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 September 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 November 1, 2000, there were 70,299,543 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 SEPTEMBER 30, 2000 INDEX
Page ---- PART I FINANCIAL INFORMATION Item 1 Unaudited Consolidated Financial Statements United Rentals, Inc. Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 (unaudited)................................. 4 United Rentals, Inc. Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2000 and 1999 (unaudited)................................................... 5 United Rentals, Inc. Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2000 (unaudited)................................................... 6 United Rentals, Inc. Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (unaudited)................................................... 7 United Rentals (North America), Inc. Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 (unaudited)............................. 8 United Rentals (North America), Inc. Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2000 and 1999 (unaudited)................................................... 9 United Rentals (North America), Inc. Consolidated Statement of Stockholder's Equity for the Nine Months Ended September 30, 2000 (unaudited).............................................. 10 United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the Nine Months Ended September 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..... 30 PART II OTHER INFORMATION Item 1 Legal Proceedings.............................................. 31 Item 2 Changes in Securities and Use of Proceeds...................... 31 Item 6 Exhibits and Reports on Form 8-K............................... 31 Signatures..................................................... 32
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," "on- track," or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected by any forward- looking statements. Certain of these factors are discussed in Item 2 of Part I of this Report under the caption "--Factors that May Influence Future Results and Accuracy of Forward-Looking Statements." We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. UNITED RENTALS United Rentals is the largest equipment rental company in North America with more than 700 locations in 47 states, seven Canadian provinces and Mexico. We offer for rent over 600 different types of equipment to over 1.2 million customers, including construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. During the third quarter of 2000, we completed more than 2.3 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 $3.4 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 customers 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. 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 1 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 29 credit offices and three service centers. In the third quarter of 2000, approximately 10.9% of our rental revenue 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 49 professionals. Revenues from National Account customers in the first nine months of this year were $160.2 million and we are on-track to reach our goal of $175 million by the end of this year. We currently have over 1,100 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 123 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. 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 48 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. 2 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)
September 30, December 31, 2000 1999 ----------------- ---------------- (In thousands, except share data) ASSETS Cash and cash equivalents................ $ 31,715 $ 23,811 Accounts receivable, net of allowance for doubtful accounts of $59,745 in 2000 and $50,736 in 1999......................... 549,803 434,985 Inventory................................ 142,078 129,473 Prepaid expenses and other assets........ 145,662 81,457 Rental equipment, net.................... 1,788,079 1,659,733 Property and equipment, net.............. 413,103 304,907 Intangible assets, net of accumulated amortization of $91,829 in 2000 and $51,231 in 1999......................... 2,194,710 1,863,372 ---------------- ---------------- $ 5,265,150 $ 4,497,738 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable....................... $ 281,352 $ 242,946 Debt................................... 2,801,333 2,266,148 Deferred taxes......................... 163,520 81,229 Accrued expenses and other liabilities........................... 211,960 209,929 ---------------- ---------------- Total liabilities.................... 3,458,165 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, 70,288,918 shares issued and outstanding in 2000 and 72,051,095 in 1999.................................. 703 721 Additional paid-in capital............. 1,186,380 1,216,968 Retained earnings...................... 319,476 179,475 Accumulated other comprehensive income................................ 421 317 ---------------- ---------------- Total stockholders' equity........... 1,506,985 1,397,486 ---------------- ---------------- $ 5,265,150 $ 4,497,738 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. 4 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, ---------------------- -------------------- 2000 1999 2000 1999 ---------- ---------- --------- --------- (In thousands, except per share data) Revenues: Equipment rentals............... $1,522,131 $1,112,244 $ 610,499 $ 468,942 Sales of rental equipment....... 254,977 159,803 99,806 72,609 Sales of equipment and merchandise and other revenues....................... 390,833 292,542 148,728 127,067 ---------- ---------- --------- --------- Total revenues................... 2,167,941 1,564,589 859,033 668,618 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 659,876 476,321 263,262 197,175 Depreciation of rental equipment...................... 246,537 200,761 87,502 76,694 Cost of rental equipment sales.. 149,738 92,457 58,570 42,538 Cost of equipment and merchandise sales and other operating costs................ 293,304 220,016 108,995 95,232 ---------- ---------- --------- --------- Total cost of revenues........... 1,349,455 989,555 518,329 411,639 ---------- ---------- --------- --------- Gross profit..................... 818,486 575,034 340,704 256,979 Selling, general and administrative expenses......... 335,461 248,194 124,492 98,333 Non-rental depreciation and amortization.................... 62,610 43,208 21,889 16,688 ---------- ---------- --------- --------- Operating income................. 420,415 283,632 194,323 141,958 Interest expense................. 167,268 93,541 61,058 42,235 Preferred dividends of a subsidiary trust................ 14,625 14,625 4,875 4,875 Other (income) expense, net...... (796) 8,804 (484) (420) ---------- ---------- --------- --------- Income before provision for income taxes.................... 239,318 166,662 128,874 95,268 Provision for income taxes....... 99,317 68,343 53,483 39,060 ---------- ---------- --------- --------- Net income....................... $ 140,001 $ 98,319 $ 75,391 $ 56,208 ========== ========== ========= ========= Basic earnings per share......... $ 1.96 $ 1.39 $ 1.07 $ 0.78 ========== ========== ========= ========= Diluted earnings per share....... $ 1.49 $ 1.06 $ 0.79 $ 0.60 ========== ========== ========= =========
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 Convertible Perpetual Convertible Preferred Stock Preferred Stock Common Stock ----------------------- --------------------- ------------------ Additional Number of Number of Number of Paid-in Retained Shares Amount Shares Amount Shares Amount Capital Earnings ------------ --------- ------------ --------- ---------- ------ ---------- -------- (In thousands, except share data) Balance, December 31, 1999........... 300,000 $3 150,000 $ 2 72,051,095 $721 $1,216,968 $179,475 Comprehensive income: Net income..... 140,001 Other comprehensive income: Foreign currency translation adjustments... Comprehensive income......... Issuance of common stock... 8,956 150 Exercise of common stock options.. 13,882 194 Shares repurchased and retired........ (1,785,015) (18) (30,932) ------------ -------- ------------ -------- ---------- ---- ---------- -------- Balance, September 30, 2000.. 300,000 $ 3 150,000 $ 2 70,288,918 $703 $1,186,380 $319,476 ============ ======== ============ ======== ========== ==== ========== ======== Accumulated Other Comprehensive Comprehensive Income Income ------------- ------------- Balance, December 31, 1999........... $317 Comprehensive income: Net income..... $140,001 Other comprehensive income: Foreign currency translation adjustments... 104 104 ------------- Comprehensive income......... $140,105 ============= Issuance of common stock... Exercise of common stock options.. Shares repurchased and retired........ ------------- Balance, September 30, 2000.. $421 =============
The accompanying notes are an integral part of these consolidated financial statements. 6 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ---------------------- 2000 1999 --------- ----------- (In thousands) Cash Flows From Operating Activities: Net income............................................ $ 140,001 $ 98,319 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 309,147 247,091 Gain on sales of rental equipment.................... (105,239) (67,346) Deferred taxes....................................... 84,419 44,257 Changes in operating assets and liabilities: Accounts receivable.................................. (68,607) (116,783) Inventory............................................ 12,444 (23,242) Prepaid expenses and other assets.................... (49,515) (55,066) Accounts payable..................................... 17,736 176,425 Accrued expenses and other liabilities............... (47,750) 61,440 --------- ----------- Net cash provided by operating activities........ 292,636 365,095 Cash Flows From Investing Activities: Purchases of rental equipment......................... (681,099) (580,496) Purchases of property and equipment................... (112,153) (75,909) Proceeds from sales of rental equipment............... 254,977 159,803 In-process acquisition costs.......................... (3,157) (2,206) Payments of contingent purchase price................. (12,748) (7,194) Purchases of other companies.......................... (304,232) (905,267) --------- ----------- Net cash used in investing activities............ (858,412) (1,411,269) 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 issuance of series B perpetual convertible preferred stock, net of issuance costs... 143,800 Proceeds from debt.................................... 579,080 905,702 Payments of debt...................................... (131,382) (360,683) Proceeds from sale-leaseback.......................... 165,511 Payments of financing costs........................... (8,862) (11,341) Proceeds from the exercise of common stock options.... 179 27,020 Shares repurchased and retired........................ (30,950) --------- ----------- Net cash provided by financing activities........ 573,576 1,056,696 --------- ----------- Effect of foreign exchange rates...................... 104 139 Net increase in cash and cash equivalents............. 7,904 10,661 Cash and cash equivalents at beginning of period...... 23,811 20,410 --------- ----------- Cash and cash equivalents at end of period............ $ 31,715 $ 31,071 ========= =========== Supplemental disclosure of cash flow information: Cash paid for interest................................ $ 179,625 $ 93,867 Cash paid for income taxes............................ $ 67,210 $ 15,870 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......................... $ 492,944 $ 1,355,288 Liabilities assumed.................................. (123,515) (440,626) Less: Amounts paid through issuance of debt.............. (65,197) (9,395) --------- ----------- Net cash paid.................................... $ 304,232 $ 905,267 ========= ===========
The accompanying notes are an integral part of these consolidated financial statements. 7 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 2000 1999 ------------- ------------ (In thousands, except share data) ASSETS Cash and cash equivalents........................... $ 31,715 $ 23,811 Accounts receivable, net of allowance for doubtful accounts of $59,745 in 2000 and $50,736 in 1999.... 549,803 434,985 Inventory........................................... 142,078 129,473 Prepaid expenses and other assets................... 124,031 37,125 Rental equipment, net............................... 1,788,079 1,659,733 Property and equipment, net......................... 373,997 276,524 Intangible assets, net of accumulated amortization of $91,829 in 2000 and $51,231 in 1999............. 2,194,710 1,863,372 ---------- ---------- $5,204,413 $4,425,023 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable.................................. $ 251,120 $ 212,565 Debt.............................................. 2,801,333 2,266,148 Deferred taxes.................................... 163,520 81,229 Accrued expenses and other liabilities............ 188,727 171,807 ---------- ---------- Total liabilities............................... 3,404,700 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........................ 1,507,509 1,507,330 Retained earnings................................. 291,783 185,627 Accumulated other comprehensive income............ 421 317 ---------- ---------- Total stockholder's equity...................... 1,799,713 1,693,274 ---------- ---------- $5,204,413 $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)
Nine Months Ended Three Months Ended September 30, September 30, ---------------------- -------------------- 2000 1999 2000 1999 ---------- ---------- --------- --------- (In thousands) Revenues: Equipment rentals............... $1,522,131 $1,112,244 $ 610,499 $ 468,942 Sales of rental equipment....... 254,977 159,803 99,806 72,609 Sales of equipment and merchandise and other revenues....................... 390,833 292,542 148,728 127,067 ---------- ---------- --------- --------- Total revenues................... 2,167,941 1,564,589 859,033 668,618 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 659,876 476,321 263,262 197,175 Depreciation of rental equipment...................... 246,537 200,761 87,502 76,694 Cost of rental equipment sales.. 149,738 92,457 58,570 42,538 Cost of equipment and merchandise sales and other operating costs................ 293,304 220,016 108,995 95,232 ---------- ---------- --------- --------- Total cost of revenues........... 1,349,455 989,555 518,329 411,639 ---------- ---------- --------- --------- Gross profit..................... 818,486 575,034 340,704 256,979 Selling, general and administrative expenses......... 335,461 248,194 124,492 98,333 Non-rental depreciation and amortization.................... 57,100 40,828 19,945 15,971 ---------- ---------- --------- --------- Operating income................. 425,925 286,012 196,267 142,675 Interest expense................. 167,268 93,400 61,058 42,094 Other (income) expense, net...... (796) 8,650 (484) (332) ---------- ---------- --------- --------- Income before provision for income taxes ................... 259,453 183,962 135,693 100,913 Provision for income taxes....... 107,722 75,320 56,313 41,360 ---------- ---------- --------- --------- Net income ...................... $ 151,731 $ 108,642 $ 79,380 $ 59,553 ========== ========== ========= =========
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............. 151,731 $151,731 Other comprehensive income: Foreign currency translation adjustments.......... 104 104 -------- Comprehensive income.... $151,835 ======== Contributed capital from parent................. 179 Dividend distributions to parent.............. (45,575) ----- --- ---------- -------- ---- Balance, September 30, 2000................... 1,000 $1,507,509 $291,783 $421 ===== === ========== ======== ====
The accompanying notes are an integral part of these consolidated financial statements. 10 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ---------------------- 2000 1999 --------- ----------- (In thousands) Cash Flows From Operating Activities: Net income............................................ $ 151,731 $ 108,642 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 303,637 244,553 Gain on sales of rental equipment.................... (105,239) (67,346) Deferred taxes....................................... 84,419 44,257 Changes in operating assets and liabilities: Accounts receivable.................................. (68,607) (116,783) Inventory............................................ 12,444 (23,242) Prepaid expenses and other assets.................... (76,848) (40,666) Accounts payable..................................... 17,884 150,292 Accrued expenses and other liabilities............... (34,549) 56,235 --------- ----------- Net cash provided by operating activities.......... 284,872 355,942 Cash Flows From Investing Activities: Purchases of rental equipment......................... (681,099) (580,496) Purchases of property and equipment................... (94,544) (46,807) Proceeds from sales of rental equipment............... 254,977 159,803 Payments of contingent purchase price................. (12,748) (7,194) Purchases of other companies.......................... (304,232) (905,267) --------- ----------- Net cash used in investing activities.............. (837,646) (1,379,961) Cash Flows From Financing Activities: Proceeds from debt.................................... 579,080 905,702 Payments of debt...................................... (131,382) (360,683) Proceeds from sale-leaseback.......................... 165,511 Payments of financing costs........................... (7,239) (11,341) Capital contributions by parent....................... 179 522,969 Dividend distributions to parent...................... (45,575) (14,625) --------- ----------- Net cash provided by financing activities.......... 560,574 1,042,022 --------- ----------- Effect of foreign exchange rates...................... 104 139 Net increase in cash and cash equivalents............. 7,904 18,142 Cash and cash equivalents at beginning of period...... 23,811 20,410 --------- ----------- Cash and cash equivalents at end of period............ $ 31,715 $ 38,552 ========= =========== Supplemental disclosure of cash flow information: Cash paid for interest................................ $ 165,000 $ 79,242 Cash paid for income taxes............................ $ 67,210 $ 15,870 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......................... $ 492,944 $ 1,355,288 Liabilities assumed.................................. (123,515) (440,626) Less: Amounts paid through issuance of debt.............. (65,197) (9,395) --------- ----------- Net cash paid.................................... $ 304,232 $ 905,267 ========= ===========
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 nine and three month periods ended September 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 of 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 Company will adopt SFAS No. 138 on January 1, 2001 and it 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 nine months ended September 30, 2000, the Company completed 48 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 $313.0 million and consisted of approximately $247.8 million in cash and $65.2 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 $54.4 million. The purchase prices for such acquisitions have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. However, the Company has not completed its valuation of all of its purchases and, accordingly, the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. 12 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes, on an unaudited pro forma basis, the results of operations of the Company for the nine months ended September 30, 2000 and 1999 as though (i) each acquisition summarized above which was consummated during the nine months ended September 30, 2000, was made on January 1, 2000, in the case of the results for the nine months ended September 30, 2000, and (ii) each acquisition which was consummated during the period January 1, 1999 to September 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 nine months ended September 30, 1999 (in thousands, except per share data):
Nine Months Ended September 30, --------------------- 2000 1999 ---------- ---------- Revenues............................................ $2,312,213 $2,038,793 Net income.......................................... 144,715 115,976 Basic earnings per share............................ $ 2.03 $ 1.65 Diluted earnings per share.......................... $ 1.54 $ 1.25
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 $827.5 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 $827.5 million). The Credit Facility terminates on September 26, 2003, at which time all outstanding indebtedness is due. There was $641.5 million outstanding under the Credit Facility at September 30, 2000. 13 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Nine Months Three Months Ended Ended September 30, September 30, ----------------- --------------- 2000 1999 2000 1999 -------- -------- ------- ------- Numerator: Net income.................................. $140,001 $ 98,319 $75,391 $56,208 Plus: preferred dividends of a subsidiary trust, net of taxes........................ 8,544 2,841 2,876 -------- -------- ------- ------- Income available to common stockholders..... $148,545 $ 98,319 $78,232 $59,084 ======== ======== ======= ======= Denominator: Denominator for basic earnings per share-- weighted-average shares.................... 71,319 70,854 70,286 71,936 Effect of dilutive securities: Employee stock options.................... 1,483 5,346 2,178 4,121 Warrants.................................. 2,729 4,228 3,193 4,012 Series A perpetual convertible preferred stock.................................... 12,000 12,000 12,000 12,000 Series B perpetual convertible preferred stock.................................... 5,000 18 5,000 54 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust........................... 6,876 6,876 6,876 -------- -------- ------- ------- Denominator for diluted earnings per share-- adjusted weighted-average shares........... 99,407 92,446 99,533 98,999 ======== ======== ======= ======= Basic earnings per share...................... $ 1.96 $ 1.39 $ 1.07 $ 0.78 ======== ======== ======= ======= Diluted earnings per share.................... $ 1.49 $ 1.06 $ 0.79 $ 0.60 ======== ======== ======= =======
14 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Condensed Consolidating Financial Information of Guarantor Subsidiaries Certain indebtedness of URI is guaranteed by URI's United States subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor subsidiaries are all wholly owned and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). 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 September 30, 2000 and December 31, 1999 and for the nine and three months ended September 30, 2000 and 1999, are presented. The condensed consolidating financial information of URI and its subsidiaries are as follows: CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2000 --------------------------------------------------------------- Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) ASSETS Cash and cash equiva- lents.................. $ 28,221 $ 3,494 $ 31,715 Accounts receivable, net.................... $ 226,666 287,512 35,625 549,803 Intercompany receivable (payable).............. 525,331 (292,263) (233,068) Inventory............... 63,280 71,762 7,036 142,078 Prepaid expenses and other assets........... 64,678 59,353 124,031 Rental equipment, net... 869,647 796,048 122,384 1,788,079 Property and equipment, net.................... 135,836 215,810 22,351 373,997 Investment in subsidiar- ies.................... 2,222,271 $(2,222,271) Intangible assets, net.. 923,691 1,143,892 127,127 2,194,710 ---------- ---------- --------- ----------- ---------- $5,031,400 $2,250,982 $ 144,302 $(2,222,271) $5,204,413 ========== ========== ========= =========== ========== LIABILITIES AND STOCK- HOLDER'S EQUITY Liabilities: Accounts payable....... $ 229,362 $ 9,871 $ 11,887 $ 251,120 Debt................... 2,769,007 4,928 27,398 2,801,333 Deferred income tax- es.................... 161,121 2,399 163,520 Accrued expenses and other liabilities..... 92,041 84,887 11,799 188,727 ---------- ---------- --------- ----------- ---------- Total liabilities.... 3,251,531 99,686 53,483 3,404,700 Commitments and contin- gencies Stockholder's equity: Common stock........... Additional paid-in capital............... 1,488,086 1,830,354 65,651 $(1,876,582) 1,507,509 Retained earnings...... 291,783 320,942 24,747 (345,689) 291,783 Accumulated other com- prehensive income..... 421 421 ---------- ---------- --------- ----------- ---------- Total stockholder's equity.............. 1,779,869 2,151,296 90,819 (2,222,271) 1,799,713 ---------- ---------- --------- ----------- ---------- $5,031,400 $2,250,982 $ 144,302 $(2,222,271) $5,204,413 ========== ========== ========= =========== ==========
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 income tax- es.................... 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 Nine Months Ended September 30, 2000 ------------------------------------------------------------ Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $622,474 $ 817,973 $81,684 $1,522,131 Sales of rental equip- ment................. 114,596 122,502 17,879 254,977 Sales of equipment and merchandise and other revenues............. 195,195 171,551 24,087 390,833 -------- --------- ------- --------- ---------- Total revenues.......... 932,265 1,112,026 123,650 2,167,941 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 260,097 363,522 36,257 659,876 Depreciation of rental equipment............ 114,571 117,599 14,367 246,537 Cost of rental equip- ment sales........... 65,711 72,951 11,076 149,738 Cost of equipment and merchandise sales and other operating costs................ 154,807 118,908 19,589 293,304 -------- --------- ------- --------- ---------- Total cost of revenues.. 595,186 672,980 81,289 1,349,455 -------- --------- ------- --------- ---------- Gross profit............ 337,079 439,046 42,361 818,486 Selling, general and ad- ministrative expenses.. 133,951 183,312 18,198 335,461 Non-rental depreciation and amortization....... 25,639 27,390 4,071 57,100 -------- --------- ------- --------- ---------- Operating income........ 177,489 228,344 20,092 425,925 Interest expense........ 165,547 224 1,497 167,268 Other (income) expense, net.................... 8,943 (9,987) 248 (796) -------- --------- ------- --------- ---------- Income before provision for income taxes ...... 2,999 238,107 18,347 259,453 Provision for income taxes.................. 1,245 99,092 7,385 107,722 -------- --------- ------- --------- ---------- Income before equity in net earnings of subsidiaries........ 1,754 139,015 10,962 $(149,977) 1,754 Equity in net earnings of subsidiaries........ 149,977 149,977 -------- --------- ------- --------- ---------- Net income.............. $151,731 $ 139,015 $10,962 $(149,977) $ 151,731 ======== ========= ======= ========= ==========
17 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999 ------------------------------------------------------------ Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $431,056 $615,708 $65,480 $1,112,244 Sales of rental equip- ment................. 69,185 81,430 9,188 159,803 Sales of equipment and merchandise and other revenues............. 144,821 123,940 23,781 292,542 -------- -------- ------- -------- ---------- Total revenues.......... 645,062 821,078 98,449 1,564,589 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 186,211 260,137 29,973 476,321 Depreciation of rental equipment............ 86,130 103,508 11,123 200,761 Cost of rental equip- ment sales........... 40,271 46,727 5,459 92,457 Cost of equipment and merchandise sales and other operating costs................ 113,403 88,250 18,363 220,016 -------- -------- ------- -------- ---------- Total cost of revenues.. 426,015 498,622 64,918 989,555 -------- -------- ------- -------- ---------- Gross profit............ 219,047 322,456 33,531 575,034 Selling, general and ad- ministrative expenses.. 77,828 156,143 14,223 248,194 Non-rental depreciation and amortization....... 18,300 19,984 2,544 40,828 -------- -------- ------- -------- ---------- Operating income........ 122,919 146,329 16,764 286,012 Interest expense........ 92,053 617 730 93,400 Other (income) expense, net.................... 7,477 1,635 (462) 8,650 -------- -------- ------- -------- ---------- Income before provision for income taxes....... 23,389 144,077 16,496 183,962 Provision for income taxes.................. 9,589 58,363 7,368 75,320 -------- -------- ------- -------- ---------- Income before equity in net earnings of subsidiaries........ 13,800 85,714 9,128 $(94,842) 13,800 Equity in net earnings of subsidiaries........ 94,842 94,842 -------- -------- ------- -------- ---------- Net income.............. $108,642 $ 85,714 $ 9,128 $(94,842) $ 108,642 ======== ======== ======= ======== ==========
18 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2000 ------------------------------------------------------------ Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $243,673 $333,433 $33,393 $610,499 Sales of rental equip- ment................. 40,112 54,187 5,507 99,806 Sales of equipment and merchandise and other revenues............. 83,154 57,350 8,224 148,728 -------- -------- ------- -------- -------- Total revenues.......... 366,939 444,970 47,124 859,033 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 97,780 152,133 13,349 263,262 Depreciation of rental equipment............ 44,555 37,929 5,018 87,502 Cost of rental equip- ment sales........... 21,722 33,480 3,368 58,570 Cost of equipment and merchandise sales and other operating costs................ 62,967 39,263 6,765 108,995 -------- -------- ------- -------- -------- Total cost of revenues.. 227,024 262,805 28,500 518,329 -------- -------- ------- -------- -------- Gross profit............ 139,915 182,165 18,624 340,704 Selling, general and ad- ministrative expenses.. 41,264 76,789 6,439 124,492 Non-rental depreciation and amortization....... 7,727 10,793 1,425 19,945 -------- -------- ------- -------- -------- Operating income........ 90,924 94,583 10,760 196,267 Interest expense........ 60,930 29 99 61,058 Other (income) expense, net.................... 5,014 (5,565) 67 (484) -------- -------- ------- -------- -------- Income before provision for income taxes ...... 24,980 100,119 10,594 135,693 Provision for income taxes.................. 10,367 41,827 4,119 56,313 -------- -------- ------- -------- -------- Income before equity in net earnings of subsidiaries........ 14,613 58,292 6,475 $(64,767) 14,613 Equity in net earnings of subsidiaries........ 64,767 64,767 -------- -------- ------- -------- -------- Net income.............. $ 79,380 $ 58,292 $ 6,475 $(64,767) $ 79,380 ======== ======== ======= ======== ========
19 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1999 ------------------------------------------------------------ Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals..... $184,742 $253,026 $31,174 $468,942 Sales of rental equip- ment................. 26,156 43,872 2,581 72,609 Sales of equipment and merchandise and other revenues............. 60,358 56,839 9,870 127,067 -------- -------- ------- -------- -------- Total revenues.......... 271,256 353,737 43,625 668,618 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 84,838 99,570 12,767 197,175 Depreciation of rental equipment............ 35,172 36,612 4,910 76,694 Cost of rental equip- ment sales........... 15,875 25,128 1,535 42,538 Cost of equipment and merchandise sales and other operating costs................ 43,486 44,098 7,648 95,232 -------- -------- ------- -------- -------- Total cost of revenues.. 179,371 205,408 26,860 411,639 -------- -------- ------- -------- -------- Gross profit............ 91,885 148,329 16,765 256,979 Selling, general and ad- ministrative expenses.. 14,813 78,682 4,838 98,333 Non-rental depreciation and amortization....... 5,900 9,026 1,045 15,971 -------- -------- ------- -------- -------- Operating income........ 71,172 60,621 10,882 142,675 Interest expense........ 41,527 (10) 577 42,094 Other (income) expense, net.................... 8,425 (8,720) (37) (332) -------- -------- ------- -------- -------- Income before provision for income taxes....... 21,220 69,351 10,342 100,913 Provision for income taxes.................. 8,700 28,110 4,550 41,360 -------- -------- ------- -------- -------- Income before equity in net earnings of subsidiaries........ 12,520 41,241 5,792 $(47,033) 12,520 Equity in net earnings of subsidiaries........ 47,033 47,033 -------- -------- ------- -------- -------- Net income.............. $ 59,553 $ 41,241 $ 5,792 $(47,033) $ 59,533 ======== ======== ======= ======== ========
20 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Nine Months Ended September 30, 2000 ---------------------------------------------------------------- Guarantor Non-guarantor URI Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------- ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities............. $(152,456) $ 424,504 $ 12,824 $ 284,872 Cash flows from investing activities: Purchases of rental equipment............. (194,651) (467,912) (18,536) (681,099) Purchases of property and equipment......... (25,455) (66,152) (2,937) (94,544) Proceeds from sales of rental equipment...... 114,596 122,502 17,879 254,977 Payments of contingent purchase price........ (1,521) (11,227) (12,748) Purchases of other companies............. (301,130) (3,102) (304,232) --------- --------- -------- ------ --------- Net cash used in investing activities.......... (408,161) (422,789) (6,696) (837,646) Cash flows from financing activities: Proceeds from debt..... 554,413 24,667 579,080 Payments of debt....... (110,361) (14,575) (6,446) (131,382) Proceeds from sale- leaseback............. 165,511 165,511 Payments of financing costs................. (7,239) (7,239) Capital contributions by parent............. 179 179 Dividend distributions to parent............. (45,575) (45,575) --------- --------- -------- ------ --------- Net cash provided by (used in) financing activities.......... 556,928 10,092 (6,446) 560,574 Effect of foreign exchange rates........ 104 104 --------- --------- -------- ------ --------- Net increase (decrease) in cash and cash equivalents........... (3,689) 11,807 (214) 7,904 Cash and cash equivalents at beginning of period... $ 3,689 16,414 3,708 23,811 --------- --------- -------- ------ --------- Cash and cash equivalents at end of period................ $ 28,221 $ 3,494 $ 31,715 ========= ========= ======== ====== ========= Supplemental disclosure of cash flow information: Cash paid for interest............ $ 163,192 $ 271 $ 1,537 $ 165,000 Cash paid for income taxes............... $ 50,284 $ 9,578 $ 7,348 $ 67,210 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.............. $ 488,060 $ 4,884 $ 492,944 Liabilities assumed.... (121,733) (1,782) (123,515) Less: Amounts paid through issuance of debt.... (65,197) (65,197) --------- --------- -------- ------ --------- Net cash paid...... $ 301,130 $ 3,102 $ 304,232 ========= ========= ======== ====== =========
21 UNITED RENTALS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Nine Months Ended September 30, 1999 ----------------------------------------------------------------- Guarantor Non-guarantor URI Subsidiaries Subsidiaries Eliminations Consolidated ---------- ------------- ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities............. $ (141,151) $ 396,108 $ 100,985 $ 355,942 Cash flows from investing activities: Purchases of rental equipment............. (85,008) (426,585) (68,903) (580,496) Purchases of property and equipment......... (10,100) (31,344) (5,363) (46,807) Proceeds from sales of rental equipment...... 69,185 81,430 9,188 159,803 Payments of contingent purchase price........ (600) (4,895) (1,699) (7,194) Purchases of other companies............. (865,222) (40,045) (905,267) ---------- --------- --------- --- ----------- Net cash used in investing activities.......... (891,745) (381,394) (106,822) (1,379,961) Cash flows from financing activities: Proceeds from debt..... 887,588 9,057 9,057 905,702 Payments of debt....... (353,469) (5,410) (1,804) (360,683) Payments of financing costs................. (11,341) (11,341) Capital contributions by parent............. 522,969 522,969 Dividend distributions to parent............. (14,625) (14,625) ---------- --------- --------- --- ----------- Net cash provided by financing activities.......... 1,031,122 3,647 7,253 1,042,022 Effect of foreign exchange rates........ 139 139 ---------- --------- --------- --- ----------- Net increase (decrease) in cash and cash equivalents...... (1,774) 18,361 1,555 18,142 Cash and cash equivalents at beginning of period... $ 1,774 16,257 2,379 20,410 ---------- --------- --------- --- ----------- Cash and cash equivalents at end of period................ $ 34,618 $ 3,934 $ 38,552 ========== ========= ========= === =========== Supplemental disclosure of cash flow information: Cash paid for interest............ $ 78,427 $ 106 $ 709 $ 79,242 Cash paid for income taxes............... $ 12,587 $ 2,398 $ 885 $ 15,870 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired.............. $1,290,333 $ 64,955 $ 1,355,288 Liabilities assumed.... (417,926) (22,700) (440,626) Less: Amounts paid through issuance of debt.... (7,185) (2,210) (9,395) ---------- --------- --------- --- ----------- Net cash paid...... $ 865,222 $ 40,045 $ 905,267 ========== ========= ========= === ===========
6. Subsequent Event In October 2000, the Company increased its borrowing under an existing term loan from a financial institution by $100.0 million. 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 nine and three months ended September 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 period 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, (ii) the amortization of deferred financing costs and (iii) 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 Nine Months Ended September 30, 2000 and 1999 Revenues. Total revenues for the nine months ended September 30, 2000 were $2,167.9 million, representing an increase of 38.6% over total revenues of $1,564.6 million for the nine months ended September 30, 1999. The Company's revenues in the first nine months of 2000 and 1999 were attributable to: (i) equipment rental ($1,522.1 million, or 70.2% of revenues, in the first nine months of 2000 compared to $1,112.2 million, or 71.1% of revenues, in the first nine months of 1999), (ii) sales of rental equipment ($255.0 million, or 11.8% of revenues, in the first nine months of 2000 compared to $159.8 million, or 10.2% of revenues, in the first nine months of 1999) and (iii) sales of equipment and merchandise and other revenues ($390.8 million, or 18.0% of revenues, in the first nine months of 2000 compared to $292.5 million, or 18.7% of revenues, in the first nine months of 1999). 23 The 38.6% increase in total revenues in the first nine months of 2000 reflected (i) increased revenues at locations open more than one year (which accounted for approximately 16.0 percentage points) and (ii) new rental locations acquired through acquisitions and the opening of start-up locations (which accounted for approximately 22.6 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 increase in the sale of related merchandise and parts which was driven by the increase in equipment rental and sales transactions and (c) 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 $818.5 million in the first nine months of 2000 from $575.0 million in the first nine 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 nine months of 2000 and 1999 was: (i) equipment rental (40.5% in the first nine months of 2000 and 39.1% in the first nine months of 1999), (ii) sales of rental equipment (41.3% in the first nine months of 2000 and 42.1% in the first nine months of 1999) and (iii) sales of equipment and merchandise and other revenues (25.0% in the first nine months of 2000 and 24.8% in the first nine months of 1999). The increase in the gross profit margin from rental revenues in the first nine 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 nine months of 2000 reflected 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 $335.5 million, or 15.5% of total revenues, during the first nine months of 2000 and $248.2 million, or 15.9% of total revenues, during the first nine months of 1999. SG&A in the first nine months of 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 15.3% in the first nine months of 1999. Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $62.6 million, or 2.9% of total revenues, in the first nine months of 2000 and $43.2 million, or 2.8% of total revenues, in the first nine months of 1999. Interest Expense. Interest expense increased to $167.3 million in the first nine months of 2000 from $93.5 million in the first nine months of 1999. This increase primarily reflected (i) an increase in the Company's indebtedness, principally to fund acquisitions, and (ii) an increase in the interest rates applicable to the Company's variable rate debt. Preferred Dividends of a Subsidiary Trust. During the first nine months of 2000 and 1999, preferred dividends of a subsidiary trust of Holdings were $14.6 million. Other (Income) Expense. Other income was $0.8 million in the first nine months of 2000 compared to $8.8 million of other expense in the first nine months of 1999. The other expense in the first nine months of 1999 was 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 $99.3 million, or an effective rate of 41.5%, in the first nine months of 2000 from $68.3 million, or an effective rate of 41.0%, in the first nine months of 1999. Three Months Ended September 30, 2000 and 1999 Revenues. Total revenues for the three months ended September 30, 2000 were $859.0 million, representing an increase of 28.5% over total revenues of $668.6 million for the three months ended September 30, 1999. The Company's revenues in the three months ended September 30, 2000 and 1999 were attributable to: (i) equipment rental ($610.5 million, or 71.1% of revenues, in the three months September 30, 2000 compared to $468.9 million, or 70.1% of revenues, in the three months ended 24 September 30, 1999), (ii) sales of rental equipment ($99.8 million, or 11.6% of revenues, in the three months ended September 30, 2000 compared to $72.6 million, or 10.9% of revenues, in the three months ended September 30, 1999) and (iii) sales of equipment and merchandise and other revenues ($148.7 million, or 17.3% of revenues, in the three months ended September 30, 2000 compared to $127.1 million, or 19.0% of revenues, in the three months ended September 30, 1999). The 28.5% increase in total revenues in the three months ended September 30, 1999 reflected (i) increased revenues at locations open more than one year (which accounted for approximately 15.2 percentage points) and (ii) new rental locations acquired through acquisitions and the opening of start-up locations (which accounted for approximately 13.3 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 increase in the sale of related merchandise and parts which was driven by the increase in equipment rental and sales transactions and (c) 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 $340.7 million in the three months ended September 30, 2000 from $257.0 million in the three months ended September 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 September 30, 2000 and 1999 was: (i) equipment rental (42.5% in the three months ended September 30, 2000 and 41.6% in the three months ended September 30, 1999), (ii) sales of rental equipment (41.3% in the three months ended September 30, 2000 and 41.4% in the three months ended September 30, 1999) and (iii) sales of equipment and merchandise and other revenues (26.7% in the three months ended September 30, 2000 and 25.1% in the three months ended September 30, 1999). The increase in the gross profit margin from rental revenues in the three months ended September 30, 2000 was primarily attributable to greater equipment utilization rates and to economies of scale. The increase in the gross profit margin from sales of equipment and merchandise and other revenue in the three months ended September 30, 2000 primarily reflected the benefits of greater purchasing power and a shift in the sales mix to higher margin items. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") were $124.5 million, or 14.5% of total revenues, during the three months ended September 30, 2000 and $98.3 million, or 14.7% of total revenues, during the three months ended September 30, 1999. Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $21.9 million, or 2.6% of total revenues, in the three months ended September 30, 2000 and $16.7 million, or 2.5% of total revenues, in the three months ended September 30, 1999. Interest Expense. Interest expense increased to $61.1 million in the three months ended September 30, 2000 from $42.2 million in the three months ended September 30, 1999. This increase primarily reflected (i) an increase in the Company's indebtedness, principally to fund acquisitions, and (ii) 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 September 30, 2000 and 1999, preferred dividends of a subsidiary trust of Holdings were $4.9 million. Other (Income) Expense. Other income was $0.5 million in the three months ended September 30, 2000 compared with $0.4 million in the three months ended September 30, 1999. Income Taxes. Income taxes increased to $53.5 million, or an effective rate of 41.5%, in the three months ended September 30, 2000 from $39.1 million, or an effective rate of 41.0%, in the three months ended September 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"). In October 2000, URI obtained an additional $100.0 million under the existing Term Loan D. The Term Loan D 25 matures in June 2006. Prior to maturity, quarterly installments of principal are due on the last day of each calendar quarter, in the amount of $0.25 million on September 30, 2000 and in the amount of $0.5 million commencing December 31, 2000 to maturity. The amount due at maturity is $188.5 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 nine months of 2000, the Company (i) generated cash from operations of approximately $292.6 million, (ii) generated cash from the sale of rental equipment of approximately $255.0 million and (iii) obtained net proceeds from financing activities of approximately $573.6 million. The Company used cash during this period principally to (i) pay consideration for acquisitions (approximately $304.2 million), (ii) purchase rental equipment (approximately $681.1 million) and (iii) purchase other property and equipment (approximately $112.2 million). Certain Balance Sheet Changes The acquisitions and the equipment purchases made by the Company in the first nine 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 September 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 $827.5 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 $827.5 million). The Credit Facility terminates on September 26, 2003, at which time all outstanding indebtedness is due. As of November 8, 2000, there was $575.5 million of indebtedness outstanding under the Credit Facility (not including undrawn outstanding letters of credit in the amount of $1.5 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 ($250.5 million available as of November 8, 2000) and cash generated from operations. The Company expects that its principal needs for cash relating to its existing operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory of items offered for sale and (iii) debt service. The Company plans to fund such cash requirements relating to its existing operations from its existing sources of cash described above. The level of the Company's expenditures for rental equipment over the next 12 months will depend on a number of factors, including overall demand for equipment rental, the market for used equipment, and changes in general economic conditions affecting construction and industrial activity and interest rates. Based upon the terms of the Company's currently outstanding indebtedness, the Company is scheduled to repay debt principal of approximately $24.3 million during the period from October 1, 2000 to September 30, 2001. While emphasizing internal growth, the Company may also continue to expand through a disciplined acquisition program. The Company expects to pay for future acquisitions using cash, capital stock, notes and/or 26 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. Relationship Between Holdings and URI Holdings is principally a holding company and primarily conducts its operations through its wholly owned subsidiary URI and subsidiaries of URI. Holdings provides certain services to URI in connection with its operations. These services principally include: (i) senior management services, (ii) finance related services and support, (iii) information technology systems and support and (iv) acquisition related services. In addition, Holdings leases certain equipment and real property that are made available for use by URI and its subsidiaries. URI has made, and expects to continue to make, certain payments to Holdings in respect of the services provided by Holdings to the Company. The expenses relating to URI's payments to Holdings are reflected on URI's financial statements as selling, general and administrative expenses. In addition, although not legally obligated to do so, URI has in the past, and expects that it will in the future, make distributions to Holdings to, among other things, enable Holdings to pay dividends on certain preferred securities (the "Trust Preferred Securities") that were issued by a subsidiary trust of Holdings in August 1998. The Trust Preferred Securities are the obligation of a subsidiary trust of Holdings and are not the obligation of URI. As a result, the dividends payable on these securities are reflected as an expense on the consolidated financial statements of Holdings, but are not reflected as an expense on the consolidated financial statements of URI. This is the principal reason why the net income reported on the consolidated financial statements of URI is higher than the net income reported on the consolidated financial statements of Holdings. Year 2000 In prior years, the Company discussed the nature of its plans to become Year 2000 compliant. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its equipment, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the Year 2000. Seasonality The Company's business is seasonal with demand for the Company's rental equipment tending to be lower in the winter months. The seasonality of the Company's business has been heightened by the Company's acquisition of businesses that specialize in renting traffic control equipment. These businesses tend to generate most of their revenues and profits in the second and third quarters of the year, slow down during the fourth quarter and operate at a loss during the first quarter. 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-- 27 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 Company will adopt SFAS No. 138 on January 1, 2001 and it 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 . funding for highway and other construction projects under government programs, such as the Transportation Equity Act for the 21st Century ("TEA-21"), does not reach expected levels. Dependence on Additional Capital to Finance Growth We may require additional capital in order to fully execute our growth strategy. Capital may be required 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 fully implement our growth strategy could be limited. Dependence on Management We are highly dependent upon our senior management team. Consequently, our business could be adversely affected in the event that we lose the services of any member of senior management. Furthermore, if we lose the services of certain members of senior management, it is an event of default under the agreements governing our credit facility and certain of our other indebtedness, unless we appoint replacement officers satisfactory to the lenders within 30 days. We do not maintain "key man" life insurance with respect to members of senior management. Competition The equipment rental industry is highly fragmented and competitive. Our competitors primarily include small, independent businesses with one or two rental locations; regional competitors which operate in one or 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. 28 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; . our recent acquisition of businesses that specialize in renting traffic control equipment, which tend to operate at a loss during the first quarter; . 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. 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; . 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. Liability and Insurance We are exposed to various possible claims relating to our business. These include claims relating to (1) personal injury or death caused by equipment rented or sold by us, (2) motor vehicle accidents involving our delivery and service personnel and (3) employment related claims. We carry a broad range of insurance for the protection of our assets and operations. However, such insurance may not fully protect us for a number of reasons, including: . our coverage is subject to a deductible of $1.0 million and limited to a maximum of $97 million per occurrence; . we do not maintain coverage for environmental liability, since we believe that the cost for such coverage is high relative to the benefit that it provides; and . certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third party lawsuits, might not be covered by our insurance. We cannot be certain that insurance will continue to be available to us on economically reasonable terms, if at all. Environmental and Safety Regulations There are numerous federal, state and local laws and regulations governing environmental protection and occupational health and safety matters. These include laws and regulations that govern wastewater discharges, the use, treatment, storage and disposal of solid and hazardous wastes and materials, air quality and the remediation of contamination associated with the release of hazardous substances. Under these laws, an owner or lessee of real estate may be liable for, among other things, (1) the costs of removal or remediation of hazardous or toxic substances located on, in, or emanating from, the real estate, as well as related costs of investigation and property damage and substantial penalties, and (2) environmental contamination at facilities 29 where its waste is or has been disposed. These laws often impose liability whether or not the owner or lessee knew of the presence of the hazardous or toxic substances and whether or not the owner or lessee was responsible for these substances. Our activities that are or may be affected by these laws include our use of hazardous materials to clean and maintain equipment and our disposal of solid and hazardous waste and wastewater from equipment washing. We also dispense petroleum products from underground and above-ground storage tanks located at certain rental locations, and at times we must remove or upgrade tanks to comply with applicable laws. Furthermore, we have acquired or lease certain locations which have or may have been contaminated by leakage from underground tanks or other sources and are in the process of assessing the nature of the required remediation. Based on the conditions currently known to us, we believe that any unreserved environmental remediation and compliance costs required with respect to those conditions will not have a material adverse effect on our business. However, we cannot be certain that we will not identify adverse environmental conditions that are not currently known to us, that all potential releases from underground storage tanks removed in the past have been identified, or that environmental and safety requirements will not become more stringent or be interpreted and applied more stringently in the future. If we are required to incur environmental compliance or remediation costs that are not currently anticipated by us, our business could be adversely affected depending on the magnitude of the cost. Risks Related to International Operations Our operations outside the United States are subject to risks normally associated with international operations. These include the need to convert currencies, which could result in a gain or loss depending on fluctuations in exchange rates, and the need to comply with foreign laws. Dependence on Information Technology Systems Our ability to monitor and control our operations depends to a large extent on the proper functioning of our information technology system. Any disruption in this system or the failure of this system to operate as expected could, depending on the magnitude and duration of the problem, adversely affect our business and our ability to implement our growth strategy. Restrictive Covenants The agreements governing our existing long-term indebtedness contain, and future agreements governing our long-term indebtedness may also contain, certain restrictive financial and operating covenants which affect, and in many respects significantly limit or prohibit, among other things, our ability to incur indebtedness, make prepayments of certain indebtedness, make investments, create liens, make acquisitions, sell assets and engage in mergers and consolidations. These covenants may significantly limit our operating and financial flexibility. Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risks relating to changes in interest rates and foreign currency exchanges rates were reported in Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 1999. There has been no material change in these market risks since the end of the fiscal year 1999. 30 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 third 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 July 2000, the Company issued 3,172 shares of common stock to an executive officer pursuant to an employment agreement. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
Exhibit Number Description of Exhibit ------- ---------------------- 3(a) Amended and Restated Certificate of Incorporation of United Rentals, Inc., in effect as of the date hereof (incorporated by reference to exhibit 3.1 of United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 3(b) Certificate of Amendment to the United Rentals, Inc. Certificate of Incorporation dated September 29, 1998 (incorporated by reference to Exhibit 4.2 to the United Rentals, Inc. Registration Statement on Form S-3, No. 333-70151). 3(c) By-laws of United Rentals, Inc., in effect as of the date hereof (incorporated by reference to exhibit 3.2 of United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 3(d) Form of Certificate of Designation for Series A Perpetual Convertible Preferred Stock (incorporated by reference to Exhibit 4(k) to the United Rentals, Inc. Registration Statement on Form S-3, No. 333-64463) together with a certificate of amendment thereto (incorporated by reference to exhibit A of 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 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) Amendment No. 1 to Employment Agreement with Robert Miner, dated as of August 2, 2000 (incorporated by reference to exhibit 10(e) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 2000) 27* Financial Data Schedule 27.1* Financial Data Schedule
-------- *Filed herewith. (b)Reports on Form 8-K: none 31 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: November 13, 2000 /s/ Michael J. Nolan By: _________________________________ Michael J. Nolan Chief Financial Officer (Principal Financial Officer) Dated: November 13, 2000 /s/ Peter R. Borzilleri By: _________________________________ Peter R. Borzilleri Vice President, Corporate Controller (Chief Accounting Officer) United Rentals (North America), Inc. Dated: November 13, 2000 /s/ Michael J. Nolan By: _________________________________ Michael J. Nolan Chief Financial Officer (Principal Financial Officer) Dated: November 13, 2000 /s/ Peter R. Borzilleri By: _________________________________ Peter R. Borzilleri Vice President, Corporate Controller (Chief Accounting Officer) 32