financial statements, the Company has participated in certain transactions with related parties (See Note 4). In the opinion of management, all transactions with related parties have been conducted on terms which are fair and equitable. Insurance The Company is insured for general liability, workers' compensation, and group medical claims up to a specified claim and aggregate amounts (subject to a deductible of one million dollars). Insured losses subject to this deductible are accrued based upon the aggregate liability for reported claims incurred and an estimated liability for claims incurred but not reported. These liabilities are not discounted. Impact of Recently Issued Accounting Standards In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133". This standard delays the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", for one year, to fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities. 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. Reclassifications Certain prior year balances have been reclassified to conform to the 1999 presentation. 3. 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. This transaction was accounted for as a pooling-of-interests and, accordingly, the 1997 consolidated financial statements were previously 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. On September 29, 1998, a merger (the "Merger") of United Rentals, Inc. and 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 1997 consolidated financial statements were previously restated to include the accounts of U.S. Rentals. 35 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The table below shows the separate revenue and net income (loss) of the Company prior to the above mergers ("United"), U.S. Rentals and Rental Tools for periods prior to combination:
U.S. Rental United Rentals Tools Combined -------- -------- ------- -------- (In thousands) For the nine months ended September 30, 1998: Revenues.............................. $311,919 $451,101 $41,242 $804,262 Net income (loss)..................... (53,178) 43,670 4,695 (4,813) For the year ended December 31, 1997: Revenues.............................. 10,633 430,443 48,762 489,838 Net income (loss)..................... 34 4,830 (966) 3,898
Acquisitions Accounted for as Purchases The acquisitions completed during the years ended December 31, 1999, 1998 and 1997 include 102, 81 and 15 acquisitions, respectively, that were accounted for as purchases. The results of operations of the businesses acquired in these acquisitions have been included in the Company's results of operations from their respective acquisition dates. During 1999, the Company purchased the outstanding stock and certain assets of (i) National Equipment Finance Company, in June, (ii) Mi-Jack Products, Inc. and related entities, in May, (iii) Elmen Rent All, Inc., in June (iv) Forte, Inc., in March, and (v) Arayco, Inc. in June. The aggregate initial consideration paid for these five acquisitions that were accounted for as purchases was approximately $275.4 million and consisted of $270.4 million in cash and $5.0 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of these companies acquired in the aggregate amount of approximately $99.8 million. The aggregate initial consideration paid by the Company for other 1999 acquisitions accounted for as purchases was $663.6 million and consisted of approximately $659.2 million in cash and $4.4 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in the 1999 acquisitions in the aggregate amount of approximately $239.3 million. In January 1998 the Company purchased the outstanding stock and certain assets of (i) Access Rentals, Inc. and Affiliate, (ii) the BNR Group of Companies and (iii) Mission Valley Rentals, Inc. The aggregate initial consideration paid by the Company for these three acquisitions that were accounted for as purchases was $88.7 million and consisted of approximately $81.4 million in cash and 370,231 shares of common stock and warrants to purchase an aggregate of 30,000 shares of the Company's common stock. In addition, the Company repaid or assumed outstanding indebtedness of these three companies acquired in the aggregate amount of $64.0 million. Also during 1998, the Company purchased the outstanding stock and certain assets of (i) Power Rental Co., Inc., in June (ii) Equipment Supply Co., Inc. and Affiliates in June and (iii) McClinch Inc. and Subsidiaries and McClinch Equipment Services, Inc. in September. The aggregate initial consideration paid by the Company for these three acquisitions that were accounted for as purchases was $298.4 million and consisted of approximately $278.0 million in cash and 496,063 shares of common stock. In addition, the Company repaid or assumed outstanding indebtedness of these three companies acquired in the aggregate amount of $155.4 million. 36 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The aggregate initial consideration paid by the Company for other 1998 acquisitions that were accounted for as purchases was $550.4 million and consisted of approximately $507.3 million in cash and 1,083,997 shares of common stock, and seller notes of $10.5 million. In addition, the Company repaid or assumed outstanding indebtedness of the other companies acquired in 1998 in the aggregate amount of $211.8 million. In October 1997, the Company purchased the outstanding stock of (i) A&A Tool Rentals and Sales, Inc., (ii) Bronco High-Lift, Inc., (iii) Coran Enterprises, Inc., (iv) J&J Rental Services, Inc., (v) Mercer Equipment Company and (vi) Rent-It Center, Inc. The aggregate consideration paid for these acquisitions was $57.0 million in cash except in the case of two acquisitions. One acquisition included a $300,000 convertible note and the consideration for another acquisition was paid through the issuance of 318,712 shares of the Company's common stock. These shares were subject to adjustment so that their value would equal $3.8 million based upon the average daily closing price of the Company's common stock during the 60 day period beginning December 18, 1997. In accordance with such provision, 137,600 shares of common stock issued by the Company in connection with such acquisition were canceled. In addition, the Company repaid or assumed outstanding indebtedness of the 1997 companies acquired in the aggregate amount of $43.3 million. The aggregate initial consideration paid by the Company for other 1997 acquisitions was $66.8 million in cash. The Company has agreed, through December 31, 1999, in connection with 16 acquisitions to pay to former owners additional amounts based upon specified future revenues and/or new store openings. Such amounts are limited (i) in the case of 15 of the acquisitions, to a specified maximum amount which varies from $0.1 million to $10.0 million (with the average being $1.3 million) and (ii) in the case of one acquisition, to an amount based upon the performance of a single store. Contingent purchase price is capitalized when earned and amortized over the remaining life of the related asset. The purchase prices for all acquisitions accounted for as purchases have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. However, the Company has not completed its valuation of all of its purchases and, accordingly, the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the years ended December 31, 1999 and 1998 as though each acquisition described above was made on January 1, for each of the periods.
1999 1998 ---------- ---------- (In thousands, except per share data) Revenues.............................................. $2,601,806 $2,252,616 Net income............................................ 142,114 53,199 Basic earnings per share.............................. $ 2.00 $ 0.78 ========== ========== Diluted earnings per share............................ $ 1.53 $ 0.71 ========== ==========
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. 37 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Merger-Related Expenses, Extraordinary Items and Other Costs The results of operations for the year ended December 31, 1999 include pre- tax expenses related to a terminated tender offer totaling approximately $18.2 million ($10.8 million after tax), primarily consisting of $8.3 million in professional fees recorded in selling, general and administrative expense and $9.9 million in financing commitment fees recorded in other (income) expense, net. The results of operations for the year ended December 31, 1998, include pre-tax expenses related to three acquisitions accounted for as poolings-of- interests totaling approximately $47.2 million ($33.2 million after-tax), consisting of (i) $18.5 million for investment banking, legal, accounting services and other merger costs, (ii) $14.5 million of expenses relating to the closing of duplicate facilities, (iii) $8.2 million for employee severance and related matters, (iv) $2.1 million for the write down of computer systems acquired through the U.S. Rentals merger and one of the other acquisitions accounted for as a pooling-of-interests and (v) $3.9 million in other expenses. The Company recorded pre-tax extraordinary items of $35.6 million ($21.3 million after-tax) in 1998 and $2.5 million ($1.5 million after tax) in 1997. The charge in 1998 related to the early extinguishment of debt primarily related to the Merger with U.S. Rentals. The charge in 1997 resulted from the prepayment of certain debt by U.S. Rentals. 4. Related Party Transactions On February 20, 1997, U.S. Rentals completed a recapitalization upon completing its initial public offering whereby it exchanged 20,748,975 shares of its common stock for all the operating assets and liabilities of its predecessor (the "Recapitalization"). The predecessor retained only non- operating assets and liabilities, including $25.7 million of notes receivable from an affiliate and $24.4 million of notes payable to related parties. In conjunction with the Recapitalization, certain deferred compensation agreements totaling $20.3 million were terminated and expensed. Unless otherwise indicated, U.S. Rentals also refers to the Predecessor prior to the Recapitalization. Prior to the Recapitalization, the Company earned interest income from the affiliate of $0.6 million for the year ended December 31, 1997 and the accompanying financial statements include principal adjustments in notes receivable and other income in the amount of $0.1 million for the year ended December 31, 1997. The accompanying financial statements include related party interest expense of $0.6 million , $1.3 million and $1.2 million for the years ended December 31, 1999, 1998 and 1997, respectively (See Note 8 for demand note to stockholder). 5. Rental Equipment Rental equipment consists of the following:
December 31 ---------------------- 1999 1998 ---------- ---------- (In thousands) Rental equipment..................................... $2,098,624 $1,490,572 Less accumulated depreciation........................ (438,891) (347,566) ---------- ---------- Rental equipment, net................................ $1,659,733 $1,143,006 ========== ==========
38 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Property and Equipment Property and equipment consist of the following:
December 31 ------------------ 1999 1998 -------- -------- (In thousands) Land..................................................... $ 50,143 $ 36,855 Buildings................................................ 91,934 61,851 Transportation equipment................................. 139,944 81,168 Machinery and equipment.................................. 31,484 21,545 Furniture and fixtures................................... 46,507 26,820 Leasehold improvements................................... 26,387 18,578 -------- -------- 386,399 246,817 Less accumulated depreciation and amortization........... (81,492) (61,306) -------- -------- Property and equipment, net.............................. $304,907 $185,511 ======== ========
7. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following:
December 31 ----------------- 1999 1998 -------- -------- (In thousands) Accrued profit sharing................................... $ 39,052 $ 31,536 Accrued insurance........................................ 22,738 20,553 Accrued interest......................................... 37,477 21,934 Other.................................................... 110,662 54,336 -------- -------- $209,929 $128,359 ======== ========
39 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Debt Debt and note payable to related party consist of the following:
December 31 --------------------- 1999 1998 ---------- ---------- (In thousands) Credit Facility, interest payable at a weighted average rate of 6.9% and 6.25% at December 31, 1999 and 1998, respectively............................... $ 243,000 $ 305,000 Term Loan B, interest payable at 8.71% and 7.25% at December 31, 1999 and 1998, respectively............. 248,750 250,000 Term Loan C, interest payable at 8.96% at December 31, 1999................................................. 750,000 Senior Subordinated Notes, interest payable semi- annually, (9 1/2% at December 31, 1999 and 1998)..... 200,000 200,000 Senior Subordinated Notes, interest payable semi- annually, (8.80% at December 31, 1999 and 1998)...... 200,653 200,153 Senior Subordinated Notes, interest payable semi- annually, (9 1/4% at December 31, 1999 and 1998)..... 300,000 300,000 Senior Subordinated Notes, interest payable semi- annually, (9% at December 31, 1999).................. 250,000 Other debt, interest payable at various rates ranging from 6% to 12.3% and 6.1% to 10.6% at December 31, 1999 and 1998, respectively, due through 2005........ 73,745 37,921 Demand note to stockholder, interest payable monthly at a rate indexed to the Company's revolving line of credit (6.5% at December 31, 1998)................... 21,500 ---------- ---------- $2,266,148 $1,314,574 ========== ==========
Credit Facility. The Company has a credit facility (the "Credit Facility") which enables URI to borrow up to $772.5 million on a revolving basis and permits a Canadian subsidiary of URI (the "Canadian Subsidiary") 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). Up to $50.0 million ($23.4 million outstanding at December 31, 1999) of the Credit Facility is available in the form of letters of credit. The agreement governing the Credit Facility requires that the aggregate commitment shall be reduced on the last day of each calendar quarter, beginning September 30, 2001 and continuing through June 30, 2003, by an amount equal to $19.3 million. The Credit Facility terminates on September 26, 2003, at which time all outstanding indebtedness is due. Borrowings by URI under the Credit Facility accrue 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 reference rate) or (b) the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's reserve adjusted eurodollar rate) plus a margin ranging from 0.825% to 1.500% per annum. Borrowings by the Canadian Subsidiary under the Credit Facility accrue interest, at such subsidiary's option, at either (x) the Prime Rate (which is equal to Bank of America Canada's prime rate), (y) the BA Rate (which is equal to Bank of America Canada's BA Rate) plus a margin ranging from 0.825% to 1.500% per annum or (z) the Eurodollar Rate (which for borrowing by the Canadian Subsidiary is equal to Bank of America Canada's reserve adjusted Eurodollar Rate) plus a margin ranging from 0.825% to 1.500% per annum. If at any time an event of default (as defined in the agreement governing the Credit Facility) exists, the interest rate applicable to each loan will increase 40 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) by 2% per annum. The Company is also required to pay the banks an annual facility fee equal to 0.375% of the banks' $772.5 million aggregate lending commitment under the Credit Facility (which fee may be reduced to 0.300% for periods during which the Company maintains a specified funded debt to cash flow ratio). The obligations of URI under the Credit Facility are (i) secured by substantially all of its assets, the stock of its United States subsidiaries and a portion of the stock of URI's Canadian subsidiaries and (ii) guaranteed by Holdings and secured by the stock of URI. The obligations of the Canadian Subsidiary under the Credit Facility are guaranteed by URI and secured by substantially all of the assets of the Canadian Subsidiary and the stock of the subsidiaries of the Canadian Subsidiary. The Credit Facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) maximum leverage, (b) the ratio of senior debt to cash flow, (c) minimum interest coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the ratio of senior debt to tangible assets. The agreements governing the Credit Facility also contain various other covenants that restrict the Company's ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) pay dividends or make other restricted payments on its common stock and certain other securities and (iv) make acquisitions unless certain financial conditions are satisfied. In addition, the agreement governing the Credit Facility (a) requires the Company to maintain certain financial ratios and (b) provides that failure by any two of certain of the Company's executive officers to continue to hold executive positions with the Company for a period of 30 consecutive days constitutes an event of default unless replacement officers satisfactory to the lenders are appointed. Term Loan B. URI obtained a $250.0 million term loan (the "Term Loan B") from a group of financial institutions. The Term Loan B matures on June 30, 2005. Prior to maturity, quarterly installments of principal in the amount of $0.6 million are due on the last day of each calendar quarter, commencing September 30, 1999. The amount due at maturity is $235.6 million. The Term Loan B accrues interest, at URI's option, at either (a) the Base Rate (as defined above with respect to the Credit Facility) plus a margin of 0.375% per annum, or (b) the Eurodollar Rate (as defined above with respect to the Credit Facility for borrowings by the Company) plus a margin of 2.25% per annum. The Term Loan B is secured pari passu with the Credit Facility. The agreement governing the Term Loan B contains restrictive covenants substantially similar to those provided under the Credit Facility. Term Loan C. URI obtained a $750.0 million term loan from a group of financial institutions (the "Term Loan C"). The Term Loan C matures in June 2006. Prior to maturity, quarterly installments of principal in the amount of $1.9 million are due on the last day of each calendar quarter, commencing September 30, 2000. The amount due at maturity is $706.3 million. The Term Loan C accrues interest, at URI's option, at either (a) the Base Rate (as defined above with respect to the Credit Facility) plus a margin of 0.625% per annum, or (b) the Eurodollar Rate (as defined above with respect to the Credit Facility) plus a margin of 2.50% per annum. The Term Loan C is secured pari passu with the Credit Facility. The agreement governing the Term Loan C contains restrictive covenants substantially similar to those provided under the Credit Facility. At December 31, 1999, the Company had interest rate protection in the form of swap agreements with an aggregate notional amount of $848.8 million. The effect of these agreements is to limit the interest rate exposure to 5.82% on the outstanding balance of Term Loan B and 5.81% on $600 million of Term Loan C. While it is not the Company's intention to terminate the interest rate 41 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) swap agreements, the fair values were estimated by obtaining quotes from brokers which represented the amounts that the Company would receive or pay if the agreements were terminated. These fair values indicated that termination of the agreements at December 31, 1999, would have resulted in a pretax gain of $0.5 million. 9 1/2% Senior Subordinated Notes. URI issued $200.0 million aggregate principal amount of 9 1/2% senior subordinated notes, (the "9 1/2 Notes") which are due June 1, 2008. The 9 1/2% Notes are unsecured. URI may, at its option, redeem the 9 1/2% Notes on or after June 1, 2003 at specified redemption prices which range from 104.75% in 2003 to 100.0% in 2006 and thereafter. In addition, on or prior to June 1, 2001, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 9 1/2% Notes, at a redemption price of 109.5%. The indenture governing the 9 1/2% 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. 8.80% Senior Subordinated Notes. URI issued $205.0 million aggregate principal amount of 8.80% senior subordinated notes, (the "8.80% Notes") which are due August 15, 2008. The 8.80% Notes are unsecured. URI may, at its option, redeem the 8.80% Notes on or after August 15, 2003 at specified redemption prices which range from 104.4% in 2003 to 100.0% in 2006 and thereafter. In addition, on or prior to August 15, 2001, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 8.80% Notes, at a redemption price of 108.8%. The indenture governing the 8.80% Notes contains restrictions substantially similar to those applicable to the 9 1/2% Notes. 9 1/4% Senior Subordinated Notes. URI issued $300.0 million aggregate principal amount of 9 1/4% senior subordinated notes, (the "9 1/4% Notes") which are due January 15, 2009. The 9 1/4% Notes are unsecured. URI may, at its option, redeem the 9 1/4% Notes on or after January 15, 2004 at specified redemption prices which range from 104.625% in 2004 to 100.0% in 2007 and thereafter. In addition, on or prior to January 15, 2002, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 9 1/4% Notes, at a redemption price of 109.25%. The indenture governing the 9 1/4% Notes contains restrictions substantially similar to those applicable to the 9 1/2% Notes. 9% Senior Subordinated Notes. URI issued $250.0 million aggregate principal amount of 9% senior subordinated notes, (the "9% Notes") which are due April 1, 2009. 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 104.5% in 2004 to 100.0% 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 to redeem up to 35% of the outstanding 9% Notes, at a redemption price of 109.0%. The indenture governing the 9% Notes contains restrictions substantially similar to those applicable to the 9 1/2% Notes. 42 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Maturities of the Company's debt for each of the next five years at December 31, 1999 are as follows (In thousands): 2000.............................. $ 30,094 2001.............................. 26,550 2002.............................. 22,122 2003.............................. 263,972 2004.............................. 20,099 Thereafter........................ 1,903,311
9. Income Taxes The provision for historical federal and state income taxes is as follows:
Year ended December 31 ------------------------ 1999 1998 1997 ------- ------- ------- (In thousands) Historical: Domestic federal: Current........................................ $39,643 $14,291 $ 3,765 Deferred....................................... 37,598 21,047 14,276 Deferred tax recorded upon Recapitalization.... 6,141 ------- ------- ------- 77,241 35,338 24,182 Domestic state: Current........................................ 10,405 1,067 668 Deferred....................................... 3,437 7,020 3,279 Deferred tax recorded upon Recapitalization.... 1,379 ------- ------- ------- 13,842 8,087 5,326 ------- ------- ------- Total domestic................................. 91,083 43,425 29,508 Foreign federal: Current........................................ 4,917 519 Deferred....................................... 465 (492) ------- ------- ------- 5,382 27 Foreign provincial: Current........................................ 2,356 277 Deferred....................................... 320 (230) ------- ------- ------- 2,676 47 ------- ------- ------- Total foreign.................................. 8,058 74 ------- ------- ------- $99,141 $43,499 $29,508 ======= ======= =======
43 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 35% to income before provision for income taxes is as follows:
Year ended December 31 ------------------------- 1999 1998 1997 ------- ------- ------- (In thousands) Computed tax rate at statutory tax rate.......... $84,632 $27,404 $12,221 State income taxes, net of federal tax benefit... 8,997 4,177 1,716 Cumulative deferred taxes recorded upon Recapitalization................................ 7,520 Loss prior to Recapitalization excluded from taxable income.................................. 7,543 Non-deductible expenses.......................... 6,265 7,400 Provision for deferred taxes of Subchapter S Corporation at time of pooling.................. 4,750 Other............................................ (753) (232) 508 ------- ------- ------- $99,141 $43,499 $29,508 ======= ======= =======
The components of deferred income tax assets (liabilities) are as follows:
December 31 -------------------- 1999 1998 --------- --------- (In thousands) Property and equipment.............................. $(175,180) $(115,355) Intangibles......................................... (13,188) (7,044) Reserves............................................ 48,577 28,468 Net operating loss and credit carryforwards......... 56,266 38,102 Other............................................... 2,296 12,269 --------- --------- $ (81,229) $ (43,560) ========= =========
For financial reporting purposes, income before income taxes and extraordinary items for the Company's foreign subsidiaries was $19.9 million and $2.1 million for the years ended December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998, unremitted earnings of foreign subsidiaries were approximately $13.8 million and $2.0 million, respectively. Since it is the Company's intention to indefinitely reinvest these earnings, no United States taxes have been provided. Determination of the amount of unrecognized deferred tax liability on these unremitted taxes is not practicable. U.S. Rentals was taxed as a Subchapter S Corporation until its initial public offering in February 1997, and Rental Tools was taxed as a Subchapter S Corporation until being acquired by the Company. In general, the income or loss of a Subchapter S Corporation is passed through to its stockholders rather than being subjected to taxes at the corporate level. Pro forma net income reflects a provision for income taxes on a pro forma basis for all periods presented as if all such companies were liable for federal and state income taxes as taxable corporate entities for all periods presented. The Company has net operating loss carryforwards ("NOL's") of $32.0 million for federal income tax purposes that expire through 2018. 44 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. Holding Company Reorganization URI was formerly named United Rentals, Inc. On August 5, 1998, a reorganization was effected pursuant to which (i) URI became a wholly owned subsidiary of Holdings, a newly formed holding company, (ii) the name of URI was changed from United Rentals, Inc. to United Rentals (North America), Inc., (iii) the name of the new holding company became United Rentals, Inc., (iv) the outstanding common stock of URI was automatically converted, on a share-for- share basis, into common stock of Holdings and (v) the common stock of Holdings commenced trading on the New York Stock Exchange under the symbol "URI" instead of the common stock of URI. The purpose of the reorganization was to facilitate certain financings. The business operations of the Company did not change as a result of the new legal structure. The stockholders of Holdings have the same rights, privileges and interests with respect to Holdings as they had with respect to URI immediately prior to the reorganization. 11. Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of a Subsidiary Trust In August 1998, a subsidiary trust (the "Trust") of Holdings issued and sold in a private offering (the "Preferred Securities Offering") $300.0 million of 30 year, 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred Securities"). The net proceeds from the Preferred Securities Offering were approximately $290.0 million. The Trust used the proceeds from the Preferred Securities Offering to purchase 6 1/2% convertible subordinated debentures due 2028 (the "Debentures") from Holdings which resulted in Holdings receiving all of the net proceeds of the Preferred Securities Offering. Holdings in turn contributed the net proceeds of the Preferred Securities Offering to URI. The Preferred Securities are non-voting securities, carry a liquidation value of $50 per security and are convertible into the Company's common stock at an initial rate of 1.146 shares per security (equivalent to an initial conversion price of $43.63 per share). They are convertible at any time at the holders' option and are redeemable, at the Company's option, after three years, subject to certain conditions. Holders of the Preferred Securities are entitled to preferential cumulative cash distributions from the Trust at an annual rate of 6 1/2% of the liquidation value, accruing from the original issue date and payable quarterly in arrears beginning February 1, 1999. The distribution rate and dates correspond to the interest rate and payments dates on the Debentures. Holdings may defer interest payments on the Debentures for up to twenty consecutive quarters, but not beyond the maturity date of the Debentures. If interest payments on the Debentures are deferred, so are the payments on the Preferred Securities. Under this circumstance, Holdings will be prohibited from paying dividends on any of its capital stock or making payments with respect to its debt that rank pari passu with or junior to the Debentures. Holdings has executed a guarantee with regard to payment of the Preferred Securities to the extent that the Trust has sufficient funds to make the required payments. 12. Capital Stock 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"). Subject to certain thresholds related to the aggregate number of shares issuable upon conversion of Series A Preferred, the holders of the Series A Preferred, voting separately as a single class, have the right to elect up to two directors. Currently, holders of the Series A Preferred may elect two directors. Except 45 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) for the election of directors, the holders of the Series A Preferred have the same voting rights as those belonging to holders of Holdings common stock. The net proceeds from the sale of the Series A Preferred were approximately $287.0 million. Holdings contributed such net proceeds to URI. The Series A Preferred is convertible into 12,000,000 shares of Holdings common stock at $25 per share based upon a liquidation preference of $1,000 per share of Series A Preferred, subject to adjustment. The Series A Preferred has no stated dividend. However, in the event Holdings declares or pays any dividends on, or distributions of, its common stock, it must (subject to certain exceptions) also declare and pay to the holders of Series A Preferred the dividends and distributions which would have been declared and paid upon conversion of the Series A Preferred. Series B Perpetual Convertible Preferred Stock. On September 30, 1999, Holdings sold 150,000 shares of its Series B Perpetual Convertible Preferred Stock ("Series B Preferred"). The Series B Preferred is divided into two classes designated as Class B-1 and Class B-2. Other than voting rights, the classes are substantially the same. The holders of the 105,252 shares of Class B-1 are entitled to the same voting rights as those belonging to holders of Holdings common stock. The holders of the 44,748 shares of Class B-2 have no such voting rights. The net proceeds from the sale of the Series B Preferred were approximately $143.8 million. Holdings contributed such net proceeds to URI. The Series B Preferred is convertible into 5,000,000 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. The Series B Preferred has no stated dividend. However, in the event Holdings declares or pays any dividends on, or distributions of, its common stock, it must (subject to certain exceptions) also declare and pay to the holders of Series B Preferred the dividends and distributions which would have been declared and paid upon conversion of the Series B Preferred. Warrants. As of December 31, 1999 there are outstanding warrants to purchase an aggregate of 6,889,329 shares of common stock. The weighted average exercise price of the warrants is $11.20 per share. All warrants are currently exercisable and may be exercised at any time through 2009. 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 $64.7 million (after deducting underwriting discounts and offering expenses). Holdings contributed such net proceeds to URI. 1997 Stock Option Plan. The Company's 1997 Stock Option Plan provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of common stock. Some or all of such options may be "incentive stock options" within the meaning of the Internal Revenue Code. All officers, directors and employees of the Company and other persons who perform services on behalf of the Company are eligible to participate in this plan. Each option granted pursuant to this plan must provide for an exercise price per share that is at least equal to the fair market value per share of common stock on the date of grant. No options may be granted under this plan after August 31, 2007. As of December 31, 1999 and 1998, options to purchase an aggregate of 4,731,183 shares and 4,859,875 shares of common stock, respectively, were outstanding under this plan. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board of Directors). 46 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1998 Stock Option Plan. The Company's 1998 Stock Option Plan provides for the granting of options to purchase not more than an aggregate of 4,200,000 shares of common stock. Some or all of the options issued under the 1998 Stock Option Plan may be "incentive stock options" within the meaning of the Internal Revenue Code. All officers and directors of the Company and its subsidiaries are eligible to participate in the 1998 Stock Option Plan. Each option granted pursuant to the 1998 Stock Option Plan must provide for an exercise price per share that is at least equal to the fair market value per share of common stock on the date of grant. No options may be granted under the 1998 Stock Option Plan after August 20, 2008. As of December 31, 1999 and 1998, options to purchase an aggregate of 4,200,000 shares and 3,980,000 shares of common stock, respectively, were outstanding pursuant to this plan to executive officers and directors. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board of Directors). 1998 Supplemental Stock Option Plan. The Company has adopted a stock option plan pursuant to which options, for up to an aggregate of 5,250,000 shares of common stock, may be granted to employees who are not officers or directors and to consultants and independent contractors who perform services for the Company or its subsidiaries. As of December 31, 1999 and 1998, options to purchase an aggregate of 4,140,384 shares and 1,194,400 shares of common stock, respectively, were outstanding pursuant to this plan. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board of Directors). 1997 Performance Award Plan. Effective February 20, 1997, U.S. Rentals adopted the 1997 Performance Award Plan under which stock options and other awards could be granted to key employees and directors at prices and terms established by U.S. Rentals at the date of grant. The options expire in 2007. As a result of the Merger, all outstanding options to purchase shares of U.S. Rentals common stock became fully vested and were converted into options to purchase the Company's common stock. As of December 31, 1999 and 1998, options to purchase an aggregate of 2,581,675 shares and 4,610,539 shares of common stock , respectively, were outstanding pursuant to this plan. 47 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A summary of the transactions within the Company's stock option plans follows:
Weighted Average Exercise Shares Price ---------- -------- Outstanding at January 1, 1997............................. Granted.................................................. 4,825,699 $19.52 Exercised................................................ Canceled................................................. ---------- Outstanding at December 31, 1997........................... 4,825,699 19.52 Granted.................................................. 9,453,718 19.78 Exercised................................................ (25,025) 20.78 Canceled................................................. (209,578) 22.94 ---------- Outstanding at December 31, 1998........................... 14,044,814 19.60 Granted.................................................. 3,092,462 26.77 Exercised................................................ (1,331,528) 20.74 Canceled................................................. (152,506) 26.70 ---------- ------ Outstanding at December 31, 1999........................... 15,653,242 $20.86 ========== ====== Exercisable at December 31, 1999........................... 7,490,100 $19.69 ========== ======
Options Outstanding Options Exercisable -------------------------------- -------------------- Weighted Average Weighted Weighted Remaining Average Average Amount Contractual Exercise Amount Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price - ------------------------ ----------- ----------- -------- ----------- -------- $10.00 - $15.00.......... 4,562,517 8.6 years $12.33 2,319,417 $12.29 15.01 - 20.00.......... 541,959 9.3 years 18.33 123,797 19.40 20.01 - 25.00.......... 7,011,188 8.0 years 21.77 4,219,838 21.48 25.01 - 30.00.......... 1,985,363 9.2 years 27.28 404,953 27.23 30.01 - 50.00.......... 1,552,215 8.5 years 34.53 422,095 35.35 ---------- --------- 15,653,242 8.4 years 20.86 7,490,100 19.69 ========== =========
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income. Had compensation cost for the Company's stock option plans been determined pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have differed. The weighted average fair value of options granted was $10.99 and $11.94 during 1999 and 1998, respectively. The fair value is estimated on the date of grant using the Black-Scholes option pricing model which uses subjective assumptions which can materially affect fair value estimates and, therefore, does not necessarily provide a single measure of fair value of options. Using the Black-Scholes option pricing model and a risk-free interest rate average of 6.29% and 4.6% in 1999 and 1998, respectively, and ranging from 5.8% to 6.61% in 1997, a volatility factor for the market price of the Company's common stock of 52%, 85% and 32% in 1999, 1998 and 1997, respectively, and a weighted-average expected life of options of approximately three years in 1999 and 1998 and three to five years in 1997, the Company's net income (loss), basic earnings (loss) per share and diluted 48 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) earnings (loss) per share would have been $104.3 million, $1.46 and $1.12, respectively, for the year ended December 31, 1999, $(13.3 million), $(0.20) and $(0.20), respectively, for the year ended December 31, 1998 and, after giving effect to the Recapitalization, would have been $17.1 million, $0.37 and $0.35, respectively, for the year ended December 31, 1997. For purposes of these pro forma disclosures, the estimated fair value of options is amortized over the options' vesting period. Since the number of options granted and their fair value may vary significantly from year to year, the pro forma compensation expense in future years may be materially different. At December 31, 1999 there are (i) 6,889,329 shares of common stock reserved for the exercise of warrants, (ii) 16,031,675 shares of common stock reserved for issuance pursuant to options granted and that may be granted in the future under the Company's stock option plans, (iii) 6,875,580 shares of common stock reserved for the issuance of outstanding preferred securities of a subsidiary trust, (iv) 17,000,000 shares of common stock reserved for the issuance of Series A and Series B preferred stock and (v) 332,517 shares of common stock reserved for the conversion of convertible debt. 13. Earnings Per Share The following table sets forth the computation of historical basic and diluted earnings per share:
Year Ended December 31 -------------------------------- 1999 1998 1997 ---------- ---------- ---------- (In thousands, except share and per share data) Numerator: Income before extraordinary items........ $ 142,666 $ 34,798 $ 5,409 ========== ========== ========== Denominator: Denominator for basic earnings per share- weighted-average shares................. 71,353,127 66,225,492 46,660,955 Effect of dilutive securities: Employee stock options.................. 4,651,237 2,641,194 743,597 Warrants................................ 3,978,536 4,208,434 1,644,445 Series A Preferred...................... 11,802,740 Series B Preferred...................... 1,250,000 ---------- ---------- ---------- Denominator for dilutive earnings per share- adjusted weighted-average shares.................................. 93,035,640 73,075,120 49,048,997 ========== ========== ========== Earnings per share-basic: Income before extraordinary items........ $ 2.00 $ 0.53 $ 0.12 Extraordinary items, net................. 0.33 0.04 ---------- ---------- ---------- Net income............................... $ 2.00 $ 0.20 $ 0.08 ========== ========== ========== Earnings per share-diluted: Income before extraordinary items........ $ 1.53 $ 0.48 $ 0.11 Extraordinary items, net................. 0.30 0.03 ---------- ---------- ---------- Net income............................... $ 1.53 $ 0.18 $ 0.08 ========== ========== ==========
49 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 14. Commitments and Contingencies Operating Leases The Company leases rental equipment, real estate and certain office equipment under operating leases. Certain real estate leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Future minimum lease payments, by year and in the aggregate, for noncancellable operating leases with initial or remaining terms of one year or more are as follows at December 31, 1999:
Real Rental Other Estate Equipment Equipment Leases Leases Leases -------- --------- --------- (In thousands) 2000......................................... $ 44,240 $ 44,623 $ 8,639 2001......................................... 39,563 44,454 8,224 2002......................................... 36,362 42,281 5,336 2003......................................... 32,532 30,341 350 2004......................................... 29,170 19,768 Thereafter................................... 101,504 -------- -------- ------- $283,371 $181,467 $22,549 ======== ======== =======
The Company was the seller-lessee in a sale-leaseback transaction in 1999 where it sold rental equipment for aggregate proceeds of $88.0 million and in 1998 where it sold rental equipment for aggregate proceeds of $35.0 million. For the 1999 transaction, the Company will leaseback the rental equipment over a five year period beginning December 1999 and recognized a deferred gain on the sale of approximately $6.3 million. For the 1998 transaction, the Company will leaseback the rental equipment over a five year period beginning December 1998 and recognized a deferred gain on the sale of approximately $0.6 million. The future payments under these leases are included in the table above. Rent expense under non-cancelable operating leases totaled $65.5 million, $20.5 million and $6.4 million for the years ended December 31, 1999, 1998 and 1997, respectively. Employee Benefit Plans The Company currently sponsors one defined contribution 401(k) retirement plan which is subject to the provisions of ERISA. The Company also sponsors a deferred profit sharing plan for the benefit of the full time employees of its Canadian subsidiaries. Under these plans, the Company matches a percentage of the participants contributions up to a specified amount. Company contributions to the plans were $4.6 million, $1.0 million and $0.4 million for the years ended December 31, 1999, 1998 and 1997, respectively. Legal Matters The Company is party to legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses, reserves, or insurance coverage with respect to these matters so that the ultimate resolution will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. The Company had accrued $13.7 million and $16.2 million at December 31, 1999 and 1998, respectively, to cover the uninsured portion of possible costs arising from these pending claims and other potential unasserted claims. 50 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Environmental Matters The Company and its operations are subject to various laws and related regulations governing environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as investigation of property damage. The Company incurs ongoing expenses associated with the removal of underground storage tanks and the performance of appropriate remediation at certain of its locations. The Company believes that such removal and remediation will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. 15. Segment Information The Company operates in one industry segment consisting of the rental and sales of equipment and related merchandise and parts. The Company's operations are managed as one segment, or strategic unit, because it offers similar products and services in similar markets and the factors determining strategic decisions are comparable for all products and services. The Company operates in the United States, Canada and Mexico. Revenues are attributable to countries based upon the location of the customers. Geographic area information for the years ended December 31, 1999, 1998 and 1997 is as follows:
Year ended December 31 ------------------------------ 1999 1998 1997 ---------- ---------- -------- (In thousands) Revenues from external customers Domestic...................................... $2,086,808 $1,168,071 $489,838 Foreign....................................... 146,820 52,211 ---------- ---------- -------- Total revenues from external customers......... $2,233,628 $1,220,282 $489,838 ========== ========== ======== Rental equipment, net Domestic...................................... $1,537,199 $1,099,539 $461,026 Foreign....................................... 122,534 43,467 ---------- ---------- -------- Total consolidated rental equipment, net....... $1,659,733 $1,143,006 $461,026 ========== ========== ======== Property and equipment, net Domestic...................................... $ 285,456 $ 180,777 $ 98,268 Foreign....................................... 19,451 4,734 ---------- ---------- -------- Total consolidated property and equipment, net........................................... $ 304,907 $ 185,511 $ 98,268 ========== ========== ======== Intangible assets, net Domestic...................................... $1,740,326 $ 867,090 $ 73,648 Foreign....................................... 123,046 54,975 ---------- ---------- -------- Total consolidated intangible assets, net...... $1,863,372 $ 922,065 $ 73,648 ========== ========== ========
51 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. Quarterly Financial Information (Unaudited) Selected Financial Data The following table of quarterly financial information has been prepared from unaudited financial statements of the Company, and reflects adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented.
First Second Third Fourth Quarter Quarter Quarter Quarter --------- -------- -------- -------- (In thousands, except per share data) For the year ended December 31, 1999: Total revenues...................... $ 392,309 $503,662 $668,618 $669,039 Gross profit........................ 133,991 184,064 256,979 249,884 Net income.......................... 16,225 25,886 56,208 44,347 Basic earnings per share............ $ 0.24 $ 0.36 $ 0.78 $ 0.62 Diluted earning per share........... 0.18 0.28 0.60 0.48 For the year ended December 31, 1998: Total revenues...................... $ 171,141 $254,047 $379,074 $416,020 Gross profit........................ 47,911 87,422 138,717 149,398 Income (loss) before extraordinary item............................... 6,704 19,976 (10,156) 18,274 Extraordinary item.................. 21,337 Net income (loss)................... 6,704 19,976 (31,493) 18,274 Basic earnings (loss) before extraordinary item per share....... $ 0.11 $ 0.30 $ (0.15) $ 0.26 Diluted earnings (loss) before extraordinary item per share....... 0.11 0.27 (0.13) 0.24
17. Subsequent Events Subsequent to December 31, 1999 and through February 29, 2000, the Company completed the acquisitions of four equipment rental companies and the aggregate consideration paid by the Company for the acquisitions was $37.7 million in cash. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in the aggregate amount of $12.2 million. The Company funded these acquisitions with cash on hand and borrowings under the Credit Facility. 52 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. (Parent Company of United Rentals (North America), Inc.) We have audited the accompanying consolidated balance sheets of United Rentals (North America), Inc. as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the management of United Rentals (North America), Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals (North America), Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP MetroPark, New Jersey February 29, 2000 53 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED BALANCE SHEETS
December 31 --------------------- 1999 1998 ---------- ---------- (In thousands, except share data) Assets Cash and cash equivalents............................... $ 23,811 $ 20,410 Accounts receivable, net of allowance for doubtful accounts of $50,736 and $41,201 at 1999 and 1998, respectively........................................... 434,985 233,282 Inventory............................................... 129,473 70,994 Prepaid expenses and other assets....................... 37,125 43,176 Rental equipment, net................................... 1,659,733 1,143,006 Property and equipment, net............................. 276,524 170,537 Intangible assets, net of accumulated amortization of $51,231 and $14,520 at 1999 and 1998, respectively..... 1,863,372 922,065 ---------- ---------- $4,425,023 $2,603,470 ========== ========== Liabilities and Stockholder's Equity Liabilities: Accounts payable...................................... $ 212,565 $ 108,426 Debt.................................................. 2,266,148 1,314,574 Deferred taxes........................................ 81,229 43,560 Accrued expenses and other liabilities................ 171,807 115,558 ---------- ---------- Total liabilities................................... 2,731,749 1,582,118 Commitments and contingencies Stockholder's equity: Common stock--$.01 par value, 3,000 shares authorized, 1,000 shares issued and outstanding ................. Additional paid-in capital............................ 1,507,330 984,345 Retained earnings..................................... 185,627 37,288 Accumulated other comprehensive income................ 317 (281) ---------- ---------- Total stockholder's equity.......................... 1,693,274 1,021,352 ---------- ---------- $4,425,023 $2,603,470 ========== ==========
See accompanying notes. 54 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 ------------------------------- 1999 1998 1997 ---------- ---------- -------- (In thousands) Revenues: Equipment rentals........................... $1,581,026 $ 895,466 $388,181 Sales of rental equipment................... 235,678 119,620 41,406 Sales of equipment and merchandise and other revenues................................... 416,924 205,196 60,251 ---------- ---------- -------- Total revenues............................... 2,233,628 1,220,282 489,838 Cost of revenues: Cost of equipment rentals, excluding depreciation............................... 676,972 394,750 189,578 Depreciation of rental equipment............ 280,641 175,910 82,097 Cost of rental equipment sales.............. 136,678 66,136 20,455 Cost of equipment and merchandise sales and other operating costs...................... 314,419 160,038 48,416 ---------- ---------- -------- Total cost of revenues....................... 1,408,710 796,834 340,546 ---------- ---------- -------- Gross profit................................. 824,918 423,448 149,292 Selling, general and administrative expenses.................................... 344,328 195,620 70,835 Merger-related expenses...................... 47,178 Non-rental depreciation and amortization..... 57,941 34,684 13,424 Termination cost of deferred compensation agreements.................................. 20,290 ---------- ---------- -------- Operating income............................. 422,649 145,966 44,743 Interest expense............................. 139,828 64,157 11,847 Other (income) expense, net.................. (1,646) (5,097) (2,021) ---------- ---------- -------- Income before provision for income taxes and extraordinary items......................... 284,467 86,906 34,917 Provision for income taxes................... 116,628 46,971 29,508 ---------- ---------- -------- Income before extraordinary items............ 167,839 39,935 5,409 Extraordinary items, net of tax benefit of $14,255 and $995, in 1998 and 1997, respectively................................ 21,337 1,511 ---------- ---------- -------- Net income................................... $ 167,839 $ 18,598 $ 3,898 ========== ========== ======== Unaudited pro forma data: Historical income before income taxes and extraordinary items........................ $ 86,906 $ 34,917 Pro forma income tax expense................ 47,858 14,176 ---------- -------- Pro forma income before extraordinary items...................................... $ 39,048 $ 20,741 ========== ========
See accompanying notes. 55 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Common Stock Accumulated ---------------- Additional Other Number Paid-in Retained Comprehensive Comprehensive of Shares Amount Capital Earnings Income Income --------- ------ ---------- -------- ------------- ------------- (In thousands except share amounts) Balance, December 31, 1996.................. 1,000 $ 13,505 $ 91,915 Contributed capital from Parent............ 157,696 Issuance of common stock................... 186,436 Distribution of non-operating assets, net.. (4,219) Reclassification of Subchapter S accumulated earnings to capital from Parent.................................... 48,902 (48,902) Subchapter S distributions of a pooled entity.................................... (2,843) Net income................................. 3,898 $ 3,898 ----- ----- ---------- -------- ======== ----- Balance, December 31, 1997.................. 1,000 402,320 44,068 Comprehensive Income: Net income................................. 18,598 $ 18,598 Other comprehensive income: Foreign currency translation adjustments............................. (281) $(281) -------- Comprehensive income....................... $ 18,317 ======== Contributed capital from Parent............ 563,045 Reclassification of Subchapter S accumulated earnings to capital from Parent.................................... 18,979 (18,979) Pooling-of-interests....................... 1 1,795 Subchapter S distributions of a pooled entity.................................... (3,536) Dividend distribution to Parent............ (4,658) ----- ----- ---------- -------- ----- Balance, December 31, 1998.................. 1,000 984,345 37,288 (281) Comprehensive income: Net income................................. 167,839 $167,839 Other comprehensive income: Foreign currency translation adjustments............................. 598 598 -------- Comprehensive income....................... $168,437 ======== Contributed capital from parent............ 522,985 Dividend distributions to parent........... (19,500) ----- ----- ---------- -------- ----- Balance, December 31, 1999.................. 1,000 $1,507,330 $185,627 $317 ===== ===== ========== ======== =====
See accompanying notes. 56 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 ----------------------------------- 1999 1998 1997 ----------- ----------- --------- (In thousands) Cash flows from operating activities: Net income................................ $ 167,839 $ 18,598 $ 3,898 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............ 342,403 211,747 95,521 Gain on sale of rental equipment......... (99,000) (53,484) (20,951) Gain on sale of businesses............... (1,842) (4,189) Write down of assets held for sale....... 4,040 Extraordinary items...................... 35,592 2,506 Deferred taxes........................... 41,820 27,345 25,075 Changes in operating assets and liabilities: Accounts receivable...................... (93,716) (53,368) (19,837) Inventory................................ (6,544) (6,392) (3,785) Prepaid expenses and other assets........ 34,701 12,693 (9,821) Accounts payable......................... 47,586 25,737 11,704 Accrued expenses and other liabilities... (8,065) (7,713) 8,819 ----------- ----------- --------- Net cash provided by operating activities............................... 425,182 210,606 93,129 ----------- ----------- --------- Cash flows from investing activities: Purchases of rental equipment............. (718,112) (479,534) (268,548) Purchases of property and equipment....... (109,468) (69,643) (53,531) Proceeds from sales of rental equipment... 235,678 119,620 41,406 Proceeds from sale of businesses.......... 6,521 10,640 Purchase of other companies............... (986,790) (911,837) (115,528) Payment of contingent purchase price...... (8,216) (3,956) In-process acquisition costs.............. (129) ----------- ----------- --------- Net cash used in investing activities..... (1,580,387) (1,334,710) (396,330) ----------- ----------- --------- Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs.................... 186,436 Capital contribution by Parent............ 522,985 492,590 154,302 Proceeds from debt........................ 2,683,616 2,363,637 308,858 Payments on debt.......................... (2,097,650) (1,785,667) (271,418) Proceeds from sale-leaseback ............. 88,000 35,000 Cash retained by Predecessor in connection with Recapitalization.................... (998) Dividend distribution to Parent........... (19,500) (4,658) Subchapter S distributions of a pooled entity................................... (3,536) (2,843) Payment of debt financing costs........... (19,443) (24,982) (1,631) ----------- ----------- --------- Net cash provided by financing activities............................... 1,158,008 1,072,384 372,706 Effect of foreign exchange rates.......... 598 (281) ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents.............................. 3,401 (52,001) 69,505 Cash and cash equivalents at beginning of year..................................... 20,410 72,411 2,906 ----------- ----------- --------- Cash and cash equivalents at end of year.. $ 23,811 $ 20,410 $ 72,411 =========== =========== ========= Supplemental disclosure of cash flow information: Cash paid for interest.................... $ 124,285 $ 43,157 $ 13,090 Cash paid for taxes....................... $ 17,509 $ 10,224 $ 11,487 Deferred compensation and bonus payments through issuance of common stock......... $ 486 Net assets retained by Predecessor in connection with Recapitalization......... $ 3,221 Supplemental schedule of non cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired............. $ 1,468,567 $ 1,501,467 $ 162,954 Liabilities assumed...................... (472,382) (518,861) (43,301) Less: Amounts paid in common stock and warrants of the Parent........................... (60,304) (3,825) Amounts paid through issuance of debt.... (9,395) (10,465) (300) ----------- ----------- --------- Net cash paid............................. $ 986,790 $ 911,837 $ 115,528 =========== =========== =========
See accompanying notes. 57 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation United Rentals (North America), Inc., ("URI") and subsidiaries is a wholly owned subsidiary of United Rentals, Inc., which is principally a holding company ("Holdings" or "Parent"). 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 the "Company" refer to URI and its subsidiaries. As a result of the reorganization all periods presented have been adjusted to reflect the Company's capitalization of 1,000 shares of common stock as if it occurred at the beginning of the period. Certain footnotes are not provided for the accompanying financial statements as the information in Notes 1 through 10, 12 and 14 through 17 to the consolidated financial statements of United Rentals, Inc. included elsewhere in this Report is substantially equivalent to that required for the consolidated financial statements of URI and its subsidiaries. Earnings per share data is not provided for the operating results of URI and subsidiaries, as they are wholly owned subsidiaries of Holdings. URI's various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder. Holdings provides certain services to URI in connection with its operations. These services principally include: (i) senior management services, (ii) finance related services and support, (iii) information technology systems and support and (iv) acquisition related services. In addition, Holdings leases certain equipment and real property that are made available for use by URI and its subsidiaries. URI has made, and expects to continue to make, certain payments to Holdings in respect of the services provided by Holdings to the Company. The expenses relating to URI's payments to Holdings are reflected on URI's financial statements as selling, general and administrative expenses. In addition, although not legally obligated to do so, URI has in the past, and expects that it will in the future, make distributions to Holdings for, among other things, enabling Holdings to pay dividends on its preferred securities. 2. Capital Stock and Contributions At December 31, 1999 and 1998, the Company has authorized 3,000 shares of its $0.01 par value common stock of which 1,000 shares are issued and outstanding. All of the issued and outstanding common shares are owned by its Parent. Pursuant to the reorganization described in Note 1, the net proceeds from the Company's initial public offering completed in December 1997 and the public offering completed in March 1998 have been reflected as Contributed Capital from the Parent in the accompanying statement of stockholder's equity. Holdings also contributed the net proceeds from the issuance of redeemable convertible preferred securities in August 1998 to URI. During 1999, Holdings contributed the net proceeds from the issuance of common stock in a public offering and the net proceeds from the issuance of perpetual convertible preferred stock to URI. 3. Condensed Consolidating Financial Information of Guarantor Subsidiaries Certain indebtedness of URI is guaranteed by URI's United States subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's foreign subsidiaries (the "non-guarantor subsidiaries"). 58 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 believes that such information would not be material to investors. However, condensed consolidating financial information as of and for the years ended December 31, 1999 and 1998, are presented. The condensed consolidating financial information for the year ended December 31, 1997 has been omitted since the non-guarantors subsidiaries came into existence during 1998. The condensed consolidating financial information of URI and its subsidiaries are as follows: CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1999 ---------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) Assets Cash and cash equivalents............ $ 20,103 $ 3,708 $ 23,811 Accounts receivable, net.................... 400,400 34,585 434,985 Intercompany receivable (payable).............. $1,879,184 (1,694,122) (185,062) Inventory............... 120,339 9,134 129,473 Prepaid expenses and other assets........... 19,316 17,809 37,125 Rental equipment, net... 1,537,199 122,534 1,659,733 Property and equipment, net.................... 257,073 19,451 276,524 Investment in subsidiaries........... 2,081,530 $(2,081,530) Intangible assets, net.. 1,740,326 123,046 1,863,372 ---------- ----------- -------- ----------- ---------- $3,980,030 $ 2,381,318 $145,205 $(2,081,530) $4,425,023 ========== =========== ======== =========== ========== Liabilities and Stockholder's Equity Liabilities: Accounts payable...... $ 26,578 $ 165,928 $ 20,059 $ 212,565 Debt.................. 2,204,208 28,095 33,845 2,266,148 Deferred income taxes................ 80,476 753 81,229 Accrued expenses and other liabilities.... 75,710 85,295 10,802 171,807 ---------- ----------- -------- ----------- ---------- Total liabilities... 2,306,496 359,794 65,459 2,731,749 Commitments and contingencies Stockholder's equity: Common stock.......... Additional paid-in capital.............. 1,487,907 1,830,182 65,644 $(1,876,403) 1,507,330 Retained earnings..... 185,627 191,342 13,785 (205,127) 185,627 Accumulated other comprehensive income............... 317 317 ---------- ----------- -------- ----------- ---------- Total stockholder's equity............. 1,673,534 2,021,524 79,746 (2,081,530) 1,693,274 ---------- ----------- -------- ----------- ---------- $3,980,030 $ 2,381,318 $145,205 $(2,081,530) $4,425,023 ========== =========== ======== =========== ==========
59 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO 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 equivalents............ $ 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 subsidiaries........... 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 Stockholder'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 taxes........ 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 contingencies 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 comprehensive 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 ========== ========== ======== =========== ==========
60 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 1999
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------ (In thousands) Revenues: Equipment rentals...... $1,480,613 $100,413 $1,581,026 Sales of rental equipment............. 220,719 14,959 235,678 Sales of equipment and merchandise and other revenues.............. 385,476 31,448 416,924 -------- ---------- -------- --------- ---------- Total revenues.......... 2,086,808 146,820 2,233,628 Cost of revenues: Cost of equipment rentals, excluding depreciation.......... 632,677 44,295 676,972 Depreciation of rental equipment............. 263,007 17,634 280,641 Cost of rental equipment sales....... 127,917 8,761 136,678 Cost of equipment and merchandise sales and other operating costs................. 290,230 24,189 314,419 -------- ---------- -------- --------- ---------- Total cost of revenues.. 1,313,831 94,879 1,408,710 -------- ---------- -------- --------- ---------- Gross profit............ 772,977 51,941 824,918 Selling, general and administrative expenses............... 321,797 22,531 344,328 Non-rental depreciation and amortization....... 54,284 3,657 57,941 -------- ---------- -------- --------- ---------- Operating income........ 396,896 25,753 422,649 Interest expense........ 134,357 5,471 139,828 Other (income) expense, net.................... (2,073) 427 (1,646) -------- ---------- -------- --------- ---------- Income before provision for income taxes....... 264,612 19,855 284,467 Provision for income taxes.................. 108,570 8,058 116,628 -------- ---------- -------- --------- ---------- Income before equity in net earnings of subsidiaries........... 156,042 11,797 $(167,839) Equity in net earnings of subsidiaries........ $167,839 167,839 -------- ---------- -------- --------- ---------- Net income.............. $167,839 $ 156,042 $ 11,797 $(167,839) $ 167,839 ======== ========== ======== ========= ==========
61 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 1998
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ------- ------------ ------------- ------------ ------------ (In thousands) Revenues: Equipment rentals...... $ 863,331 $32,135 $ 895,466 Sales of rental equipment............. 114,731 4,889 119,620 Sales of equipment and merchandise and other revenues.............. 190,009 15,187 205,196 ------- ---------- ------- -------- ---------- Total revenues.......... 1,168,071 52,211 1,220,282 Cost of revenues: Cost of equipment rentals, excluding depreciation.......... 380,992 13,758 394,750 Depreciation of rental equipment............. 171,412 4,498 175,910 Cost of rental equipment sales....... 63,391 2,745 66,136 Cost of equipment and merchandise sales and other operating costs................. 148,086 11,952 160,038 ------- ---------- ------- -------- ---------- Total cost of revenues.. 763,881 32,953 796,834 ------- ---------- ------- -------- ---------- Gross profit............ 404,190 19,258 423,448 Selling, general and administrative expenses............... 186,604 9,016 195,620 Merger-related expenses............... 47,178 47,178 Non-rental depreciation and amortization....... 33,451 1,233 34,684 ------- ---------- ------- -------- ---------- Operating income........ 136,957 9,009 145,966 Interest expense........ 57,199 6,958 64,157 Other (income) expense, net.................... (5,086) (11) (5,097) ------- ---------- ------- -------- ---------- Income before provision for income taxes and extraordinary item..... 84,844 2,062 86,906 Provision for income taxes.................. 46,897 74 46,971 ------- ---------- ------- -------- ---------- Income before extraordinary item and equity in net earnings of subsidiaries........ 37,947 1,988 39,935 Extraordinary item, net.................... 21,337 21,337 ------- ---------- ------- -------- ---------- Income before equity in net earnings of subsidiaries........... 16,610 1,988 $(18,598) Equity in net earnings of subsidiaries........ $18,598 18,598 ------- ---------- ------- -------- ---------- Net income.............. $18,598 $ 16,610 $ 1,988 $(18,598) $ 18,598 ======= ========== ======= ======== ==========
62 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 1999
Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------ ------------ ------------ (In thousands) Net cash provided by (used in) operating ac- tivities................ $ (209,362) $ 514,959 $119,585 $ 425,182 Cash Flows From Invest- ing Activities: Purchase of rental equipment............ (639,140) (78,972) (718,112) Purchase of property and equipment........ (95,000) (14,468) (109,468) Proceeds from sales of rental equipment..... 220,719 14,959 235,678 Proceeds from sale of businesses........... 3,394 3,127 6,521 Payment of contingent purchase price....... (6,652) (1,564) (8,216) Purchase of other com- panies............... (915,937) (70,853) (986,790) ----------- --------- -------- ---------- ----------- Net cash used in in- vesting activi- ties............... (915,937) (516,679) (147,771) (1,580,387) Cash Flows from Financ- ing Activities: Dividend distribution to Parent............ (19,500) (19,500) Proceeds from debt.... 2,625,843 26,524 31,249 2,683,616 Repayment of debt..... (2,074,808) (20,958) (1,884) (2,097,650) Proceeds from sale- leaseback............ 88,000 88,000 Payment of debt fi- nancing costs........ (18,995) (448) (19,443) Capital contribution by parent............ 522,985 522,985 ----------- --------- -------- ---------- ----------- Net cash provided by financing activities......... 1,123,525 5,566 28,917 1,158,008 Effect of foreign ex- change rates......... 598 598 ----------- --------- -------- ---------- ----------- Net increase (decrease) in cash and cash equivalents............ (1,774) 3,846 1,329 3,401 Cash and cash equiva- lents at beginning of period................. 1,774 16,257 2,379 20,410 ----------- --------- -------- ---------- ----------- Cash and cash equiva- lents at end of period................. $ $ 20,103 $ 3,708 $ 23,811 =========== ========= ======== ========== =========== Supplemental disclosure of cash flow information: Cash paid for interest.. $ 118,228 $ 1,194 $ 4,863 $ 124,285 Cash paid for income taxes.................. $ 16,372 $ 1,137 $ 17,509 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired.............. $ 1,371,807 $ 96,760 $ 1,468,567 Liabilities assumed.... (448,685) (23,697) (472,382) Less: Amounts paid in common stock and warrants of Parent................ Amounts paid through issuance of debt...... (7,185) (2,210) (9,395) ----------- --------- -------- ---------- ----------- Net cash paid..... $ 915,937 $ 70,853 $ 986,790 =========== ========= ======== ========== ===========
63 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 1998
Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) Net cash provided by (used in) operating ac- tivities................ $ (457,413) $ 659,246 $ 8,773 $ 210,606 Cash Flows From Invest- ing Activities: Purchase of rental equipment............ (465,634) (13,900) (479,534) Purchase of property and equipment........ (68,593) (1,050) (69,643) Proceeds from sales of rental equipment..... 114,731 4,889 119,620 Proceeds from sale of businesses........... 10,640 10,640 Payment of contingent purchase price....... (2,800) (1,156) (3,956) Purchase of other com- panies............... (899,327) (12,510) (911,837) ---------- --------- -------- ---------- ---------- Net cash used in in- vesting activi- ties............... (899,327) (424,166) (11,217) (1,334,710) Cash Flows from Financ- ing Activities: Dividend distribution to Parent............ (4,658) (4,658) Proceeds from debt.... 2,325,586 10,187 27,864 2,363,637 Repayment of debt..... (1,532,222) (230,685) (22,760) (1,785,667) Proceeds from sale- leaseback............ 35,000 35,000 Payment of debt fi- nancing costs........ (24,982) (24,982) Capital contribution by parent............ 492,590 492,590 Distribution to stock- holders.............. (3,536) (3,536) ---------- --------- -------- ---------- ---------- Net cash provided by (used in) financing activities......... 1,291,314 (224,034) 5,104 1,072,384 Effect of foreign ex- change rates......... (281) (281) ---------- --------- -------- ---------- ---------- Net increase (decrease) in cash and cash equivalents............ (65,426) 11,046 2,379 (52,001) Cash and cash equiva- lents at beginning of period................. 67,200 5,211 72,411 ---------- --------- -------- ---------- ---------- Cash and cash equiva- lents at end of period................. $ 1,774 $ 16,257 $ 2,379 $ 20,410 ========== ========= ======== ========== ========== Supplemental disclosure of cash flow information: Cash paid for interest.. $ 31,743 $ 11,098 $ 316 $ 43,157 Cash paid for income taxes.................. $ 8,034 $ 2,190 $ 10,224 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired.............. $1,488,957 $ 12,510 $1,501,467 Liabilities assumed.... (518,861) (518,861) Less: Amounts paid in common stock and warrants of Parent................ (60,304) (60,304) Amounts paid through issuance of debt...... (10,465) (10,465) ---------- --------- -------- ---------- ---------- Net cash paid..... $ 899,327 $ 12,510 $ 911,837 ========== ========= ======== ========== ==========
64 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES Board of Directors United Rentals, Inc. We have audited the consolidated financial statements of United Rentals, Inc. as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and have issued our report thereon dated February 29, 2000, included elsewhere in this Form 10-K. Our audits also included the financial statement schedules listed in Item 14(a)(2). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP MetroPark, New Jersey February 29, 2000 65 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. CONDENSED BALANCE SHEET
December 31 --------------------- 1999 1998 ---------- ---------- (In thousands) Assets Prepaid expenses and other assets........................ $ 31,554 Property and equipment, net.............................. 28,383 $ 14,974 Investment in and advances to subsidiaries............... 1,702,485 1,036,241 ---------- ---------- $1,762,422 $1,051,215 ========== ========== Liabilities and Stockholders' Equity Liabilities: Accounts payable....................................... $ 30,381 $ 13,514 Debt................................................... 300,000 300,000 Accrued expenses and other liabilities................. 34,872 11,190 ---------- ---------- Total liabilities.................................... 365,253 324,704 Commitments and contingencies Stockholders' equity: Preferred stock........................................ 5 Common stock........................................... 721 684 Additional paid-in capital............................. 1,216,968 689,018 Retained earnings...................................... 179,475 36,809 ---------- ---------- Total stockholders' equity........................... 1,397,169 726,511 ---------- ---------- $1,762,422 $1,051,215 ========== ==========
See accompanying notes. 66 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31 ------------------------ 1999 1998 ----------- ----------- (In thousands) Selling, general and administrative expenses.......... $ 8,267 Non-rental depreciation and amortization.............. 4,926 $ 561 ----------- ---------- Operating loss........................................ (13,193) (561) Interest expense...................................... 19,500 7,854 Other (income) expense, net........................... 9,689 ----------- ---------- Loss before benefit for income taxes.................. (42,382) (8,415) Benefit for income taxes.............................. 17,487 3,472 ----------- ---------- Net loss before equity in earnings of subsidiaries.... (24,895) (4,943) Equity in earnings of subsidiaries.................... 167,561 18,404 ----------- ---------- Net income............................................ $ 142,666 $13,461 =========== ==========
See accompanying notes. 67 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. CONDENSED CASH FLOW INFORMATION
Year Ended December 31, -------------------- 1999 1998 --------- --------- (In thousands) Net cash used in operating activities.................... $ (4,824) $ (4,157) Cash Flows from Investing Activities: Purchase of property and equipment..................... (14,181) (15,535) Capital contributed to subsidiary...................... (522,985) (492,590) --------- --------- Net cash used in investing activities................ (537,166) (508,125) Cash Flows from Financing Activities: Proceeds from issuance of common stock and warrants, net of issuance costs................................. 64,701 207,005 Proceeds from the issuance of preferred stock, net of issuance costs........................................ 430,800 Proceeds from debt..................................... 300,000 Proceeds from the exercise of stock options............ 26,989 619 Proceeds from dividends from subsidiary................ 19,500 4,658 --------- --------- Net cash provided by financing activities............ 541,990 512,282 --------- --------- Net increase in cash and cash equivalents.............. Cash and cash equivalents at beginning of period....... --------- --------- Cash and cash equivalents at end of period........... $ $ ========= =========
See accompanying notes. 68 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation United Rentals, Inc. is principally a holding company ("Holdings") and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries. In the parent company- only financial statements, Holdings, investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. Holdings share of net income of its unconsolidated subsidiaries is included in consolidated income using the equity method. The parent company- only financial statements should be read in conjunction with the Company's consolidated financial statements. 2. Debt See Note 11 to the Consolidated Financial Statements for information concerning debt. 3. Guarantee See Note 11 to the Consolidated Financial Statements for information concerning the guarantee. 69 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS UNITED RENTALS, INC. (In thousands)
Additions ------------------ Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Other Deductions of Period ----------- ---------- ---------- ------- ---------- --------- Year ended December 31, 1999: Allowance for doubtful accounts.............. $41,201 $42,143 $23,568(a) $56,176(c) $50,736 Reserve for inventory obsolescence and shrinkage............. 9,288 6,857 11,975(b) 11,338(d) 16,782 Insurance reserves..... 20,553 49,223 47,026(e) 22,750 Year ended December 31, 1998: Allowance for doubtful accounts.............. 11,085 22,530 19,079(a) 11,493(c) 41,201 Reserve for inventory obsolescence and shrinkage............. 620 3,254 6,068(b) 654(d) 9,288 Insurance reserves..... 11,665 16,456 7,568(e) 20,553 Year ended December 31, 1997: Allowance for doubtful accounts.............. 7,346 9,646 1,226(a) 7,133(c) 11,085 Reserve for inventory obsolescence and shrinkage............. 245 375 620 Insurance reserves..... 14,002 5,756 8,093(e) 11,665
- -------- (a) Represents allowance for doubtful accounts assumed through acquisitions. (b) Represents reserve for inventory obsolescence and shrinkage assumed through acquisitions. (c) Represents write-offs of accounts, net of recoveries. (d) Represents write-offs of inventory items. (e) Represents payments. 70 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information required by this Item is incorporated by reference to the applicable information in the 2000 Proxy Statement, including the information set forth under the captions "Election of Directors" and "Compliance with Section 11(A) of the Securities Exchange Act of 1934". The "2000 Proxy Statement" refers to the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, prior to April 29, 2000. Item 11. Executive and Director Compensation The information required by this Item is incorporated by reference to the applicable information in the 2000 Proxy Statement, including the information set forth under the captions "Executive and Director Compensation" and "Compensation Committee Interlocks and Insider Participation". Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is incorporated by reference to the applicable information in the 2000 Proxy Statement, including the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management". Item 13. Certain Relationships and Related Transactions The information required by this Item is incorporated by reference to the applicable information in the 2000 Proxy Statement, including the information set forth under the caption "Certain Transactions". Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements: Report of Independent Auditors United Rentals, Inc. Consolidated Balance Sheets--December 31, 1999 and 1998 United Rentals, Inc. Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 United Rentals, Inc. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Report of Independent Auditors United Rentals (North America), Inc. Consolidated Balance Sheets-- December 31, 1999 and 1998 United Rentals (North America), Inc. Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997
71 United Rentals (North America), Inc. Consolidated Statements of Stockholder's Equity for the years ended December 31, 1999, 1998 and 1997 United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedules: Report of Independent Auditors on Financial Statement Schedules Schedule I Condensed Financial Information of Registrant Schedule II Valuation and Qualifying Accounts Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the financial statements or notes thereto. (a)(3) Exhibits
Exhibit Number Description of Exhibit ------- ---------------------- 2(a) Amended and Restated Agreement and Plan of Merger dated as of August 31, 1998, among United Rentals, Inc., UR Acquisition Corporation and U.S. Rentals, Inc. (incorporated by reference to Exhibit 2 of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 3(a) Amended and Restated Certificate of Incorporation of United Rentals, Inc., in effect as of the date hereof (incorporated by reference to exhibit 3.1 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 3(b) Certificate of Amendment to the United Rentals, Inc. 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. Report on Form 10-Q for the quarter ended June 30, 1998) 3(d) Form of Certificate of Designation for Series A Perpetual Convertible Preferred Stock (incorporated by reference to Exhibit 4(k) to the United Rentals, Inc. Registration Statement on Form S-3, No. 333- 64463) together with a certificate of amendment thereto (incorporated by reference to exhibit A of the United Rentals, Inc. Proxy Statement dated July 22, 1999) 3(e) Form of Certificate of Designation for Series B Perpetual Convertible Preferred Stock (incorporated by reference to exhibit B of the United Rentals, Inc. Proxy Statement on Schedule 14A dated July 22, 1999) 3(f) Amended and Restated Certificate of Incorporation of United Rentals (North America), Inc., in effect as of the date hereof (incorporated by reference to Exhibit 3.3 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 3(g) By-laws of United Rentals (North America), Inc., in effect as of the date hereof (incorporated by reference to Exhibit 3.4 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 4(a) Form of certificate representing United Rentals, Inc. Common Stock (incorporated by reference to Exhibit 4 of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117) 4(b) Certificate of Trust of United Rentals Trust I (incorporated by reference to Exhibit 4(a) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463)
72
Exhibit Number Description of Exhibit ------- ---------------------- 4(c) Amended and Restated Trust Agreement dated August 5, 1998 among United Rentals, Inc., The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, and the Administrative Trustees named therein (incorporated by reference to Exhibit 10(ii) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(d) Indenture dated August 5, 1998 by and between United Rentals, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10(hh) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(e) Guarantee Agreement dated August 5, 1998 between United Rentals, Inc. and The Bank of New York (incorporated by reference to Exhibit 10(jj) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(f) Form of Certificate representing 6 1/2% Convertible Quarterly Income Preferred Securities (incorporated by reference to Exhibit 4(e) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463) 4(g) Form of Certificate representing 6 1/2% Convertible Subordinated Debentures (incorporated by reference to Exhibit 4(f) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463) 4(h) Indenture dated May 22, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 4(a) of the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 4(i) Notes Registration Rights Agreement dated as of May 22, 1998, among United Rentals (North America), Inc., the subsidiaries of United Rentals (North America), Inc. named therein, Merrill Lynch & Co. and the other initial purchasers named therein (incorporated by reference to Exhibit 4(b) of the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 4(j) Registration Rights Agreement dated August 5, 1998 between United Rentals (North America), Inc., United Rentals, Inc., United Rentals Trust I, Goldman, Sachs & Co. and the other purchasers named therein (incorporated by reference to Exhibit 10(kk) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(k) Indenture dated August 12, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 10(bb) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(l) Notes Registration Rights Agreement dated as of August 12, 1998, among United Rentals (North America), Inc., the subsidiaries of United Rentals, Inc. named therein, and Merrill Lynch & Co. (incorporated by reference to Exhibit 10(cc) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(m) Form of Registration Rights Agreement with certain affiliates of U.S. Rentals (incorporated by reference to Exhibit 10(gg) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(n) Indenture dated December 15, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 4(a) to the United Rentals (North America), Inc. Registration Statement on Form S-3, No. 333-74275)
73
Exhibit Number Description of Exhibit ------- ---------------------- 4(o) Notes Registration Rights Agreement dated as of December 15, 1998 among United Rentals (North America), Inc., the subsidiaries of United Rentals (North America), Inc. named therein, and Goldman, Sachs & Co. (incorporated by reference to Exhibit 4(b) to the United Rentals (North America), Inc. Registration Statement on Form S-3, No. 333- 74275) 4(p) Registration Rights Agreement relating to Series A Perpetual Convertible Preferred Stock, dated as of December 21, 1998 among United Rentals, Inc., Bradley S. Jacobs, Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (incorporated by reference to exhibit 4(p) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 4(q) Indenture dated March 23, 1999 among United Rentals (North America), Inc., the Guarantors named therein and The Bank of New York, as trustee (incorporated by reference to exhibit 4(q) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 4(r) Notes Registration Rights Agreement dated as of March 23, 1999 among United Rentals (North America), Inc., the subsidiaries of United Rentals (North America), Inc. named therein, and the initial purchasers named therein (incorporated by reference to exhibit 4(r) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 10(a) The following agreements (i) Second Amended and Restated Credit Agreement dated as of March 30, 1998, between 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 (incorporated by reference to Exhibit 10.1 to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 1998), (ii) Third Amended and Restated Credit Agreement dated as of May 12, 1998, between 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 (incorporated by reference to Exhibit 10(a)(ii) to the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) and (iii) First Amendment to Third Amended and Restated Credit Agreement dated as of July 10, 1998 (incorporated by reference to Exhibit 10(a)(iii) to the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 10(b) Credit Agreement dated as of September 29, 1998, between United Rentals (North America), Inc., various financial institutions, Bank of America Canada, as Canadian agent, and Bank of America National Trust, as U.S. Agent (incorporated by reference to exhibit 10.2 of United Rentals, Inc. Report on From 10-Q for the quarter ended September 30, 1998). 10(c) Term Loan Agreement dated as of July 10, 1998 among United Rentals (North America), Inc., various financial institutions and Bank of America National Trust and Savings Association, as Agent (incorporated by reference to Exhibit 10(dd) of the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 10(d) First Amendment to the Term Loan Agreement dated as of September 29, 1998 among United Rentals (North America), Inc., various financial institutions and Bank of America National Trust and Savings Association, as Agent (incorporated by reference to exhibit 10.3 of United Rentals, Inc. Report on From 10-Q for the quarter ended September 30, 1998). 10(e) 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 (incorporated by reference to exhibit 10(d) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999)
74
Exhibit Number Description of Exhibit ------- ---------------------- 10(f) 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 (incorporated by reference to exhibit 10(e) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 10(g) 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 (incorporated by reference to exhibit 10(f) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 10(h) 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 (incorporated by reference to exhibit 10(g) of the United Rentals, Inc. Quarterly Report on Form 10- Q for the quarter ended June 30, 1999) 10(i)* Third Amendment dated as of December 15, 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, N.A. (formerly known as Bank of America National Trust and Savings Association), as U.S. Agent 10(j) Form of Warrant Agreement (incorporated by reference to exhibit 10(c) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)(1)++ 10(k) Form of Indemnification Agreement for Officers and Directors (incorporated by reference to exhibit 10(f) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(l) 1997 Stock Option Plan (incorporated by reference to exhibit 10(b) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(m) 1998 Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 99.1 to United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171)++ 10(n) 1998 Supplemental Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 4.6 to the United Rentals, Inc. Registration Statement on Form S-8, No. 333-70345) 10(o) Employment Agreement with Bradley S. Jacobs, dated as of September 19, 1997 (incorporated by reference to exhibit 10(g) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(p)* Amendment No. 1 to Employment Agreement with Bradley S. Jacobs, dated as of December 24, 1999++ 10(q) Employment Agreement with John N. Milne, dated as of September 19, 1997 (incorporated by reference to exhibit 10(h) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(r)* Amendment No. 1 to Employment Agreement with John N. Milne, dated as of December 24, 1999++ 10(s) Employment Agreement with Michael J. Nolan, dated as of October 14, 1997 (incorporated by reference to exhibit 10(i) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++
75
Exhibit Number Description of Exhibit ------- ---------------------- 10(t)* Amendment No. 1 to Employment Agreement with Michael J. Nolan, dated as of December 24, 1999++ 10(u) Employment Agreement with Robert P. Miner, dated as of October 10, 1997 (incorporated by reference to exhibit 10(j) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(v)* Amendment No. 1 to Employment Agreement with Robert Miner, dated as of December 24, 1999++ 10(w) Subscription Agreement dated November 14, 1997, from Wayland R. Hicks (Incorporated by reference to exhibit 10(r) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(x) Agreement dated November 14, 1997, with Wayland R. Hicks (incorporated by reference to exhibit 10(s) of United Rentals, Inc., Registration Statement on Form S-1, Registration No. 333-39117)++ 10(y)* Amendment No. 1 to Employment Agreement with Wayland R. Hicks, dated as of December 24, 1999++ 10(z) Form of Employment Agreement with William Berry (incorporated by reference to Exhibit 10(ee) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171)++ 10(aa) Form of Employment Agreement with John McKinney (incorporated by reference to Exhibit 10(ff) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171)++ 10(bb) Form of Private Placement Purchase Agreement entered into by certain officers in connection with purchasing shares and warrants from United Rentals, Inc., together with the form of Amendment No. 1 thereto (the Private Placement Purchase Agreement is incorporated by reference to exhibit 10(d) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117; and Amendment No. 1 is incorporated by reference to Exhibit 10.2 to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 1998)(2)++ 10(cc) Form of Subscription Agreement for September 1997 Private Placement (incorporated by reference to exhibit 10(e) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)(3) 10(dd) Form of U.S. Purchase Agreement for the public offering completed by United Rentals, Inc. on March 11, 1998 (incorporated by reference to Exhibit 1(a) to United Rentals, Inc. Registration Statement on Form S- 1, Registration No. 333-45605) 10(ee) Form of International Repurchase Agreement for the public offering completed by United Rentals, Inc. on March 11, 1998 (incorporated by reference to Exhibit 1(b) to United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-45605) 10(ff) Form of U.S. Purchase Agreement for United Rentals, Inc. initial public offering (incorporated by reference to Exhibit 1(a) to United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117) 10(gg) Form of International Purchase Agreement for United Rentals, Inc. initial public offering (incorporated by reference to Exhibit 1(b) to United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)
76
Exhibit Number Description of Exhibit ------- ---------------------- 10(hh) Purchase Agreement dated July 30, 1998 relating to the initial sale by United Rentals Trust I of $300 million aggregate principal amount of 6 1/2% Convertible Quarterly Income Preferred Securities convertible into common stock of United Rentals, Inc. (incorporated by reference to Exhibit 10(hh) of Amendment No. 1 to the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 10(ii) Preferred Stock Purchase Agreement dated December 21, 1998 between United Rentals, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (incorporated by reference to exhibit 10(y) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 10(jj) Form of U.S. Underwriting Agreement for the public offering completed on March 9, 1999 (incorporated by reference to Exhibit 1(a) to the United Rentals, Inc. Registration Statement on Form S-3, No. 333- 71775) 10(kk) Purchase Agreement dated May 19, 1998 relating to the initial sale by United Rentals (North America), Inc. of $200 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 10(bb) of the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 10(ll) Purchase Agreement dated August 7, 1998 relating to the initial sale by United Rentals (North America), Inc. of $205 million aggregate principal amount of 8.80% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 10(mm) of Amendment No. 1 to the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 10(mm) Purchase Agreement dated December 8, 1998 relating to the initial sale by United Rentals (North America), Inc. of $300 million aggregate principal amount of 9 1/4% Senior Subordinated Notes due 2009 (incorporated by reference to exhibit 10(cc) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 10(nn) Purchase Agreement dated March 16, 1999 relating to the initial sale by United Rentals (North America), Inc. of $250 million aggregate principal amount of 9% Senior Subordinated Notes due 2009 (incorporated by reference to exhibit 10(dd) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 10(oo) Purchase Agreement, dated as of January 22, 1998, with United Rentals of Canada, Inc., Access Rentals, Inc., Reinhart Leasing, LLC and the Stockholders of Access Rentals, Inc., (incorporated by reference to Exhibit 10(t) to United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-45605)+ 10(pp) Stock Purchase Agreement, dated as of January 22, 1998, with United Rentals of Canada, Inc. and BNR Equipment Limited and Affiliates (incorporated by reference to Exhibit 10(v) to United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-45605)+ 10(qq) Stock Purchase Agreement, dated as of June 9, 1998, with the shareholders of Power Rental Co., Inc. (incorporated by reference to Exhibit 10 to United Rentals, Inc. Report on Form 8-K dated June 18, 1998)+ 10(rr) Agreement among United Rentals (North America), Inc., United Rentals of New Jersey, Inc., HR Merger Corp., SMSV Acquisition Corp., Equipment Supply Company, Inc., High Reach Co., Inc., Space Maker of Va., Inc. and the Stockholders of Rylan, Inc., High Reach Co., Inc. and Space Maker Systems of Va., Inc., dated as of June 30, 1998 (incorporated by reference to Exhibit 10(cc) of the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467)+
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Exhibit Number Description of Exhibit ------- ---------------------- 10(ss) Share Purchase Agreement dated July 30, 1998 among United Rentals (North America), Inc. and the parties listed therein for all of the outstanding shares of McClinch Equipment Services, Inc. (incorporated by reference to Exhibit 10(ll) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 10(tt) Share Purchase Agreement dated July 30, 1998 among United Rentals (North America), Inc. and the parties listed therein for all of the outstanding shares of McClinch, Inc. (incorporated by reference to Exhibit 10(dd) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 10(uu) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock, dated June 28, 1999, among United Rentals, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P., together with an Amendment dated as of July 16, 1999 (incorporated by reference to exhibit B of the United Rentals, Inc. Proxy Statement dated July 22, 1999) 10(vv) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock dated July 16, 1999 between United Rentals, Inc. and Chase Equity Associates, L.P. including Form of Registration Rights Agreement (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 21* Subsidiaries of United Rentals, Inc. 23* Consent of Ernst & Young LLP 27* Financial Data Schedule 27.1* Financial Data Schedule
- -------- *Filed herewith. + Filed without exhibits and schedules (to be provided supplementally upon request of the Commission). ++ This document is a management contract or compensatory plan or arrangement. (1) United Rentals, Inc. issued a warrant in this form to the following officers and other employees of United Rentals, Inc. (or in certain cases to an entity controlled by such officer) for the number of shares indicated: Bradley S. Jacobs (5,000,000); John N. Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857); Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby (50,000); and Richard A. Volonino (50,000). (2) Each officer or other employee of United Rentals, Inc. who purchased securities of United Rentals, Inc. prior to December 18, 1997, other than Messrs. Jacobs and Hicks, entered into a Private Placement Purchase Agreement in this form (modified, in the case of Messrs. Barker and Imig, to reflect the fact that said officers did not purchase warrants) with respect to the shares of Common Stock and warrants purchased by such individual from United Rentals, Inc. United Rentals, Inc. entered into Amendment No. 1 with each of Mr. Milne, Mr. Nolan and Mr. Miner. (3) Each purchaser of shares of Common Stock in United Rentals, Inc.'s September 1997 private placement entered into a Subscription Agreement in this form with respect to the shares purchased. (b) Reports on Form 8-K: none 78 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED RENTALS, INC. Date: March 29, 2000 /s/ Michael J. Nolan By: __________________________________ Michael J. Nolan Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signatures Title Date /s/ Bradley S. Jacobs Chairman of the March 29, 2000 - ------------------------------------- Board of Directors Bradley S. Jacobs and Chief Executive Officer (Principal Executive Officer) /s/ Wayland R. Hicks Director March 29, 2000 - ------------------------------------- Wayland R. Hicks /s/ John N. Milne Director March 29, 2000 - ------------------------------------- John N. Milne /s/ William F. Berry Director March 29, 2000 - ------------------------------------- William F. Berry /s/ John S. McKinney Director March 29, 2000 - ------------------------------------- John S. McKinney Director - ------------------------------------- Leon D. Black Director - ------------------------------------- Richard D. Colburn Director March 29, 2000 /s/ Ronald M. DeFeo - ------------------------------------- Ronald M. DeFeo /s/ Michael S. Gross Director March 29, 2000 - ------------------------------------- Michael S. Gross
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Signatures Title Date /s/ Richard J. Heckmann Director March 29, 2000 - ------------------------------------- Richard J. Heckmann /s/ Gerald Tsai, Jr. Director March 29, 2000 - ------------------------------------- Gerald Tsai, Jr. /s/ Christian M. Weyer Director March 29, 2000 - ------------------------------------- Christian M. Weyer /s/ Michael J. Nolan Chief Financial March 29, 2000 - ------------------------------------- Officer (Principal Michael J. Nolan Financial Officer) /s/ Peter R. Borzilleri Vice President, March 29, 2000 - ------------------------------------- Corporate Peter R. Borzilleri Controller (Principal Accounting Officer)
80 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED RENTALS (NORTH AMERICA), INC. Date: March 29, 2000 /s/ Michael J. Nolan By: ___________________________________ Michael J. Nolan Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signatures Title Date /s/ Bradley S. Jacobs Chairman of the March 29, 2000 - ------------------------------------ Board of Directors Bradley S. Jacobs and Chief Executive Officer (Principal Executive Officer) /s/ Wayland R. Hicks Director March 29, 2000 - ------------------------------------ Wayland R. Hicks /s/ John N. Milne Director March 29, 2000 - ------------------------------------ John N. Milne /s/ William F. Berry Director March 29, 2000 - ------------------------------------ William F. Berry /s/ John S. McKinney Director March 29, 2000 - ------------------------------------ John S. McKinney Director - ------------------------------------ Leon D. Black Director - ------------------------------------ Richard D. Colburn /s/ Ronald M. DeFeo Director March 29, 2000 - ------------------------------------ Ronald M. DeFeo /s/ Michael S. Gross Director March 29, 2000 - ------------------------------------ Michael S. Gross
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Signatures Title Date /s/ Richard J. Heckmann Director March 29, 2000 - ------------------------------------ Richard J. Heckmann /s/ David C. Katz Director March 29, 2000 - ------------------------------------ David C. Katz /s/ Gerald Tsai, Jr. Director March 29, 2000 - ------------------------------------ Gerald Tsai, Jr. /s/ Christian M. Weyer Director March 29, 2000 - ------------------------------------ Christian M. Weyer /s/ Michael J. Nolan Chief Financial March 29, 2000 - ------------------------------------ Officer (Principal Michael J. Nolan Financial Officer) /s/ Peter R. Borzilleri Vice President, March 29, 2000 - ------------------------------------ Corporate Peter R. Borzilleri Controller (Principal Accounting Officer) 82 EX-10.I 2 THIRD AMENDMENT DATED AS OF DECEMBER 15, 1999 THIRD AMENDMENT --------------- THIS THIRD AMENDMENT dated as of December 15, 1999 (this "Amendment") amends the Credit Agreement dated as of September 29, 1998 (as previously amended, the "Credit Agreement") among United Rentals (North America), Inc. (the "Company"), United Rentals, Inc. ("Parent"), United Rentals of Canada, Inc., various financial institutions, Bank of America Canada, as Canadian Agent, and Bank of America, N.A. (formerly known as Bank of America National Trust and Savings Association), as U.S. Agent. Terms defined in the Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein. WHEREAS, the parties hereto desire to increase the availability of Letters of Credit under the Credit Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendments. Effective on (and subject to the occurrence of) the ---------- Amendment Effective Date (as defined below), Section 2.1.4 of the Credit Agreement shall be amended by deleting the reference to "U.S. $25,000,000" therein and substituting "U.S. $50,000,000" therefor. SECTION 2 Representations and Warranties. Parent and the Company ------------------------------ represent and warrant to the Agents and the Banks that (a) each of the representations and warranties made by Parent and the Company in Section 9 (excluding Section 9.8) of the Credit Agreement, as amended hereby (as so amended, the "Amended Agreement"), is true and correct as of the date hereof, with the same effect as if made on such date, and (b) no Event of Default or Unmatured Event of Default has occurred or is continuing. SECTION 3 Effectiveness. The amendment set forth in Section 1 above shall ------------- --------- become effective on the date (the "Amendment Effective Date") when the U.S. Agent shall have received counterparts hereof executed by the Company, Parent, the Required Banks and the U.S. Agent. SECTION 4 Miscellaneous. ------------- 4.1 Continuing Effectiveness, etc. As herein amended, the Credit Agreement ------------------------------ shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to the "Credit Agreement" or similar terms shall refer to the Amended Agreement. 4.2 Counterparts. This Amendment may be executed in any number of ------------ counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same agreement. 4.3 Expenses. The Company agrees to pay all reasonable expenses of the -------- U.S. Agent, including reasonable fees and charges of counsel for the U.S. Agent, in connection with the preparation, execution and delivery of this Amendment. 4.4 Governing Law. This Amendment shall be construed in accordance with ------------- and governed by the substantive laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. 4.5 Successors and Assigns. This Amendment shall be binding upon Parent, ---------------------- the Company, the Banks and the Agents and their respective successors and assigns, and shall inure to the benefit of Parent, the Company, the Banks and the Agents and the respective successors and assigns of the Banks and the Agents. 2 Delivered at Chicago, Illinois, as of the day and year first above written. UNITED RENTALS, INC. By___________________________________________ Chief Financial Officer UNITED RENTALS (NORTH AMERICA), INC. By___________________________________________ Chief Financial Officer BANK OF AMERICA N.A., as U.S. Agent By___________________________________________ Title________________________________________ BANK OF AMERICA N.A., as a U.S. Bank, as Issuing Bank and as Swing Line Bank By___________________________________________ Title________________________________________ BANK OF AUSTRIA CREDITANSTALT By___________________________________________ Title________________________________________ S-1 THE BANK OF NEW YORK, as a U.S. Bank By___________________________________________ Title________________________________________ CREDIT LYONNAIS NEW YORK BRANCH, as a U.S. Bank By___________________________________________ Title________________________________________ DEUTSCHE BANK AG, New York Branch and/or Cayman Islands Branch, as a U.S. Bank By___________________________________________ Title________________________________________ By___________________________________________ Title________________________________________ ALLFIRST BANK, as a U.S. Bank By___________________________________________ Title________________________________________ SUMMIT BANK, as a U.S. Bank By___________________________________________ Title________________________________________ S-2 NATIONAL CITY BANK, as a U.S. Bank By___________________________________________ Title________________________________________ BANKBOSTON, N.A., as a U.S. Bank By___________________________________________ Title________________________________________ COMERICA BANK, as a U.S. Bank By___________________________________________ Title________________________________________ FLEET BANK, N.A., as a U.S. Bank By___________________________________________ Title________________________________________ HARRIS TRUST AND SAVINGS BANK, as a U.S. Bank By___________________________________________ Title________________________________________ THE BANK OF NOVA SCOTIA, as a U.S. Bank By___________________________________________ Title________________________________________ S-3 UNION BANK OF CALIFORNIA, N.A., as a U.S. Bank By___________________________________________ Title________________________________________ CIBC INC., as a U.S. Bank By___________________________________________ Title________________________________________ LASALLE BANK NATIONAL ASSOCIATION, as a U.S. Bank By___________________________________________ Title________________________________________ CITICORP DEL-LEASE, INC., as a U.S. Bank By___________________________________________ Title________________________________________ ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG-NEW YORK, as a U.S. Bank By___________________________________________ Title________________________________________ S-4 CITY NATIONAL BANK, as a U.S. Bank By___________________________________________ Title________________________________________ FUJI BANK, LIMITED, as a U.S. Bank By___________________________________________ Title________________________________________ BANKERS TRUST COMPANY, as a U.S. Bank By___________________________________________ Title________________________________________ WELLS FARGO BANK, N.A., as a U.S. Bank By___________________________________________ Title________________________________________ S-5 EX-10.P 3 AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT WITH BRADLEY Exhibit 10(p) Amendment No. 1 to Employment Agreement --------------------------------------- Reference is made to the Employment Agreement dated as of September 19, 1997 (the "Agreement"), between United Rentals, Inc. (subsequently renamed United Rentals (North America), Inc.), a Delaware corporation (the "Company"), and Bradley S. Jacobs ("Executive"). The Company and Executive agree that the second sentence of paragraph 6(a)(iii) of the Agreement is replaced in its entirety by the following new sentence: If this Agreement is terminated pursuant to this paragraph 6(a)(iii), the Company shall be obligated to pay to Executive a severance payment equal to 13.51 times the sum of (x) the Executive's annual Base Salary in effect at the time of termination plus (y) the highest annual cash bonus (if any) paid by the Company to Executive during the three-year period preceding the date of termination; provided, however, that the aforesaid multiple shall -------- ------- be five (rather than 13.51) if such termination is either a result of Executive's death or a notice of termination due to Disability. The Company and the Executive further agree that the words "unless it occurs with Executive's express prior written consent" are deleted from the first sentence of Paragraph 6(d). Except as specifically set forth above, the Agreement remains unmodified and in full force and effect. Dated: December 24, 1999 UNITED RENTALS (NORTH AMERICA), INC. By: -------------------------------- - ------------------------------------ Bradley S. Jacobs EX-10.R 4 AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT WITH JOHN N. Exhibit 10(r) Amendment No. 1 to Employment Agreement --------------------------------------- Reference is made to the Employment Agreement dated as of September 19, 1997 (the "Agreement"), between United Rentals, Inc. (subsequently renamed United Rentals (North America), Inc.), a Delaware corporation (the "Company"), and John N. Milne ("Executive"). The Company and Executive agree that following new subparagraph shall be added following Paragraph 6(d): (e) The Company and Bradley S. Jacobs ("Jacobs") are parties to an Employment Agreement dated September 19, 1997 (the "Jacobs Agreement"). Paragraph 6(a)(iii)(D) of the Jacobs Agreement provides that Jacobs may terminate the Jacobs Agreement for "Good Reason" (as defined in the Jacobs Agreement). If (1) Jacobs terminates the Jacobs Agreement for Good Reason (as defined in the Jacobs Agreement), (2) the circumstances constituting such "Good Reason" are described in clause (i) of the definition of such term in the Jacobs Agreement, and (3) concurrently therewith or during the 90-day period that commences on the date of such termination, Executive resigns as an employee of the Company (even if not for Good Reason) or his employment with the Company otherwise terminates, then the Company shall be required to pay to Executive a severance payment equal to 10.91 times the sum of (x) the Executive's annual Base Salary in effect at the time of termination plus (y) the highest annual cash bonus (if any) paid by the Company to Executive during the three-year period preceding the date of termination. Such severance payment shall be payable in a lump sum payment within fifteen (15) days of the termination of Employee's employment. If the Company is required to make a payment pursuant to this paragraph 6(e), the Company shall not be required to make the payment provided for in paragraph 6(a)(iii). Except as specifically set forth above, the Agreement remains unmodified and in full force and effect: Dated: December 24, 1999 UNITED RENTALS (NORTH AMERICA), INC. By -------------------------------------- - ----------------------------------------- - ------------------------ John N. Milne EX-10.T 5 AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT WITH MICHAEL Exhibit 10(t) Amendment No. 1 to Employment Agreement --------------------------------------- Reference is made to the Employment Agreement dated as of October 14, 1997 (the "Agreement"), between United Rentals, Inc. (subsequently renamed United Rentals (North America), Inc.), a Delaware corporation (the "Company"), and Michael J. Nolan ("Employee"). The Company and Employee agree that the Agreement shall be amended and supplemented as set forth below. Except as specifically set forth below, the Agreement remains unmodified and in full force and effect: 1. Modification to Paragraph 2 1.1. The following new subparagraph shall be added following Paragraph 2(d): (e) The Company and Bradley S. Jacobs ("Jacobs") are parties to an Employment Agreement dated September 19, 1997 (the "Jacobs Agreement"). Paragraph 6(a)(iii)(D) of the Jacobs Agreement provides that Jacobs may terminate the Jacobs Agreement for "Good Reason" (as defined in the Jacobs Agreement). If (1) Jacobs terminates the Jacobs Agreement for Good Reason (as defined in the Jacobs Agreement), (2) the circumstances constituting such "Good Reason" are described in clause (i) of the definition of such term in the Jacobs Agreement, and (3) concurrently therewith or during the 90- day period that commences on the date of such termination, Employee resigns as an employee of the Company or his employment with the Company otherwise terminates for any reason, the Company shall be obligated to pay to Employee a severance payment equal to 8.67 times the sum of (x) the Employee's annual base salary in effect at the time of termination plus (y) the highest annual cash bonus (if any) paid by the Company to Employee during the three-year period preceding the date of termination. Such severance payment shall be payable in a lump sum payment within fifteen (15) days of the termination of Employee's employment. 2. Addition of New Paragraph 12 Relating to Taxes 2.1. The following new Paragraph 12 is added after Paragraph 11. 12. Taxes ----- (a) The payment of the base salary and any bonus or other incentive compensation to Employee hereunder shall be subject to all federal, state and local withholding taxes, social security deductions and any other required payroll deductions. (b) If all or any portion of the payments and benefits which Employee is entitled to receive pursuant to the terms of this Agreement or any other plan, arrangement or agreement in respect of the Company or its affiliates (the "Payments") constitutes "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the excise tax (the "Excise Tax") imposed by Section 4999 of 1 the Code (or similar tax and/or assessment), the Company (or its successors or assigns) shall pay to Employee an additional amount ("Gross-Up Payment") such that the net amount retained by Employee, after deduction of (i) any Excise Tax on Payments, (ii) any federal, state and local income tax and Excise Tax upon the payment provided for by this paragraph 12(b), and (iii) any interest and penalties imposed in respect of the Excise Tax shall be equal to the full amount of the Payments. For purposes of determining the amount of the Gross- Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rates of taxation in the state and locality of Employee's residence on the date the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) The Gross-Up Payment for any Payment made shall be paid to Employee within ten (10) days after the Imposition of Excise Tax, unless the Company undertakes to indemnify him as provided in paragraph 12(d). The "Imposition of Excise Tax" shall mean the earliest of: (i) the issuance by the Internal Revenue Service of a notice stating in effect that an Excise Tax is due with respect to the Payment; (ii) Employee's delivery to the Company of an opinion of tax counsel selected by Employee that all or a portion of the Payment is subject to the Excise Tax and the amount of the Excise Tax on the Payment; or (iii) the Company's delivery to Employee of an opinion of tax counsel selected by the Company and acceptable to Employee that all or a portion of the Payment is subject to the Excise Tax and the amount of the Excise Tax on the Payment. (d) In lieu of paying the Gross-Up Payment for any Payment, the Company may elect to undertake, at its sole expense, the defense and settlement of any assessment by the Internal Revenue Service of the Excise Tax on any Payment. If the Company so elects, the Company shall protect, defend, indemnify and hold Employee forever harmless from and against the Excise Tax on such Payment and payments pursuant to this paragraph 12(d) and any federal, state or local income tax (determined pursuant to the last sentence of paragraph 12(b)) upon payments pursuant to this paragraph 12(d) and any and all liabilities, demands, claims, actions, causes of action, assessments, losses, costs, damages or expenses, including attorneys' and accountants' fees in connection with any thereof, and any interest and penalties sustained by Employee as a result of or arising out of or by virtue of the Company's undertaking. (e) If the Excise Tax is determined to be less than the amount taken into account in determining the Gross-Up Payment paid pursuant to paragraph 12(c), Employee shall repay to the Company, within ten (10) days after the time that the amount of such reduction in Excise Tax is determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code for debt instruments with a maturity after issuance equal to the period beginning on the date the Gross-Up Payment was made and ending on the date of repayment 2 required by this sentence. If the Excise Tax is determined to exceed the amount taken into account in determining the Gross-Up Payment paid pursuant to paragraph 12(c), the Company within ten (10) days after the time that the amount of such excess Excise Tax is determined shall make an additional payment to Employee of an amount equal to such excess plus an amount equal to any interest and penalties payable to the Internal Revenue Service with respect to such excess and any Excise Tax on payment pursuant to this sentence and any federal, state and local income tax (determined pursuant to the last sentence of paragraph 12(b)) upon payments made pursuant to this sentence. In Witness Whereof, the parties have executed and delivered this Amendment No. 1 to Employment Agreement as of December 24, 1999 UNITED RENTAL (NORTH AMERICA), INC. By ---------------------- - ------------------------- Michael J. Nolan 3 EX-10.V 6 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT WITH ROBERT Exhibit 10(v) Amendment No. 1 to Employment Agreement --------------------------------------- Reference is made to the Employment Agreement dated as of October 10, 1997 (the "Agreement"), between United Rentals, Inc. (subsequently renamed United Rentals (North America), Inc.), a Delaware corporation (the "Company"), and Robert Miner ("Employee"). The Company and Employee agree that the Agreement shall be amended and supplemented as set forth below. Except as specifically set forth below, the Agreement remains unmodified and in full force and effect: 1. Modification to Paragraph 2 1.1. The following new subparagraph shall be added following Paragraph 2(d): (e) The Company and Bradley S. Jacobs ("Jacobs") are parties to an Employment Agreement dated September 19, 1997 (the "Jacobs Agreement"). Paragraph 6(a)(iii)(D) of the Jacobs Agreement provides that Jacobs may terminate the Jacobs Agreement for "Good Reason" (as defined in the Jacobs Agreement). If (1) Jacobs terminates the Jacobs Agreement for Good Reason (as defined in the Jacobs Agreement) (2) the circumstances constituting such "Good Reason" are described in clause (i) of the definition of such term in the Jacobs Agreement, and (3) concurrently therewith or during the 90-day period that commences on the date of such termination, Employee resigns as an employee of the Company or his employment with the Company otherwise terminates for any reason, the Company shall be obligated to pay to Employee a severance payment equal to six times the sum of (x) the Employee's annual base salary in effect at the time of termination plus (y) the highest annual cash bonus (if any) paid by the Company to Employee during the three-year period preceding the date of termination. Such severance payment shall be payable in a lump sum payment within fifteen (15) days of the termination of Employee's employment. 2. Addition of New Paragraph 12 Relating to Taxes 2.1. The following new Paragraph 12 is added after Paragraph 11. 12. Taxes ----- (a) The payment of the base salary and any bonus or other incentive compensation to Employee hereunder shall be subject to all federal, state and local withholding taxes, social security deductions and any other required payroll deductions. (b) If all or any portion of the payments and benefits which Employee is entitled to receive pursuant to the terms of this Agreement or any other plan, arrangement or agreement in respect of the Company or its affiliates (the "Payments") constitutes "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the excise tax (the "Excise Tax") imposed by Section 4999 of 1 the Code (or similar tax and/or assessment), the Company (or its successors or assigns) shall pay to Employee an additional amount ("Gross-Up Payment") such that the net amount retained by Employee, after deduction of (i) any Excise Tax on Payments, (ii) any federal, state and local income tax and Excise Tax upon the payment provided for by this paragraph 12(b), and (iii) any interest and penalties imposed in respect of the Excise Tax shall be equal to the full amount of the Payments. For purposes of determining the amount of the Gross- Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rates of taxation in the state and locality of Employee's residence on the date the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) The Gross-Up Payment for any Payment made shall be paid to Employee within ten (10) days after the Imposition of Excise Tax, unless the Company undertakes to indemnify him as provided in paragraph 12(d). The "Imposition of Excise Tax" shall mean the earliest of: (i) the issuance by the Internal Revenue Service of a notice stating in effect that an Excise Tax is due with respect to the Payment; (ii) Employee's delivery to the Company of an opinion of tax counsel selected by Employee that all or a portion of the Payment is subject to the Excise Tax and the amount of the Excise Tax on the Payment; or (iii) the Company's delivery to Employee of an opinion of tax counsel selected by the Company and acceptable to Employee that all or a portion of the Payment is subject to the Excise Tax and the amount of the Excise Tax on the Payment. (d) In lieu of paying the Gross-Up Payment for any Payment, the Company may elect to undertake, at its sole expense, the defense and settlement of any assessment by the Internal Revenue Service of the Excise Tax on any Payment. If the Company so elects, the Company shall protect, defend, indemnify and hold Employee forever harmless from and against the Excise Tax on such Payment and payments pursuant to this paragraph 12(d) and any federal, state or local income tax (determined pursuant to the last sentence of paragraph 12(b)) upon payments pursuant to this paragraph 12(d) and any and all liabilities, demands, claims, actions, causes of action, assessments, losses, costs, damages or expenses, including attorneys' and accountants' fees in connection with any thereof, and any interest and penalties sustained by Employee as a result of or arising out of or by virtue of the Company's undertaking. (e) If the Excise Tax is determined to be less than the amount taken into account in determining the Gross-Up Payment paid pursuant to paragraph 12(c), Employee shall repay to the Company, within ten (10) days after the time that the amount of such reduction in Excise Tax is determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code for debt instruments with a maturity after issuance equal to the period beginning on the date the Gross-Up Payment was made and ending on the date of repayment 2 required by this sentence. If the Excise Tax is determined to exceed the amount taken into account in determining the Gross-Up Payment paid pursuant to paragraph 12(c), the Company within ten (10) days after the time that the amount of such excess Excise Tax is determined shall make an additional payment to Employee of an amount equal to such excess plus an amount equal to any interest and penalties payable to the Internal Revenue Service with respect to such excess and any Excise Tax on payment pursuant to this sentence and any federal, state and local income tax (determined pursuant to the last sentence of paragraph 12(b)) upon payments made pursuant to this sentence. In Witness Whereof, the parties have executed and delivered this Amendment No. 1 to Employment Agreement as of December 24, 1999. UNITED RENTAL (NORTH AMERICA), INC. By --------------------------- - ------------------------------ Robert Miner 3 EX-10.Y 7 AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT WITH WAYLAND Exhibit 10(y) Amendment No. 1 to Employment Agreement --------------------------------------- Reference is made to the Agreement dated as of November 14, 1997 (the "Agreement"), between United Rentals, Inc. (subsequently renamed United Rentals (North America), Inc.), a Delaware corporation (the "Company"), and Wayland R. Hicks ("Employee"). The Company and Employee agree that the Agreement shall be amended and supplemented as set forth below. Except as specifically set forth below, the Agreement remains unmodified and in full force and effect: 1. Modification to Paragraph 3 1.1. The following new subparagraph shall be added following Paragraph 3(f): (g) The Company and Bradley S. Jacobs ("Jacobs") are parties to an Employment Agreement dated September 19, 1997 (the "Jacobs Agreement"). Paragraph 6(a)(iii)(D) of the Jacobs Agreement provides that Jacobs may terminate the Jacobs Agreement for "Good Reason" (as defined in the Jacobs Agreement). If (1) Jacobs terminates the Jacobs Agreement for Good Reason (as defined in the Jacobs Agreement), (2) the circumstances constituting such "Good Reason" are described in clause (i) of the definition of such term in the Jacobs Agreement, and (3) concurrently therewith or during the 90- day period that commences on the date of such termination, Employee resigns as an employee of the Company (even if not for Good Reason) or his employment with the Company otherwise terminates for any reason, the Company shall be obligated to pay to Employee a severance payment equal to 9.655 times the sum of (x) the Employee's annual base salary in effect at the time of termination plus (y) the highest annual cash bonus (if any) paid by the Company to Employee during the three-year period preceding the date of termination. Such severance payment shall be payable in a lump sum payment within fifteen (15) days of the termination of Employee's employment. If the Company is required to make a payment pursuant to this paragraph 3(g), the Company shall not be required to make the payment provided for in paragraph 3(a)(iv). 2. Addition of New Paragraph 12 Relating to Taxes 2.1. The following new Paragraph 12 is added after Paragraph 11. 12. Taxes ----- (a) The payment of the base salary and any bonus or other incentive compensation to Employee hereunder shall be subject to all federal, state and local withholding taxes, social security deductions and any other required payroll deductions. (b) If all or any portion of the payments and benefits which Employee is entitled to receive pursuant to the terms of this Agreement or any other plan, arrangement or agreement in respect of the Company or its affiliates (the 1 "Payments") constitutes "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the Code (or similar tax and/or assessment), the Company (or its successors or assigns) shall pay to Employee an additional amount ("Gross-Up Payment") such that the net amount retained by Employee, after deduction of (i) any Excise Tax on Payments, (ii) any federal, state and local income tax and Excise Tax upon the payment provided for by this paragraph 12(b), and (iii) any interest and penalties imposed in respect of the Excise Tax shall be equal to the full amount of the Payments. For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rates of taxation in the state and locality of Employee's residence on the date the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) The Gross-Up Payment for any Payment made shall be paid to Employee within ten (10) days after the Imposition of Excise Tax, unless the Company undertakes to indemnify him as provided in paragraph 12(d). The "Imposition of Excise Tax" shall mean the earliest of: (i) the issuance by the Internal Revenue Service of a notice stating in effect that an Excise Tax is due with respect to the Payment; (ii) Employee's delivery to the Company of an opinion of tax counsel selected by Employee that all or a portion of the Payment is subject to the Excise Tax and the amount of the Excise Tax on the Payment; or (iii) the Company's delivery to Employee of an opinion of tax counsel selected by the Company and acceptable to Employee that all or a portion of the Payment is subject to the Excise Tax and the amount of the Excise Tax on the Payment. (d) In lieu of paying the Gross-Up Payment for any Payment, the Company may elect to undertake, at its sole expense, the defense and settlement of any assessment by the Internal Revenue Service of the Excise Tax on any Payment. If the Company so elects, the Company shall protect, defend, indemnify and hold Employee forever harmless from and against the Excise Tax on such Payment and payments pursuant to this paragraph 12(d) and any federal, state or local income tax (determined pursuant to the last sentence of paragraph 12(b)) upon payments pursuant to this paragraph 12(d) and any and all liabilities, demands, claims, actions, causes of action, assessments, losses, costs, damages or expenses, including attorneys' and accountants' fees in connection with any thereof, and any interest and penalties sustained by Employee as a result of or arising out of or by virtue of the Company's undertaking. (e) If the Excise Tax is determined to be less than the amount taken into account in determining the Gross-Up Payment paid pursuant to paragraph 12(c), Employee shall repay to the Company, within ten (10) days after the time that the amount of such reduction in Excise Tax is determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of 2 such repayment at the rate provided in section 1274(b)(2)(B) of the Code for debt instruments with a maturity after issuance equal to the period beginning on the date the Gross-Up Payment was made and ending on the date of repayment required by this sentence. If the Excise Tax is determined to exceed the amount taken into account in determining the Gross-Up Payment paid pursuant to paragraph 12(c), the Company within ten (10) days after the time that the amount of such excess Excise Tax is determined shall make an additional payment to Employee of an amount equal to such excess plus an amount equal to any interest and penalties payable to the Internal Revenue Service with respect to such excess and any Excise Tax on payment pursuant to this sentence and any federal, state and local income tax (determined pursuant to the last sentence of paragraph 12(b)) upon payments made pursuant to this sentence. In Witness Whereof, the parties have executed and delivered this Amendment No. 1 to Employment Agreement as of December 24, 1999. UNITED RENTAL (NORTH AMERICA), INC. By: ------------------------------------------ - ---------------------------------------------- Wayland R. Hicks 3 EX-21 8 SUBSIDARIES OF UNITED RENTALS UNITED RENTALS, INC. THOSE CORPORATIONS WHICH ARE INDENTED REPRESENT SUBSIDIARIES OF THE CORPORATION UNDER WHICH THEY ARE INDENTED.
State of Name of Subsidiary Incorporation ------------------ ------------- United Rentals Trust I............................................ Delaware United Rentals (North America), Inc............................... Delaware Advance Barricades and Signing, Inc............................. Florida Coast Line Marking, Inc......................................... Florida Flasher Co. of Kansas, Inc...................................... Kansas Flasher Company of Oklahoma, Inc................................ Oklahoma Jadco Signing, Inc.............................................. Florida Lectric Lights Company.......................................... Texas Liddell Bros., Inc.............................................. Massachusetts Liddell Management Co., Inc..................................... Massachusetts Precision Pavement Marking, Inc................................. Minnesota State Barricading, Inc.......................................... Ohio State Sign, Inc................................................. Ohio Traffic Safety Services, Inc.................................... North Dakota Two Way Traffic, Inc............................................ Pennsylvania United Rentals Gulf, Inc........................................ Delaware United Equipment Rentals Gulf, L.P............................ Texas United Rentals Northwest, Inc................................... Oregon Provisto, S. de R.L. de C.V................................... Mexico U.S. Rentals, S. de R.L. de C.V............................... Mexico United Rentals Southeast, Inc................................... Delaware United Rentals Southeast, L.P................................. Georgia United Rentals of Canada, Inc................................... Ontario Warning Lites of Minnesota, Inc................................. Minnesota Warning Safety Lights, Inc...................................... Florida Warning Safety Lights of Georgia, Inc........................... Florida WLI Industries, Inc............................................. Illinois Warning Lites of Indiana, Inc................................. Indiana Warning Lites of Iowa, Inc.................................... Iowa Safe-T-Flare Services, Inc.................................... Missouri Work Zone Safety, Inc........................................... Colorado Woudenberg Enterprises, Inc..................................... Arizona Wynne Systems, Inc.............................................. California
EX-23 9 CONSENT OF ERNST & YOUNG Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements of United Rentals, Inc. (Form S-3 No.'s 333-41419-99, 333-70151, 333-70255, 333-64463 and 333-86197), the Registration Statement of United Rentals, Inc. (Form S-8 No. 333-70345) pertaining to the 1997 Stock Option Plan, 1998 Stock Option Plan, and 1998 Supplemental Stock Option Plan, and the Registration Statement of United Rentals, Inc. (Form S-8 No. 333-74091) pertaining to the options outstanding in connection with the 1997 Performance Award Plan of U.S. Rentals assumed pursuant to the merger with U.S. Rentals, of our report dated February 29, 2000, with respect to the consolidated financial statements of United Rentals, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1999, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP MetroPark, New Jersey March 27, 2000 EX-27 10 FINANCIAL DATA SCHEDULE
5 0001067701 UNITED RENTALS, INC. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 23811 0 485721 50736 129473 0 2485023 520383 4497738 0 2266148 300000 5 721 1396760 4497738 2233628 2233628 451097 1408710 8321 42143 139828 241807 99141 142666 0 0 0 142666 2.00 1.53
EX-27.1 11 FINANCIAL DATA SCHEDULE
5 0001047166 UNITED RENTALS (NORTH AMERICA), INC. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 23811 0 485721 50736 129473 0 2451292 515035 4425023 0 2266148 0 0 0 1693274 4425023 2233628 2233628 451097 1408710 (1646) 42143 139828 284467 116628 167839 0 0 0 167839 0 0
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