-----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, AazZzwfWs/Vl64VCkvPSCOBBtvFF1pkl9o2PQf6rTJZZivsC0NkQOEIVhWjmZ0MU qdglokr56vm9IWT1F88nmw== 0000950130-00-002916.txt : 20000516 0000950130-00-002916.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950130-00-002916 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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-Q SEC ACT: SEC FILE NUMBER: 001-14387 FILM NUMBER: 633310 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-Q SEC ACT: SEC FILE NUMBER: 001-13663 FILM NUMBER: 633311 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-Q 1 QUARTERLY REPORT - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-14387 United Rentals, Inc. Commission File No. 1-13663 United Rentals (North America), Inc. (Exact names of registrants as specified in their charters) Delaware 06-1522496 Delaware 06-1493538 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Nos.) Five Greenwich Office Park, Greenwich, Connecticut 06830 (Address of principal executive offices) (Zip Code)
(203) 622-3131 (Registrants' telephone number, including area code) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. X Yes No As of April 27, 2000, there were 72,065,712 shares of the United Rentals, Inc. common stock, $.01 par value outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc. This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by such instruction. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED RENTALS, INC. UNITED RENTALS (NORTH AMERICA), INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1 Unaudited Consolidated Financial Statements United Rentals, Inc. Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 (unaudited)................................... 4 United Rentals, Inc. Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 (unaudited)...... 5 United Rentals, Inc. Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 2000 (unaudited).... 6 United Rentals, Inc. Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 (unaudited)...... 7 United Rentals (North America), Inc. Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 (unaudited)............................... 8 United Rentals (North America), Inc. Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 (unaudited).......... 9 United Rentals (North America), Inc. Consolidated Statement of Stockholder's Equity for the Three Months Ended March 31, 2000 (unaudited)..................................................... 10 United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 (unaudited).......... 11 Notes to Unaudited Consolidated Financial Statements............. 12 Management's Discussion and Analysis of Financial Condition and Item 2 Results of Operations........................................... 20 Item 3 Quantitative and Qualitative Disclosures about Market Risk....... 26 PART II OTHER INFORMATION Item 1 Legal Proceedings................................................ 26 Item 2 Changes in Securities and Use of Proceeds........................ 26 Item 6 Exhibits and Reports on Form 8-K................................. 27 Signatures....................................................... 28
Certain of the statements contained in this Report are forward looking in nature. Such statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected by any forward- looking statements. Certain of these factors are discussed in Item 2 of Part I of this Report under the caption "--Factors that May Influence Future Results and Accuracy of Forward-Looking Statements." We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. UNITED RENTALS United Rentals is North America's largest equipment rental company with 722 locations 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; . 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 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 same store 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 1 . 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 33 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. 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 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 approximately 95 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. 2 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. 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. 3 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2000 1999 ---------------- ------------------ (In thousands, except share data) ASSETS Cash and cash equivalents................. $ 34,902 $ 23,811 Accounts receivable, net of allowance for doubtful accounts of $53,042 in 2000 and $50,736 in 1999.......................... 403,050 434,985 Inventory................................. 145,797 129,473 Prepaid expenses and other assets......... 100,499 81,457 Rental equipment, net..................... 1,734,636 1,659,733 Property and equipment, net............... 331,796 304,907 Intangible assets, net of accumulated amortization of $63,840 in 2000 and $51,231 in 1999.......................... 2,013,802 1,863,372 ---------------- ---------------- $ 4,764,482 $ 4,497,738 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable........................ $ 313,200 $ 242,946 Debt.................................... 2,489,746 2,266,148 Deferred taxes.......................... 81,851 81,229 Accrued expenses and other liabilities.. 165,402 209,929 ---------------- ---------------- Total liabilities..................... 3,050,199 2,800,252 Commitments and contingencies Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust....................... 300,000 300,000 Stockholders' equity: Preferred stock--$.01 par value, 5,000,000 shares authorized: Series A perpetual convertible preferred stock--$300,000 liquidation preference, 300,000 shares issued and outstanding........................... 3 3 Series B perpetual convertible preferred stock--$150,000 liquidation preference, 150,000 shares issued and outstanding........................... 2 2 Common stock--$.01 par value, 500,000,000 shares authorized, 72,062,743 shares issued and outstanding in 2000 and 72,051,095 in 1999................................... 721 721 Additional paid-in capital.............. 1,217,124 1,216,968 Retained earnings....................... 196,886 179,475 Accumulated other comprehensive income.. (453) 317 ---------------- ---------------- Total stockholders' equity............ 1,414,283 1,397,486 ---------------- ---------------- $ 4,764,482 $ 4,497,738 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 4 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, -------------------- 2000 1999 --------- --------- (In thousands, except per share data) Revenues: Equipment rentals...................................... $ 400,098 $ 288,385 Sales of rental equipment.............................. 70,332 35,943 Sales of equipment and merchandise and other revenues.. 108,532 67,981 --------- --------- Total revenues.......................................... 578,962 392,309 Cost of revenues: Cost of equipment rentals, excluding depreciation...... 174,300 125,819 Depreciation of rental equipment....................... 73,503 59,113 Cost of rental equipment sales......................... 41,086 20,842 Cost of equipment and merchandise sales and other operating costs....................................... 84,089 52,544 --------- --------- Total cost of revenues.................................. 372,978 258,318 --------- --------- Gross profit............................................ 205,984 133,991 Selling, general and administrative expenses............ 101,850 65,260 Non-rental depreciation and amortization................ 20,018 12,170 --------- --------- Operating income........................................ 84,116 56,561 Interest expense........................................ 49,683 24,373 Preferred dividends of a subsidiary trust............... 4,875 4,875 Other (income) expense, net............................. (204) (206) --------- --------- Income before provision for income taxes................ 29,762 27,519 Provision for income taxes.............................. 12,351 11,294 --------- --------- Net income.............................................. $ 17,411 $ 16,225 ========= ========= Basic earnings per share................................ $ 0.24 $ 0.24 ========= ========= Diluted earnings per share.............................. $ 0.19 $ 0.18 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
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, 1999......... 300,000 $3 150,000 $ 2 72,051,095 $721 $1,216,968 $179,475 $ 317 Comprehensive income: Net income....... 17,411 $17,411 Other comprehensive income: Foreign currency translation adjustments..... (770) (770) ------- Comprehensive income........... $16,641 ======= Issuance of common stock............ 2,815 50 Exercise of common stock options.... 8,833 106 ------- --- ------- --- ---------- ---- ---------- -------- ----- Balance, March 31, 2000............. 300,000 $3 150,000 $2 72,062,743 $721 $1,217,124 $196,886 $(453) ======= === ======= === ========== ==== ========== ======== =====
The accompanying notes are an integral part of these consolidated financial statements. 6 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, -------------------- 2000 1999 --------- --------- (In thousands) Cash Flows From Operating Activities: Net income.............................................. $ 17,411 $ 16,225 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 93,521 72,173 Gain on sale of rental equipment....................... (29,246) (15,101) Deferred taxes......................................... 3,088 7,115 Changes in operating assets and liabilities: Accounts receivable.................................... 50,331 (15,025) Inventory.............................................. (10,787) (21,930) Prepaid expenses and other assets...................... (16,942) (15,463) Accounts payable....................................... 59,315 68,463 Accrued expenses and other liabilities................. (73,125) 14 --------- --------- Net cash provided by operating activities.......... 93,566 96,471 Cash Flows From Investing Activities: Purchases of rental equipment........................... (193,020) (114,990) Purchases of property and equipment..................... (30,848) (25,809) Proceeds from sales of rental equipment................. 70,332 35,943 In-process acquisition costs............................ (1,926) (585) Payments of contingent purchase price................... (6,403) (661) Purchases of other companies............................ (128,651) (144,046) --------- --------- Net cash used in investing activities.............. (290,516) (250,148) Cash Flows From Financing Activities: Proceeds from issuance of common stock, net of issuance costs.................................................. 65,198 Proceeds from issuance of series A perpetual convertible preferred stock, net of issuance costs................. 287,000 Proceeds from debt...................................... 438,778 444,971 Payments of debt........................................ (241,976) (548,784) Proceeds from sale-leaseback............................ 12,000 Payments of financing costs............................. (86) (4,250) Proceeds from the exercise of common stock options...... 95 --------- --------- Net cash provided by financing activities.......... 208,811 244,135 Effect of foreign exchange rates........................ (770) (22) --------- --------- Net increase in cash and cash equivalents............... 11,091 90,436 Cash and cash equivalents at beginning of period........ 23,811 20,410 --------- --------- Cash and cash equivalents at end of period.............. $ 34,902 $ 110,846 ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest.................................. $ 55,154 $ 28,523 Cash paid for income taxes.............................. $ 37,401 $ 2,942 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........................... $ 192,580 $ 210,818 Liabilities assumed.................................... (63,929) (62,377) Less: Amounts paid through issuance of debt................ (4,395) --------- --------- Net cash paid...................................... $ 128,651 $ 144,046 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 7 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, 2000 December 31, 1999 ---------------- ------------------ (In thousands, except share data) ASSETS Cash and cash equivalents................. $ 34,902 $ 23,811 Accounts receivable, net of allowance for doubtful accounts of $53,042 in 2000 and $50,736 in 1999.......................... 403,050 434,985 Inventory................................. 145,797 129,473 Prepaid expenses and other assets......... 55,163 37,125 Rental equipment, net..................... 1,734,636 1,659,733 Property and equipment, net............... 298,681 276,524 Intangible assets, net of accumulated am- ortization of $63,840 in 2000 and $51,231 in 1999.................................. 2,013,802 1,863,372 ---------------- ---------------- $ 4,686,031 $ 4,425,023 ================ ================ LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable........................ $ 247,507 $ 212,565 Debt.................................... 2,489,746 2,266,148 Deferred taxes.......................... 81,851 81,229 Accrued expenses and other liabilities.. 157,944 171,807 ---------------- ---------------- Total liabilities..................... 2,977,048 2,731,749 Commitments and contingencies Stockholder's equity: Common stock--$0.01 par value, 3,000 shares authorized, 1,000 shares issued and outstanding........................ Additional paid-in capital.............. 1,507,475 1,507,330 Retained earnings....................... 201,961 185,627 Accumulated other comprehensive income.. (453) 317 ---------------- ---------------- Total stockholder's equity............ 1,708,983 1,693,274 ---------------- ---------------- $ 4,686,031 $4,425,023 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 8 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, -------------------- 2000 1999 --------- --------- (In thousands) Revenues: Equipment rentals...................................... $ 400,098 $ 288,385 Sales of rental equipment.............................. 70,332 35,943 Sales of equipment and merchandise and other revenues.. 108,532 67,981 --------- --------- Total revenues........................................... 578,962 392,309 Cost of revenues: Cost of equipment rentals, excluding depreciation...... 174,300 125,819 Depreciation of rental equipment....................... 73,503 59,113 Cost of rental equipment sales......................... 41,086 20,842 Cost of equipment and merchandise sales and other oper- ating costs........................................... 84,089 52,544 --------- --------- Total cost of revenues................................... 372,978 258,318 --------- --------- Gross profit............................................. 205,984 133,991 Selling, general and administrative expenses............. 101,850 65,260 Non-rental depreciation and amortization................. 18,317 11,646 --------- --------- Operating income......................................... 85,817 57,085 Interest expense......................................... 49,683 24,373 Other (income) expense, net.............................. (204) (346) --------- --------- Income before provision for income taxes................. 36,338 33,058 Provision for income taxes............................... 15,129 13,509 --------- --------- Net income............................................... $ 21,209 $ 19,549 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 9 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (Unaudited)
Common Stock ---------------- Additional Accumulated Number Paid-In Retained Comprehensive Other Comprehensive of Shares Amount Capital Earnings Income Income --------- ------ ---------- -------- ------------- ------------------- (In thousands, except share data) Balance, December 31, 1999................... 1,000 $1,507,330 $185,627 $ 317 Comprehensive income: Net income............. 21,209 $21,209 Other comprehensive income: Foreign currency translation adjustments.......... (770) (770) ------- Comprehensive income.... $20,439 ======= Contributed capital from parent................. 95 Dividend distribution to parent................. (4,875) ----- --- ---------- -------- ----- Balance, March 31, 2000................... 1,000 $1,507,425 $201,961 $(453) ===== === ========== ======== =====
The accompanying notes are an integral part of these consolidated financial statements. 10 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, -------------------- 2000 1999 --------- --------- (In thousands) Cash Flows From Operating Activities: Net income.............................................. $ 21,209 $ 19,549 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 91,820 71,649 Gain on sale of rental equipment....................... (29,246) (15,101) Deferred taxes......................................... 3,088 7,115 Changes in operating assets and liabilities: Accounts receivable.................................... 50,331 (15,025) Inventory.............................................. (10,787) (21,930) Prepaid expenses and other assets...................... (17,892) 26,023 Accounts payable....................................... 24,002 61,468 Accrued expenses and other liabilities................. (42,472) (26,756) --------- --------- Net cash provided by operating activities............ 90,053 106,992 Cash Flows From Investing Activities: Purchases of rental equipment........................... (193,020) (114,990) Purchases of property and equipment..................... (24,386) (23,177) Proceeds from sales of rental equipment................. 70,332 35,943 Payments of contingent purchase price................... (6,403) (661) Purchases of other companies............................ (128,651) (144,046) --------- --------- Net cash used in investing activities................ (282,128) (246,931) Cash Flows From Financing Activities: Proceeds from debt...................................... 438,778 444,971 Payments of debt........................................ (241,976) (548,784) Proceeds from sale-leaseback............................ 12,000 Payments of financing costs............................. (86) (4,250) Capital contribution by parent.......................... 95 352,198 Dividend distribution to parent......................... (4,875) (4,875) --------- --------- Net cash provided by financing activities............ 203,936 239,260 Effect of foreign exchange rates........................ (770) (22) --------- --------- Net increase in cash and cash equivalents............... 11,091 99,299 Cash and cash equivalents at beginning of period........ 23,811 20,410 --------- --------- Cash and cash equivalents at end of period.............. $ 34,902 $ 119,709 ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest.................................. $ 50,279 $ 23,648 Cash paid for income taxes.............................. $ 37,401 $ 2,942 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........................... $ 192,580 $ 210,818 Liabilities assumed.................................... (63,929) (62,377) Less: Amounts paid through issuance of debt................ (4,395) --------- --------- Net cash paid...................................... $ 128,651 $ 144,046 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 11 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation General United Rentals, Inc., is principally a holding company ("Holdings" or the "Company") and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of URI. Separate footnote information is not presented for the financial statements of URI and subsidiaries as that information is substantially equivalent to that presented below. Earnings per share data is not provided for the operating results of URI and its subsidiaries as they are wholly owned subsidiaries of Holdings. The Consolidated Financial Statements of the Company included herein are unaudited and, in the opinion of management, such financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of the interim periods presented. Interim financial statements do not require all disclosures normally presented in year-end financial statements, and, accordingly, certain disclosures have been omitted. Results of operations for the three month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The Consolidated Financial Statements included herein should be read in conjunction with the Company's Consolidated Financial Statements and related Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Impact of Recently Issued Accounting Standards In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("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 2000 presentation. 2.Acquisitions During the three months ended March 31, 2000, the Company completed 16 acquisitions that were accounted for as purchases. The results of operations of the businesses acquired in these acquisitions have been included in the Company's results of operations from their respective acquisition dates. The aggregate initial consideration paid by the Company for such acquisitions that were accounted for as purchases was $139.9 million and consisted entirely of cash. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in such acquisitions in the aggregate amount of $30.4 million. The purchase prices for such acquisitions have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. However, the Company has not completed its valuation of all of its purchases and, accordingly, the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The following table summarizes, on an unaudited pro forma basis, the results of operations of the Company for the three months ended March 31, 2000 and 1999 as though (i) each acquisition summarized above which was consummated during the three months ended March 31, 2000, was made on January 1, 2000, in the case of the results for the three months ended March 31, 2000, and (ii) each acquisition which was consummated during 12 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the period January 1, 1999 to March 31, 2000 as described above and in Note 3 to the Notes to Consolidated Financial Statements included in the Company's 1999 Annual Report on Form 10-K was made on January 1, 1999 in the case of the results for the three months ended March 31, 1999 (in thousands, except per share data):
Three Months Ended March 31, ----------------------------- 2000 1999 -------------- -------------- Revenues.................................... $ 593,241 $ 519,177 Net income.................................. 18,026 12,351 Basic earnings per share.................... $ 0.25 $ 0.18 Diluted earnings per share.................. $ 0.19 $ 0.14
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. 3. Revolving 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 to directly borrow up to $40 million under the Credit Facility (provided that the aggregate borrowings of URI and the Canadian subsidiary do not exceed $772.5 million). The Credit Facility terminates on September 26, 2003, at which time all outstanding indebtedness is due. There was $454.5 million outstanding under the Credit Facility at March 31, 2000. 4. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):
Three Months Ended March 31, --------------- 2000 1999 ------- ------- Numerator: Net income............................................. $17,411 $16,225 ======= ======= Denominator: Denominator for basic earnings per share--weighted-av- erage shares.......................................... 72,059 69,012 Effect of dilutive securities: Employee stock options............................... 1,234 5,499 Warrants............................................. 2,558 4,430 Series A perpetual convertible preferred stock....... 12,000 12,000 Series B perpetual convertible preferred stock....... 5,000 ------- ------- Denominator for diluted earnings per share--adjusted weighted-average shares............................... 92,851 90,941 ======= ======= Basic earnings per share................................. $ 0.24 $ 0.24 ======= ======= Diluted earnings per share............................... $ 0.19 $ 0.18 ======= =======
13 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Condensed Consolidating Financial Information Of Guarantor Subsidiaries Certain indebtedness of URI is guaranteed by URI's United States subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor subsidiaries are all wholly-owned and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). All expenses incurred by URI have been charged by URI to its guarantor and non guarantor subsidiaries. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management has determined that such information would not be material to investors. However, condensed consolidating financial information as of March 31, 2000 and December 31, 1999 and for the three months ended March 31, 2000 and 1999, are presented. The condensed consolidating financial information of URI and its subsidiaries are as follows: CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2000 --------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) ASSETS Cash and cash equiva- lents.................. $ 32,788 $ 2,114 $ 34,902 Accounts receivable, net.................... 373,439 29,611 403,050 Intercompany receivable (payable).............. $2,070,324 (1,894,401) (175,923) Inventory............... 136,916 8,881 145,797 Prepaid expenses and other assets........... 41,644 13,519 55,163 Rental equipment, net... 1,617,543 117,093 1,734,636 Property and equipment, net.................... 278,469 20,212 298,681 Investment in subsidiar- ies.................... 2,102,834 $(2,102,834) Intangible assets, net.. 1,886,982 126,820 2,013,802 ---------- ---------- -------- ----------- ---------- $4,214,802 $2,431,736 $142,327 $(2,102,834) $4,686,031 ========== ========== ======== =========== ========== LIABILITIES AND STOCK- HOLDER'S EQUITY Liabilities: Accounts payable....... $ 57,019 $ 171,937 $ 18,551 $ 247,507 Debt................... 2,414,323 43,602 31,821 2,489,746 Deferred taxes......... 81,086 765 81,851 Accrued expenses and other liabilities..... 53,497 93,399 11,048 157,944 ---------- ---------- -------- ----------- ---------- Total liabilities.... 2,524,839 390,024 62,185 2,977,048 Commitments and contin- gencies Stockholder's equity: Common stock........... Additional paid-in capital................ 1,488,002 1,830,273 65,698 $(1,876,498) 1,507,475 Retained earnings...... 201,961 211,439 14,897 (226,336) 201,961 Accumulated other com- prehensive income...... (453) (453) ---------- ---------- -------- ----------- ---------- Total stockholder's equity.............. 1,689,963 2,041,712 80,142 (2,102,834) 1,708,983 ---------- ---------- -------- ----------- ---------- $4,214,802 $2,431,736 $142,327 $(2,102,834) $4,686,031 ========== ========== ======== =========== ==========
14 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1999 ---------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) Assets Cash and cash equiva- lents.................. $ 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 subsidiar- ies.................... 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 Stock- holder'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 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 contin- gencies 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 com- prehensive 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 ========== =========== ========= =========== ==========
15 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000 ----------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $378,635 $21,463 $400,098 Sales of rental equip- ment................. 63,856 6,476 70,332 Sales of equipment and merchandise and other revenues............. 101,107 7,425 108,532 ------- -------- ------- -------- -------- Total revenues.......... 543,598 35,364 578,962 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 163,071 11,229 174,300 Depreciation of rental equipment............ 68,960 4,543 73,503 Cost of rental equip- ment sales........... 36,782 4,304 41,086 Cost of equipment and merchandise sales and other operating costs................ 77,870 6,219 84,089 ------- -------- ------- -------- -------- Total cost of revenues.. 346,683 26,925 372,978 ------- -------- ------- -------- -------- Gross profit............ 196,915 9,069 205,984 Selling, general and ad- ministrative expenses............... 96,523 5,327 101,850 Non-rental depreciation and amortization....... 17,044 1,273 18,317 ------- -------- ------- -------- -------- Operating income........ 83,348 2,469 85,817 Interest expense........ 48,863 820 49,683 Other (income) expense, net.................... 49 (253) (204) ------- -------- ------- -------- -------- Income before provision for income taxes ...... 34,436 1,902 36,338 Provision for income taxes.................. 14,339 790 15,129 ------- -------- ------- -------- -------- Income before equity in net earnings of subsidiaries........ 20,097 1,112 $(21,209) Equity in net earnings of subsidiaries........ $21,209 21,209 ------- -------- ------- -------- -------- Net income ............. $21,209 $ 20,097 $ 1,112 $(21,209) $ 21,209 ======= ======== ======= ======== ========
16 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1999 ----------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $275,037 $13,348 $288,385 Sales of rental equip- ment................. 33,264 2,679 35,943 Sales of equipment and merchandise and other revenues............. 62,845 5,136 67,981 ------- -------- ------- -------- -------- Total revenues.......... 371,146 21,163 392,309 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 118,630 7,189 125,819 Depreciation of rental equipment............ 56,340 2,773 59,113 Cost of rental equip- ment sales........... 19,529 1,313 20,842 Cost of equipment and merchandise sales and other operating costs................ 48,869 3,675 52,544 ------- -------- ------- -------- -------- Total cost of revenues.. 243,368 14,950 258,318 ------- -------- ------- -------- -------- Gross profit............ 127,778 6,213 133,991 Selling, general and ad- ministrative expenses............... 61,383 3,877 65,260 Non-rental depreciation and amortization....... 11,003 643 11,646 ------- -------- ------- -------- -------- Operating income........ 55,392 1,693 57,085 Interest expense........ 24,278 95 24,373 Other (income) expense, net.................... (141) (205) (346) ------- -------- ------- -------- -------- Income before provision for income taxes ...... 31,255 1,803 33,058 Provision for income taxes.................. 12,658 851 13,509 ------- -------- ------- -------- -------- Income before equity in net earnings of subsidiaries........ 18,597 952 $(19,549) Equity in net earnings of subsidiaries........ $19,549 19,549 ------- -------- ------- -------- -------- Net income.............. $19,549 $ 18,597 $ 952 $(19,549) $ 19,549 ======= ======== ======= ======== ========
17 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Three Months Ended March 31, 2000 ---------------------------------------------------------------- Guarantor Non-guarantor URI Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------- ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities............. $ (61,800) $ 149,630 $ 2,223 $ 90,053 Cash flows from investing activities: Purchases of rental equipment............. (186,482) (6,538) (193,020) Purchases of property and equipment......... (23,424) (962) (24,386) Proceeds from sales of rental equipment...... 63,856 6,476 70,332 Payments of contingent purchase price........ (6,403) (6,403) Purchases of other companies............. (128,651) (128,651) --------- --------- ------- ---- --------- Net cash used in investing activities.......... (128,651) (152,453) (1,024) (282,128) Cash flows from financing activities: Proceeds from debt..... 419,125 19,653 438,778 Payments of debt....... (235,808) (4,145) (2,023) (241,976) Proceeds from sale- leaseback............. 12,000 12,000 Payments of financing costs................. (86) (86) Capital contribution by parent............. 95 95 Dividend distribution to parent............. (4,875) (4,875) --------- --------- ------- ---- --------- Net cash provided by (used in) financing activities.......... 190,451 15,508 (2,023) 203,936 Effect of foreign exchange rates......... (770) (770) --------- --------- ------- ---- --------- Net increase (decrease) in cash and cash equivalents............ 12,685 (1,594) 11,091 Cash and cash equivalents at beginning of period.... 20,103 3,708 23,811 --------- --------- ------- ---- --------- Cash and cash equivalents at end of period................. $ 32,788 $ 2,114 $ 34,902 ========= ========= ======= ==== ========= Supplemental disclosure of cash flow information: Cash paid for interest.. $ 49,479 $ 194 $ 606 $ 50,279 Cash paid for income taxes.................. $ 31,203 $ 6,198 $ 37,401 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.............. $ 192,580 $ 192,580 Liabilities assumed.... (63,929) (63,929) --------- --------- ------- ---- --------- Net cash paid........ $ 128,651 $ 128,651 ========= ========= ======= ==== =========
18 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Three Months Ended March 31, 1999 ---------------------------------------------------------------- Guarantor Non-guarantor URI Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------- ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities............. $ (30,602) $ 96,726 $ 40,868 $ 106,992 Cash flows from investing activities: Purchases of rental equipment............. (103,437) (11,553) (114,990) Purchases of property and equipment......... (22,935) (242) (23,177) Proceeds from sales of rental equipment...... 33,264 2,679 35,943 Payments of contingent purchase price........ (661) (661) Purchases of other companies............. (112,403) (31,643) (144,046) --------- --------- -------- ---- --------- Net cash used in investing activities.......... (112,403) (93,108) (41,420) (246,931) Cash flows from financing activities: Proceeds from debt..... 437,909 6,669 393 444,971 Payments of debt....... (543,515) (5,269) (548,784) Payments of financing costs................. (4,250) (4,250) Capital contribution by parent............. 352,198 352,198 Dividend distribution to parent............. (4,875) (4,875) --------- --------- -------- ---- --------- Net cash provided by financing activities.......... 237,467 1,400 393 239,260 Effect of foreign exchange rates......... (22) (22) --------- --------- -------- ---- --------- Net increase (decrease) in cash and cash equivalents............ 94,462 5,018 (181) 99,299 Cash and cash equivalents at beginning of period.... 1,774 16,257 2,379 20,410 --------- --------- -------- ---- --------- Cash and cash equivalents at end of period................. $ 96,236 $ 21,275 $ 2,198 $ 119,709 ========= ========= ======== ==== ========= Supplemental disclosure of cash flow information: Cash paid for interest.. $ 21,099 $ 2,454 $ 95 $ 23,648 Cash paid for income taxes.................. $ 1,620 $ 1,322 $ 2,942 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.............. $ 165,665 $ 45,153 $ 210,818 Liabilities assumed.... (48,867) (13,510) (62,377) Less: Amounts paid through issuance of debt.... (4,395) (4,395) --------- --------- -------- ---- --------- Net cash paid...... $ 112,403 $ 31,643 $ 144,046 ========= ========= ======== ==== =========
6. Subsequent Events Completed Acquisitions Subsequent to March 31, 2000 (through April 27, 2000), the Company completed the acquisitions of six equipment rental companies. The aggregate consideration paid by the Company for these acquisitions was $43.8 million in cash. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in such acquisitions in the aggregate amount of $1.7 million. The Company funded the consideration for these acquisitions with borrowings under the Company's revolving credit facility. Effective May 12, 2000, in connection with certain amendments to the agreement governing the Credit Facility, the Eurodollar Rate borrowing under the Credit Facility was increased by 0.25%. 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion reviews the Company's operations for the three months ended March 31, 2000 and 1999 and should be read in conjunction with the Unaudited Consolidated Financial Statements and related Notes thereto of the Company included herein and the Consolidated Financial Statements and related Notes thereto included in the Company's 1999 Annual Report on Form 10- K. Introduction The Company commenced equipment rental operations in October 1997 and has completed 214 acquisitions (through April 27, 2000), including a merger with U.S. Rentals (the "U.S. Rentals Merger") which was completed in September 1998. Three of the acquisitions completed by the Company (including the U.S. Rentals Merger) were accounted for as "poolings-of-interests," and the Company's financial statements have been restated to include the accounts of two of the companies acquired in such transactions (but were not restated for one that was not material). The other 211 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 2000 and 1999 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 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 equipment and equipment and other merchandise 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 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 Three months ended March 31, 2000 and 1999 Revenues. Total revenues for the first three months of 2000 were $579.0 million, representing an increase of 47.6% over total revenues of $392.3 million for the first three months of 1999. The Company's revenues in 20 the first three months of 2000 and 1999 were attributable to: (i) equipment rental ($400.1 million, or 69.1% of revenues, in the first three months of 2000 compared to $288.4 million, or 73.5% of revenues, in the first three months of 1999), (ii) sales of rental equipment ($70.3 million, or 12.1% of revenues, in the first three months of 2000 compared to $35.9 million, or 9.2% of revenues, in the first three months of 1999) and (iii) sales of equipment and merchandise and other revenues ($108.5 million, or 18.7% of revenues, in the first three months of 2000 compared to $68.0 million, or 17.3% of revenues, in the first three months of 1999). The 47.6% increase in total revenues in the first three months of 2000 reflected (i) increased revenues at locations open more than one year (which accounted for approximately 16.6 percentage points) and (ii) new rental locations acquired through acquisitions and the opening of start-up locations (which accounted for approximately 31.0 percentage points). The increase in revenues at locations open more than one year primarily reflected (a) an increase in the volume of rental transactions, (b) an expansion of the product lines offered by the Company for sale, (c) an increase in the sale of related merchandise and parts which was driven by the increase in equipment rental and sales transactions and (d) an increase in the sale of used equipment in order to maintain the quality of the Company's rental fleet. Gross Profit. Gross profit increased to $206.0 million in the first three months of 2000 from $134.0 million in the first three months of 1999. This increase in gross profit was primarily attributable to the increase in revenues described above. The Company's gross profit margin by source of revenue in the first three months of 2000 and 1999 was: (i) equipment rental (38.1% in the first three months of 2000 and 35.9% in the first three months of 1999), (ii) sales of rental equipment (41.6% in the first three months of 2000 and 42.0% in the first three months of 1999) and (iii) sales of equipment and merchandise and other revenues (22.5% in the first three months of 2000 and 22.7% in the first three months of 1999). The increase in the gross profit margin from rental revenues in the first three months of 2000 was primarily attributable to economies of scale. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") were $101.9 million, or 17.6% of total revenues, during the first three months of 2000 and $65.3 million, or 16.6% of total revenues, during the first three months of 1999. The increase in SG&A as a percentage of revenues in the first three months of 2000 primarily reflected the increase in expenses associated with the Company's newly acquired traffic control and northern climate businesses, which typically generate a majority of their revenues in the second half of the year. Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $20.0 million, or 3.5% of total revenues, in the first three months of 2000 and $12.2 million, or 3.1% of total revenues, in the first three months of 1999. The increase in the dollar amount of non-rental depreciation and amortization in the first three months of 2000 primarily reflected the amortization of goodwill attributable to acquisitions completed subsequent to the first quarter of 1999. Interest Expense. Interest expense increased to $49.7 million in the first three months of 2000 from $24.4 million in the first three months of 1999. This increase primarily reflected the fact that the Company's indebtedness significantly increased subsequent to the first quarter of 1999, principally to fund acquisitions. Preferred Dividends of a Subsidiary Trust. Preferred dividends of a subsidiary trust of Holdings were $4.9 million for the first three months of 2000 and 1999. Other (Income) Expense. Other income was $0.2 million in the first three months of 2000 and 1999. Income Taxes. Income taxes increased to $12.4 million, or an effective rate of 41.5%, in the first three months of 2000 from $11.3 million, or an effective rate of 41.0%, in the first three months of 1999. 21 Liquidity and Capital Resources Sources and Uses of Cash During the first three months of 2000, the Company (i) generated cash from operations of approximately $93.6 million, (ii) generated cash from the sale of rental equipment of approximately $70.3 million and (iii) obtained net proceeds from financing activities, principally borrowings under the Company's revolving credit facility, of approximately $208.8 million. The Company used cash during this period principally to (i) pay consideration for acquisitions (approximately $128.7 million), (ii) purchase rental equipment (approximately $193.0 million) and (iii) purchase other property and equipment (approximately $30.8 million). Certain Balance Sheet Changes The acquisitions and the equipment purchases made by the Company in the first three months of 2000 (and the financing of such acquisitions and purchases) were the principal reasons for the increase in the following items at March 31, 2000 compared with December 31, 1999: inventory, prepaid expenses and other assets, rental equipment, property and equipment, intangible assets, accounts payable and debt. The decrease in accounts receivable at March 31, 2000 compared with December 31, 1999 was primarily due to collections of accounts receivable generated in the seasonally strong prior fiscal quarter. The decrease in accrued expenses and other liabilities at March 31, 2000 compared with December 31, 1999 was primarily due to the payment of certain accrued bonus compensation and income tax. Certain Information Concerning the Company's Credit Facility URI has a revolving credit facility (the "Credit Facility") that enables URI to borrow up to $772.5 million on a revolving basis and permits a Canadian subsidiary of URI to directly borrow up to $40.0 million under the Credit Facility (provided that the aggregate borrowings of URI and the Canadian subsidiary do not exceed $772.5 million). The Credit Facility terminates on September 26, 2003, at which time all outstanding indebtedness is due. As of May 5, 2000, there was $493.8 million of indebtedness outstanding under the Credit Facility (not including undrawn outstanding letters of credit in the amount of $26.5 million). Effective May 12, 2000, in connection with certain amendments to the agreement governing the Credit Facility, the Eurodollar Rate borrowing under the Credit Facility was increased by 0.25%. Cash Requirements Related to Operations The Company's principal existing sources of cash are borrowings available under the Credit Facility ($252.2 million available as of May 5, 2000) and cash generated from operations. The Company expects that its principal needs for cash relating to its existing operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory of items offered for sale and (iii) debt service. The Company plans to fund such cash requirements relating to its existing operations from its existing sources of cash described above. The Company estimates that equipment expenditures over the next 12 months will be approximately $750 million for the existing operations of the Company. These expenditures are comprised of approximately $450 million of expenditures to maintain the average age of the Company's rental fleet and $300 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 $330 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, 22 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 $34.2 million during the one-year period from April 1, 2000 to March 31, 2001. Relationship Between Holdings and URI Holdings is principally a holding company and primarily conducts its operations through its wholly owned subsidiary URI and subsidiaries of URI. Holdings provides certain services to URI in connection with its operations. These services principally include: (i) senior management services, (ii) finance related services and support, (iii) information technology systems and support and (iv) acquisition related services. In addition, Holdings leases certain equipment and real property that are made available for use by URI and its subsidiaries. URI has made, and expects to continue to make, certain payments to Holdings in respect of the services provided by Holdings to the Company. The expenses relating to URI's payments to Holdings are reflected on URI's financial statements as selling, general and administrative expenses. In addition, although not legally obligated to do so, URI has in the past, and expects that it will in the future, make distributions to Holdings to, among other things, enable Holdings to pay dividends on certain preferred securities (the "Trust Preferred Securities") that were issued by a subsidiary trust of Holdings in August 1998. The Trust Preferred Securities are the obligation of a subsidiary trust of Holdings and are not the obligation of URI. As a result, the dividends payable on these securities are reflected as an expense on the consolidated financial statements of Holdings, but are not reflected as an expense on the consolidated financial statements of URI. This is the principal reason why the net income reported on the consolidated financial statements of URI is higher than the net income reported on the consolidated financial statements of Holdings. Year 2000 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 Standards ("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 Instrument 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 23 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. 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 Additional Capital to Finance Growth We will require substantial capital in order to execute our growth strategy. We will require capital for, among other purposes, completing acquisitions, establishing new rental locations, and acquiring rental equipment. If the cash that we generate from our business, together with cash that we may borrow under our credit facility, is not sufficient to fund our capital requirements, we will require additional debt and/or equity financing. We cannot, however, be certain that any additional financing will be available or, if available, will be available on terms that are satisfactory to us. If we are unable to obtain sufficient additional capital in the future, our ability to implement our growth strategy could be limited. Dependence on Management We are highly dependent upon our senior management team. Consequently, our business could be adversely affected in the event that we lose the services of any member of senior management. Furthermore, if we lose the services of certain members of senior management, it is an event of default under the agreements governing our credit facility and certain of our other indebtedness, unless we appoint replacement officers satisfactory to the lenders within 30 days. We do not maintain "key man" life insurance with respect to members of senior management. Competition The equipment rental industry is highly fragmented and competitive. Our competitors primarily include small, independent businesses with one or two rental locations; regional competitors which operate in one or 24 more states; public companies or divisions of public companies; and equipment vendors and dealers who both sell and rent equipment directly to customers. We may in the future encounter increased competition from our existing competitors or from new companies. In addition, certain equipment manufacturers may commence (or increase their existing efforts relating to) renting and selling equipment directly to our customers. Fluctuations of Operating Results We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term due to a number of factors, including: . seasonal rental patterns of our customers--with rental activity tending to be lower in the winter; . 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. 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 25 on our business. However, we cannot be certain that we will not identify adverse environmental conditions that are not currently known to us, that all potential releases from underground storage tanks removed in the past have been identified, or that environmental and safety requirements will not become more stringent or be interpreted and applied more stringently in the future. If we are required to incur environmental compliance or remediation costs that are not currently anticipated by us, our business could be adversely affected depending on the magnitude of the cost. Risks Related to International Operations Our operations outside the United States are subject to risks normally associated with international operations. These include the need to convert currencies, which could result in a gain or loss depending on fluctuations in exchange rates, and the need to comply with foreign laws. Dependence on Information Technology 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. Restrictive Covenants The agreements governing our existing long-term indebtedness contain, and future agreements governing our long-term indebtedness may also contain, certain restrictive financial and operating covenants which affect, and in many respects significantly limit or prohibit, among other things, our ability to incur indebtedness, make prepayments of certain indebtedness, make investments, create liens, make acquisitions, sell assets and engage in mergers and consolidations. These covenants may significantly limit our operating and financial flexibility. Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risks relating to changes in interest rates and foreign currency exchanges rates were reported in Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 1999. There has been no material change in these market risks since the end of the fiscal year 1999. PART II OTHER INFORMATION Item 1. Legal Proceedings The Company and its subsidiaries are parties to various litigation matters, in most cases involving ordinary and routine claims incidental to the business of the Company. The ultimate legal and financial liability of the Company with respect to such pending litigation cannot be estimated with certainty but the Company believes, based on its examination of such matters, that such ultimate liability will not have a material effect on the business or financial condition of the Company. Item 2. Changes in Securities and Use of Proceeds Sale of Unregistered Securities Set forth below is certain information concerning sales by the Company of unregistered securities during the first quarter of 2000. The issuances by the Company of the securities sold in the transactions referenced below were not registered under the Securities Act of 1933, pursuant to the exemption contemplated by Section 4(2) thereof for transactions not involving a public offering. 1. In January 2000, the Company issued 2,815 shares of common stock to an executive officer pursuant to an employment agreement. 26 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
Exhibit Number Description of Exhibit ------- ---------------------- 3(a) Amended and Restated Certificate of Incorporation of United Rentals, Inc., in effect as of the date hereof (incorporated by reference to exhibit 3.1 of United Rentals, Inc. 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) 27* Financial Data Schedule 27.1* Financial Data Schedule - -------- *Filed herewith. (b) Reports on Form 8-K: none
27 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. United Rentals, Inc. Dated: May 15, 2000 /s/ Michael J. Nolan By: _________________________________ Michael J. Nolan Chief Financial Officer (Principal Financial Officer) Dated: May 15, 2000 /s/ Peter R. Borzilleri By: _________________________________ Peter R. Borzilleri Vice President, Corporate Controller (Chief Accounting Officer) United Rentals (North America), Inc. Dated: May 15, 2000 /s/ Michael J. Nolan By: _________________________________ Michael J. Nolan Chief Financial Officer (Principal Financial Officer) Dated: May 15, 2000 /s/ Peter R. Borzilleri By: _________________________________ Peter R. Borzilleri Vice President, Corporate Controller (Chief Accounting Officer) 28 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 0001067701 UNITED RENTALS, INC. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 34,902 0 456,092 53,042 145,797 0 2,629,561 563,129 4,764,482 0 2,489,746 300,000 5 721 1,413,557 4,764,482 578,962 578,962 125,175 372,978 (204) 7,282 49,683 29,762 12,351 17,411 0 0 0 17,411 0.24 0.19
EX-27.2 3 FINANCIAL DATA SCHEDULE
5 0001047166 UNITED RENTALS (NORTH AMERICA), INC. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 34,902 0 456,092 53,042 145,797 0 2,589,546 556,229 4,686,031 0 2,489,746 0 0 0 1,708,983 4,686,031 578,962 578,962 125,175 372,978 (204) 7,282 49,683 36,338 15,129 21,209 0 0 0 21,209 0 0
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