10-Q 1 0001.txt 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 June 30, 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 August 1, 2000, there were 70,286,251 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 JUNE 30, 2000 INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1 Unaudited Consolidated Financial Statements United Rentals, Inc. Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 (unaudited).................................. 4 United Rentals, Inc. Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2000 and 1999 (unaudited).................................................... 5 United Rentals, Inc. Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2000 (unaudited)...... 6 United Rentals, Inc. Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 (unaudited)........ 7 United Rentals (North America), Inc. Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 (unaudited).............................. 8 United Rentals (North America), Inc. Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2000 and 1999 (unaudited).. 9 United Rentals (North America), Inc. Consolidated Statement of Stockholder's Equity for the Six Months Ended June 30, 2000 (unaudited).................................................... 10 United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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.......................................... 23 Item 3 Quantitative and Qualitative Disclosures about Market Risk...... 31 PART II OTHER INFORMATION Item 1 Legal Proceedings............................................... 31 Item 2 Changes in Securities and Use of Proceeds....................... 31 Item 4 Submission of Matters to a Vote of Security Holders............. 31 Item 6 Exhibits and Reports on Form 8-K................................ 32 Signatures...................................................... 33
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 more than 700 locations in 47 states, seven Canadian provinces and Mexico. We offer for rent more than 600 different types of equipment to over 1.1 million customers, including construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. During the second quarter of 2000 we completed more than 2.2 million rental transactions. We have the largest fleet of rental equipment in the world, with over 500,000 units having an original purchase price of approximately $3.3 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 new equipment, and sell related merchandise, parts and service. 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 helps us to: . attract customers by providing "one-stop" shopping; . serve a diverse customer base and reduce our dependence on any particular customer or group of customers; and . serve customers that require assurance that substantial quantities of different types of equipment will be available on a continuing basis. 1 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 allows 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 equipment within a cluster through multiple branches, (2) cross-market 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 31 credit offices and four service centers. In the second quarter of 2000, approximately 10.3% of our rental revenues was attributable to equipment sharing among branches. Geographic Diversity. We have branches in 47 states, seven 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 larger companies, 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. Our National Account team currently includes 45 professionals. Revenues from National Account customers in the first six months of this year were $87.2 million and our goal is to reach $175 million by the end of this year. We currently have over 1,000 National Account customers. Information Technology System. Our information technology system facilitates rapid and informed decision making and permits 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 115 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 43 experienced professionals and is responsible for implementing our safety programs and procedures, developing our employee and customer training programs, and managing any claims 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)
June 30, December 31, 2000 1999 ---------------- ------------------ (In thousands, except share data) ASSETS Cash and cash equivalents.................. $ 33,192 $ 23,811 Accounts receivable, net of allowance for doubtful accounts of $57,758 in 2000 and $50,736 in 1999........................... 498,892 434,985 Inventory.................................. 156,258 129,473 Prepaid expenses and other assets.......... 92,807 81,457 Rental equipment, net...................... 1,794,785 1,659,733 Property and equipment, net................ 370,132 304,907 Intangible assets, net of accumulated amortization of $77,231 in 2000 and $51,231 in 1999........................... 2,134,556 1,863,372 ---------------- ---------------- $ 5,080,622 $ 4,497,738 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable......................... $ 395,238 $ 242,946 Debt..................................... 2,613,621 2,266,148 Deferred taxes........................... 93,672 81,229 Accrued expenses and other liabilities... 246,396 209,929 ---------------- ---------------- Total liabilities...................... 3,348,927 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, 70,281,363 shares issued and outstanding in 2000 and 72,051,095 in 1999...................... 703 721 Additional paid-in capital............... 1,186,243 1,216,968 Retained earnings........................ 244,085 179,475 Accumulated other comprehensive income... 659 317 ---------------- ---------------- Total stockholders' equity............. 1,431,695 1,397,486 ---------------- ---------------- $ 5,080,622 $ 4,497,738 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 4 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended Three Months Ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 ---------- -------- --------- --------- (In thousands, except per share data) Revenues: Equipment rentals.................. $ 911,632 $643,302 $ 511,534 $ 354,917 Sales of rental equipment.......... 155,171 87,194 84,839 51,251 Sales of equipment and merchandise and other revenues................ 242,105 165,475 133,573 97,494 ---------- -------- --------- --------- Total revenues...................... 1,308,908 895,971 729,946 503,662 Cost of revenues: Cost of equipment rentals, excluding depreciation............ 396,614 279,146 222,314 153,327 Depreciation of rental equipment... 159,035 124,067 85,532 64,954 Cost of rental equipment sales..... 91,168 49,919 50,082 29,077 Cost of equipment and merchandise sales and other operating costs... 184,309 124,784 100,220 72,240 ---------- -------- --------- --------- Total cost of revenues.............. 831,126 577,916 458,148 319,598 ---------- -------- --------- --------- Gross profit........................ 477,782 318,055 271,798 184,064 Selling, general and administrative expenses........................... 210,969 149,861 109,119 84,601 Non-rental depreciation and amortization....................... 40,721 26,520 20,703 14,350 ---------- -------- --------- --------- Operating income.................... 226,092 141,674 141,976 85,113 Interest expense.................... 106,210 51,306 56,527 26,933 Preferred dividends of a subsidiary trust.............................. 9,750 9,750 4,875 4,875 Other (income) expense, net......... (312) 9,224 (108) 9,430 ---------- -------- --------- --------- Income before provision for income taxes.............................. 110,444 71,394 80,682 43,875 Provision for income taxes.......... 45,834 29,283 33,483 17,989 ---------- -------- --------- --------- Net income.......................... $ 64,610 $ 42,111 $ 47,199 $ 25,886 ========== ======== ========= ========= Basic earnings per share............ $ 0.90 $ 0.60 $ 0.66 $ 0.36 ========== ======== ========= ========= Diluted earnings per share.......... $ 0.70 $ 0.46 $ 0.51 $ 0.28 ========== ======== ========= =========
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...... 64,610 $64,610 Other comprehensive income: Foreign currency translation adjustments.... 342 342 ------- Comprehensive income.......... $64,952 ======= Issuance of common stock.... 5,784 100 Exercise of common stock options......... 9,499 107 Shares repurchased and retired......... (1,785,015) (18) (30,932) ------- --- ------- --- ---------- ---- ---------- -------- ---- Balance, June 30, 2000............ 300,000 $3 150,000 $2 70,281,363 $703 $1,186,243 $244,085 $659 ======= === ======= === ========== ==== ========== ======== ====
The accompanying notes are an integral part of these consolidated financial statements. 6 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ---------------------- 2000 1999 ---------- ---------- (In thousands) Cash Flows From Operating Activities: Net income............................................ $ 64,610 $ 42,111 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 199,756 152,481 Gain on sale of rental equipment..................... (64,003) (37,275) Deferred taxes....................................... 14,571 18,808 Changes in operating assets and liabilities: Accounts receivable.................................. (31,981) (62,203) Inventory............................................ (13,616) (37,858) Prepaid expenses and other assets.................... (1,430) (47,143) Accounts payable..................................... 137,285 97,856 Accrued expenses and other liabilities............... (42,367) 46,720 ---------- ---------- Net cash provided by operating activities........ 262,825 173,497 Cash Flows From Investing Activities: Purchases of rental equipment......................... (513,817) (390,693) Purchases of property and equipment................... (69,241) (52,807) Proceeds from sales of rental equipment............... 155,171 87,194 In-process acquisition costs.......................... (2,445) (1,644) Payments of contingent purchase price................. (6,553) (1,118) Purchases of other companies.......................... (265,084) (587,561) ---------- ---------- Net cash used in investing activities............ (701,969) (946,629) 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.................................... 1,041,028 1,284,166 Payments of debt...................................... (702,342) (876,660) Proceeds from sale-leaseback.......................... 147,515 Payments of financing costs........................... (7,164) (4,657) Proceeds from the exercise of common stock options.... 96 17,501 Shares repurchased and retired........................ (30,950) ---------- ---------- Net cash provided by financing activities........ 448,183 772,548 Effect of foreign exchange rates...................... 342 2 ---------- ---------- Net increase (decrease) in cash and cash equivalents.. 9,381 (582) Cash and cash equivalents at beginning of period...... 23,811 20,410 ---------- ---------- Cash and cash equivalents at end of period............ $ 33,192 $ 19,828 ========== ========== Supplemental disclosure of cash flow information: Cash paid for interest................................ $ 101,046 $ 49,355 Cash paid for income taxes............................ $ 62,720 $ 11,461 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired......................... $ 392,873 $ 869,523 Liabilities assumed.................................. (102,592) (272,567) Less: Amounts paid through issuance of debt.............. (25,197) (9,395) ---------- ---------- Net cash paid.................................... $ 265,084 $ 587,561 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 7 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, 2000 December 31, 1999 ---------------- ------------------ (In thousands, except share data) ASSETS Cash and cash equivalents.................. $ 33,192 $ 23,811 Accounts receivable, net of allowance for doubtful accounts of $57,758 in 2000 and $50,736 in 1999........................... 498,892 434,985 Inventory.................................. 156,258 129,473 Prepaid expenses and other assets.......... 61,169 37,125 Rental equipment, net...................... 1,794,785 1,659,733 Property and equipment, net................ 334,328 276,524 Intangible assets, net of accumulated amor- tization of $77,231 in 2000 and $51,231 in 1999...................................... 2,134,556 1,863,372 ---------------- ---------------- $ 5,013,180 $ 4,425,023 ================ ================ LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable......................... $ 355,394 $ 212,565 Debt..................................... 2,613,621 2,266,148 Deferred taxes........................... 93,672 81,229 Due to parent............................ 36,113 Accrued expenses and other liabilities... 194,180 171,807 ---------------- ---------------- Total liabilities...................... 3,292,980 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............... 1,507,426 1,507,330 Retained earnings........................ 212,115 185,627 Accumulated other comprehensive income... 659 317 ---------------- ---------------- Total stockholder's equity............. 1,720,200 1,693,274 ---------------- ---------------- $ 5,013,180 $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)
Six Months Ended Three Months Ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 ---------- -------- --------- --------- (In thousands) Revenues: Equipment rentals.................. $ 911,632 $643,302 $ 511,534 $ 354,917 Sales of rental equipment.......... 155,171 87,194 84,839 51,251 Sales of equipment and merchandise and other revenues................ 242,105 165,475 133,573 97,494 ---------- -------- --------- --------- Total revenues....................... 1,308,908 895,971 729,946 503,662 Cost of revenues: Cost of equipment rentals, excluding depreciation............ 396,614 279,146 222,314 153,327 Depreciation of rental equipment... 159,035 124,067 85,532 64,954 Cost of rental equipment sales..... 91,168 49,919 50,082 29,077 Cost of equipment and merchandise sales and other operating costs... 184,309 124,784 100,220 72,240 ---------- -------- --------- --------- Total cost of revenues............... 831,126 577,916 458,148 319,598 ---------- -------- --------- --------- Gross profit......................... 477,782 318,055 271,798 184,064 Selling, general and administrative expenses............................ 210,969 149,861 109,119 84,601 Non-rental depreciation and amortization........................ 37,155 24,857 18,838 13,211 ---------- -------- --------- --------- Operating income..................... 229,658 143,337 143,841 86,252 Interest expense..................... 106,210 51,306 56,527 26,933 Other (income) expense, net.......... (312) 8,982 (108) 9,328 ---------- -------- --------- --------- Income before provision for income taxes............................... 123,760 83,049 87,422 49,991 Provision for income taxes........... 51,409 33,960 36,280 20,451 ---------- -------- --------- --------- Net income........................... $ 72,351 $ 49,089 $ 51,142 $ 29,540 ========== ======== ========= =========
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............. 72,351 $72,351 Other comprehensive income: Foreign currency translation adjustments.......... 342 342 ------- Comprehensive income.... $72,693 ======= Contributed capital from parent................. 96 Dividend distribution to parent................. (45,863) ----- --- ---------- -------- ---- Balance, June 30, 2000.. 1,000 $1,507,426 $212,115 $659 ===== === ========== ======== ====
The accompanying notes are an integral part of these consolidated financial statements. 10 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ---------------------- 2000 1999 ---------- ---------- (In thousands) Cash Flows From Operating Activities: Net income............................................ $ 72,351 $ 49,089 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 196,190 150,818 Gain on sale of rental equipment..................... (64,003) (37,275) Deferred taxes....................................... 14,571 18,808 Changes in operating assets and liabilities: Accounts receivable.................................. (31,981) (62,203) Inventory............................................ (13,616) (37,858) Prepaid expenses and other assets.................... (14,124) (39,924) Accounts payable..................................... 127,822 77,297 Accrued expenses and other liabilities............... (56,461) 55,472 ---------- ---------- Net cash provided by operating activities.......... 230,749 174,224 Cash Flows From Investing Activities: Purchases of rental equipment......................... (513,817) (390,693) Purchases of property and equipment................... (55,656) (27,947) Proceeds from sales of rental equipment............... 155,171 87,194 Payments of contingent purchase price................. (6,553) (1,118) Purchases of other companies.......................... (265,084) (587,561) ---------- ---------- Net cash used in investing activities.............. (685,939) (920,125) Cash Flows From Financing Activities: Proceeds from debt.................................... 1,041,028 1,284,166 Payments of debt...................................... (702,342) (876,660) Proceeds from sale-leaseback.......................... 147,515 Payments of financing costs........................... (7,155) (4,657) Due to parent......................................... 30,950 Capital contribution by parent........................ 96 369,699 Dividend distribution to parent....................... (45,863) (9,750) ---------- ---------- Net cash provided by financing activities.......... 464,229 762,798 Effect of foreign exchange rates...................... 342 2 ---------- ---------- Net increase in cash and cash equivalents............. 9,381 16,899 Cash and cash equivalents at beginning of period...... 23,811 20,410 ---------- ---------- Cash and cash equivalents at end of period............ $ 33,192 $ 37,309 ========== ========== Supplemental disclosure of cash flow information: Cash paid for interest................................ $ 91,296 $ 39,605 Cash paid for income taxes............................ $ 62,720 $ 11,461 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired......................... $ 392,873 $ 869,523 Liabilities assumed.................................. (102,592) (272,567) Less: Amounts paid through issuance of debt.............. (25,197) (9,395) ---------- ---------- Net cash paid.................................... $ 265,084 $ 587,561 ========== ==========
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 six and three month periods ended June 30, 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 ("FASB") 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. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". This standard amends SFAS No. 133 and addresses a limited number of issues causing implementation difficulties. The adoption of SFAS No. 138 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 six months ended June 30, 2000, the Company completed 40 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 $252.3 million and consisted of approximately $227.1 million in cash and $25.2 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in such acquisitions in the aggregate amount of $49.0 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 12 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) completed its valuation of all of its purchases and, accordingly, the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The following table summarizes, on an unaudited pro forma basis, the results of operations of the Company for the six months ended June 30, 2000 and 1999 as though (i) each acquisition summarized above which was consummated during the six months ended June 30, 2000, was made on January 1, 2000, in the case of the results for the six months ended June 30, 2000, and (ii) each acquisition which was consummated during the period January 1, 1999 to June 30, 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 six months ended June 30, 1999 (in thousands, except per share data):
Six Months Ended June 30, --------------------- 2000 1999 ---------- ---------- Revenues............................................ $1,374,003 $1,173,800 Net income.......................................... 67,599 51,880 Basic earnings per share............................ $ 0.94 $ 0.74 Diluted earnings per share.......................... $ 0.73 $ 0.56
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 $872.5 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 $872.5 million). The Credit Facility terminates on September 26, 2003, at which time all outstanding indebtedness is due. There was $475.0 million outstanding under the Credit Facility at June 30, 2000. 4. Term Loan D URI obtained a $100.0 million term loan dated as of June 9, 2000 from a financial institution (the "Term Loan D"). The Term Loan D matures in June 2006. Prior to maturity, quarterly installments of principal in the amount of $0.3 million are due on the last day of each calendar quarter, commencing September 30, 2000. The amount due at maturity is $94.3 million. The Term Loan D accrues interest, at URI's option, at either (a) the Base Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) Bank of America's reference rate) plus a margin of 0.625% per annum, or (b) the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's reserve adjusted eurodollar rate) plus a margin of 2.5% per annum. The Term Loan D is secured pari passu with the Credit Facility. The agreement governing the Term Loan D contains restrictive covenants substantially similar to those provided under the Credit Facility. 13 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. 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 Six Months Ended Ended June 30, June 30, --------------- --------------- 2000 1999 2000 1999 ------- ------- ------- ------- Numerator: Net income............................. $64,610 $42,111 $47,199 $25,886 ======= ======= ======= ======= Denominator: Denominator for basic earnings per share--weighted-average shares........ 71,844 70,304 71,631 71,570 Effect of dilutive securities: Employee stock options............... 1,144 5,493 1,024 4,708 Warrants............................. 2,435 4,325 2,303 4,211 Series A perpetual convertible preferred stock..................... 12,000 11,803 12,000 11,803 Series B perpetual convertible preferred stock..................... 5,000 5,000 ------- ------- ------- ------- Denominator for diluted earnings per share--adjusted weighted-average shares................................ 92,423 91,925 91,958 92,292 ======= ======= ======= ======= Basic earnings per share................. $ 0.90 $ 0.60 $ 0.66 $ 0.36 ======= ======= ======= ======= Diluted earnings per share............... $ 0.70 $ 0.46 $ 0.51 $ 0.28 ======= ======= ======= =======
14 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. 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). Pursuant to a legal reorganization of URI, certain guarantor subsidiaries and subsidiaries of URI were combined for the purpose of simplifying the Company's legal entity structure. As a result of this legal reorganization, prior period amounts have been reclassified to conform to the current year presentation. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management has determined that such information would not be material to investors. However, condensed consolidating financial information as of June 30, 2000 and December 31, 1999 and for the six and three months ended June 30, 2000 and 1999, are presented. The condensed consolidating financial information of URI and its subsidiaries are as follows: CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2000 --------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) ASSETS Cash and cash equiva- lents.................. $ 31,051 $ 2,141 $ 33,192 Accounts receivable, net.................... $ 218,276 170,398 110,218 498,892 Intercompany receivable (payable).............. 453,674 (202,651) (251,023) Inventory............... 76,237 70,029 9,992 156,258 Prepaid expenses and other assets........... 43,799 15,832 1,538 61,169 Rental equipment, net... 842,660 824,768 127,357 1,794,785 Property and equipment, net.................... 124,360 188,665 21,303 334,328 Investment in subsidiar- ies.................... 2,157,421 $ (2,157,421) Intangible assets, net.. 911,355 1,094,753 128,448 2,134,556 ---------- ---------- -------- ------------ ---------- $4,827,782 $2,192,845 $149,974 $ (2,157,421) $5,013,180 ========== ========== ======== ============ ========== LIABILITIES AND STOCK- HOLDER'S EQUITY Liabilities: Accounts payable....... $ 313,325 $ 17,761 $ 24,308 $ 355,394 Debt................... 2,583,714 314 29,593 2,613,621 Deferred taxes......... 92,670 1,002 93,672 Due to parent.......... 36,113 36,113 Accrued expenses and other liabilities..... 101,842 81,846 10,492 194,180 ---------- ---------- -------- ------------ ---------- Total liabilities.... 3,127,664 99,921 65,395 3,292,980 Commitments and contin- gencies Stockholder's equity: Common stock........... Additional paid-in capital................ 1,488,003 1,830,274 65,648 $ (1,876,499) 1,507,426 Retained earnings...... 212,115 262,650 18,272 (280,922) 212,115 Accumulated other com- prehensive income...... 659 659 ---------- ---------- -------- ------------ ---------- Total stockholder's equity.............. 1,700,118 2,092,924 84,579 (2,157,421) 1,720,200 ---------- ---------- -------- ------------ ---------- $4,827,782 $2,192,845 $149,974 $ (2,157,421) $5,013,180 ========== ========== ======== ============ ==========
15 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.................. $ 3,689 $ 16,414 $ 3,708 $ 23,811 Accounts receivable, net.................... 200,419 199,981 34,585 434,985 Intercompany receivable (payable).............. 142,156 42,906 (185,062) Inventory............... 56,086 64,253 9,134 129,473 Prepaid expenses and other assets........... 1,020 18,296 17,809 37,125 Rental equipment, net... 747,232 789,967 122,534 1,659,733 Property and equipment, net.................... 150,841 106,232 19,451 276,524 Investment in subsidiar- ies.................... 2,072,115 $(2,072,115) Intangible assets, net.. 792,198 948,128 123,046 1,863,372 ---------- ---------- --------- ----------- ---------- $4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023 ========== ========== ========= =========== ========== Liabilities and Stock- holder's Equity Liabilities: Accounts payable....... $ 71,995 $ 120,511 $ 20,059 $ 212,565 Debt................... 2,231,923 380 33,845 2,266,148 Deferred taxes......... 80,476 753 81,229 Accrued expenses and other liabilities..... 107,828 53,177 10,802 171,807 ---------- ---------- --------- ----------- ---------- Total liabilities.... 2,492,222 174,068 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...... 185,627 181,927 13,785 (195,712) 185,627 Accumulated other com- prehensive income...... 317 317 ---------- ---------- --------- ----------- ---------- Total stockholder's equity.............. 1,673,534 2,012,109 79,746 (2,072,115) 1,693,274 ---------- ---------- --------- ----------- ---------- $4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023 ========== ========== ========= =========== ==========
16 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000 -------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $ 378,801 $484,540 $ 48,291 $ 911,632 Sales of rental equip- ment................. 74,484 68,315 12,372 155,171 Sales of equipment and merchandise and other revenues............. 112,041 114,201 15,863 242,105 --------- -------- -------- -------- ---------- Total revenues.......... 565,326 667,056 76,526 1,308,908 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 162,317 211,389 22,908 396,614 Depreciation of rental equipment............ 70,016 79,670 9,349 159,035 Cost of rental equip- ment sales........... 43,989 39,471 7,708 91,168 Cost of equipment and merchandise sales and other operating costs................ 91,840 79,645 12,824 184,309 --------- -------- -------- -------- ---------- Total cost of revenues.. 368,162 410,175 52,789 831,126 --------- -------- -------- -------- ---------- Gross profit............ 197,164 256,881 23,737 477,782 Selling, general and ad- ministrative expenses.. 92,687 106,523 11,759 210,969 Non-rental depreciation and amortization....... 17,912 16,597 2,646 37,155 --------- -------- -------- -------- ---------- Operating income........ 86,565 133,761 9,332 229,658 Interest expense........ 104,617 195 1,398 106,210 Other (income) expense, net.................... 3,929 (4,422) 181 (312) --------- -------- -------- -------- ---------- Income (loss) before provision for income taxes.................. (21,981) 137,988 7,753 123,760 Provision (benefit) for income taxes........... (9,122) 57,265 3,266 51,409 --------- -------- -------- -------- ---------- Income (loss) before equity in net earnings of subsidiaries........ (12,859) 80,723 4,487 $(85,210) (12,859) Equity in net earnings of subsidiaries........ 85,210 85,210 --------- -------- -------- -------- ---------- Net income ............. $ 72,351 $ 80,723 $ 4,487 $(85,210) $ 72,351 ========= ======== ======== ======== ==========
17 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999 ------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $246,314 $362,682 $34,306 $643,302 Sales of rental equip- ment................. 43,029 37,558 6,607 87,194 Sales of equipment and merchandise and other revenues............. 84,463 67,101 13,911 165,475 -------- -------- ------- -------- -------- Total revenues.......... 373,806 467,341 54,824 895,971 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 101,373 160,567 17,206 279,146 Depreciation of rental equipment............ 50,958 66,896 6,213 124,067 Cost of rental equip- ment sales........... 24,396 21,599 3,924 49,919 Cost of equipment and merchandise sales and other operating costs................ 69,917 44,152 10,715 124,784 -------- -------- ------- -------- -------- Total cost of revenues.. 246,644 293,214 38,058 577,916 -------- -------- ------- -------- -------- Gross profit............ 127,162 174,127 16,766 318,055 Selling, general and ad- ministrative expenses.. 63,015 77,461 9,385 149,861 Non-rental depreciation and amortization....... 12,400 10,958 1,499 24,857 -------- -------- ------- -------- -------- Operating income........ 51,747 85,708 5,882 143,337 Interest expense........ 50,526 627 153 51,306 Other (income) expense, net.................... (948) 10,355 (425) 8,982 -------- -------- ------- -------- -------- Income before provision for income taxes ...... 2,169 74,726 6,154 83,049 Provision for income taxes.................. 889 30,253 2,818 33,960 -------- -------- ------- -------- -------- Income before equity in net earnings of subsidiaries........ 1,280 44,473 3,336 $(47,809) 1,280 Equity in net earnings of subsidiaries........ 47,809 47,809 -------- -------- ------- -------- -------- Net income ............. $ 49,089 $ 44,473 $ 3,336 $(47,809) $ 49,089 ======== ======== ======= ======== ========
18 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2000 ------------------------------------------------------------ Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $212,902 $271,802 $26,830 $511,534 Sales of rental equip- ment................. 31,500 47,444 5,895 84,839 Sales of equipment and merchandise and other revenues............. 65,415 59,722 8,436 133,573 -------- -------- ------- -------- -------- Total revenues.......... 309,817 378,968 41,161 729,946 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 84,062 126,661 11,591 222,314 Depreciation of rental equipment............ 36,928 43,798 4,806 85,532 Cost of rental equip- ment sales........... 17,848 28,830 3,404 50,082 Cost of equipment and merchandise sales and other operating costs................ 52,782 40,833 6,605 100,220 -------- -------- ------- -------- -------- Total cost of revenues.. 191,620 240,122 26,406 458,148 -------- -------- ------- -------- -------- Gross profit............ 118,197 138,846 14,755 271,798 Selling, general and ad- ministrative expenses.. 48,535 54,065 6,519 109,119 Non-rental depreciation and amortization....... 8,653 8,813 1,372 18,838 -------- -------- ------- -------- -------- Operating income........ 61,009 75,968 6,864 143,841 Interest expense........ 55,949 35 543 56,527 Other (income) expense, net.................... 2,156 (2,698) 434 (108) -------- -------- ------- -------- -------- Income before provision for income taxes ...... 2,904 78,631 5,887 87,422 Provision for income taxes.................. 1,205 32,661 2,414 36,280 -------- -------- ------- -------- -------- Income before equity in net earnings of subsidiaries........ 1,699 45,970 3,473 $(49,443) 1,699 Equity in net earnings of subsidiaries........ 49,443 49,443 -------- -------- ------- -------- -------- Net income ............. $ 51,142 $ 45,970 $ 3,473 $(49,443) $ 51,142 ======== ======== ======= ======== ========
19 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 1999 ------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $139,120 $194,839 $20,958 $354,917 Sales of rental equip- ment................. 23,309 24,014 3,928 51,251 Sales of equipment and merchandise and other revenues............. 47,548 41,171 8,775 97,494 -------- -------- ------- -------- -------- Total revenues.......... 209,977 260,024 33,661 503,662 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 57,081 86,229 10,017 153,327 Depreciation of rental equipment............ 27,180 34,334 3,440 64,954 Cost of rental equip- ment sales........... 13,135 13,331 2,611 29,077 Cost of equipment and merchandise sales and other operating costs................ 36,287 28,913 7,040 72,240 -------- -------- ------- -------- -------- Total cost of revenues.. 133,683 162,807 23,108 319,598 -------- -------- ------- -------- -------- Gross profit............ 76,294 97,217 10,553 184,064 Selling, general and ad- ministrative expenses.. 41,603 37,490 5,508 84,601 Non-rental depreciation and amortization....... 6,045 6,310 856 13,211 -------- -------- ------- -------- -------- Operating income........ 28,646 53,417 4,189 86,252 Interest expense........ 26,587 288 58 26,933 Other (income) expense, net.................... (211) 9,759 (220) 9,328 -------- -------- ------- -------- -------- Income before provision for income taxes ...... 2,270 43,370 4,351 49,991 Provision for income taxes.................. 931 17,553 1,967 20,451 -------- -------- ------- -------- -------- Income before equity in net earnings of subsidiaries........ 1,339 25,817 2,384 $(28,201) 1,339 Equity in net earnings of subsidiaries........ 28,201 28,201 -------- -------- ------- -------- -------- Net income.............. $ 29,540 $ 25,817 $ 2,384 $(28,201) $ 29,540 ======== ======== ======= ======== ========
20 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Six Months Ended June 30, 2000 ---------------------------------------------------------------- Guarantor Non-guarantor URI Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------- ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities............. $(137,748) $356,725 $11,772 $ 230,749 Cash flows from investing activities: Purchases of rental equipment............. (127,778) (368,805) (17,234) (513,817) Purchases of property and equipment......... (12,678) (41,512) (1,466) (55,656) Proceeds from sales of rental equipment...... 74,484 68,315 12,372 155,171 Payments of contingent purchase price........ (851) (5,702) (6,553) Purchases of other companies............. (261,982) (3,102) (265,084) --------- -------- ------- ------- --------- Net cash used in investing activities.......... (328,805) (347,704) (9,430) (685,939) Cash flows from financing activities: Proceeds from debt..... 1,021,375 19,653 1,041,028 Payments of debt....... (684,054) (14,037) (4,251) (702,342) Proceeds from sale- leaseback............. 147,515 147,515 Payments of financing costs................. (7,155) (7,155) Due to parent.......... 30,950 30,950 Capital contribution by parent............. 96 96 Dividend distribution to parent............. (45,863) (45,863) --------- -------- ------- ------- --------- Net cash provided by (used in) financing activities.......... 462,864 5,616 (4,251) 464,229 Effect of foreign exchange rates......... 342 342 --------- -------- ------- ------- --------- Net increase (decrease) in cash and cash equivalents............ (3,689) 14,637 (1,567) 9,381 Cash and cash equivalents at beginning of period.... $ 3,689 16,414 3,708 23,811 --------- -------- ------- ------- --------- Cash and cash equivalents at end of period................. $ 31,051 $ 2,141 $ 33,192 ========= ======== ======= ======= ========= Supplemental disclosure of cash flow information: Cash paid for interest.. $ 89,682 $ 243 $ 1,371 $ 91,296 Cash paid for income taxes.................. $ 55,791 $ 6,929 $ 62,720 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.............. $ 387,989 $ 4,884 $ 392,873 Liabilities assumed.... (100,810) (1,782) (102,592) Less: Amounts paid through issuance of debt.... (25,197) (25,197) --------- -------- ------- ------- --------- Net cash paid...... $ 261,982 $ 3,102 $ 265,084 ========= ======== ======= ======= =========
21 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Six Months Ended June 30, 1999 ----------------------------------------------------------------- Guarantor Non-guarantor URI Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------- ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities............. $ (242,460) $ 351,839 $ 64,845 $ 174,224 Cash flows from investing activities: Purchases of rental equipment............. (349,243) (41,450) (390,693) Purchases of property and equipment......... (26,289) (1,658) (27,947) Proceeds from sales of rental equipment...... 43,029 37,558 6,607 87,194 Payments of contingent purchase price........ (1,118) (1,118) Purchases of other companies............. (549,281) (38,280) (587,561) ---------- --------- -------- ----- ---------- Net cash used in investing activities.......... (506,252) (337,974) (75,899) (920,125) Cash flows from financing activities: Proceeds from debt..... 1,258,483 12,840 12,843 1,284,166 Payments of debt....... (859,127) (17,533) (876,660) Payments of financing costs................. (4,657) (4,657) Capital contribution by parent............. 369,699 369,699 Dividend distribution to parent............. (9,750) (9,750) ---------- --------- -------- ----- ---------- Net cash provided by (used in) financing activities.......... 754,648 (4,693) 12,843 762,798 Effect of foreign exchange rates......... 2 2 ---------- --------- -------- ----- ---------- Net increase in cash and cash equivalents....... 5,936 9,172 1,791 16,899 Cash and cash equivalents at beginning of period.... 1,774 16,257 2,379 20,410 ---------- --------- -------- ----- ---------- Cash and cash equivalents at end of period................. $ 7,710 $ 25,429 $ 4,170 $ 37,309 ========== ========= ======== ===== ========== Supplemental disclosure of cash flow information: Cash paid for interest.. $ 38,825 $ 627 $ 153 $ 39,605 Cash paid for income taxes.................. $ 10,717 $ 744 $ 11,461 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired.............. $ 807,576 $ 61,947 $ 869,523 Liabilities assumed.... (251,110) (21,457) (272,567) Less: Amounts paid through issuance of debt.... (7,185) (2,210) (9,395) ---------- --------- -------- ----- ---------- Net cash paid...... $ 549,281 $ 38,280 $ 587,561 ========== ========= ======== ===== ==========
22 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion reviews the Company's operations for the six and three months ended June 30, 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. General 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. The acquisitions completed by the Company during 2000 and 1999 were accounted for as "purchases" and the results of operations of the acquired businesses 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. 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 and other revenue. 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 Six Months Ended June 30, 2000 and 1999 Revenues. Total revenues for the six months ended June 30, 2000 were $1,309.0 million, representing an increase of 46.1% over total revenues of $896.0 million for the six months ended June 30, 1999. The Company's 23 revenues in the first six months of 2000 and 1999 were attributable to: (i) equipment rental ($911.6 million or 69.6% of revenues, in the first six months of 2000 compared to $643.3 million, or 71.8% of revenues, in the first six months of 1999), (ii) sales of rental equipment ($155.2 million, or 11.9% of revenues, in the first six months of 2000 compared to $87.2 million, or 9.7% of revenues, in the first six months of 1999) and (iii) sales of equipment and merchandise and other revenues ($242.1 million, or 18.5% of revenues, in the first six months of 2000 compared to $165.5 million, or 18.5% of revenues, in the first six months of 1999). The 46.1% increase in total revenues in the first six months of 2000 reflected (i) increased revenues at locations open more than one year (which accounted for approximately 16.7 percentage points) and (ii) new rental locations acquired through acquisitions and the opening of start-up locations (which accounted for approximately 29.4 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 $477.8 million in the first six months of 2000 from $318.1 million in the first six 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 six months of 2000 and 1999 was: (i) equipment rental (39.0% in the first six months of 2000 and 37.3% in the first six months of 1999), (ii) sales of rental equipment (41.2% in the first six months of 2000 and 42.7% in the first six months of 1999) and (iii) sales of equipment and merchandise and other revenues (23.9% in the first six months of 2000 and 24.6% in the first six months of 1999). The increase in the gross profit margin from rental revenues in the first six months of 2000 was primarily attributable to greater equipment utilization rates and to economies of scale. The decrease in the gross profit margin from the sales of rental equipment in the first six months of 2000 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. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") were $211.0 million, or 16.1% of total revenues, during the first six months of 2000 and $149.9 million, or 16.7% of total revenues, during the first six months of 1999. SG&A in the first six months of 1999 included 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 was 15.8% in the first six months of 1999. The increase in SG&A as a percentage of revenues, after excluding the tender offer charge, primarily reflected the increase in expenses associated with the Company's recently 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 $40.7 million, or 3.1% of total revenues, in the first six months of 2000 and $26.5 million, or 3.0% of total revenues in the first six months of 1999. Interest Expense. Interest expense increased to $106.2 million in the first six months of 2000 from $51.3 million in the first six months of 1999. This increase (i) primarily reflected an increase in the Company's indebtedness, principally to fund acquisitions, and (ii) to a lesser extent, reflected an increase in the interest rates applicable to the Company's variable rate debt. Preferred Dividends of a Subsidiary Trust. During the first six months of 2000 and 1999, preferred dividends of a subsidiary trust of Holdings were $9.8 million. Other (Income) Expense. Other income was $0.3 million in the first six months of 2000 compared to other expense of $9.2 million in the first six months of 1999. The other expense in the first six months of 1999 was primarily attributable to a $10.0 million charge that principally related to fees paid by the Company for a $2.0 billion financing commitment that was subsequently cancelled upon termination of a tender offer made by the Company in 1999. Income Taxes. Income taxes increased to $45.8 million, or an effective rate of 41.5%, in the first six months of 2000 from $29.3 million, or an effective rate of 41.0%, in the first six months of 1999. 24 Three months ended June 30, 2000 and 1999 Revenues. Total revenues for the three months ended June 30, 2000 were $729.9 million, representing an increase of 44.9% over total revenues of $503.7 million for the three months ended June 30, 1999. The Company's revenues in the three months ended June 30, 2000 and 1999 were attributable to: (i) equipment rental ($511.5 million, or 70.1% of revenues, in the three months ended June 30, 2000 compared to $354.9 million, or 70.5% of revenues, in the three months ended June 30, 1999), (ii) sales of rental equipment ($84.8 million, or 11.6% of revenues, in the three months ended June 30, 2000 compared to $51.3 million, or 10.2% of revenues, in the three months ended June 30, 1999) and (iii) sales of equipment and merchandise and other revenues ($133.6 million, or 18.3% of revenues, in the three months ended June 30, 2000 compared to $97.5 million, or 19.3% of revenues, in the three months ended June 30, 1999). The 44.9% increase in total revenues in the three months ended June 30, 2000 reflected (i) increased revenues at locations open more than one year (which accounted for approximately 16.8 percentage points) and (ii) new rental locations acquired through acquisitions and the opening of start-up locations (which accounted for approximately 28.1 percentage points). The increase in revenues at locations open more than one year primarily reflected (a) an increase in the volume of rental transactions, (b) an expansion of the product lines offered by the Company for sale, (c) an increase in the sale of related merchandise and parts which was driven by the increase in equipment rental and sales transactions and (d) an increase in the sale of used equipment in order to maintain the quality of the Company's rental fleet. Gross Profit. Gross profit increased to $271.8 million in the three months ended June 30, 2000 from $184.1 million in the three months ended June 30, 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 three months ended June 30, 2000 and 1999 was: (i) equipment rental (39.8% in the three months ended June 30, 2000 and 38.5% in the three months ended June 30, 1999), (ii) sales of rental equipment (41.0% in the three months ended June 30, 2000 and 43.3% in the three months ended June 30, 1999) and (iii) sales of equipment and merchandise and other revenues (25.0% in the three months ended June 30, 2000 and 25.9% in the three months ended June 30, 1999). The increase in the gross profit margin from rental revenues in the three months ended June 30, 2000 was primarily attributable to greater equipment utilization rates and to economies of scale. The decrease in the gross profit margin from the sales of rental equipment in the three months ended June 30, 2000 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. Selling, General and Administrative Expenses. SG&A was $109.1 million, or 14.9% of total revenues, during the three months ended June 30, 2000 and $84.6 million, or 16.8% of total revenues, during the three months ended June 30, 1999. SG&A for the three months ended June 30, 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 was 15.2% for the three months ended June 30, 1999. The decrease in SG&A as a percentage of revenues in the three months ended June 30, 2000, principally reflected economies of scale related to the increase in revenues. The impact of such economies of scale was partially offset by an increase in expenses associated with the Company's recently 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 $20.7 million, or 2.8% of total revenues, in the three months ended June 30, 2000 and $14.4 million, or 2.8% of total revenues, in the three months ended June 30, 1999. Interest Expense. Interest expense increased to $56.5 million in the three months ended June 30, 2000 from $26.9 million in the three months ended June 30, 1999. This increase (i) primarily reflected an increase in the Company's indebtedness, principally to fund acquisitions, and (ii) to a lesser extent, reflected an increase in the interest rates applicable to the Company's variable rate debt. Preferred Dividends of a Subsidiary Trust. During the three months ended June 30, 2000 and 1999, preferred dividends of a subsidiary trust of Holdings were $4.9 million. 25 Other (Income) Expense. Other income was $0.1 million in the three months ended June 30, 2000 compared to other expense of $9.4 million in the three months ended June 30, 1999. The other expense in the three months ended June 30, 1999 was primarily attributable to a $10.0 million charge that principally related to fees paid by the Company for a $2.0 billion financing commitment that was subsequently cancelled upon termination of a tender offer made by the Company in 1999. Income Taxes. Income taxes increased to $33.5 million, or an effective rate of 41.5%, in the three months ended June 30, 2000 from $18.0 million, or an effective rate of 41.0%, in the three months ended June 30, 1999. Liquidity and Capital Resources Recent Financing In June 2000, URI obtained a $100.0 million term loan from a financial institution (the "Term Loan D"). The Term Loan D matures in June 2006. Prior to maturity, quarterly installments of principal in the amount of $0.3 million are due on the last day of each calendar quarter, commencing September 30, 2000. The amount due at maturity is $94.3 million. The Term Loan D accrues interest, at URI's option, at either (a) the Base Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) Bank of America's reference rate) plus a margin of 0.625% per annum, or (b) the Eurodollar Rate (which is equal to Bank of America's reserve adjusted eurodollar rate) plus a margin of 2.5% per annum. The Term Loan D is secured pari passu with the Company's revolving credit facility, and the agreement governing the Term Loan D contains restrictive covenants substantially similar to those provided under such credit facility. Sources and Uses of Cash During the first six months of 2000, the Company (i) generated cash from operations of approximately $262.8 million, (ii) generated cash from the sale of rental equipment of approximately $155.2 million and (iii) obtained net proceeds from financing activities of approximately $448.2 million. The Company used cash during this period principally to (i) pay consideration for acquisitions (approximately $265.1 million), (ii) purchase rental equipment (approximately $513.8 million) and (iii) purchase other property and equipment (approximately $69.2 million). Certain Balance Sheet Changes The acquisitions and the equipment purchases made by the Company in the first six months of 2000 (and the financing of such acquisitions and purchases) were the principal reasons for the increase in all asset and liability accounts at June 30, 2000 compared with December 31, 1999. Certain Information Concerning the Company's Credit Facility URI has a revolving credit facility (the "Credit Facility") that enables URI to borrow up to $872.5 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 $872.5 million). The Credit Facility terminates on September 26, 2003, at which time all outstanding indebtedness is due. As of August 3, 2000, there was $685.0 million of indebtedness outstanding under the Credit Facility (not including undrawn outstanding letters of credit in the amount of $1.9 million). In May 2000, in connection with certain amendments to the agreement governing the Credit Facility, the Eurodollar Rate applicable to borrowings 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 ($185.6 million available as of August 3, 2000) and cash generated from operations. 26 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 rental equipment expenditures over the next 12 months will be approximately $850.0 million for the existing operations of the Company. These expenditures are comprised of approximately $510.0 million of expenditures to maintain the average age of the Company's rental fleet and $340.0 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 $370.0 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. In addition to the Company's continued emphasis on internal growth, the Company expects to continue to expand 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 $38.2 million during the period from July 1, 2000 to June 30, 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 27 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 ("FASB") 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 adoption of SFAS No. 133 is not expected to have a material effect on the Company's consolidated financial position or results of operations. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". This standard amends SFAS No. 133 and addresses a limited number of issues causing implementation difficulties. The adoption of SFAS No. 138 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. 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, purchasing rental equipment, completing acquisitions, and establishing new rental locations. 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 The making of acquisitions entails certain risks, including: . acquired companies could have hidden liabilities that we fail to discover during our due diligence investigations; 28 . 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 operate in one or more states; public companies or divisions of public companies; and equipment vendors and dealers who both sell and rent equipment directly to customers. We may in the future encounter increased competition from our existing competitors or from new companies. In addition, certain equipment manufacturers may commence (or increase their existing efforts relating to) renting and selling equipment directly to our customers. Fluctuations of Operating Results We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term due to a number of factors, including: . seasonal rental patterns of our customers--with rental activity tending to be lower in the winter; . 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 29 . certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third party lawsuits, might not be covered by our insurance. We cannot be certain that insurance will continue to be available to us on economically reasonable terms, if at all. Environmental and Safety Regulations There are numerous federal, state and local laws and regulations governing environmental protection and occupational health and safety matters. These include laws and regulations that govern wastewater discharges, the use, treatment, storage and disposal of solid and hazardous wastes and materials, air quality and the remediation of contamination associated with the release of hazardous substances. Under these laws, an owner or lessee of real estate may be liable for, among other things, (1) the costs of removal or remediation of hazardous or toxic substances located on, in, or emanating from, the real estate, as well as related costs of investigation and property damage and substantial penalties, and (2) environmental contamination at facilities where its waste is or has been disposed. These laws often impose liability whether or not the owner or lessee knew of the presence of the hazardous or toxic substances and whether or not the owner or lessee was responsible for these substances. Our activities that are or may be affected by these laws include our use of hazardous materials to clean and maintain equipment and our disposal of solid and hazardous waste and wastewater from equipment washing. We also dispense petroleum products from underground and above-ground storage tanks located at certain rental locations, and at times we must remove or upgrade tanks to comply with applicable laws. Furthermore, we have acquired or lease certain locations which have or may have been contaminated by leakage from underground tanks or other sources and are in the process of assessing the nature of the required remediation. Based on the conditions currently known to us, we believe that any unreserved environmental remediation and compliance costs required with respect to those conditions will not have a material adverse effect on our business. However, we cannot be certain that we will not identify adverse environmental conditions that are not currently known to us, that all potential releases from underground storage tanks removed in the past have been identified, or that environmental and safety requirements will not become more stringent or be interpreted and applied more stringently in the future. If we are required to incur environmental compliance or remediation costs that are not currently anticipated by us, our business could be adversely affected depending on the magnitude of the cost. Risks Related to International Operations Our operations outside the United States are subject to risks normally associated with international operations. These include the need to convert currencies, which could result in a gain or loss depending on fluctuations in exchange rates, and the need to comply with foreign laws. Dependence on Information Technology 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. 30 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 second 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 April 2000, the Company issued 2,969 shares of common stock to an executive officer pursuant to an employment agreement. Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on June 1, 2000. The holders of 60,131,918 common shares, 300,000 Series A Perpetual Convertible Preferred Shares ("Series A Preferred") and 105,252 Series B-1 Perpetual Convertible Preferred Shares ("Series B-1 Preferred") were present either in person or by proxy. There were no broker non-votes at the meeting. The following three matters were voted on and approved at such meeting. 1. The election of three members to the Board of Directors by the holders of the Company's common stock and Series B-1 Preferred (where each share of Series B-1 Preferred is entitled to 33 1/3 votes).
For Withheld ---------- -------- William F. Berry.............................. 63,568,903 71,415 Ronald M. DeFeo............................... 63,568,903 71,415 Richard J. Heckmann........................... 63,568,903 71,415 2. The election of two members to the Board of Directors by the holders of the Series A Preferred. For ---------- Leon D. Black................................. 300,000 Michael S. Gross.............................. 300,000 3. The ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2000 by the holders of the Company's common stock, Series B-1 Preferred (where each share of Series B-1 Preferred is entitled to 33 1/3 votes) and Series A Preferred (where each share of Series A Preferred is entitled to 40 votes). For Abstain Against ---------- -------- ------- 75,606,064 9,111 25,143
31 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 on Schedule 14A 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) 10(a)* Term loan agreement dated as of June 9, 2000 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, N.A., as Administrative Agent 10(b)* Fourth amendment dated as of May 12, 2000, to Credit Agreement dated as of September 29, 1998, between United Rentals, Inc., United Rentals (North America), Inc., various financial institutions, Bank of America 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(c)* Amended and Restated Term Loan Agreement dated as of May 12, 2000, amending and restating Term Loan Agreement dated as of July 10, 1998, between United Rentals, Inc., United Rentals (North America), Inc., various financial institutions, Fleet National Bank, as Documentation Agent, and Bank of America, N.A., as Administrative Agent 10(d)* Amended and Restated Term Loan Agreement dated as of May 12, 2000, amending and restating Term Loan Agreement dated as of July 15, 1999, between United Rentals, Inc., United Rentals (North America), Inc., various financial institutions and Bank of America, N.A., as Administrative Agent 10(e)* Amendment No. 1 to Employment Agreement with Robert Miner, dated as of August 2, 2000 27* Financial Data Schedule 27.1* Financial Data Schedule -------- *Filed herewith. (b) Reports on Form 8-K: none
32 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. United Rentals, Inc. Dated: August 10, 2000 /s/ Michael J. Nolan By: _________________________________ Michael J. Nolan Chief Financial Officer (Principal Financial Officer) Dated: August 10, 2000 /s/ Peter R. Borzilleri By: _________________________________ Peter R. Borzilleri Vice President, Corporate Controller (Chief Accounting Officer) United Rentals (North America), Inc. Dated: August 10, 2000 /s/ Michael J. Nolan By: _________________________________ Michael J. Nolan Chief Financial Officer (Principal Financial Officer) Dated: August 10, 2000 /s/ Peter R. Borzilleri By: _________________________________ Peter R. Borzilleri Vice President, Corporate Controller (Chief Accounting Officer) 33