-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IJG1hhko70LbysAz5hdX2hbLINrIDG8e26ACrowfb1t95lmtJWZ2aekd+xtTsGim 46A9tbSeRk26oYAKaen5Jg== 0000950130-02-002206.txt : 20020415 0000950130-02-002206.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950130-02-002206 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RENTALS INC /DE CENTRAL INDEX KEY: 0001067701 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 061522496 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14387 FILM NUMBER: 02592759 BUSINESS ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036223131 MAIL ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RENTALS NORTH AMERICA INC CENTRAL INDEX KEY: 0001047166 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 061493538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13663 FILM NUMBER: 02592760 BUSINESS ADDRESS: STREET 1: FIVE GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036223131 MAIL ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: UNITED RENTALS INC DATE OF NAME CHANGE: 19971020 10-K 1 d10k.txt FORM 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001. [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 1-14387 United Rentals, Inc. Commission File Number 1-13663 United Rentals (North America), Inc. (Exact Names of Registrants as Specified in Their Charters) Delaware 06-1522496 Delaware 06-1493538 State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization Identification Nos.) Five Greenwich Office Park, Greenwich, Connecticut 06830 (Address of Principal Executive Offices) (Zip code) Registrants' telephone number, including area code: (203) 622-3131 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $.01 par value, of United Rentals, Inc. New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such ng requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 22, 2002, there were 75,420,254 shares of United Rentals, Inc. common stock outstanding. The aggregate market value of such common stock held by non-affiliates of the registrant at March 22, 2002 was approximately $1,541.7 million. Such aggregate market value was calculated by using the closing price of such common stock as of such date on the New York Stock Exchange of $26.35. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc. Documents incorporated by reference: Certain sections of the Proxy Statement of United Rentals, Inc. to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of the registrant's fiscal year are incorporated by reference into Part III of this Form 10-K. This combined Form 10-K is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in general instruction (I)(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by such instruction. FORM 10-K REPORT INDEX
10-K Part and Item No. Page No. - ------------ -------- PART I Item 1 Business.................................................................. 1 Item 2 Properties................................................................ 8 Item 3 Legal Proceedings......................................................... 9 Item 4 Submission of Matters to a Vote of Security Holders....................... 9 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters. 9 Item 6 Selected Financial Data................................................... 10 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 12 Item 7A Quantitative and Qualitative Disclosures About Market Risk................ 26 Item 8 Financial Statements and Supplementary Data............................... 27 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................................ 86 PART III Item 10 Directors and Executive Officers of the Registrant........................ 86 Item 11 Executive and Director Compensation....................................... 86 Item 12 Security Ownership of Certain Beneficial Owners and Management............ 86 Item 13 Certain Relationships and Related Transactions............................ 86 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 86
Certain statements contained in this Report are forward-looking in nature. Such statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "seek," "on-track," "plan," "intend" or "anticipate," or the negative thereof or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected by any forward-looking statements. Certain of such risks and uncertainties are discussed below under Item 7--"Management's Discussion and Analysis of Financial Condition and Result of Operations--Factors that May Influence Future Results and Accuracy of Forward-Looking Statements." We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. PART I Unless otherwise indicated, the information under Items 1 and 2 is as of March 1, 2002. Item 1. Business General United Rentals is the largest equipment rental company in the world. We offer for rent over 600 types of equipment--everything from heavy machines to hand tools--through our network of more than 740 rental locations in the United States, Canada and Mexico. Our customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. In 2001, we served more than 1.4 million customers, completed over 8.4 million rental transactions and generated revenues of $2.9 billion. Our fleet of rental equipment, the largest in the world, includes over 500,000 units having an original purchase price of approximately $3.6 billion. The fleet includes: . General construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts, earth moving equipment, material handling equipment, compressors, pumps and generators; . Aerial work platforms, such as scissor lifts and boom lifts; . General tools and light equipment, such as power washers, water pumps, heaters and hand tools; . Traffic control equipment, such as barricades, cones, warning lights, message boards and pavement marking systems; and . 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. In addition to renting equipment, we sell used rental equipment, act as a dealer for new equipment and sell related merchandise, parts and service. Industry Background We estimate that the U.S. equipment rental industry has grown from approximately $6.5 billion in annual rental revenues in 1990 to over $25 billion in 2000, representing a compound annual growth rate of approximately 14.5%. Industry data for 2001 is not yet available, but we expect that industry growth during the recession was significantly lower than the historical long-term growth rate. We believe that long-term industry growth, in addition to reflecting general economic expansion, is being driven by the increasing recognition by equipment users of 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; 1 . reduce storage and maintenance costs; and . access the latest technology without investing in new equipment. While the construction industry has to date been the principal user of rental equipment, industrial companies, utilities and others are increasingly using rental equipment for plant maintenance, plant turnarounds and other functions requiring the periodic use of equipment. The market for rental equipment is also benefiting from increased government funding for infrastructure projects. Competitive Advantages We believe that we benefit from the following competitive advantages: Large and Diverse Rental Fleet. Our rental fleet is the largest and most comprehensive in the industry, which allows us to: . attract customers by providing "one-stop" shopping; . serve a diverse customer base and reduce our dependence on any particular customer or group of customers; and . serve customers that require substantial quantities and/or wide varieties of equipment. Significant Purchasing Power. We purchase large amounts of equipment, merchandise and other items, which enables us to negotiate favorable pricing, warranty and other terms with our vendors. Operating Efficiencies. We benefit from the following operating efficiencies: Equipment Sharing Among Branches. We generally group our branches into clusters of 10 to 30 locations that are in the same geographic area. Each branch within a cluster can access all available equipment in the cluster area. This increases equipment utilization because equipment that is idle at one branch can be marketed and rented through other branches. In 2001, the sharing of equipment among branches accounted for approximately 10.2%, or $226 million, of our total rental revenue. Ability to Transfer Equipment Among Branches. The size of our branch network allows us to transfer equipment from branches that may have underutilized equipment to branches that require additional equipment. For example, in 2001, we transferred $793 million of equipment among our branches. Consolidation of Common Functions. We reduce costs through the consolidation of functions that are common to our more than 740 branches, such as payroll, accounts payable and credit and collection, into 18 credit offices and three service centers. State-of-the-Art Information Technology Systems. We have state-of-the-art information technology systems that facilitate our ability to make rapid and informed decisions, respond quickly to changing market conditions, and share equipment among branches. We have an in-house team of approximately 100 information technology specialists that supports our systems. Geographic and Customer Diversity. We have more than 740 branches in 47 states, seven Canadian provinces and Mexico and serve customers that range from Fortune 500 companies to small companies and homeowners. In 2001, we served more than 1.4 million customers and our top ten customers accounted for less than 3% of our revenues. We believe that our geographic and customer diversity provide us with many advantages including: (1) enabling us to better serve National Account customers with multiple locations, 2 (2) helping us achieve favorable resale prices by allowing us to access used equipment resale markets across the country, (3) reducing our dependence on any particular customer and (4) reducing the impact that fluctuations in regional economic conditions have on our overall financial performance. National Account Program. Our National Account sales force is dedicated to establishing and expanding relationships with large 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, a wide selection of equipment and a single point of contact for all their equipment needs. Our National Account team includes 34 professionals serving approximately 1,700 National Account customers. Our revenues from National Account customers increased more than 50%, to $372 million, in 2001 from $245 million in 2000. We estimate that these revenues will increase to approximately $450 million in 2002. Risk Management and Safety Programs. We believe that we have one of the most comprehensive risk management and safety programs in the industry. Our risk management department is staffed by 41 experienced professionals and is responsible for implementing our safety programs and procedures, developing our employee and customer training programs and managing any claims against us. Strong and Motivated Branch Management. Each of our branches has a full-time branch manager who is supervised by one of our 59 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 branch matters. Senior management closely tracks branch, district and regional performance with extensive systems and controls, including performance benchmarks and detailed monthly operating reviews. The compensation of branch managers and other branch personnel is linked to their branch's financial performance and return on assets. This incentivizes branch personnel to control costs, optimize pricing, share equipment with other branches and manage their fleet efficiently. Strategy Key elements of our business strategy include: Continue to Increase Rental Revenues. Despite the recession, we increased total rental revenues in 2001 by 7.6% and same store rental revenues by 5.6%. We also added 300,000 new rental customers. We will continue to promote this growth by: . actively managing the composition and size of our fleet to meet customer needs, respond to local demand and adjust to changing economic conditions; . promoting equipment sharing and cross-marketing of equipment specialties; . focusing on providing outstanding customer service and support; . marketing our services to existing and potential National Account customers that can benefit from our ability to provide a broad selection of equipment and a consistently high level of service throughout North America; and . marketing our extensive fleet of specialized lines of equipment, including (1) aerial work platforms, (2) traffic control equipment and (3) trench safety equipment. Increase Merchandise Sales. We generated about $175 million of revenues in 2001 from our business of selling merchandise--such as drill bits, gloves, hard hats and safety equipment--that can be used with our equipment. Approximately 50% of our 2001 merchandise revenues were generated by less than 15% of our branch locations. Towards the end of 2001, we initiated efforts to encourage all of our branches to aggressively build this business. Our goal is to double the size of this business over the next two to three years. 3 Continue to Control Expenses. We reduced selling, general and administrative expenses in 2001 by $12.6 million. We are seeking to continue to control these expenses in a number of ways, including further reducing administrative costs, further consolidating credit and collection centers and streamlining advertising. Selectively Open New Branches and Make Acquisitions. We intend to continue to selectively open new branches and make acquisitions that will expand our geographic reach, enhance our operating efficiency and increase our market share. In seeking acquisition candidates, we generally focus on those that will have the potential to be accretive to earnings. Continue Flexible Business Model. We have a flexible business model. When the economy is strong, we increase investment in our fleet to support strong revenue and earnings growth. During a recessionary environment, we reduce the rate at which we invest in new equipment, which increases free cash flow available to pay down debt. Although reducing fleet investment ages our fleet somewhat, we have the flexibility to do so because the fleet investment that we make during the up-part of the business cycle results in the age of our fleet being at the low end of our target range as we enter a downturn. In view of the recessionary environment, we reduced fleet investment in 2001. This enabled us to generate $346 million in free cash flow, after capital expenditures of $497 million, and to pay down almost $250 million of debt. We expect to pay down an additional $250 million of debt in 2002. As the economy improves, we will resume operating the business for significant revenue and earnings growth and again accelerate the rate at which we invest in new equipment to support aggressive growth. Products and Services Our principal products and services are described below. For financial information concerning our foreign and domestic operations, see Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this Report. Equipment Rental. We offer for rent over 600 different types of equipment on a daily, weekly or monthly basis. The types of equipment that we offer include general construction and industrial equipment; aerial work platforms; traffic control equipment; trench safety equipment; and general tools and light equipment. Our fleet of rental equipment is the largest in the world and includes over 500,000 units having an original purchase price of approximately $3.6 billion. We estimate that each of the following categories accounted for 10% or more of our equipment rental revenues in 2001: (i) aerial lift equipment (approximately 29%), (ii) earth moving equipment (approximately 15%) and (iii) forklifts (approximately 11%). Our fleet of rental equipment, which currently has a weighted average age of 31 months, is one of the newest and best maintained in the industry. Based on the rate at which we expect to purchase new equipment and sell used equipment this year, we expect that the average age will increase to approximately 37 months in 2002. Over the longer term we plan to maintain the average age of our fleet in the 35 to 45 month range. Used Equipment Sales. We routinely sell used rental equipment and invest in new equipment in order to manage the age, composition and size of our fleet. We also sell used equipment in response to customer demand for this equipment. The rate at which we replace used equipment with new equipment depends on a number of factors, including changing general economic conditions, growth opportunities, the need to adjust fleet composition to meet customer requirements and local demand, and the age of the fleet. We principally sell used equipment through (1) our national sales force, which can access many resale markets across North America and (2) our web site (www.unitedrentals.com), which includes an online database 4 of used equipment available for sale. We also dispose of our used equipment in other ways, including sales to used equipment dealers, sales through public auctions, and trade-ins to our vendors when we buy new equipment. New Equipment Sales. We are a dealer for many leading equipment manufacturers. The manufacturers that we represent and the brands that we carry include: Genie Industries, Inc., JLG Industries, Inc., and SkyJack, Inc. (aerial lifts); Multiquip, Inc. (compaction equipment, generators, pumps and concrete equipment); Bomag and Wacker (compaction equipment); Sullair Corporation (compressors); Skytrak and Lull (rough terrain reach forklifts); Scattrak (skid-steer loaders and mini-excavators); Terex Corporation (off-road dump trucks and telehandlers); and Honda USA (pumps and generators). Typically, dealership agreements do not have a specific term and may be terminated at any time. The type of new equipment that we sell varies by location. Related Merchandise, Parts and Other Services. At most of our branches, we sell a variety of supplies and merchandise such as saw blades, fasteners, drill bits, hard hats, gloves and other safety equipment and we also offer repair and maintenance services and sell parts for equipment that is owned by our customers. Our Rentalman(TM) Software. We have a subsidiary that develops and markets Rentalman/TM/ software for use by equipment rental companies in managing and operating multiple branch locations. This software package developed by this subsidiary is used by many of the largest equipment rental companies. Customers Our customer base is highly diversified and ranges from Fortune 500 companies to small businesses and homeowners. Our largest customer accounted for approximately 1% of our revenues in 2001 and our top 10 customers accounted for less than 3% of our revenues in 2001. Our customer base varies by branch and is determined by several factors, including the equipment mix and marketing focus of the particular branch and the business composition of the local economy. Our customers include: . construction companies that use equipment for building and renovating commercial buildings, warehouses, industrial and manufacturing plants, office parks, airports, residential developments and other facilities; . industrial companies--such as manufacturers, chemical companies, paper mills, railroads, ship builders and utilities--that use equipment for plant maintenance, upgrades, expansion and construction; . municipalities that require equipment for a variety of purposes, such as traffic control and highway construction and maintenance; and . homeowners and other individuals that use equipment for projects that range from simple repairs to major renovations. Sales and Marketing We market our products and services through multiple channels as described below. Sales Force. As of March 1, 2002, we had a total of 2,418 salespeople, including 1,171 store-based customer service representatives and 1,247 field-based salespeople. Our sales force calls on existing and potential customers and assists our customers in planning for their equipment needs. National Account Program. Our National Account sales force is dedicated to establishing and expanding relationships with large customers, particularly those with a national or multi-regional presence. The National 5 Account team closely coordinates its efforts with the local sales force in each area. Our National Account team currently includes 34 sales professionals. E-Rental Store(TM). Our customers can rent or buy equipment online 24 hours a day seven days a week at our E-Rental Store(TM), which is part of our web site. Our customers can also use our URdata(TM) application to access up-to-the-minute reports on their business activity with us. Advertising. We promote our business through local and national advertising in various media, including trade publications, yellow pages, the Internet, radio and direct mail. We also regularly participate in industry trade shows and conferences and sponsor a variety of local promotional events. Suppliers We have been making ongoing efforts to consolidate our vendor base in order to further increase our purchasing power. We estimate that our largest supplier accounted for approximately 31% of our equipment purchases in 2001, and that our top 10 largest suppliers accounted for approximately 87% of our equipment purchases during that period. We believe that we have alternative sources of supply for each of our material equipment categories. Information Technology Systems We have advanced information technology systems, which facilitate rapid and informed decision-making and enable us to respond quickly to changing market conditions. Each branch is equipped with one or more workstations that are electronically linked to our other locations and to our AS/400 system located at our data center. All rental transactions are entered at these workstations and processed on a real-time basis. Management and branch personnel can access the systems 24 hours a day. These systems: . allow management to obtain a wide range of operating and financial data; . enable branch personnel to (1) determine equipment availability, (2) access all equipment within a geographic region and arrange for equipment to be delivered from anywhere in the region directly to the customer, (3) monitor business activity on a real-time basis and (4) obtain customized reports on a wide range of operating and financial data, including equipment utilization, rental rate trends, maintenance histories and customer transaction histories; and . permit customers to access their accounts online. Our information technology systems and our web site are supported by our in-house group of approximately 100 information technology specialists. This group trains our personnel at the branch location; upgrades and customizes our systems; provides hardware and technology support; operates a support desk to assist branch personnel in the day-to-day use of the systems; extends the systems to newly acquired locations; and manages our web site. Competition The equipment rental industry is highly fragmented and competitive. Our competitors primarily include small, independent businesses with one or two rental locations; regional competitors which operate in one or more states; public companies or divisions of public companies; and equipment vendors and dealers who both sell and rent equipment directly to customers. We believe that, in general, large companies enjoy significant competitive advantages compared to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained 6 equipment, and greater flexibility to transfer equipment among locations in response to customer demand. For additional information, see "--Competitive Advantages." Environmental and Safety Regulations There are numerous federal, state and local laws and regulations governing environmental protection and occupational health and safety. Under these laws, an owner or lessee of real estate may be liable on a no-fault basis for, among other things, (1) the costs of removal or remediation of hazardous or toxic substances located on, in, or emanating from, the real estate, as well as related costs of investigation and property damage and substantial penalties, and (2) environmental contamination at facilities where its waste is or has been disposed. Activities that are or may be affected by these laws include our use of hazardous materials to clean and maintain equipment and our disposal of solid and hazardous waste and wastewater from equipment washing. We also dispense petroleum products from underground and aboveground storage tanks located at certain locations, and at times we must remove or upgrade tanks to comply with applicable laws. We have acquired or lease certain locations, which have or may have been contaminated by leakage from underground tanks or other sources, and we are in the process of assessing the nature of the required remediation. Based on the conditions currently known to us, we believe that any unreserved environmental remediation and compliance costs required with respect to those conditions will not have a material adverse effect on our business. However, we cannot be certain that we will not identify adverse environmental conditions that are not currently known to us, that all potential releases from underground storage tanks removed in the past have been identified, or that environmental and safety requirements will not become more stringent or be interpreted and applied more stringently in the future. If we are required to incur environmental compliance or remediation costs that are not currently anticipated by us, our business could be adversely affected depending on the magnitude of the cost. 7 Employees As of March 1, 2002, we had 13,606 employees. Of these employees, 3,935 are salaried personnel and 9,671 are hourly personnel. Collective bargaining agreements relating to 68 separate locations cover approximately 1,013 of our employees. Item 2. Properties We currently operate 741 locations. Of these locations, 662 are in the United States, 78 are in Canada and one is in Mexico. The number of locations in each state or province is shown below. United States . Alabama (11) . Louisiana (8) . Oklahoma (7) . Alaska (5) . Maine (3) . Oregon (24) . Arizona (21) . Maryland (19) . Pennsylvania (16) . Arkansas (3) . Massachusetts (11) . Rhode Island (2) . California (102) . Michigan (5) . South Carolina (9) . Colorado (18) . Minnesota (14) . South Dakota (7) . Connecticut (10) . Mississippi (2) . Tennessee (7) . Delaware (5) . Missouri (12) . Texas (55) . Florida (36) . Montana (2) . Utah (9) . Georgia (22) . Nebraska (5) . Virginia (12) . Idaho (2) . Nevada (15) . Washington (32) . Illinois (18) . New Hampshire (2) . Wisconsin (8) . Indiana (17) . New Jersey (9) . Wyoming (2) . Iowa (13) . New Mexico (5) . Kansas (5) . New York (19) . Kentucky (6) . North Carolina (23) . North Dakota (11) . Ohio (13) Canada Mexico . Alberta (3) . Nuevo Leon (1) . British Columbia (17) . Manitoba (2) . Newfoundland (9) . Ontario (34) . Quebec (11) . Saskatchewan (2)
Our branch locations generally include facilities for displaying equipment and, depending on the location, may include separate equipment service areas and storage areas. We own 90 of our rental locations and lease the other locations. In addition to our rental locations we also lease non-rental locations, for example district offices, region offices and service centers. Our leases provide for varying terms and include 30 leases that are on a month-to-month basis and 30 leases that provide for a remaining term of less than one year and do not provide a renewal option. We are currently negotiating renewals for most of the leases that provide for a remaining term of less than one year. We maintain a fleet of approximately 13,000 vehicles. These vehicles are used for delivery, maintenance and sales functions. We own a portion of this fleet and lease a portion. Our corporate headquarters are located in Greenwich, Connecticut, where we occupy approximately 28,000 square feet under (1) a lease for approximately 12,000 square feet that extends until 2003 and (2) a lease for approximately 16,000 square feet that extends until 2004 (subject to extension rights). 8 Item 3. Legal Proceedings We are party to various litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of 2001, no matter was submitted to a vote of our security holders. PART II Item 5. Market For Registrant's Common Equity and Related Stockholder Matters Price Range of Common Stock Our common stock trades on the New York Stock Exchange under the symbol "URI." The following table sets forth, for the periods indicated, the high and low sales prices for our common stock, as reported by the New York Stock Exchange.
High Low ------ ------ 2001: First Quarter.. $19.44 $13.19 Second Quarter. 26.25 15.19 Third Quarter.. 25.48 16.46 Fourth Quarter. 24.49 16.97 2000: First Quarter.. $21.25 $13.75 Second Quarter. 19.69 13.25 Third Quarter.. 24.13 17.38 Fourth Quarter. 24.31 12.00
As of March 22, 2002, there were approximately 348 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of our common stock is held of record in broker "street names." Dividend Policy We intend to retain all earnings for the foreseeable future for use in the operation and expansion of our business and, accordingly, we currently have no plans to pay dividends on our common stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. Under the terms of certain agreements governing our outstanding indebtedness, we are prohibited or restricted from paying dividends on our common stock. In addition, under Delaware law, we are prohibited from paying any dividends unless we have capital surplus or net profits available for this purpose. 9 PART II Item 6. Selected Financial Data You should read the following data together with our Consolidated Financial Statements and related Notes included elsewhere in this Report and Item 7--"Management's Discussion and Analysis of Financial Condition and Results of Operations." We completed a number of acquisitions during the periods presented below. We accounted for certain of these acquisitions, including our 1998 merger with U.S. Rentals, as poolings-of-interests. This means that, for accounting and financial reporting purposes, the acquired company is treated as having been combined with us at all times since the inception of the acquired company. Accordingly, we have restated our accounts to include the accounts of the businesses that we acquired in these pooling-of-interests transactions, except in one case where the transaction was not material. We accounted for our other acquisitions as purchases. This means that the results of operations of the acquired company are included in our financial statements only from the date of acquisition. We believe that our results for the periods presented below are not directly comparable because of the impact of the acquisitions accounted for as purchases. For additional information, see Note 3 of the Notes to Consolidated Financial Statements included elsewhere in this Report.
Year Ended December 31 ------------------------------------------------------- 1997 1998 1999 2000 2001 -------- ---------- ---------- ---------- ---------- (dollars in thousands, except per share data) Income statement data: Total revenues..................................................... $489,838 $1,220,282 $2,233,628 $2,918,861 $2,886,605 Total cost of revenues............................................. 340,546 796,834 1,408,710 1,830,291 1,847,135 -------- ---------- ---------- ---------- ---------- Gross profit....................................................... 149,292 423,448 824,918 1,088,570 1,039,470 Selling, general and administrative expenses....................... 70,835 195,620 352,595 454,330 441,751 Restructuring charge............................................... 28,922 Merger-related expenses............................................ 47,178 Non-rental depreciation and amortization........................... 13,424 35,248 62,867 86,301 106,763 Termination cost of deferred compensation agreements............... 20,290 -------- ---------- ---------- ---------- ---------- Operating income................................................... 44,743 145,402 409,456 547,939 462,034 Interest expense................................................... 11,847 64,157 139,828 228,779 221,563 Preferred dividends of a subsidiary trust.......................... 7,854 19,500 19,500 19,500 Other (income) expense, net........................................ (2,021) (4,906) 8,321 (1,836) 6,421 -------- ---------- ---------- ---------- ---------- Income before provision for income taxes and extraordinary items... 34,917 78,297 241,807 301,496 214,550 Provision for income taxes......................................... 29,508 43,499 99,141 125,121 91,977 -------- ---------- ---------- ---------- ---------- Income before extraordinary items.................................. 5,409 34,798 142,666 176,375 122,573 Extraordinary items, net (1)....................................... 1,511 21,337 11,317 -------- ---------- ---------- ---------- ---------- Net income......................................................... $ 3,898 $ 13,461 $ 142,666 $ 176,375 $ 111,256 ======== ========== ========== ========== ========== Pro forma provision for income taxes before extraordinary items (2) $ 14,176 $ 44,386 Pro forma income before extraordinary items (2).................... 20,741 33,911 Basic earnings before extraordinary items per share................ $ 0.12 $ 0.53 $ 2.00 $ 2.48 $ 1.70 Diluted earnings before extraordinary items per share.............. $ 0.11 $ 0.48 $ 1.53 $ 1.89 $ 1.30 Basic earnings per share (3)....................................... $ 0.08 $ 0.20 $ 2.00 $ 2.48 $ 1.54 Diluted earnings per share (3)..................................... $ 0.08 $ 0.18 $ 1.53 $ 1.89 $ 1.18 Other financial data: Depreciation and amortization...................................... $ 95,521 $ 211,158 $ 343,508 $ 414,432 $ 427,726 Dividends on common stock.......................................... -- -- -- -- --
December 31 ---------------------------------------------------- 1997 1998 1999 2000 2001 -------- ---------- ---------- ---------- ---------- (dollars in thousands) Balance sheet data: Cash and cash equivalents..................................... $ 72,411 $ 20,410 $ 23,811 $ 34,384 $ 27,326 Rental equipment, net......................................... 461,026 1,143,006 1,659,733 1,732,835 1,747,182 Goodwill, net(4).............................................. 73,648 922,065 1,853,279 2,215,532 2,199,774 Total assets.................................................. 826,010 2,634,663 4,497,738 5,123,933 5,061,516 Total debt.................................................... 264,573 1,314,574 2,266,148 2,675,367 2,459,522 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust............................. 300,000 300,000 300,000 300,000 Series A and B preferred stock(5)............................. 430,800 430,800 Stockholders' equity.......................................... 446,388 726,230 966,686 1,115,143 1,625,510
10 - -------- (1)The charge in 1997 resulted from the prepayment of certain debt by U.S. Rentals. The charge in 1998 resulted from the early extinguishment of certain debt and primarily reflected prepayment penalties on certain debt of U.S. Rentals. The charge in 2001 resulted from the refinancing of certain debt and primarily reflected the write-off of deferred financing fees. (2)U.S. Rentals was taxed as a Subchapter S Corporation until its initial public offering in February 1997, and another company that we acquired in a pooling-of-interests transaction was taxed as a Subchapter S Corporation until being acquired by us in 1998. In general, the income or loss of a Subchapter S Corporation is passed through to its owners rather than being subjected to taxes at the entity level. Pro forma provision for income taxes before extraordinary items and pro forma income before extraordinary items reflect a provision for income taxes as if all such companies were liable for federal and state income taxes as taxable corporate entities for all periods presented. (3)Our earnings during 1997 were impacted by $20.3 million ($0.40 per diluted share) of expenses relating to the termination of certain deferred compensation expenses in connection with U.S. Rentals' initial public offering, a $7.5 million ($0.15 per diluted share) charge to recognize deferred tax liabilities of U.S. Rentals and an extraordinary item (net of income taxes) of $1.5 million ($0.03 per diluted share). Our earnings during 1998 were impacted by merger-related expenses of $47.2 million ($33.2 million net of taxes or $0.45 per diluted share), a $4.8 million ($0.07 per diluted share) charge to recognize deferred tax liabilities of a company acquired in a pooling-of-interests transaction and an extraordinary item (net of income taxes) of $21.3 million ($0.30 per diluted share). Our earnings during 1999 were impacted by $18.2 million ($10.8 million net of taxes or $0.12 per diluted share) of expenses incurred related to a terminated tender offer. Our earnings during 2001 were impacted by a restructuring charge of $28.9 million ($19.2 million net of taxes or $0.20 per diluted share), a $7.8 million ($5.2 million net of taxes or $0.06 per diluted share) charge, recorded in other expense, relating to refinancing costs of a synthetic lease and an extraordinary item (net of income taxes) of $11.3 million ($0.12 per diluted share). (4)Goodwill is defined as the excess of cost over the fair value of identifiable net assets of businesses acquired and is amortized on a straight-line basis over forty years. Beginning January 1, 2002, in accordance with the adoption of a new accounting standard, goodwill will no longer be amortized. See Item 7--"Management's Discussion and Analysis of Financial Condition and Results of Operations--Changes in Accounting Treatment for Goodwill and Other Intangible Assets" and Note 2 to the Notes to Consolidated Financial Statements included elsewhere in this Report. (5)We issued series A and B perpetual convertible preferred stock in 1999 and included such preferred stock in stockholders' equity. In July 2001, the SEC issued guidance to all public companies as to when redeemable preferred stock may be classified as stockholders' equity. Under this guidance, the series A and B preferred would not be included in stockholders' equity because this stock would be subject to mandatory redemption on a hostile change of control. On September 28, 2001, we entered into an agreement effecting the exchange of new series C and D perpetual convertible preferred stock for the series A and B preferred. The series C and D preferred is not subject to mandatory redemption on a hostile change of control, and is included in stockholders' equity under the recent SEC guidance. The effect of the foregoing is that our perpetual convertible preferred stock is included in stockholders' equity as of September 28, 2001 and thereafter, but is outside of stockholders' equity for earlier dates. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General We are the largest equipment rental company in the world. Our revenues are divided into three categories: . Equipment rentals--This category includes our revenues from renting equipment. This category also includes related revenues such as the fees we charge for equipment delivery, fuel, repair of rental equipment and damage waivers. . Sales of rental equipment--This category includes our revenues from the sale of used rental equipment. . Sales of equipment and merchandise and other revenues--This category principally includes our revenues from the following sources: (i) the sale of new equipment, (ii) the sale of supplies and merchandise, (iv) repair services and the sale of parts for equipment owned by customers, and (v) the operations of our subsidiary that develops and markets software for use by equipment rental companies in managing and operating multiple branch locations. Our cost of operations consists primarily of: (i) depreciation costs relating to the rental equipment that we own and lease payments for the rental equipment that we hold under operating leases, (ii) the cost of repairing and maintaining rental equipment, (iii) the cost of the items that we sell including new and used equipment and related parts, merchandise and supplies and (iv) personnel costs, occupancy costs and supply costs. We record rental equipment expenditures at cost and depreciate 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 goodwill and other intangible assets . Goodwill represents the excess of the purchase price of acquired companies over the estimated fair market value of the net assets acquired. As described below, effective January 1, 2002, we will no longer amortize goodwill. Our other intangible assets are principally non-compete agreements. We completed acquisitions in each of 1999, 2000 and 2001. See Note 3 to the Notes to our Consolidated Financial Statements included elsewhere in this Report. In view of the fact that our operating results for these years were affected by acquisitions, we believe that our results for these periods are not directly comparable. Change in Accounting Treatment for Goodwill and Other Intangible Assets Effective January 1, 2002, we adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" issued by the Financial Accountants Standards Board ("FASB"). Under this standard, our goodwill, which we previously amortized over 40 years, will no longer be amortized. We amortized $58.4 million of goodwill in 2001. Our approximately $15.8 million of other intangible assets, which consist of non-compete agreements, will continue to be amortized over their estimated useful lives. We will be required to review our goodwill for impairment during the first six months of 2002 and at least annually thereafter. In general, this means that we must determine whether the fair value of the goodwill, determined in accordance with applicable accounting standards, is at least equal to the recorded value shown on our balance sheet. If the fair value of the goodwill falls below the recorded value, we will be required to write-off the excess goodwill and to 12 treat this write-off as an expense. We are currently performing the initial impairment analysis required by the new accounting standard and estimate that we will record a non-cash charge in the first quarter of 2002 of approximately $350 million. This charge will be recorded on the income statement as a "Cumulative Effect of Change in Accounting Principle" and will reduce our stockholders' equity by the amount of the charge. Critical Accounting Policies We prepare our financial statements in accordance with accounting principles generally accepted in the United States. A summary of our significant accounting policies is contained in Note 2 to the Notes to our Consolidated Financial Statements included elsewhere in this Report. In applying many accounting principles, we need to make assumptions, estimates and/or judgments. These assumptions, estimates and judgments are often subjective and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and judgments have the potential to materially alter our results of operations. We have identified below those of our accounting policies that we believe could potentially produce materially different results were we to change underlying assumptions, estimates and judgments. Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts. This allowance reflects our estimate of the amount of our receivables that we will be unable to collect. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance. Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment and property and equipment over their estimated useful lives, after giving effect to an estimated salvage value of 0% to 10% of cost. The useful life of an asset is determined based on our estimate of the period the asset will generate revenues, and the salvage value is determined based on our estimate of the minimum value we could realize from the asset after such period. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets. Impairment of Goodwill. As described above, we must periodically determine whether the fair value of our goodwill is at least equal to the recorded value shown on our balance sheet. See "Change in Accounting Treatment for Goodwill and Other Intangible Assets." We must make estimates and assumptions in evaluating the fair value of goodwill. We may be required to change these estimates and assumptions based on changes in our business prospects or other changing circumstances. If these estimates change in the future, we may be required to record impairment charges for goodwill not previously recorded. Restructuring. During 2001, we recorded reserves in connection with the restructuring plan described below. These reserves include estimates pertaining to workforce reduction costs and costs of vacating facilities and related settlements of contractual obligations. Although we do not anticipate significant changes, the actual costs may differ from these estimates and we may be required to record additional expense not previously recorded. Restructuring Plan in 2001 During 2001, we adopted a restructuring plan involving the following principal elements: (i) 31 underperforming branches were closed or consolidated with other locations; (ii) five administrative offices were closed or consolidated with other locations; (iii) the reduction of our workforce by 489 through the termination of branch and administrative personnel (including 440 terminated as of December 31, 2001) and (iv) certain information technology hardware and software was no longer used. The aggregate annual revenues from the 31 branches that were eliminated amounted to approximately $82 million. We expect that we will retain approximately $54 million of this revenue by shifting the business of some of the closed branches to other locations. We estimate that we will realize annual cost savings from the branch closures of approximately $33 million. 13 We recorded, in the second quarter of 2001, a restructuring charge of approximately $28.9 million relating to the restructuring plan described above. During 2001, total activity was approximately $21.9 million consisting of approximately $11.0 million of cash payments and approximately $10.9 million of non-cash charges. Of the remaining $7.0 million of this charge, approximately $3.6 million will be paid by December 31, 2002 and approximately $3.4 million will be paid in future periods. The restructuring charge includes: (1) the cost of vacating facilities, primarily the payment of obligations under leases offset by estimated sublease opportunities ($9.9 million); the write-off of capital improvements made to such facilities ($2.8 million) and the write-off of related goodwill ($5.6 million); (2) workforce reduction costs, primarily severance, and (3) information technology costs comprised of the abandonment of certain information technology projects ($2.5 million) and the payment of obligations under equipment leases relating to such projects ($2.5 million). The table below provides certain information concerning the restructuring charge:
Balance Amount of Activity December 31, Components of Restructuring Charge Charge in 2001 (1) 2001 (2) ---------------------------------- --------- ----------- ------------ Cost to vacate facilities..... $18,291 $14,753 $3,538 Workforce reduction costs..... 5,666 3,611 2,055 Information technology costs... 4,965 3,548 1,417 ------- ------- ------ Total..................... $28,922 $21,912 $7,010 ======= ======= ======
- -------- (1)Represents the non-cash component of the charge plus the cash component that was paid through December 31, 2001. (2)Represents the portion of the cash component of the charge that had not been paid as of December 31, 2001. Debt Refinancing and Extraordinary Item We refinanced an aggregate of $1,695.7 million of indebtedness and other obligations in April 2001, as described under "--Liquidity and Capital Resources--Financing Transactions in 2001." We recorded the following charges relating to this refinancing in the second quarter of 2001: (i) a pre-tax extraordinary charge of $18.1 million ($11.3 million, net of tax) that relates to the refinancing of indebtedness and primarily reflects the write-off of deferred financing fees and (ii) a pre-tax charge of $7.8 million ($5.2 million, net of tax) that is recorded in other (income) expense, net, and relates to the refinancing of a synthetic lease. Results of Operations General Overview of 2001 Our revenues were $2,886.6 million in 2001 compared with $2,918.9 million in 2000. The 1.1% decrease in 2001 revenues was due to lower sales of used rental equipment. As further described below, in response to the recession, we slowed investment in new equipment and held existing equipment longer. Our other revenue categories increased in 2001. Rental revenues increased 7.6% and revenues from "sale of equipment, and merchandise and other revenues" increased 2.4%. Growth in rental revenues at locations open more than one year, or same store rental revenues, was 5.6% for 2001 and 3.0% in the fourth quarter of 2001. Rental rates for 2001 and the fourth quarter of 2001 were down 0.8% and 1.1%, respectively, compared to the corresponding prior year periods. In response to weakness in the economy, we slowed investment in new equipment and held existing equipment longer. This enabled us to increase free cash flow and repay debt. We generated approximately $346 million of free cash flow in 2001, after capital expenditures of approximately $497 million, and used a portion of this cash to pay down approximately $247 million of debt and synthetic lease obligations. Because we slowed our sale of used equipment, our revenues from the sales of rental equipment was down $200.6 million, or 57.7%, in 2001. Prices for used equipment were somewhat lower in the second half of 2001 than at the beginning of 2001. 14 The decrease in revenues from sales of rental equipment and the $28.9 million restructuring charge described above are the principal reasons for the decrease in our operating income to $462.0 million in 2001 from $547.9 million in 2000. This decrease in operating income and the $7.8 million pre-tax charge described above relating to the refinancing of a synthetic lease are the principal reasons for the decrease in our income before extraordinary item to $122.6 million in 2001 from $176.4 million in 2000. If the economy improves, we should have the potential to increase same store revenue growth. However, we believe that our results will not reflect the effects of a strengthening economy until the second half of 2002 at the earliest. In addition, as described above under "--Change in Accounting Treatment for Goodwill and Other Intangible Assets," we expect to incur a charge in the first quarter associated with a change in accounting treatment. Even without that charge, which will depress first quarter earnings, we would not expect an increase in earnings per share for 2002 over 2001 levels (other than earnings increases attributable to elimination of goodwill amortization under the new accounting treatment). Additional Information Years Ended December 31, 2001 and 2000 Revenues. We had total revenues of $2,886.6 million in 2001, representing a decrease of 1.1% from total revenues of $2,918.9 million in 2000. The different components of our revenues are discussed below: 1. Equipment Rentals. Our revenues from equipment rentals was $2,212.9 million 2001, representing an increase of 7.6% from $2,056.7 million in 2000. These revenues accounted for 76.7% of our total revenues in 2001 compared with 70.5% of our total revenues in 2000. The increase in rental revenues reflected the following: . We increased our revenues at locations open more than one year. This increase accounted for approximately 5.6 percentage points of the total increase of 7.6%. The increase in revenues at these locations was due to an increase in the volume of transactions, which was more than sufficient to offset a decline in rental rates. As described above, rental rates for full year 2001 and fourth quarter 2001 were down 0.8% and 1.1%, respectively, compared to the corresponding year ago periods. . We also had additional revenues because we added new rental locations through start-ups and acquisitions. These additional revenues, net of revenues lost due to locations sold or closed, accounted for approximately 2.0 percentage points of the total increase of 7.6%. 2. Sales of Rental Equipment. Our revenues from the sale of rental equipment were $147.1 million in 2001, representing a decrease of 57.7% from $347.7 million in 2000. These revenues accounted for 5.1% of our total revenues in 2001 compared with 11.9% of our total revenues in 2000. This decrease principally reflected our decision discussed above to slow investment in new equipment and hold existing equipment longer during a recessionary environment. 3. Sales of Equipment and Merchandise and Other Revenues. Our revenues from "sale of equipment, and merchandise and other revenues" were $526.6 million in 2001, representing an increase of 2.4% from $514.5 million in 2000. These revenues accounted for 18.2% of our total revenues in 2001 compared with 17.6% of our total revenues in 2000. The 2.4% increase in sales of equipment and merchandise and other revenues was attributable to the increase in the volume of transactions. Gross Profit. Our gross profit decreased to $1,039.5 million in 2001 from $1,088.6 million in 2000. This decrease reflected the decrease in total revenues discussed above, as well as the decrease in gross profit margin described below from equipment rental and the sales of rental equipment. Information concerning our gross profit margin by source of revenue is set forth below: 1. Equipment Rentals. Our gross profit margin from equipment rental revenues was 37.9% in 2001 and 39.9% in 2000. The decrease in 2001 principally reflected: (i) an increase in our cost of equipment rental, which was principally attributable to an increase in the amount of equipment that we hold under operating leases rather than owning, and (ii) the decrease in rental rates described above. 15 2. Sales of Rental Equipment. Our gross profit margin from the sales of rental equipment was 39.7% in 2001 and 40.1% in 2000. This decrease was primarily the result of modest price declines in some geographic areas. 3. Sales of Equipment and Merchandise and Other Revenues. Our gross profit margin from "sales of equipment and merchandise and other revenues" was 27.1% in 2001 and 24.9% in 2000. The increase in the gross profit margin in 2001 primarily reflected: (i) lower costs resulting from our ongoing efforts to consolidate our suppliers and further capitalize on our purchasing power and (ii) a shift in mix which resulted in more of our sales being attributable to higher margin areas such as providing services and merchandise sales. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A) were $441.8 million, or 15.3% of total revenues, during 2001 and $454.3 million, or 15.6% of total revenues, during 2000. The decrease in SG&A in 2001 primarily reflected cost-cutting measures that we have taken, including reducing the number of administrative personnel, reducing discretionary expenditures and consolidating certain credit and collection facilities. We are seeking to continue to cut costs in a number of ways, including further reducing administrative costs, further consolidating credit and collection centers and streamlining advertising. Restructuring Charge. We recorded a restructuring charge of $28.9 million in 2001. See "--Restructuring Plan in 2001" for additional information. Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $106.8 million, or 3.7% of total revenues, in 2001 and $86.3 million, or 3.0% of total revenues, in 2000. The increase in the dollar amount of non-rental depreciation and amortization in 2001 primarily reflected (1) the amortization of goodwill attributable to acquisitions completed during 2000 and (2) additional non-rental vehicles which generally have shorter useful lives. Interest Expense. Interest expense decreased to $221.6 million in 2001 from $228.8 million in 2000. This decrease primarily reflected lower interest rates on our variable rate debt. Preferred Dividends of a Subsidiary Trust. During 2001 and 2000, preferred dividends of a subsidiary trust were $19.5 million. Other (Income) Expense. Other expense was $6.4 million in 2001 compared with other income of $1.8 million in 2000. The increase in other expense in 2001 was primarily attributable to the $7.8 million charge we incurred relating to the refinancing costs of a synthetic lease as described under "--Debt Refinancing and Extraordinary Item." Income Taxes. Income taxes were $92.0 million, or an effective rate of 42.9%, in 2001 compared to $125.1 million, or an effective rate of 41.5%, in 2000. The increase in the effective rate in 2001 was primarily attributable to the non-deductibility for income tax purposes of certain costs included in the restructuring charge. Extraordinary Item. We recorded an extraordinary charge of $18.1 million ($11.3 million, net of tax) in 2001. See "--Debt Refinancing and Extraordinary Item" for additional information. Years Ended December 31, 2000 and 1999 Revenues. We had total revenues of $2,918.9 million in 2000, representing an increase of 30.7% over total revenues of $2,233.6 million in 1999. Our revenues in 2000 and 1999 by source were as follows: (i) equipment rental revenues were $2,056.7 million, or 70.5% of revenues, in 2000 compared to $1,581.0 million, or 70.8% of revenues, in 1999; (ii) revenues from the sale of rental equipment were $347.7 million, or 11.9% of revenues, in 2000 compared to $235.7 million, or 10.6% of revenues, in 1999; and (iii) revenues from "sales of equipment and merchandise and other revenues" were $514.5 million, or 17.6% of revenues, in 2000 compared to $416.9 million, or 18.7% of revenues, in 1999. 16 The 30.7% increase in total revenues in 2000 reflected the following: . We increased our revenues at locations open more than one year. This increase accounted for approximately 12.9 percentage point of the total increase of 30.7%. This same store growth was attributable to (i) increases in the volume of transactions and utilization rates, which accounted for 10.9 of the 12.9 percentage points, and (ii) price increases, which accounted for 2.0 of the 12.9 percentage points. The increase in volume primarily reflected (a) an increase in rental transactions, (b) an increase in the sale of related merchandise and parts which was driven by the increase in equipment rental transactions and (c) an increase in the sale of used equipment. . We also had additional revenues because we added new rental locations through start-ups and acquisitions. These additional revenues, net of revenues lost due to locations sold or closed, accounted for approximately 17.8 percentage point of the total increase of 30.7%. Gross Profit. Gross profit increased to $1,088.6 million in 2000 from $824.9 million in 1999. This increase in gross profit was primarily attributable to the increase in revenues described above. Our gross profit margin by source of revenue in 2000 and 1999 was: (i) equipment rental (39.9% in 2000 and 39.4% in 1999); (ii) sales of rental equipment (40.1% in 2000 and 42.0% in 1999); and (iii) sales of equipment and merchandise and other revenues (24.9% in 2000 and 24.6% in 1999). The increase in the gross profit margin from rental revenues in 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 2000 reflected a change in the age mix of the used equipment sold. In general, the sale of relatively new equipment generates lower gross profit margins than the sale of somewhat older equipment. Selling, General and Administrative Expenses. SG&A was $454.3 million, or 15.6% of total revenues, during 2000 and $352.6 million, or 15.8% of total revenues, during 1999. SG&A in 1999 included an $8.3 million charge primarily due to professional fees incurred in connection with a terminated tender offer. Excluding this charge, SG&A as a percentage of revenues was 15.4% in 1999. Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $86.3 million, or 3.0% of total revenues, in 2000 and $62.9 million, or 2.8% of total revenues, in 1999. Interest Expense. Interest expense increased to $228.8 million in 2000 from $139.8 million in 1999. This increase primarily reflected (i) an increase in our indebtedness, principally to fund acquisitions, and (ii) an increase in the interest rates applicable to our variable rate debt. Preferred Dividends of a Subsidiary Trust. During 2000 and 1999, preferred dividends of a subsidiary trust were $19.5 million. Other (Income) Expense. Other income was $1.8 million in 2000 compared to $8.3 million of other expense in 1999. The other expense in 1999 was attributable to a $9.9 million charge that principally related to fees that we paid for a $2.0 billion financing commitment that was subsequently cancelled upon termination of a tender offer made by us in 1999. Income Taxes. Income taxes increased to $125.1 million, or an effective rate of 41.5%, in 2000 from $99.1 million, or an effective rate of 41.0%, in 1999. Liquidity and Capital Resources Financing Transactions in 2001 Set forth below is information concerning certain financing transactions completed in 2001: Refinancing Transaction. In April 2001, we refinanced all of the indebtedness that was then outstanding on our old revolving credit facility and term loans. In order to effect this refinancing, we: . issued $450.0 million of 10 3/4% Senior Notes Due 2008 (the "103/4% Notes"); 17 . obtained a new senior secured credit facility comprised of a $750.0 million term loan and a $750.0 million revolving credit facility; and . used the proceeds from the 103/4% Notes, the new term loan and borrowings under the new revolving credit facility to (i) permanently repay the outstanding balance under our old revolving credit facility ($476.0 million); (ii) repay outstanding term loans ($1,188.5 million) and (iii) repay an outstanding synthetic lease ($31.2 million). Receivables Securitization. We have an accounts receivable securitization facility under which one of our subsidiaries can borrow up to $250 million against a collateral pool of accounts receivable. During 2001, this subsidiary increased its outstanding borrowings under this facility by $101.5 million. For additional information, see "--Certain Information Concerning Receivables Securitization." Certain Balance Sheet Changes The decrease in debt at December 31, 2001 compared to December 31, 2000 was attributable to increased principal payments due to increased cash flow from operations during 2001. The increase in additional paid in capital at December 31, 2001 compared to December 31, 2000 was primarily attributable to our perpetual convertible preferred stock being included in Stockholders' Equity on the December 31, 2001 balance sheet but not on the December 31, 2000 balance sheet (see Note 2 to Notes to Consolidated Financial Statements included elsewhere in this Report). Sources and Uses of Cash During 2001, we (i) generated cash from operations of approximately $696.7 million, and (ii) generated cash from the sale of rental equipment of approximately $147.1 million. We used cash during this period principally to (i) pay consideration for acquisitions and settle certain outstanding liabilities due to former owners of businesses that we acquired (approximately $54.8 million), (ii) purchase rental equipment (approximately $449.8 million), (iii) purchase other property and equipment (approximately $47.5 million), (iv) repay debt and a synthetic lease obligation (approximately $247.0 million), (v) purchase and retire shares of our outstanding common stock (approximately $14.3 million, net of proceeds from option exercises), and (vi) pay financing fees related to the refinancing of certain of our debt (approximately $29.0 million). Certain Information Concerning Our Credit Facility Our revolving credit facility enables URI to borrow up to $750 million on a revolving basis and enables one of its Canadian subsidiaries to borrow up to $40 million (provided that the aggregate borrowings of URI and the Canadian subsidiary may not exceed $750 million). Up to $100 million of the revolving credit facility is available in the form of letters of credit. The revolving credit facility will mature and terminate on October 20, 2006. As of December 31, 2001, borrowings under the revolving credit facility by URI accrue interest, at our option, at either (A) the ABR Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan Bank's prime rate) plus a margin of 1.25% or (B) an adjusted LIBOR rate plus a margin of 2.25%. The above interest rate margins are adjusted quarterly based on our financial leverage ratio, up to maximum margins of 1.75% and 2.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively, and down to minimum margins of 0.75% and 1.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively. If at any time an event of default exists, the interest rate applicable to each loan will increase by 2% per annum. We are also required to pay the lenders a commitment fee equal to 0.5% per annum in respect of undrawn commitments under the revolving credit facility. 18 Certain Information Concerning Receivables Securitization We have an accounts receivable securitization facility under which one of our subsidiaries can borrow up to $250 million against a collateral pool of accounts receivable. The borrowings under the facility and the receivables in the collateral pool are included in the liabilities and assets, respectively, reflected on our consolidated balance sheet. Key terms of this facility include: . borrowings may be made only to the extent that the face amount of the receivables in the collateral pool exceeds the outstanding loans by a specified amount; . the facility is structured so that the receivables in the collateral pool are the lenders only source of repayment; . prior to expiration or early termination of the facility, amounts collected on the receivables may, subject to certain conditions, be retained by the borrower, provided that the remaining receivables in the collateral pool are sufficient to secure the then outstanding borrowings; and . after expiration or early termination of the facility, we will repay the borrowings. As of December 31, 2001, (i) the outstanding borrowings under the facility were approximately $201.5 million and (ii) the aggregate face amount of the receivables in the collateral pool was approximately $337.6 million. The agreement governing this facility, which was amended in June 2001, contemplates that the term of the facility may extend for up to three years from the date of the amended facility. However, on each anniversary of such date, the consent of the lender is required for the facility to renew for the next year. The next anniversary date is in June 2002. We plan to seek the lender's approval for renewal. Certain Information Concerning Operating Leases From time to time we have entered into operating leases pursuant to which we lease, as lessee, equipment or real estate. Certain of these leases were entered into as part of sale and lease-back transactions. In 2001, we were the seller-lessee in sale-leaseback transactions with unrelated third parities in which we sold rental equipment and real estate for aggregate proceeds of $51.0 million. For additional information concerning lease payment obligations under our operating leases, see "-Certain Information Concerning Contractual Obligations" and Note 14 to the Notes to our Consolidated Financial Statements included elsewhere in this Report. Certain Information Concerning Trust Preferred Securities In August 1998, a subsidiary trust of United Rentals, Inc. sold six million shares of 6% Convertible Quarterly Income Preferred Securities ("Trust Preferred Securities") for aggregate consideration of $300 million. During 2002, we repurchased 335,000 of these shares (having an aggregate liquidation preference of approximately $16.8 million) for aggregate consideration of approximately $11.5 million. Relationship Between Holdings and URI 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. 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 URI. 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 19 distributions to Holdings to, among other things, enable Holdings to pay dividends on the Trust Preferred Securities that were issued by a subsidiary trust of Holdings as described above . 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. Cash Requirements Related to Operations Our principal existing sources of cash are cash generated from operations and borrowings available under our revolving credit facility. As of March 12, 2002, we had $502.6 million of borrowing capacity available under our $750 million revolving credit facility (reflecting outstanding loans of approximately $167.5 million and outstanding letters of credit in the amount of approximately $79.9 million). We believe that our existing sources of cash will be sufficient to support our existing operations over the next 12 months. We expect that our principal needs for cash relating to our existing operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory items offered for sale, (iii) payments due under operating leases, (iv) debt service and (v) costs relating to the restructuring charge. We plan to fund such cash requirements relating to our existing operations from our existing sources of cash described above. In addition, we plan to seek additional financing through the securitization of certain of our equipment. As described above, the annual renewal of our accounts receivable securitization facility requires the lender's consent. If we do not obtain this consent, then the facility will terminate in June 2002 and we will repay the borrowings thereunder. In addition, we are required to make principal payments of approximately $21.3 million in 2002 in respect of other indebtedness. We may also elect to repay debt that is not due. The amount of our capital expenditures during 2002 will depend on a number of factors, including general economic conditions and growth prospects. Based on current conditions, we estimate that capital expenditures for the year 2002 will be approximately $435 million for our existing operations. These expenditures are comprised of approximately (i) $280 million of expenditures to replace rental equipment sold, (ii) $115 million of discretionary expenditures to increase the size of our rental fleet and (iii) $40 million of expenditures for the purchase of non-rental equipment. We expect that we will fund such expenditures from proceeds from the sale of used equipment, cash generated from operations and, if required, borrowings available under our revolving credit facility. We estimate that the weighted average age of our rental fleet, which currently is approximately 31 months, will increase up to approximately 37 months in 2002 as a result of the rate at which we purchase new equipment and sell used equipment. We ultimately plan to maintain an average age ranging from 35 to 45 months. While emphasizing internal growth, we may also continue to expand through a disciplined acquisition program. We expect to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that our existing sources of cash described above are not sufficient to fund such future acquisitions, we will require additional debt or equity financing and, consequently, our indebtedness may increase or the ownership of existing stockholders may be diluted as we implement our growth strategy. There can be no assurance, however, that any additional financing will be available or, if available, will be on terms that are satisfactory to us. For information on amounts due under operating leases in 2002, see "--Certain Information Concerning Operating Lease." 20 Certain Information Concerning Contractual Obligations The table below provides certain information concerning the payments coming due under our existing contractual obligations described in the footnotes below:
2002 2003 2004 2005 2006 Thereafter Total --------- -------- -------- -------- -------- ---------- ---------- (in thousands) Debt (1)............. $222,784(3) $ 16,013 $ 25,088 $ 8,351 $254,071 $1,933,215 $2,459,522 Operating leases (2): Real estate......... 61,139 57,356 52,955 45,573 41,081 125,506 383,610 Rental equipment.... 84,486 72,813 69,346 57,551 48,199 23 332,418 Other equipment..... 24,314 22,131 16,733 4,973 334 68,485 --------- -------- -------- -------- -------- ---------- ---------- Total................ $ 392,723 $168,313 $164,122 $116,448 $343,685 $2,058,744 $3,244,035 ========= ======== ======== ======== ======== ========== ==========
- -------- (1)Represents the scheduled maturities of our debt for each of the next five years and thereafter as of December 31, 2001. For additional information on our debt, see Note 8 to the Notes to Consolidated Financial Statements included elsewhere in this Report. (2)Represents the future minimum lease payments under our noncancellable operating leases with initial or remaining terms of one year or more for each of the next five years and thereafter as of December 31, 2001. For additional information on our operating leases, see Note 14 to the Notes to Consolidated Financial Statements included elsewhere in this Report. (3)Includes $201.5 million that is payable should our accounts receivable securitization facility terminate in 2002. As described under "--Certain Information Concerning Receivables Securitization,'' subject to lender's consent being obtained, the term of this facility will be extended. Extension of the facility in 2002 would reduce the debt payable in 2002 from $222.8 million to $21.3 million and increase by a corresponding amount the debt payable in the year during which the extended facility terminates. Fluctuations in Operating Results We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term. Certain of the general factors that may cause such fluctuations are discussed under "--Factors that May Influence Future Results and Accuracy of Forward Looking Statements--Fluctuations of Operating Results." Accounting For Certain Expenses Relating to Potential Acquisitions In accordance with accounting principles generally accepted in the United States, we capitalize certain direct out-of-pocket expenditures (such as legal and accounting fees) relating to potential or pending acquisitions. Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. Our policy is to charge against earnings any capitalized expenditures relating to any potential or pending acquisition that we determine will not be consummated. There can be no assurance that in future periods we will not be required to incur a charge against earnings in accordance with such policy, which charge, depending upon the magnitude thereof, could adversely affect our results of operations. Seasonality Our business is seasonal with demand for our rental equipment tending to be lower in the winter months. The seasonality of our business has been heightened by our 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 we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had, and is not likely in the foreseeable future to have, a material impact on our results of operations. 21 Impact of Recently Issued Accounting Standards In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This standard addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. Effectve July 1, 2001, the Company adopted SFAS No. 141. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This standard addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." This standard is effective for fiscal years beginning after December 15, 2001. However, this standard is immediately effective in cases where goodwill and other intangible assets are acquired after June 30, 2001. Under this standard, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. For additional information, see "Change in Accounting Treatment For Goodwill and Other Intangible Assets." In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This standard is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected to have a material effect on our 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, decreases in construction or industrial activity due to a recession or other reasons may lead to a decrease in the demand for our equipment or the prices that we can charge. Any such decrease could adversely affect our revenues and operating results. For example, as discussed above, we expect that until the economy strengthens our same store rental revenues and pricing will be down on a year-over-year basis due to the current recessionary environment. We have identified below certain factors that may cause a further downturn in construction and industrial activity, either temporarily or long-term: . a continuation or a worsening of the current recessionary environment; . an increase in interest rates; or . adverse weather conditions which may temporarily affect a particular region. In addition, demand for our equipment may not reach projected levels in the event that 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. A recent proposal by the President would, if enacted by Congress, reduce TEA-21 spending by up to approximately $8.6 billion beginning in late 2002. 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. These factors include: . seasonal rental patterns of our customers, with rental activity tending to be lower in the winter; . completion of acquisitions; . changes in the amount of revenue relating to renting traffic control equipment, since revenues from this equipment category tend to be more seasonal than the rest of our business; 22 . changes in the size of our rental fleet or in the rate at which we sell our used equipment; . changes in demand for our equipment or the prices therefor due to changes in economic conditions, competition or other factors; . changes in the interest rates applicable to our floating rate debt; . if we determine that a potential acquisition will not be consummated, the need to charge against earnings any expenditures relating to such transaction (such as financing commitment fees, merger and acquisition advisory fees and professional fees) previously capitalized; and . the possible need, from time to time, to take other write-offs or special charges due to a variety of occurrences, such as the adoption of new accounting standards, store consolidations or closings or the refinancing of existing indebtedness. Substantial Indebtedness At December 31, 2001, our total indebtedness was approximately $2,459.5 million. Our substantial indebtedness has the potential to affect us adversely in a number of ways. For example, it will or could: . require us to devote a substantial portion of our cash flow to debt service, reducing the funds available for other purposes; . constrain our ability to obtain additional financing, particularly since substantially all of our assets are subject to security interests relating to existing indebtedness; or . make it difficult for us to cope with a downturn in our business or a decrease in our cash flow. Furthermore, if we are unable to service our indebtedness and fund our business, we will be forced to adopt an alternative strategy that may include: . reducing or delaying capital expenditures; . limiting our growth; . seeking additional capital; . selling assets; or . restructuring or refinancing our indebtedness. We cannot be sure that any of these strategies could be effected on favorable terms or at all. A portion of our indebtedness bears interest at variable rates that are linked to changing market interest rates. As a result, an increase in market interest rates would increase our interest expense and our debt service obligations. At December 31, 2001, we had $1,017.2 million of variable rate indebtedness. Dependence on Additional Capital 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, we may be unable to fund the capital outlays required for the success of our business, including those relating to purchasing equipment, making acquisitions, opening new rental locations and refinancing existing indebtedness. Restrictive Covenants We are subject to various restrictive financial and operating covenants under the agreements governing our indebtedness. These covenants 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 acquisitions. These covenants could adversely affect our business by significantly limiting our operating and financial flexibility. 23 Certain Risks Relating to Acquisitions We have grown in part through acquisitions and may continue to do so. The making of acquisitions entails certain risks, including: . unrecorded liabilities of acquired companies that we fail to discover during our due diligence investigations; . difficulty in assimilating the operations and personnel of the acquired company with our existing operations; . loss of key employees of the acquired company; and . difficulty maintaining uniform standards, controls, procedures and policies. We cannot guarantee that we will realize the expected benefits from our acquisitions or that our existing operations will not be harmed as a result of acquisitions. Substantial Goodwill At December 31, 2001, we had on our balance sheet net goodwill in the amount of $2,199.8 million, which represented approximately 43.5% of our total assets at such date. This goodwill is an intangible asset and represents the excess of the purchase price that we paid for acquired businesses over the estimated fair market value of the net assets of those businesses. If the fair value of the goodwill, determined in accordance with applicable accounting standards, were to fall below the recorded value shown on the balance sheet, we would be required to write off the excess goodwill. Any write-off would adversely affect our results. For information concerning a charge relating to goodwill that we expect to take in the first quarter of 2002, see "--Change in Accounting Treatment For Goodwill and Other Intangible Assets." Dependence on Management Our success is highly dependent on the experience and skills of our senior management team. If we lose the services of any member of this team and are unable to find a suitable replacement, we may not have the depth of senior management resources required to efficiently manage our business and execute our strategy. We do not maintain "key man" life insurance on the lives of 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, equipment manufacturers may commence or increase their existing efforts relating to renting and selling equipment directly to our customers or potential customers. Competitive pressures could adversely affect our revenues and operating results by decreasing our market share or depressing the prices that we can charge. Dependence on Information Technology Systems Our information technology systems facilitate our ability to monitor and control our operations and adjust to changing market conditions. Any disruptions in these systems or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations and adjust to changing market conditions. 24 Liability and Insurance We are exposed to various possible claims relating to our business. These possible claims include those 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 $98.0 million per occurrence; . we do not maintain coverage for environmental liability (other than legally required fuel storage tank coverage), 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. If we are found liable for any significant claims that are not covered by insurance, our operating results could be adversely affected. We cannot be certain that insurance will continue to be available to us on economically reasonable terms, if at all. Environmental and Safety Regulations Our operations are subject to numerous laws governing environmental protection and occupational health and safety matters. These laws regulate such issues as wastewater, stormwater, solid and hazardous wastes and materials, and air quality. Under these laws, we may be liable for, among other things, (1) the costs of investigating and remediating contamination at our sites as well as sites to which we sent hazardous wastes for disposal or treatment regardless of fault and (2) fines and penalties for non-compliance. Our operations generally do not raise significant environmental risks, but we use hazardous materials to clean and maintain equipment, and dispose of solid and hazardous waste and wastewater from equipment washing, and store and dispense petroleum products from underground and above-ground storage tanks located at certain of our locations. Based on the conditions currently known to us, we do not believe that any pending or likely remediation and compliance costs will have a material adverse effect on our business. We cannot be certain, however, as to the potential financial impact on our business if new adverse environmental conditions are discovered or environmental and safety requirements become more stringent. 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. Labor Matters We have 1,013 employees that are represented by unions and covered by collective bargaining agreements. If we should experience a prolonged labor dispute involving a significant number of our employees, our ability to serve our customers could be adversely affected. Furthermore, our labor costs could increase as a result of the settlement of actual or threatened labor disputes. Operations Outside the United States Our operations outside the United States are subject to the risks normally associated with international operations. These include (1) the need to convert currencies, which could result in a gain or loss depending on fluctuations in exchange rates, (2) the need to comply with foreign laws and (3) the possibility of political or economic instability in foreign countries. 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk primarily consists of (1) interest rate risk associated with our variable rate debt and (2) foreign currency exchange rate risk primarily associated with our Canadian operations. Interest Rate Risk. We periodically utilize interest rate swap agreements to manage and mitigate our exposure to changes in interest rates. At December 31, 2001, we had interest rate protection in the form of swap agreements with an aggregate notional amount of $500.0 million. The effect of some of these agreements is to limit the interest rate exposure to 9.5% on $200.0 million of our term loan. The effect of the remainder of these agreements is to convert $300.0 million of our fixed rate 9 1/4% Notes to a floating rate instrument through 2009. We have the following indebtedness that bears interest at a variable rate: (i) all borrowings under our $750 million revolving credit facility ($71.3 million outstanding as of December 31, 2001); (ii) our term loan ($744.4 million remaining outstanding as of December 31, 2001); and (iii) all borrowings under our $250 million accounts receivable securitization facility ($201.5 million outstanding as of December 31, 2001). The weighted average interest rates applicable to our variable rate debt as of December 31, 2001 were (i) 4.5% for the revolving credit facility, (ii) 5.3% for the term loan and (iii) 2.6% for the receivables securitization facility. Based upon the amount of variable rate debt outstanding, taking into account our interest rate swap agreements, as of December 31, 2001 (approximately $1.12 billion in the aggregate), our net income would decrease by approximately $6.8 million for each one percentage point increase in the interest rates applicable to our variable rate debt. The amount of our variable rate indebtedness may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under the revolving credit facility from time to time. For additional information concerning the terms of our variable rate debt, see Note 8 of the Notes to Consolidated Financial Statements included elsewhere in this Report. Currency Exchange Risk. The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. Based upon the current level of our Canadian operations, a 10% change in this exchange rate would not have a material impact on our earnings. In addition, we periodically enter into foreign exchange contracts to hedge our transaction exposures. At December 31, 2001, we had no outstanding foreign exchange contracts. We do not engage in purchasing forward exchange contracts for speculative purposes. 26 Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS
Page ---- (1) Consolidated Financial Statements: Report of Independent Auditors........................................................... 28 United Rentals, Inc. Consolidated Balance Sheets--December 31, 2001 and 2000............. 29 United Rentals, Inc. Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999....................................................... 30 United Rentals, Inc. Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999....................................................... 31 United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999....................................................... 32 Notes to Consolidated Financial Statements............................................... 34 Report of Independent Auditors........................................................... 66 United Rentals (North America), Inc. Consolidated Balance Sheets--December 31, 2001 and 2000............................................................................... 67 United Rentals (North America), Inc. Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999................................................. 68 United Rentals (North America), Inc. Consolidated Statements of Stockholder's Equity for the years ended December 31, 2001, 2000 and 1999....................................... 69 United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999................................................. 70 Notes to Consolidated Financial Statements............................................... 71 (2) Financial Statement Schedules: Report of Independent Auditors on Financial Statement Schedules.......................... 80 Schedule I Condensed Financial Information of the Registrant............................. 81 Schedule II Valuation and Qualifying Accounts............................................ 85
Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the financial statements or notes thereto. 27 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. We have audited the accompanying consolidated balance sheets of United Rentals, Inc. as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the management of United Rentals, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP MetroPark, New Jersey February 19, 2002 28 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEETS
December 31 -------------------------------- 2001 2000 ---------- ---------- (In thousands, except share data) ASSETS Cash and cash equivalents......................................................... $ 27,326 $ 34,384 Accounts receivable, net of allowance for doubtful accounts of $47,744 in 2001 and $55,624 in 2000................................................................. 450,273 469,594 Inventory......................................................................... 85,764 133,380 Prepaid expenses and other assets................................................. 133,217 104,493 Rental equipment, net............................................................. 1,747,182 1,732,835 Property and equipment, net....................................................... 410,053 422,239 Goodwill, net of accumulated amortization of $161,570 in 2001 and $103,219 in 2000................................................................ 2,199,774 2,215,532 Other intangible assets, net...................................................... 7,927 11,476 ---------- ---------- $5,061,516 $5,123,933 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable............................................................... $ 204,773 $ 260,155 Debt........................................................................... 2,459,522 2,675,367 Deferred taxes................................................................. 297,024 206,243 Accrued expenses and other liabilities......................................... 174,687 136,225 ---------- ---------- Total liabilities.......................................................... 3,136,006 3,277,990 Commitments and contingencies Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust.............................................................. 300,000 300,000 Series A and B preferred stock.................................................... 430,800 Stockholders' equity: Preferred stock--$.01 par value, 5,000,000 shares authorized: Series C perpetual convertible preferred stock--$300,000 liquidation preference, 300,000 shares issued and outstanding............................ 3 Series D perpetual convertible preferred stock--$150,000 liquidation preference, 150,000 shares issued and outstanding............................ 2 Common stock--$.01 par value, 500,000,000 shares authorized, 73,361,407 shares issued and outstanding in 2001 and 71,065,707 in 2000................. 734 711 Additional paid-in capital..................................................... 1,243,586 765,529 Deferred compensation.......................................................... (55,794) Retained earnings.............................................................. 467,106 355,850 Accumulated other comprehensive loss........................................... (30,127) (6,947) ---------- ---------- Total stockholders' equity................................................. 1,625,510 1,115,143 ---------- ---------- $5,061,516 $5,123,933 ========== ==========
See accompanying notes. 29 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 ---------------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands, except per share amounts) Revenues: Equipment rentals.................................... $2,212,900 $2,056,683 $1,581,026 Sales of rental equipment............................ 147,101 347,678 235,678 Sales of equipment and merchandise and other revenues 526,604 514,500 416,924 ---------- ---------- ---------- Total revenues........................................ 2,886,605 2,918,861 2,233,628 Cost of revenues: Cost of equipment rentals, excluding depreciation.... 1,053,635 907,477 676,972 Depreciation of rental equipment..................... 320,963 328,131 280,641 Cost of rental equipment sales....................... 88,742 208,182 136,678 Cost of equipment and merchandise sales and other operating costs.................................... 383,795 386,501 314,419 ---------- ---------- ---------- Total cost of revenues................................ 1,847,135 1,830,291 1,408,710 ---------- ---------- ---------- Gross profit.......................................... 1,039,470 1,088,570 824,918 Selling, general and administrative expenses.......... 441,751 454,330 352,595 Restructuring charge.................................. 28,922 Non-rental depreciation and amortization.............. 106,763 86,301 62,867 ---------- ---------- ---------- Operating income...................................... 462,034 547,939 409,456 Interest expense...................................... 221,563 228,779 139,828 Preferred dividends of a subsidiary trust............. 19,500 19,500 19,500 Other (income) expense, net........................... 6,421 (1,836) 8,321 ---------- ---------- ---------- Income before provision for income taxes and extraordinary item.................................. 214,550 301,496 241,807 Provision for income taxes............................ 91,977 125,121 99,141 ---------- ---------- ---------- Income before extraordinary item...................... 122,573 176,375 142,666 Extraordinary item, net of tax benefit of $6,759...... 11,317 ---------- ---------- ---------- Net income............................................ $ 111,256 $ 176,375 $ 142,666 ========== ========== ========== Earnings per share--basic: Income before extraordinary item..................... $ 1.70 $ 2.48 $ 2.00 Extraordinary item, net.............................. 0.16 ---------- ---------- ---------- Net income........................................... $ 1.54 $ 2.48 $ 2.00 ========== ========== ========== Earnings per share--diluted: Income before extraordinary item..................... $ 1.30 $ 1.89 $ 1.53 Extraordinary item, net.............................. 0.12 ---------- ---------- ---------- Net income........................................... $ 1.18 $ 1.89 $ 1.53 ========== ========== ==========
See accompanying notes. 30 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock -------------- Series C Series D Perpetual Perpetual Convertible Convertible Number Additional Compre- Preferred Preferred of Paid-in Deferred Retained hensive Stock Stock Shares Amount Capital Compensation Earnings Income ----------- ----------- ------ ------ ---------- ------------ -------- -------- (In thousands) Balance, December 31, 1998.............. 68,428 $ 684 $ 689,018 $ 36,809 Comprehensive income: Net income........................... 142,666 $142,666 Other comprehensive income: Foreign currency translation adjustments........................ 598 -------- Comprehensive income.................. $143,264 ======== Issuance of common stock.............. 2,292 23 64,678 Exercise of common stock options...... 1,331 14 32,477 ----- ----- ------ ------ ---------- -------- -------- Balance, December 31, 1999.............. 72,051 721 786,173 179,475 Comprehensive income: Net income........................... 176,375 $176,375 Other comprehensive income: Foreign currency translation adjustments........................ (7,264) -------- Comprehensive income.................. $169,111 ======== Issuance of common stock.............. 774 8 9,867 Exercise of common stock options...... 26 421 Shares repurchased and retired........ (1,785) (18) (30,932) ----- ----- ------ ------ ---------- -------- -------- Balance, December 31, 2000.............. 71,066 711 765,529 355,850 Comprehensive income:................. Net income........................... 111,256 $111,256 Other comprehensive income: Foreign currency translation adjustments........................ (16,137) Cumulative effect on equity of adopting FAS 133, net of tax of $1,784............................. (2,516) Derivatives qualifying as hedges, net of tax of $3,212............... (4,527) -------- Comprehensive income.................. $ 88,076 ======== Issuance of common stock under deferred compensation plans.......... 2,928 29 61,941 (61,970) Amortization of deferred compensation......................... 6,176 Issuance of Series C perpetual convertible preferred stock.......... $ 3 286,734 Issuance of Series D perpetual convertible preferred stock.......... $ 2 143,667 Issuance of common stock.............. 3 50 Exercise of common stock options...... 715 8 10,409 Shares repurchased and retired........ (1,351) (14) (24,744) ----- ----- ------ ------ ---------- -------- -------- Balance, December 31, 2001.............. $ 3 $ 2 73,361 $ 734 $1,243,586 $(55,794) $467,106 ===== ===== ====== ====== ========== ======== ========
Accumulated Other Comprehensive (Loss) Income ------------- Balance, December 31, 1998.............. $ (281) Comprehensive income: Net income........................... Other comprehensive income: Foreign currency translation adjustments........................ 598 Comprehensive income.................. Issuance of common stock.............. Exercise of common stock options...... -------- Balance, December 31, 1999.............. 317 Comprehensive income: Net income........................... Other comprehensive income: Foreign currency translation adjustments........................ (7,264) Comprehensive income.................. Issuance of common stock.............. Exercise of common stock options...... Shares repurchased and retired........ -------- Balance, December 31, 2000.............. (6,947) Comprehensive income:................. Net income........................... Other comprehensive income: Foreign currency translation adjustments........................ (16,137) Cumulative effect on equity of adopting FAS 133, net of tax of $1,784............................. (2,516) Derivatives qualifying as hedges, net of tax of $3,212............... (4,527) Comprehensive income.................. Issuance of common stock under deferred compensation plans.......... Amortization of deferred compensation......................... Issuance of Series C perpetual convertible preferred stock.......... Issuance of Series D perpetual convertible preferred stock.......... Issuance of common stock.............. Exercise of common stock options...... Shares repurchased and retired........ -------- Balance, December 31, 2001.............. $(30,127) ========
See accompanying notes. 31 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 ----------------------------------- 2001 2000 1999 ----------- --------- ----------- (In thousands) Cash Flows From Operating Activities: Net income....................................................................... $ 111,256 $ 176,375 $ 142,666 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................................. 427,726 414,432 343,508 Gain on sales of rental equipment.............................................. (58,359) (139,496) (99,000) Gain on sales of businesses.................................................... (4,084) (1,842) Amortization of deferred compensation.......................................... 6,176 Restructuring charge........................................................... 10,893 Extraordinary item............................................................. 18,076 Deferred taxes................................................................. 100,683 109,280 41,820 Changes in operating assets and liabilities: Accounts receivable............................................................ 24,888 8,613 (93,716) Inventory...................................................................... 87,084 69,706 (6,544) Prepaid expenses and other assets.............................................. 8,148 (29,848) 7,257 Accounts payable............................................................... (58,713) (16,091) 64,453 Accrued expenses and other liabilities......................................... 18,852 (76,166) 22,758 ----------- --------- ----------- Net cash provided by operating activities..................................... 696,710 512,721 421,360 ----------- --------- ----------- Cash Flows From Investing Activities: Purchases of rental equipment.................................................... (449,770) (808,204) (718,112) Purchases of property and equipment.............................................. (47,548) (153,770) (123,649) Proceeds from sales of rental equipment.......................................... 147,101 347,678 235,678 Proceeds from sales of businesses................................................ 19,246 6,521 Purchases of other companies..................................................... (54,838) (347,337) (986,790) Payments of contingent purchase price............................................ (2,103) (16,266) (8,216) In-process acquisition costs..................................................... (2,485) (4,285) (1,002) ----------- --------- ----------- Net cash used in investing activities......................................... (409,643) (962,938) (1,595,570) ----------- --------- ----------- Cash Flows From Financing Activities: Proceeds from issuance of common stock, net of issuance costs.................... 64,701 Proceeds from the issuance of Series A Preferred, net of issuance costs.......... 287,000 Proceeds from the issuance of Series B Preferred, net of issuance costs.......... 143,800 Proceeds from debt............................................................... 2,053,467 456,202 1,083,616 Payments on debt................................................................. (2,300,507) (134,599) (497,650) Proceeds from sale-leaseback..................................................... 12,435 193,478 88,000 Payments of financing costs...................................................... (29,042) (16,408) (19,443) Proceeds from the exercise of common stock options............................... 10,417 331 26,989 Shares repurchased and retired................................................... (24,758) (30,950) ----------- --------- ----------- Net cash provided by (used in) financing activities........................... (277,988) 468,054 1,177,013 Effect of foreign exchange rates................................................. (16,137) (7,264) 598 ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents............................. (7,058) 10,573 3,401 Cash and cash equivalents at beginning of year................................... 34,384 23,811 20,410 ----------- --------- ----------- Cash and cash equivalents at end of year......................................... $ 27,326 $ 34,384 $ 23,811 =========== ========= ===========
See accompanying notes. 32 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Year Ended December 31 ------------------------------- 2001 2000 1999 -------- --------- ---------- (In thousands) Supplemental disclosure of cash flow information: Cash paid for interest............................................... $230,385 $ 248,763 $ 124,285 Cash paid for taxes, net of refunds.................................. $(30,799) $ 23,746 $ 17,509 Supplemental schedule of non-cash investing and financing activities The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired........................................ $ 21,465 $ 529,204 $1,468,567 Liabilities assumed................................................. (4,612) (133,120) (472,382) Less: Amounts paid in common stock...................................... (10,000) Amounts paid through issuance of debt............................. (600) (65,500) (9,395) -------- --------- ---------- 16,253 320,584 986,790 Due to seller and other payments.................................... 38,585 26,753 -------- --------- ---------- Net cash paid........................................................ $ 54,838 $ 347,337 $ 986,790 ======== ========= ==========
See accompanying notes. 33 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Basis of Presentation United Rentals, Inc. is principally a holding company ("Holdings") and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of URI. Holdings was incorporated in July 1998 and became the parent of URI on August 5, 1998, pursuant to the reorganization of the legal structure of URI. Prior to such reorganization, the name of URI was United Rentals, Inc. References herein to the "Company" refer to Holdings and its subsidiaries, with respect to periods following the reorganization, and to URI and its subsidiaries, with respect to periods prior to the reorganization. As a result of the reorganization, Holdings' primary asset is its sole ownership of all issued and outstanding shares of common stock of URI. URI's various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder. The Company rents a broad array of equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others in the United States, Canada and Mexico. In addition to renting equipment, the Company sells used rental equipment, acts as a dealer for new equipment and sell related merchandise, parts and service. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Therefore, the accompanying balance sheets are presented on an unclassified basis. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, giving retroactive effect for the reorganization for all periods presented. All significant intercompany accounts and transactions have been eliminated. 2. Summary of Significant Accounting Policies Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts. This allowance reflects the Company's estimate of the amount of its receivables that it will be unable to collect. Inventory Inventory consists of equipment, tools, parts, fuel and related supply items. Inventory is stated at the lower of cost or market and is net of a reserve for obsolescence and shrinkage of $9.4 million and $15.5 million at December 31, 2001 and 2000, respectively. Cost is determined on either a weighted average or first-in, first-out method. Rental Equipment Rental equipment is recorded at cost and depreciated over the estimated useful lives of the equipment using the straight-line method. The range of estimated useful lives for rental equipment is two to ten years. Rental equipment is depreciated to a salvage value of zero to ten percent of cost. Ordinary repair and maintenance costs are charged to operations as incurred. 34 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of estimated useful lives for property and equipment is two to thirty-nine years. Ordinary repair and maintenance costs are charged to operations as incurred. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining life of the lease, whichever is shorter. Goodwill Goodwill consists of the excess of cost over the fair value of identifiable net assets of businesses acquired and is amortized on a straight-line basis over forty years. Beginning January 1, 2002, goodwill will no longer be amortized, but will be tested on at least an annual basis for impairment, see "--Impact of Recently Issued Accounting Standards" for further information. Other Intangible Assets Other intangible assets consists of non-compete agreements. The non-compete agreements are being amortized on a straight-line basis for a period ranging from three to eight years. Long-Lived Assets Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of the valuation of long-lived assets, the Company assesses the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates that the carrying value of these assets may not be recoverable, as determined by a nondiscounted cash flow analysis over the remaining useful life, the carrying value would be reduced to its estimated fair value. There have been no material impairments recognized in these financial statements. Derivative Financial Instruments The FASB issued, and subsequently amended, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which became effective for the Company on January 1, 2001. Under SFAS No. 133, all derivatives are required to be recorded as assets or liabilities and measured at fair value. Gains or losses resulting from changes in the values of derivatives are recognized immediately or deferred, depending on the use of the derivative and whether or not it qualifies as a hedge. Derivative financial instruments are periodically used by the Company in the management of its interest rate and foreign currency exposures. Derivative financial instruments are not used for trading purposes. Translation of Foreign Currency Assets and liabilities of the Company's subsidiaries operating outside the United States which account in a functional currency other than U.S. dollars are translated into U.S. dollars using exchange rates at the end of the year. Revenues and expenses are translated at average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive loss within shareholders' equity. 35 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fair Value of Financial Instruments The carrying amounts reported in the balance sheets for accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of the revolving credit facility, term loan, and receivables securitization are determined using current interest rates for similar instruments as of December 31, 2001 and 2000 and approximate the carrying value of these financial instruments due to the fact that the underlying instruments include provisions to adjust interest rates to approximate fair market value. The estimated fair value of the Company's other financial instruments at December 31, 2001 and 2000 are based upon available market information and are as follows:
2001 2000 -------------------------- -------------------------- Carrying Amount Fair Value Carrying Amount Fair Value --------------- ---------- --------------- ---------- (In thousands) Redeemable convertible preferred securities........................ $ 300,000 $ 204,480 $300,000 $133,125 Senior and senior subordinated notes 1,401,653 1,427,850 951,153 702,500 Other debt.......................... 40,717 40,717 94,086 94,086
Preferred Stock The Company issued Series A Perpetual Convertible Preferred Stock ("Series A Preferred") and Series B Perpetual Convertible Preferred Stock ("Series B Preferred") in 1999 and included such preferred stock in stockholders' equity. In July 2001, the SEC issued guidance to all public companies as to when redeemable preferred stock may be classified as stockholders' equity. This guidance indicates that preferred stock that would be subject to redemption on the occurrence of an event outside the control of the issuer may not be classified as equity and that the probability of the event occurring is not a factor to be considered. Under this guidance, the Series A Preferred and Series B Preferred would not be included in stockholders' equity because this stock would be subject to mandatory redemption on a hostile change of control. On September 28, 2001, the Company entered into an agreement effecting the exchange of new Series C Perpetual Convertible Preferred Stock ("Series C Preferred") for the Series A Preferred and new Series D Perpetual Convertible Preferred Stock ("Series D Preferred") for the Series B Preferred (see Note 10). The Series C Preferred and Series D Preferred stock is not subject to mandatory redemption on a hostile change of control, and is classified as stockholders' equity under the recently issued SEC guidance. The effect of the foregoing is that the Company's perpetual convertible preferred stock is classified as stockholders' equity as of September 28, 2001 and thereafter, but is classified outside of stockholders' equity for earlier dates. Accordingly, the Company has restated the 2000 balance sheet to show its $430.8 million of perpetual convertible preferred stock under "Series A and B Preferred Stock" rather than under "Stockholders' Equity." The Company has also made a corresponding change to the related Consolidated Statements of Stockholders' Equity. In all other respects, the financial statements remain unchanged, including total assets and liabilities, revenues, operating income, net income and earnings per share. Revenue Recognition Revenue related to the sale of equipment and merchandise is recognized at the time of delivery to, or pick-up by, the customer. Revenue related to rental equipment is recognized over the contract term. 36 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Advertising Expense The Company advertises primarily through trade publications and yellow pages. Advertising costs are expensed as incurred and totaled $11.9 million, $23.8 million and $19.0 million for the years ended December 31, 2001, 2000 and 1999, respectively. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not realized in future periods. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include restructuring charges, allowance for doubtful accounts, useful lives for depreciation, goodwill and other asset impairments, loss contingencies and fair values of financial instruments. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions. Concentration of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company's customer base. No single customer represents greater than 1% of total accounts receivable. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. Stock-Based Compensation The Company accounts for its stock based compensation arrangements under the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". Since stock options are granted by the Company with exercise prices at or greater than the fair value of the shares at the date of grant, no compensation expense is recognized. Insurance The Company is insured for general liability, workers' compensation, and group medical claims up to a specified claim and aggregate amounts (subject to a deductible of one million dollars). Insured losses subject to this deductible are accrued based upon the aggregate liability for reported claims incurred and an estimated liability for claims incurred but not reported. These liabilities are not discounted. 37 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Impact of Recently Issued Accounting Standards In June 2001, the FASB issued SFAS No. 141, "Business Combinations". This standard addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. Effective July 1, 2001, the Company adopted SFAS No. 141. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". This standard addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets". This standard is effective for fiscal years beginning after December 15, 2001. However, this standard is immediately effective in cases where goodwill and intangible assets are acquired after June 30, 2001. Under this standard, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Goodwill amortization for the year ended December 31, 2001 was approximately $58.4 million. The Company is currently performing impairment tests in connection with the adoption of this standard on January 1, 2002 and estimates the non-cash transition charge to be approximately $350 million, which will be recognized in the first quarter of 2002. This charge will be recorded on the income statement as a "Cumulative Effect of Change in Accounting Principle" and will reduce our stockholders' equity by the amount of the charge. In August 2001, the FA issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This standard is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 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 2001 presentation. 3. Acquisitions The acquisitions completed during the years ended December 31, 2001, 2000 and 1999 include 3, 53 and 102 acquisitions, respectively, that were accounted for as purchases. The results of operations of the businesses acquired in these acquisitions have been included in the Company's results of operations from their respective acquisition dates. The aggregate initial consideration paid by the Company for 2001 acquisitions that were accounted for as purchases was $12.1 million and consisted of approximately $11.5 million in cash and $0.6 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness in the aggregate amount of approximately $4.9 million. During 2000, the Company purchased the outstanding stock and certain assets of (i) Liddell Brothers Inc., in February, (ii) Safety Lites Sales and Leasing, Inc., in March, (iii) Durante Equipment Corp., Inc., in June, (iv) Horizon High Reach, Inc., in September, and (v) Wiese Planning & Engineering Inc., in December. The aggregate initial consideration paid for these five acquisitions that were accounted for as purchases was approximately $153.1 million and consisted of $83.8 million in cash and 761,905 shares of common stock and $59.3 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of these companies acquired in the aggregate amount of approximately $5.5 million. 38 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The aggregate initial consideration paid by the Company for other 2000 acquisitions that were accounted for as purchases was $210.2 million and consisted of approximately $184.6 million in cash and $6.2 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in the other 2000 acquisitions in the aggregate amount of $77.5 million. During 1999, the Company purchased the outstanding stock and certain assets of (i) National Equipment Finance Company, in June, (ii) Mi-Jack Products, Inc. and related entities, in May, (iii) Elmen Rent All, Inc., in June (iv) Forte, Inc., in March, and (v) Arayco, Inc. in June. The aggregate initial consideration paid for these five acquisitions that were accounted for as purchases was approximately $275.4 million and consisted of $270.4 million in cash and $5.0 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of these companies acquired in the aggregate amount of approximately $99.8 million. The aggregate initial consideration paid by the Company for other 1999 acquisitions accounted for as purchases was $663.6 million and consisted of approximately $659.2 million in cash and $4.4 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in the other 1999 acquisitions in the aggregate amount of approximately $239.3 million. The purchase prices for all acquisitions accounted for as purchases have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. However, the Company has not completed its valuation of all of its purchases and, accordingly, the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The preliminary purchase price allocations that are subject to change primarily consists of rental and non-rental equipment valuations. These allocations are finalized within 12 months of the acquisition date and are not expected to result in significant differences between the preliminary and final allocations. The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the year ended December 31, 2000 as though each acquisition described above was made on January 1, 2000 (in thousands, except per share data). Revenues.................. $3,095,872 Net income................ 182,342 Basic earnings per share.. $ 2.54 ========== Diluted earnings per share $ 1.94 ==========
Since the acquisitions made during the year ended December 31, 2001 had an insignificant impact on the Company's pro forma results of operations, the pro forma results of operations for the year ended December 31, 2001 are not shown. 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. Other Costs The results of operations for the year ended December 31, 1999 include pre-tax expenses related to a terminated tender offer totaling approximately $18.2 million ($10.8 million after tax), primarily consisting of $8.3 million in professional fees recorded in selling, general and administrative expense and $9.9 million in financing commitment fees recorded in other (income) expense, net. 39 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. Restructuring Charge During the second quarter of 2001, the Company recorded a restructuring charge of approximately $28.9 million. The charge primarily relates to the closure or consolidation of underperforming branches and administrative offices, a reduction in the Company's workforce, and the abandonment of certain information technology projects. During 2001, total activity was approximately $21.9 million consisting of approximately $11.0 million of cash payments and approximately $10.9 million of non-cash charges. Of the remaining $7.0 million of this charge, approximately $3.6 million will be paid by December 31, 2002 and approximately $3.4 million will be paid in future periods. Components of the restructuring charge are as follows:
Activity Balance Restructuring in December 31, Charge 2001 2001 ------------- -------- ------------ (In thousands) Costs to vacate facilities............... $18,291 $14,753 $3,538 Workforce reduction costs................ 5,666 3,611 2,055 Information technology costs............. 4,965 3,548 1,417 ------- ------- ------ $28,922 $21,912 $7,010 ======= ======= ======
Under the restructuring plan, 31 underperforming branches and five administrative offices were closed or consolidated as of December 31, 2001, the Company's workforce will be reduced by 489 through the termination of branch and administrative personnel (including 440 terminated as of December 31, 2001), and certain information technology hardware and software will no longer be used. The workforce reduction costs primarily represent severance. The costs to vacate facilities primarily represent the payment of obligations under leases offset by estimated sublease opportunities ($9.9 million), the write-off of capital improvements made to such facilities ($2.8 million) and the write-off of related goodwill ($5.6 million). The information technology costs represent the abandonment of certain information technology projects ($2.5 million) and the payment of obligations under equipment leases relating to such projects ($2.5 million). 5. Rental Equipment Rental equipment consists of the following:
December 31 ---------------------- 2001 2000 ---------- ---------- (In thousands) Rental equipment................................. $2,485,573 $2,281,994 Less accumulated depreciation.................... (738,391) (549,159) ---------- ---------- Rental equipment, net............................ $1,747,182 $1,732,835 ---------- ----------
40 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Property and Equipment Property and equipment consist of the following:
December 31 -------------------- 2001 2000 --------- --------- (In thousands) Land..................................................... $ 45,050 $ 53,612 Buildings................................................ 91,097 104,925 Transportation equipment................................. 247,548 228,265 Machinery and equipment.................................. 47,672 36,587 Furniture and fixtures................................... 61,573 56,109 Leasehold improvements................................... 61,194 48,952 --------- --------- 554,134 528,450 Less accumulated depreciation and amortization........... (144,081) (106,211) --------- --------- Property and equipment, net.............................. $ 410,053 $ 422,239 ========= =========
7. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following:
December 31 ----------------- 2001 2000 -------- -------- (In thousands) Accrued profit sharing...................................... $ 40,412 $ 39,485 Accrued insurance........................................... 18,559 15,428 Accrued interest............................................ 47,671 36,993 Other....................................................... 68,045 44,319 -------- -------- $174,687 $136,225 ======== ========
41 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Debt Debt consists of the following:
December 31 --------------------- 2001 2000 ---------- ---------- (In thousands) Credit Facility, interest payable at a weighted average rate of 4.5% and 7.8% at December 31, 2001 and 2000, respectively.................................................. $ 71,259 $ 337,000 Term Loan, interest payable at 5.3% at December 31, 2001........ 744,375 Term Loan B, interest payable at 8.9% at December 31, 2000............................................. 246,875 Term Loan C, interest payable at 9.3% at December 31, 2000............................................. 748,125 Term Loan D, interest payable at a weighted average rate of 9.2% at December 31, 2000..................................... 198,128 9 1/2% Senior Subordinated Notes, interest payable semi-annually................................................. 200,000 200,000 8.8% Senior Subordinated Notes, interest payable semi-annually.. 201,653 201,153 9 1/4% Senior Subordinated Notes, interest payable semi-annually................................................. 300,000 300,000 9% Senior Subordinated Notes, interest payable semi-annually.... 250,000 250,000 10 3/4% Senior Notes, interest payable semi-annually............ 450,000 Receivables securitization, interest payable at 2.6% and 7.4% at December 31, 2001 and 2000, respectively...................... 201,518 100,000 Other debt, interest payable at various rates ranging from 5.3% to 10% and 4% to 11% at December 31, 2001 and 2000, respectively, due through 2005................................ 40,717 94,086 ---------- ---------- $2,459,522 $2,675,367 ========== ==========
Refinancing Transaction. In April 2001, the Company obtained the new senior secured credit facility and issued the 10 3/4% senior notes both described below. The proceeds from the senior secured credit facility and senior notes were used to refinance outstanding secured indebtedness of approximately $1,664.5 million and obligations under a synthetic lease of $31.2 million. As a result of the refinancing, the Company recorded an extraordinary charge of approximately $18.1 million ($11.3 million, net of tax), primarily related to the write-off of financing fees, and a charge of approximately $7.8 million recorded in other (income) expense, net related to refinancing costs of the synthetic lease. 42 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) New Senior Secured Credit Facility. The new senior secured credit facility that the Company obtained in April 2001 is comprised of a revolving credit facility and a term loan. New Revolving Credit Facility. The revolving credit facility enables URI to borrow up to $750 million on a revolving basis and enables one of its Canadian subsidiaries to borrow up to $40 million (provided that the aggregate borrowings of URI and the Canadian subsidiary may not exceed $750 million). Up to $100 million of the revolving credit facility is available in the form of letters of credit ($65.5 million outstanding as of December 31, 2001). The revolving credit facility will mature and terminate on October 20, 2006. As of December 31, 2001, borrowings under the revolving credit facility accrue interest, at the Company's option, at either (A) the ABR Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan Bank's prime rate) plus a margin of 1.25% or (B) an adjusted LIBOR rate plus a margin of 2.25%. The above interest rate margins are adjusted quarterly based on the Company's financial leverage ratio, up to maximum margins of 1.75% and 2.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively, and down to minimum margins of 0.75% and 1.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively. As of December 31, 2001, borrowings by the Canadian subsidiary under the revolving credit facility accrue interest, at such subsidiary's option, at either (X) the Prime rate (which is equal to the Chase Manhattan Bank of Canada's prime rate) plus a margin of 1.25% or (Y) the B/A rate (which is equal to the Chase Manhattan Bank of Canada's B/A rate) plus a margin of 2.25%. The above interest rate margins are adjusted quarterly based on the Company's financial leverage ratio, up to maximum margins of 1.75% and 2.75%, for revolving loans based on the Prime rate and the B/A rate, respectively, and down to minimum margins of 0.75% and 1.75%, for revolving loans based on the Prime rate and the B/A rate, respectively. If at any time an event of default exists, the interest rate applicable to each loan will increase by 2% per annum. The Company is also required to pay the lenders a commitment fee equal to 0.5% per annum in respect of undrawn commitments under the revolving credit facility. New Term Loan. On April 20, 2001, URI obtained a $750 million term loan. Amounts repaid in respect of the term loan may not be reborrowed. URI must repay the principal of the term loan in installments, over six and one-half years, as follows: (i) on June 30, 2001 and on the last day of each calendar quarter thereafter up to and including September 30, 2006, URI must repay $1.9 million and (ii) on the last day of each calendar quarter thereafter up to and including September 30, 2007, URI must repay $177.2 million. Borrowings under the term loan accrue interest, at URI's option, at either (a) the ABR rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan Bank's prime rate) plus a margin of 2.0%, or (b) an adjusted LIBOR rate plus a margin of 3.0%. 43 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Covenants. The agreements governing the new senior secured credit facility contain certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) the ratio of senior debt to cash flow, (b) minimum interest coverage ratio, (c) the ratio of funded debt to cash flow, and (d) the ratio of senior debt to tangible assets. These agreements also contain various other covenants that restrict the Company's ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) pay dividends or make other restricted payments on its common stock and certain other securities and (iv) make acquisitions unless certain financial conditions are satisfied. Guarantees and Security. URI's obligations under the new senior secured facility are, subject to limited exceptions, (i) guaranteed by Holdings and URI's United States subsidiaries and (ii) secured by substantially all of URI's assets, the stock of URI and the stock of Holding's other United States subsidiaries and a portion of the stock of Holding's Canadian subsidiaries. The obligations of the Canadian subsidiary that may borrow under the revolving credit facility are guaranteed by the Company's other Canadian subsidiaries and secured by substantially all of the assets of this Canadian subsidiary and the stock of its subsidiaries. 10 3/4% Senior Notes. URI issued $450 million aggregate principal amount of 10 3/4% Senior Notes (the "10 3/4% Notes") which are due April 15, 2008. The net proceeds from the sale of the 10 3/4% Notes were approximately $439.9 million (after deducting the initial purchasers' discount and offering expenses). The 10 3/4% Notes are unsecured and are guaranteed by Holdings and URI's domestic subsidiaries. The 10 3/4% Notes mature on April 15, 2008 and may be redeemed by URI on or after April 15, 2005, at specified redemption prices that range from 105.375% in 2005 to 100.0% in 2007 and thereafter. In addition, on or prior to April 15, 2004, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 10 3/4% Notes at a redemption price of 110.75%. The indenture governing the 10 3/4% Notes contains certain restrictive covenants, including limitations on (i) additional indebtedness, (ii) restricted payments, (iii) liens, (iv) dividends and other payments, (v) preferred stock of certain subsidiaries, (vi) transactions with affiliates, (vii) the disposition of proceeds of asset sales and (viii) the Company's ability to consolidate, merge or sell all or substantially all of its assets. Senior Subordinated Notes. The senior subordinated notes shown in the debt table above were issued by URI, are unsecured, and are guaranteed by URI's domestic subsidiaries. The 9 1/2% Senior Subordinate Notes mature on June 1, 2008 and may be redeemed by URI on or after June 1, 2003, at specified redemption prices that range from 104.75% in 2003 to 100.0% in 2006 and thereafter. The 8.80% Senior Subordinated Notes mature on August 15, 2008 and may be redeemed by URI on or after August 15, 2003, at specified redemption prices that range from 104.4% in 2003 to 100.0% in 2006 and thereafter. The 9 1/4% Senior Subordinated Notes mature on January 15, 2009 and may be redeemed by URI on or after June 15, 2004, at specified redemption prices that range from 104.625% in 2004 to 100.0% in 2007 and thereafter. The 9% Senior Subordinated Notes mature on April 1, 2009 and may be redeemed by URI on or after April 1, 2004, at specified redemption prices that range from 104.5% in 2004 to 100.0% in 2007 and thereafter. The indentures governing URI's senior subordinated notes contain certain restrictive covenants, including limitations on (i) additional indebtedness, (ii) restricted payments, (iii) liens, (iv) dividends and other payments, (v) preferred stock of certain subsidiaries, (vi) transactions with affiliates, (vii) the disposition of proceeds of asset sales and (viii) the Company's ability to consolidate, merge or sell all or substantially all of its assets. 44 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Receivables Securitization. The Company has an accounts receivable securitization facility under which one of its subsidiaries can borrow up to $250 million against a collateral pool of accounts receivable. The borrowings under the facility and the receivables in the collateral pool are included in the liabilities and assets, respectively, reflected on the Company's consolidated balance sheet. Key terms of this facility include: (i) borrowings may be made only to the extent that the face amount of the receivables in the collateral pool exceeds the outstanding loans by a specified amount, (ii) the facility is structured so that the receivables in the collateral pool are the lenders only source of repayment, (iii) prior to expiration or early termination of the facility, amounts collected on the receivables may, subject to certain conditions, be retained by the borrower, provided that the remaining receivables in the collateral pool are sufficient to secure the then outstanding borrowings and (iv) after expiration or early termination of the facility, we will repay the borrowings. As of December 31, 2001, (i) the outstanding borrowings under the facility were approximately $201.5 million and (ii) the aggregate face amount of the receivables in the collateral pool was approximately $337.6 million. The agreement governing this facility, which was amended in June 2001, contemplates that the term of the facility may extend for up to three years from the date of the amended facility. However, on each anniversary of such date, the consent of the lender is required for the facility to renew for the next year. The next anniversary date is in June 2002. The Company plans to seek the lender's approval for renewal. Interest Rate Swap Agreements. As of December 31, 2001, the Company had outstanding interest rate swap agreements that convert $200.0 million of its variable rate term loan to a fixed rate instrument through 2003. These swap agreements are designated as cash flow hedges. Changes in the fair values of the Company's cash flow hedges are recorded in other comprehensive income and reclassified into earnings in the same periods during which the hedged transactions affect earnings. The Company also had outstanding interest rate swap agreements that convert $300.0 million of its fixed rate 9 1/4% Notes to a floating rate instrument through 2009. These swap agreements are designated as fair value hedges. Changes in the fair values of the Company's fair value hedges, as well as the offsetting fair value changes in the hedged items, are recorded in current income. The Company estimates the amount that will be reclassified into earnings in 2002 is approximately $2.8 million. There is no ineffectiveness related to the Company's hedges. Maturities. Maturities of the Company's debt for each of the next five years at December 31, 2001 are as follows (In thousands): 2002...... $ 222,784 2003...... 16,013 2004...... 25,088 2005...... 8,351 2006...... 254,071 Thereafter 1,933,215
The maturities in 2002 are comprised primarily of amounts outstanding under the accounts receivable securitization facility. As described above, the annual renewal of the Company's accounts receivable securitization facility requires the lender's consent. If the Company does not obtain this consent, then the facility will terminate in June 2002 and the Company will repay the borrowings thereunder. 45 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Income Taxes The provision for federal, state and provincial income taxes is as follows:
Year ended December 31 ------------------------ 2001 2000 1999 ------- -------- ------- (In thousands) Historical: Domestic federal: Current............ $ 10,419 $39,643 Deferred........... $81,507 97,756 37,598 ------- -------- ------- 81,507 108,175 77,241 Domestic state: Current............ 1,978 3,587 10,405 Deferred........... 4,570 6,815 3,437 ------- -------- ------- 6,548 10,402 13,842 ------- -------- ------- Total domestic..... 88,055 118,577 91,083 Foreign federal: Current............ 1,626 1,061 4,917 Deferred........... 1,603 3,590 465 ------- -------- ------- 3,229 4,651 5,382 Foreign provincial: Current............ 774 2,356 Deferred........... 693 1,119 320 ------- -------- ------- 693 1,893 2,676 ------- -------- ------- Total foreign...... 3,922 6,544 8,058 ------- -------- ------- $91,977 $125,121 $99,141 ======= ======== =======
A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 35% to income before provision for income taxes and extraordinary item is as follows:
Year ended December 31 ------------------------- 2001 2000 1999 ------- -------- ------- (In thousands) Computed tax rate at statutory tax rate....... $75,064 $105,524 $84,632 State income taxes, net of federal tax benefit 4,256 6,762 8,997 Non-deductible expenses....................... 13,072 9,992 6,265 Other......................................... (415) 2,843 (753) ------- -------- ------- $91,977 $125,121 $99,141 ======= ======== =======
46 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The components of deferred income tax assets (liabilities) are as follows:
December 31 -------------------- 2001 2000 --------- --------- (In thousands) Property and equipment..................... $(431,515) $(298,058) Intangibles................................ (48,163) (32,518) Reserves and allowances.................... 38,767 37,460 Net operating loss and credit carryforwards 140,455 84,257 Other...................................... 3,432 2,616 --------- --------- $(297,024) $(206,243) ========= =========
The current and deferred tax assets and liabilities at December 31, 2001 include the effects of certain reclassifications related to differences between the income tax provisions and tax returns for prior years. These reclassifications had no effect on net income. For financial reporting purposes, income before income taxes and extraordinary items for the Company's foreign subsidiaries was $11.6 million and $15.6 million for the years ended December 31, 2001 and 2000, respectively. At December 31, 2001 and 2000, unremitted earnings of foreign subsidiaries were approximately $30.6 million and $22.9 million, respectively. Since it is the Company's intention to indefinitely reinvest these earnings, no United States taxes have been provided. Determination of the amount of unrecognized deferred tax liability on these unremitted taxes is not practicable. The Company has net operating loss carryforwards ("NOL's") of $341.3 million for federal income tax purposes that expire through 2021. 10. Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of a Subsidiary Trust and Series A, B, C and D Preferred Stock Trust Securities. In August 1998, a subsidiary trust (the "Trust") of Holdings issued and sold in a private offering (the "Preferred Securities Offering") $300.0 million of 30 year, 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred Securities"). The Trust used the proceeds from the Preferred Securities Offering to purchase 6 1/2% convertible subordinated debentures due 2028 (the "Debentures") from Holdings which resulted in Holdings receiving all of the net proceeds of the Preferred Securities Offering. Holdings in turn contributed the net proceeds of the Preferred Securities Offering to URI. The Preferred Securities are non-voting securities, carry a liquidation value of $50 per security and are convertible into the Company's common stock at an initial rate of 1.146 shares per security (equivalent to an initial conversion price of $43.63 per share). They are convertible at any time at the holders' option and are redeemable, at the Company's option, after three years, subject to certain conditions. Holders of the Preferred Securities are entitled to preferential cumulative cash distributions from the Trust at an annual rate of 6 1/2% of the liquidation value, accruing from the original issue date and payable quarterly in arrears beginning February 1, 1999. The distribution rate and dates correspond to the interest rate and payments dates on the Debentures. Holdings may defer interest payments on the Debentures for up to twenty consecutive quarters, but not beyond the maturity date of the Debentures. If interest payments on the Debentures are deferred, so are the payments on the Preferred Securities. Under this circumstance, Holdings will be prohibited from paying dividends on any of its capital stock or making payments with respect to its debt that rank pari passu with or junior to the Debentures. 47 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Holdings has executed a guarantee with regard to payment of the Preferred Securities to the extent that the Trust has sufficient funds to make the required payments. Series A Preferred and Series B Preferred. The Company sold 300,000 shares of its Series A Preferred on January 7, 1999 and sold 150,000 shares of its Series B Preferred on September 30, 1999. On September 28, 2001, the Company entered into an agreement effecting (a) the exchange of the outstanding Series A Preferred for an equal number of shares of Series C Preferred and (b) the exchange of the outstanding Series B Preferred for an equal number of shares of Series D Preferred. Series C Preferred and Series D Preferred. There are 300,000 shares of the Company's Series C Preferred outstanding and 150,000 shares of the Company's Series D Preferred outstanding. The Series D Preferred includes 105,252 shares designated as Class D-1 and 44,748 shares designated as Class D-2. The rights of the two classes of Series D Preferred are substantially the same, except that only the Class D-1 has the voting rights described below. Principal terms of the Series C Preferred and Series D Preferred include the following (subject to the special provisions described below that will apply in the event of certain Non-Approved Change of Control transactions): (i) each share is entitled to a liquidation preference of $1,000 per share; (ii) at holder's option, each share of Series C Preferred is convertible into 40 shares of common stock subject to adjustment (representing a conversion price of $25 per share based on the liquidation preference) and each share of Series D Preferred is convertible into 33 1/3 shares of common stock subject to adjustment (representing a conversion price of $30 per share based on the liquidation preference); (iii) the holders of the Series C Preferred and Series D Preferred (on an as converted basis) and the holders of the common stock vote together as a single class on all matters (except that the Series C Preferred may vote as a separate class as described in the next clause); (iv) the holders of the Series C Preferred, voting separately as a single class, may elect two directors (subject to reduction to one, if the shares of Series C Preferred owned by specified holders cease to represent, on an as converted basis, at least eight million shares of common stock, and reduction to zero, if such shares of Series C Preferred cease to represent at least four million shares of common stock), (v) there are no stated dividends on the Series C Preferred or Series D Preferred, but the Series C Preferred and Series D Preferred, on an as converted basis, will participate in any dividends declared on the common stock, (vi) upon the occurrence of specified change of control transactions, other than a Non-Approved Change of Control (as defined below), the Company must offer to redeem the Series C Preferred and Series D Preferred at a price per share equal to the liquidation preference plus an amount equal to 6.25% of the liquidation preference compounded annually from the date of the issuance of the Series A Preferred, in the case of the Series C Preferred, and the date of the issuance of the Series B Preferred, in the case of the Series D Preferred, to the redemption date, (vii) if the Company issues for cash, common stock (or a series of preferred stock convertible into common stock) and the price for the common stock is below the conversion price of the Series C Preferred, then the Company must offer to repurchase a specified portion of the outstanding Series C Preferred at the price per share set forth in the preceding clause, and (viii) if the Company issues for cash, common stock (or a series of preferred stock convertible into common stock) for a price for the common stock below the conversion price of the Series D Preferred, then the Company must offer to repurchase a specified portion of the outstanding Series D Preferred at the price per share specified in the second preceding clause. Special Rights of Series C Preferred and Series D Preferred Upon Non-Approved Change of Control. In general, a Non-Approved Change of Control transaction is a change of control transaction that the board has disapproved and which the board has not facilitated by such actions as weakening or eliminating the Company's Stockholder Rights Plan. If a Non-Approved Change of Control occurs, 48 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and the board does not offer the holders of the Series C Preferred and Series D Preferred essentially the same redemption rights that apply to an Approved Change of Control transaction: (i) the holders of the Series C Preferred would elect a majority of the board for a specified period, (ii) the holders of the Series C Preferred and Series D Preferred would be entitled to an additional 6.25% return on the liquidation preference, compounded annually from January 1999 for the Series C Preferred and from September 1999 for the Series D Preferred, (iii) after the holders of the common stock receive an amount equivalent to the liquidation preference, the holders of the Series C Preferred and Series D Preferred would share with the holders of the common stock, on an as converted basis, in any remaining amounts available for distribution and (iv) the Series C Preferred and Series D Preferred would accrue dividends at a maximum annual rate, compounded annually, equal to 18% of the liquidation preference. 11. Capital Stock Warrants. As of December 31, 2001 there are outstanding warrants to purchase an aggregate of 7,139,296 shares of common stock. The weighted average exercise price of the warrants is $11.76 per share. All warrants are currently exercisable and may be exercised at any time through 2011. Common Stock. The Company has a share repurchase program to acquire up to $200 million of its issued and outstanding common stock. Share repurchases under the program may be made from time to time, continuing through May 2003. The Company repurchased and retired 1,350,600 and 1,785,015 shares of common stock during 2001 and 2000, respectively. 2001 Senior Stock Plan. In June 2001, the Company's shareholders approved the adoption of the 2001 Senior Stock Plan. This plan provides for the awarding of common stock and other equity-linked awards to our officers and directors. The maximum number of shares of common stock that can be issued under the plan is 4,000,000. The Company records each share that is awarded under this plan at an amount not less than 100% of the fair market value per share at the date of the award. No shares may be awarded under this plan after June 5, 2011. As of December 31, 2001, 2,042,933 shares had been awarded under this plan at a weighted-average price of $23.71 per share with vesting periods up to ten years. Determinations concerning the persons to receive awards, the form, amount and timing of such awards and terms and provisions of such awards are made by the Board of Directors (or a committee appointed by the Board of Directors). 2001 Stock Plan. In March 2001, the Company adopted the 2001 Stock Plan. This plan provides for the awarding of common stock and other equity-linked awards to certain employees (other than officers and directors) and others who render services to the Company. The maximum number of shares of common stock that can be issued under the plan is 2,000,000. The Company records each share that is awarded under this plan at an amount not less than 100% of the fair market value per share at the date of the award. No shares may be awarded under this plan after March 23, 2011. As of December 31, 2001, 885,054 shares had been awarded under this plan at a weighted-average price of $15.30 per share with vesting periods up to three years. Determinations concerning the persons to receive awards, the form, amount and timing of such awards and terms and provisions of such awards are made by the Board of Directors (or a committee appointed by the Board of Directors). The Company records the issuance of common shares at the quoted market price on the date of the grants. Amortization of deferred compensation is then recognized on a straight-line basis over the 49 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) related vesting period. Amortization expense recognized for the year ended December 31, 2001 for the awards of the above stock plans was approximately $6.2 million. 1997 Stock Option Plan. The Company's 1997 Stock Option Plan provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of common stock. Some or all of such options may be "incentive stock options" within the meaning of the Internal Revenue Code. All officers, directors and employees of the Company and other persons who perform services on behalf of the Company are eligible to participate in this plan. Each option granted pursuant to this plan must provide for an exercise price per share that is at least equal to the fair market value per share of common stock on the date of grant. No options may be granted under this plan after August 31, 2007. As of December 31, 2001 and 2000, options to purchase an aggregate of 4,845,783 shares and 4,950,536 shares of common stock, respectively, were outstanding under this plan. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board of Directors). 1998 Stock Option Plan. The Company's 1998 Stock Option Plan provides for the granting of options to purchase not more than an aggregate of 4,200,000 shares of common stock. Some or all of the options issued under the 1998 Stock Option Plan may be "incentive stock options" within the meaning of the Internal Revenue Code. All officers and directors of the Company and its subsidiaries are eligible to participate in the 1998 Stock Option Plan. Each option granted pursuant to the 1998 Stock Option Plan must provide for an exercise price per share that is at least equal to the fair market value per share of common stock on the date of grant. No options may be granted under the 1998 Stock Option Plan after August 20, 2008. As of December 31, 2001 and 2000, options to purchase an aggregate of 3,686,667 shares and 4,200,000 shares of common stock, respectively, were outstanding pursuant to this plan to executive officers and directors. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board of Directors). 1998 Supplemental Stock Option Plan. The Company has adopted a stock option plan pursuant to which options, for up to an aggregate of 5,600,000 shares of common stock, may be granted to employees who are not officers or directors and to consultants and independent contractors who perform services for the Company or its subsidiaries. As of December 31, 2001 and 2000, options to purchase an aggregate of 5,342,097 shares and 5,373,509 shares of common stock, respectively, were outstanding pursuant to this plan. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board of Directors). 1997 Performance Award Plan. Effective February 20, 1997, U.S. Rentals adopted the 1997 Performance Award Plan under which stock options and other awards could be granted to key employees and directors at prices and terms established by U.S. Rentals at the date of grant. The options expire in 2007. As a result of the Merger, all outstanding options to purchase shares of U.S. Rentals common stock became fully vested and were converted into options to purchase the Company's common stock. As of December 31, 2001 and 2000, options to purchase an aggregate of 2,547,467 shares and 2,572,050 shares of common stock, respectively, were outstanding pursuant to this plan. 50 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) A summary of the transactions within the Company's stock option plans follows:
Weighted Average Exercise Shares Price ---------- -------- Outstanding at December 31, 1998 14,044,814 19.60 Granted...................... 3,092,462 26.77 Exercised.................... (1,331,528) 20.74 Canceled..................... (152,506) 26.70 ---------- ------ Outstanding at December 31, 1999 15,653,242 20.86 Granted...................... 1,921,125 16.56 Exercised.................... (26,307) 16.91 Canceled..................... (451,965) 27.03 ---------- ------ Outstanding at December 31, 2000 17,096,095 20.23 Granted...................... 633,400 19.78 Exercised.................... (715,143) 14.24 Canceled..................... (592,338) 23.94 ---------- ------ Outstanding at December 31, 2001 16,422,014 $20.22 ========== ====== Exercisable at December 31, 2001 13,765,239 $20.37 ========== ======
Options Outstanding Options Exercisable -------------------------------- -------------------- Weighted Average Weighted Weighted Remaining Average Average Amount Contractual Exercise Amount Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price ------------------------ ----------- ----------- -------- ----------- -------- $10.00 - $15.00..... 4,227,133 6.7 years $12.39 4,016,649 $12.29 15.01 - 20.00..... 2,169,527 8.2 years 16.59 654,585 17.50 20.01 - 25.00..... 7,183,892 6.2 years 21.78 6,767,840 21.73 25.01 - 30.00..... 1,549,963 7.2 years 27.31 1,158,408 27.21 30.01 - 50.00..... 1,291,499 6.3 years 34.84 1,167,757 35.18 ---------- ---------- 16,422,014 6.7 years 20.22 13,765,239 20.37 ========== ==========
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income. Had compensation cost for the Company's stock option plans been determined pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have differed. The weighted average fair value of options granted was $7.34, $7.70 and $10.99 during 2001, 2000 and 1999, respectively. The fair value is estimated on the date of grant using the Black-Scholes option pricing model which uses subjective assumptions which can materially affect fair value estimates and, therefore, does not necessarily provide a single measure of fair value of options. Using the Black-Scholes option pricing model and a risk-free interest rate average of 3.74%, 5.15% and 6.29% in 2001, 2000 and 1999, respectively, a volatility factor for the market price of the Company's common stock of 49%, 69% and 52% in 2001, 2000 and 1999, respectively, and a weighted-average expected life of options of approximately three years in 2001, 2000 and 1999, the Company's net income, basic earnings per share and diluted earnings per share would have been $103.1 million, $1.43 and $1.09, 51 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) respectively, for the year ended December 31, 2001, $156.4 million, $2.20 and $1.69, respectively, for the year ended December 31, 2000 and $104.3 million, $1.46 and $1.12, respectively, for the year ended December 31, 1999. For purposes of these pro forma disclosures, the estimated fair value of options is amortized over the options' vesting period. Since the number of options granted and their fair value may vary significantly from year to year, the pro forma compensation expense in future years may be materially different. At December 31, 2001 there are (i) 7,139,296 shares of common stock reserved for the exercise of warrants, (ii) 16,422,014 shares of common stock reserved for issuance pursuant to options granted and that may be granted in the future under the Company's stock option plans, (iii) 6,875,580 shares of common stock reserved for the issuance of outstanding preferred securities of a subsidiary trust, (iv) 17,000,000 shares of common stock reserved for the issuance of Series C and Series D preferred stock and (v) 371,168 shares of common stock reserved for the conversion of convertible debt. Stockholders Rights Plan. The Company adopted a Stockholders Rights Plan on September 28, 2001 (with a record date of October 19, 2001). This plan and other provisions of the Company's charter and bylaws may have the effect of deferring hostile takeovers or delaying or preventing changes in control or management of the Company, including transactions in which the shareholders of the Company might otherwise receive a premium for their shares over then current market prices. The rights expire on September 27, 2011. 12. Comprehensive Income The following table sets forth the Company's comprehensive income:
Year Ended December 31 ------------------ 2001 2000 -------- -------- (In thousands) Net income................................................................ $111,256 $176,375 Other comprehensive gain (loss): Foreign currency translation adjustment............................... (16,137) (7,264) Cumulative effect on equity of adopting FAS No. 133, net of tax of $1,784............................................................... (2,516) Derivatives qualifying as hedges, net of tax of $3,212................. (4,527) -------- -------- Comprehensive income...................................................... $ 88,076 $169,111 ======== ========
52 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Earnings Per Share The following table sets forth the computation of historical basic and diluted earnings per share:
Year Ended December 31 ----------------------------------- 2001 2000 1999 ----------- ----------- ----------- (In thousands, except share and per share data) Numerator: Income before extraordinary item............ $ 122,573 $ 176,375 $ 142,666 Plus: preferred dividends of a subsidiary trust, net of taxes....................... 11,406 ----------- ----------- ----------- Income available to common stockholders..... $ 122,573 $ 187,781 $ 142,666 =========== =========== =========== Denominator: Denominator for basic earnings per share- weighted-average shares................... 72,141,128 71,069,174 71,353,127 Effect of dilutive securities: Employee stock options.................... 1,507,820 1,517,015 4,651,237 Warrants.................................. 3,738,239 2,791,387 3,978,536 Series A Preferred........................ 12,000,000 11,802,740 Series B Preferred........................ 5,000,000 1,250,000 Series C Preferred........................ 12,000,000 Series D Preferred........................ 5,000,000 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust........ 6,876,003 ----------- ----------- ----------- Denominator for dilutive earnings per share- adjusted weighted-average shares.......... 94,387,187 99,253,579 93,035,640 =========== =========== =========== Earnings per share-basic: Income before extraordinary item............ $ 1.70 $ 2.48 $ 2.00 Extraordinary item, net..................... 0.16 ----------- ----------- ----------- Net income.................................. $ 1.54 $ 2.48 $ 2.00 =========== =========== =========== Earnings per share-diluted: Income before extraordinary item............ $ 1.30 $ 1.89 $ 1.53 Extraordinary item, net..................... 0.12 ----------- ----------- ----------- Net income.................................. $ 1.18 $ 1.89 $ 1.53 =========== =========== ===========
53 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 14. Commitments and Contingencies Operating Leases The Company leases rental equipment, real estate and certain office equipment under operating leases. Certain real estate leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Future minimum lease payments, by year and in the aggregate, for noncancellable operating leases with initial or remaining terms of one year or more are as follows at December 31, 2001:
Real Rental Other Estate Equipment Equipment Leases Leases Leases -------- --------- --------- (In thousands) 2002...... $ 61,139 $ 84,486 $24,314 2003...... 57,356 72,813 22,131 2004...... 52,955 69,346 16,733 2005...... 45,573 57,551 4,973 2006...... 41,081 48,199 334 Thereafter 125,506 23 -------- -------- ------- $383,610 $332,418 $68,485 ======== ======== =======
The Company was the seller-lessee in sale-leaseback transactions with unrelated third parties in which it sold rental equipment and real estate for aggregate proceeds of $51.0 million in 2001, rental equipment for aggregate proceeds of $218.8 million in 2000, and rental equipment for aggregate proceeds of $88.0 million in 1999. For the 2001 transactions, the Company leased back the real estate over a 10-year period and the rental equipment for a minor period of one to eight months. For the 2000 transactions, the Company leased back a portion of the rental equipment for a minor period of one to eight months, and the balance over a five-year period. For the 1999 transactions, the Company leased back the rental equipment over a five-year period. The total gains related to these transactions in 2001, 2000 and 1999 were, respectively, approximately $21.6 million of which $1.4 million was deferred, approximately $16.5 million of which $4.0 million was deferred, and approximately $6.3 million all of which was deferred. The deferred gains are being amortized over the respective lease periods on a straight-line basis. Rent expense under non-cancelable operating leases totaled $170.9 million, $137.3 million and $65.5 million for the years ended December 31, 2001, 2000 and 1999, respectively. The Company's real estate leases provide for varying terms and include 30 leases that are on a month-to-month basis and 30 leases that provide for a remaining term of less than one year and do not provide a renewal option. Employee Benefit Plans The Company currently sponsors one defined contribution 401(k) retirement plan which is subject to the provisions of ERISA. The Company also sponsors a deferred profit sharing plan for the benefit of the full time employees of its Canadian subsidiaries. Under these plans, the Company matches a percentage of the participants contributions up to a specified amount. Company contributions to the plans were $6.0 million, $6.2 million and $4.6 million for the years ended December 31, 2001, 2000 and 1999, respectively. 54 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Legal Matters The Company is party to legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses, reserves, or insurance coverage with respect to these matters so that the ultimate resolution will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. The Company had accrued $7.6 million at December 31, 2001 and 2000, to cover the uninsured portion of estimated costs arising from these pending claims and other potential unasserted claims. Environmental Matters The Company and its operations are subject to various laws and related regulations governing environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as investigation of property damage. The Company incurs ongoing expenses associated with the removal of underground storage tanks and the performance of appropriate remediation at certain of its locations. The Company believes that such removal and remediation will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. 15. Segment Information Each of the Company's branch locations is an operating segment which consists of the rental and sales of equipment and related merchandise and parts. Certain of the Company's branches also provide speciality traffic control services as a product line and the amount of revenue attributable to such services was $272.2 million, $245.0 million and $79.3 million during the years ended December 31, 2001, 2000 and 1999, respectively. All of the Company's branches have been aggregated into one reportable segment because they offer similar products and services in similar markets and the factors determining strategic decisions are comparable. 55 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company operates in the United States, Canada and Mexico. Revenues are attributable to countries based upon the location of the customers. Geographic area information for the years ended December 31, 2001, 2000 and 1999 is as follows:
Year ended December 31 -------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Revenues from external customers Domestic................................................... $2,740,694 $2,753,266 $2,086,808 Foreign.................................................... 145,911 165,595 146,820 ---------- ---------- ---------- Total revenues from external customers...................... $2,886,605 $2,918,861 $2,233,628 ========== ========== ========== Rental equipment, net Domestic................................................... $1,630,411 $1,604,191 $1,537,199 Foreign.................................................... 116,771 128,644 122,534 ---------- ---------- ---------- Total consolidated rental equipment, net.................... $1,747,182 $1,732,835 $1,659,733 ========== ========== ========== Property and equipment, net Domestic................................................... $ 393,541 $ 405,873 $ 285,456 Foreign.................................................... 16,512 16,366 19,451 ---------- ---------- ---------- Total consolidated property and equipment, net.............. $ 410,053 $ 422,239 $ 304,907 ========== ========== ========== Goodwill and other intangible assets, net Domestic................................................... $2,086,481 $2,092,882 $1,740,326 Foreign.................................................... 121,220 134,126 123,046 ---------- ---------- ---------- Total consolidated goodwill and other intangible assets, net $2,207,701 $2,227,008 $1,863,372 ========== ========== ==========
56 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. Quarterly Financial Information (Unaudited) Selected Financial Data The following table of quarterly financial information has been prepared from unaudited financial statements of the Company, and reflects adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented.
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- (In thousands, except per share data) For the year ended December 31, 2001: Total revenues............................ $619,104 $768,013 $795,483 $704,005 Gross profit.............................. 202,567 286,063 305,242 245,598 Income before extraordinary item.......... 3,412 24,935 62,052 32,174 Extraordinary item........................ 11,317 Net income................................ 3,412 13,618 62,052 32,174 Basic earnings before extraordinary item per share............................... $ 0.05 $ 0.35 $ 0.85 $ 0.45 Diluted earnings before extraordinary item per share............................... 0.04 0.26 0.63 0.34 For the year ended December 31, 2000: Total revenues............................ $578,962 $729,946 $859,033 $750,920 Gross profit.............................. 205,984 271,798 340,704 270,084 Net income................................ 17,411 47,199 75,391 36,374 Basic earnings per share.................. $ 0.24 $ 0.66 $ 1.07 $ 0.51 Diluted earnings per share................ 0.19 0.51 0.79 0.40
57 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 17. Condensed Consolidating Financial Information of Guarantor Subsidiaries Certain indebtedness of URI, a wholly owned subsidiary of Holdings (the "Parent"), is guaranteed by URI's United States subsidiaries (the "guarantor subsidiaries") and, in certain cases, also by Parent. However, this indebtedness 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). Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, are presented. The condensed consolidating financial information of the Company and its subsidiaries are as follows: CONDENSED CONSOLIDATING BALANCE SHEET December 30, 2001
Non- Guarantor Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total ---------- ---------- ------------ ------------ ------------ ------------ (In thousands) ASSETS Cash and cash equivalents......... $ 6,385 $ 19,798 $ 1,143 $ 27,326 Accounts receivable, net.......... 7,142 418,260 24,871 450,273 Intercompany receivable (payable)....................... 89,612 39,548 (129,160) Inventory......................... 36,335 46,410 3,019 85,764 Prepaid expenses and other assets.......................... 57,764 64,699 1,935 8,819 133,217 Rental equipment, net............. 885,442 744,969 116,771 1,747,182 Property and equipment, net....... $ 26,793 135,240 231,508 16,512 410,053 Investment in subsidiaries........ 1,904,000 2,414,710 (4,318,710) Intangible assets, net............ 855,360 1,231,121 121,220 2,207,701 ---------- ---------- ---------- --------- ----------- ---------- $1,930,793 $4,487,990 $2,796,313 $ 156,311 $(4,309,891) $5,061,516 ========== ========== ========== ========= =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable............... $ 38,436 $ 155,029 $ 11,308 $ 204,773 Debt........................... $ 300,000 2,193,380 203,896 62,246 $ (300,000) 2,459,522 Deferred income taxes.......... 296,974 50 297,024 Accrued expenses and other liabilities............. 5,283 57,108 96,793 12,253 3,250 174,687 ---------- ---------- ---------- --------- ----------- ---------- Total liabilities............ 305,283 2,585,898 455,768 85,807 (296,750) 3,136,006 Commitments and contingencies Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust........... 300,000 300,000 Stockholders' equity: Preferred stock................ 5 5 Common stock................... 734 734 Additional paid-in capital..... 1,243,586 1,498,655 1,840,604 65,970 (3,405,229) 1,243,586 Deferred compensation.......... (55,794) (55,794) Retained earnings.............. 467,106 410,480 499,941 27,618 (938,039) 467,106 Accumulated other comprehensive loss........... (30,127) (7,043) (23,084) 30,127 (30,127) ---------- ---------- ---------- --------- ----------- ---------- Total stockholders' equity..................... 1,625,510 1,902,092 2,340,545 70,504 (4,313,141) 1,625,510 ---------- ---------- ---------- --------- ----------- ---------- $1,930,793 $4,487,990 $2,796,313 $ 156,311 $(4,309,891) $5,061,516 ========== ========== ========== ========= =========== ==========
58 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2000
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total ---------- ---------- ------------ ------------- ------------ ------------ (In thousands) ASSETS Cash and cash equivalents...... $ 29,733 $ 4,651 $ 34,384 Accounts receivable, net....... $ 216,444 143,295 109,855 469,594 Intercompany receivable (payable)..................... 319,423 (55,187) (264,236) Inventory...................... 54,022 73,979 5,379 133,380 Prepaid expenses and other assets........................ 28,263 75,633 597 104,493 Rental equipment, net.......... 837,972 766,219 128,644 1,732,835 Property and equipment, net.... $ 34,807 139,871 231,195 16,366 422,239 Investment in subsidiaries..... 1,839,952 2,257,692 $(4,097,644) Intangible assets, net......... 960,444 1,132,438 134,126 2,227,008 ---------- ---------- ---------- ---------- ----------- ---------- $1,874,759 $4,814,131 $2,397,305 $ 135,382 $(4,097,644) $5,123,933 ========== ========== ========== ========== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable............ $ 78,623 $ 165,677 $ 15,855 $ 260,155 Debt........................ $ 300,000 2,647,144 3,484 24,739 $ (300,000) 2,675,367 Deferred taxes.............. 186,091 20,702 (550) 206,243 Accrued expenses and other liabilities.......... 28,816 86,560 18,862 13,750 (11,763) 136,225 ---------- ---------- ---------- ---------- ----------- ---------- Total liabilities........ 328,816 2,998,418 208,725 53,794 (311,763) 3,277,990 Commitments and contingencies Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust.............. 300,000 300,000 Series A and B preferred stock. 430,800 430,800 Stockholder's equity: Common stock................ 711 711 Additional paid-in capital.. 765,529 1,488,238 1,830,500 65,657 (3,384,395) 765,529 Retained earnings........... 355,850 327,475 358,080 22,878 (708,433) 355,850 Accumulated other comprehensive loss....................... (6,947) (6,947) 6,947 (6,947) ---------- ---------- ---------- ---------- ----------- ---------- Total stockholder's equity.................. 1,115,143 1,815,713 2,188,580 81,588 $(4,085,881) 1,115,143 ---------- ---------- ---------- ---------- ----------- ---------- $1,874,759 $4,814,131 $2,397,305 $ 135,382 $(4,097,644) $5,123,933 ========== ========== ========== ========== =========== ==========
59 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 2001
Non- Guarantor Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total -------- ---------- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals................ $ 907,070 $1,201,439 $104,391 $2,212,900 Sales of rental equipment........ 63,612 70,331 13,158 147,101 Sales of equipment and merchandise and other revenues........................ 244,020 254,222 28,362 526,604 -------- ---------- ---------- -------- --------- ---------- Total revenues..................... 1,214,702 1,525,992 145,911 2,886,605 Cost of revenues: Cost of equipment rentals, excluding depreciation.......... 376,634 626,867 50,134 1,053,635 Depreciation of rental equipment. 150,619 149,868 20,476 320,963 Cost of rental equipment sales... 38,702 42,088 7,952 88,742 Cost of equipment and merchandise sales and other operating costs................. 177,659 185,223 20,913 383,795 -------- ---------- ---------- -------- --------- ---------- Total cost of revenues............. 743,614 1,004,046 99,475 1,847,135 -------- ---------- ---------- -------- --------- ---------- Gross profit....................... 471,088 521,946 46,436 1,039,470 Selling, general and administrative expenses.......................... 192,640 224,707 24,404 441,751 Restructuring charge............... 8,877 17,096 2,949 28,922 Non-rental depreciation and amortization...................... $ 7,862 42,012 51,014 5,875 106,763 -------- ---------- ---------- -------- --------- ---------- Operating income (loss)............ (7,862) 227,559 229,129 13,208 462,034 Interest expense................... 19,500 211,220 7,834 2,509 $ (19,500) 221,563 Preferred dividends of a subsidiary trust............................. 19,500 19,500 Other (income) expense, net........ 25,586 (21,202) 2,037 6,421 -------- ---------- ---------- -------- --------- ---------- Income (loss) before provision (benefit) for income taxes and extraordinary item................ (27,362) (9,247) 242,497 8,662 214,550 Provision (benefit) for income taxes............................. (11,355) (1,226) 100,636 3,922 91,977 -------- ---------- ---------- -------- --------- ---------- Income (loss) before extraordinary item and equity in net earnings of subsidiaries................... (16,007) (8,021) 141,861 4,740 122,573 Extraordinary item................. 11,317 11,317 -------- ---------- ---------- -------- --------- ---------- Income (loss) before equity in net earnings of subsidiaries.......... (16,007) (19,338) 141,861 4,740 111,256 Equity in net earnings of subsidiaries...................... 127,263 146,601 (273,864) -------- ---------- ---------- -------- --------- ---------- Net income......................... $111,256 $ 127,263 $ 141,861 $ 4,740 $(273,864) $ 111,256 ======== ========== ========== ======== ========= ==========
60 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 2000
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total -------- ---------- ------------ ------------- ------------ ------------ (In thousands) Revenues: Equipment rentals............... $ 851,541 $1,094,613 $ 110,529 $2,056,683 Sales of rental equipment....... 145,519 178,576 23,583 347,678 Sales of equipment and merchandise and other revenues....................... 253,798 229,219 31,483 514,500 -------- ---------- ---------- ---------- ---------- ---------- Total revenues.................... 1,250,858 1,502,408 165,595 2,918,861 Cost of revenues: Cost of equipment rentals, excluding depreciation......... 364,047 494,350 49,080 907,477 Depreciation of rental equipment...................... 152,640 155,239 20,252 328,131 Cost of rental equipment sales.. 87,161 106,617 14,404 208,182 Cost of equipment and merchandise sales and other operating costs................ 197,190 164,186 25,125 386,501 -------- ---------- ---------- ---------- ---------- ---------- Total cost of revenues............ 801,038 920,392 108,861 1,830,291 -------- ---------- ---------- ---------- ---------- ---------- Gross profit...................... 449,820 582,016 56,734 1,088,570 Selling, general and administrative expenses.......... 184,135 245,431 24,764 454,330 Non-rental depreciation and amortization..................... $ 7,718 33,692 39,618 5,273 86,301 -------- ---------- ---------- ---------- ---------- ---------- Operating income (loss)........... (7,718) 231,993 296,967 26,697 547,939 Interest expense.................. 19,500 217,904 135 10,740 $ (19,500) 228,779 Preferred dividends of a subsidiary trust................. 19,500 19,500 Other (income) expense, net....... 2,129 (4,285) 320 (1,836) -------- ---------- ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes....... (27,218) 11,960 301,117 15,637 301,496 Provision (benefit) for income taxes............................ (11,295) 4,908 124,964 6,544 125,121 -------- ---------- ---------- ---------- ---------- ---------- Income (loss) before equity in net earnings of subsidiaries......... (15,923) 7,052 176,153 9,093 176,375 Equity in net earnings of subsidiaries..................... 192,298 185,246 $ (377,544) -------- ---------- ---------- ---------- ---------- ---------- Net income........................ $176,375 $ 192,298 $ 176,153 $ 9,093 $ (377,544) $ 176,375 ======== ========== ========== ========== ========== ==========
61 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 1999
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total -------- -------- ------------ ------------- ------------ ------------ (In thousands) Revenues: Equipment rentals..................... $600,431 $ 880,182 $100,413 $1,581,026 Sales of rental equipment............. 113,982 106,737 14,959 235,678 Sales of equipment and merchandise and other revenues................... 195,647 189,829 31,448 416,924 -------- -------- ---------- -------- --------- ---------- Total revenues.......................... 910,060 1,176,748 146,820 2,233,628 Cost of revenues: Cost of equipment rentals, excluding depreciation............... 250,959 381,718 44,295 676,972 Depreciation of rental equipment...... 116,385 146,622 17,634 280,641 Cost of rental equipment sales........ 62,972 64,945 8,761 136,678 Cost of equipment and merchandise sales and other operating costs...... 161,902 128,328 24,189 314,419 -------- -------- ---------- -------- --------- ---------- Total cost of revenues.................. 592,218 721,613 94,879 1,408,710 -------- -------- ---------- -------- --------- ---------- Gross profit............................ 317,842 455,135 51,941 824,918 Selling, general and administrative expenses............................... $ 8,267 144,341 177,456 22,531 352,595 Non-rental depreciation and amortization........................... 4,926 29,667 24,617 3,657 62,867 -------- -------- ---------- -------- --------- ---------- Operating income (loss)................. (13,193) 143,834 253,062 25,753 409,456 Interest expense........................ 19,500 132,929 1,428 5,471 $ (19,500) 139,828 Preferred dividends of a subsidiary trust.................................. 19,500 19,500 Other (income) expense, net............. 9,689 (1,549) (524) 427 278 8,321 -------- -------- ---------- -------- --------- ---------- Income (loss) before provision (benefit) for income taxes....................... (42,382) 12,454 252,158 19,855 (278) 241,807 Provision (benefit) for income taxes.... (17,487) 3,039 105,531 8,058 99,141 -------- -------- ---------- -------- --------- ---------- Income (loss) before equity in net earnings of subsidiaries............... (24,895) 9,415 146,627 11,797 (278) 142,666 Equity in net earnings of subsidiaries.. 167,561 158,424 (325,985) -------- -------- ---------- -------- --------- ---------- Net income.............................. $142,666 $167,839 $ 146,627 $ 11,797 $(326,263) $ 142,666 ======== ======== ========== ======== ========= ==========
62 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2001
Non- Guarantor Guarantor Other and Parent URI Subsidiaries Subsidiaries Eliminations Consolidated -------- ----------- ------------ ------------ ------------ ------------ (In thousands) Net cash provided by (used in) operating activities...................................... $(16,826) $ 622,289 $ 97,695 $ (8,933) $ 2,485 $ 696,710 Cash flows from investing activities: Purchases of rental equipment................. (277,032) (148,125) (24,613) (449,770) Purchases of property and equipment........... (2,674) (13,159) (28,214) (3,501) (47,548) Proceeds from sales of rental equipment....... 63,612 70,331 13,158 147,101 Capital contributed to subsidiary............. (10,417) 10,417 Purchases of other companies.................. (53,565) (1,273) (54,838) Payments of contingent purchase price......... (2,103) (2,103) In-process acquisition costs.................. (2,485) (2,485) -------- ----------- --------- -------- -------- ----------- Net cash used in investing activities....... (13,091) (282,247) (106,008) (16,229) 7,932 (409,643) Cash flows from financing activities: Proceeds from debt............................ 2,008,644 65 44,758 2,053,467 Payments of debt.............................. (2,292,186) (1,687) (6,634) (2,300,507) Proceeds from sale-leaseback.................. 12,435 12,435 Payments of financing costs................... (28,709) (333) (29,042) Capital contributions by parent............... 10,417 (10,417) Dividend distributions to parent.............. (44,258) 44,258 Shares repurchased and retired................ (24,758) (24,758) Proceeds from the exercise of common stock options...................................... 10,417 10,417 Proceeds from dividends from subsidiary....... 44,258 (44,258) -------- ----------- --------- -------- -------- ----------- Net cash provided by (used in) financing activities...................... 29,917 (333,657) (1,622) 37,791 (10,417) (277,988) Effect of foreign exchange rates.............. (16,137) (16,137) -------- ----------- --------- -------- -------- ----------- Net increase (decrease) in cash and cash equivalents..................................... 6,385 (9,935) (3,508) (7,058) Cash and cash equivalents at beginning of period. 29,733 4,651 34,384 -------- ----------- --------- -------- -------- ----------- Cash and cash equivalents at end of period....... $ 6,385 $ 19,798 $ 1,143 $ 27,326 ======== =========== ========= ======== ======== =========== Supplemental disclosure of cash flow information: Cash paid for interest...................... $ 19,500 $ 197,315 $ 10,561 $ 3,009 $ 230,385 Cash paid for income taxes, net of refunds..................................... $ (31,122) $ 323 $ (30,799) 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.................. $ 20,264 $ 1,201 $ 21,465 Liabilities assumed........................... (4,468) (144) (4,612) Less: Amounts paid through issuance of debt...................................... (600) (600) -------- ----------- --------- -------- -------- ----------- 15,196 1,057 16,253 Due to seller and other payments.............. 38,369 216 38,585 -------- ----------- --------- -------- -------- ----------- Net cash paid............................... $ 53,565 $ 1,273 $ 54,838 ======== =========== ========= ======== ======== ===========
63 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2000
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total -------- --------- ------------ ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities................................ $ (6,429) $ 243,759 $ 227,855 $ 43,066 $ 4,470 $ 512,721 Cash flows from investing activities: Purchases of rental equipment........... (489,259) (283,488) (35,457) (808,204) Purchases of property and equipment..... (13,071) (34,477) (102,510) (3,712) (153,770) Proceeds from sales of rental equipment.............................. 145,519 178,576 23,583 347,678 Proceeds from sale of businesses........ 16,246 3,000 19,246 Payments of contingent purchase price.................................. (3,030) (13,236) (16,266) Purchases of other companies............ (337,257) (10,080) (347,337) Capital contributed to subsidiary....... (331) 331 In-process acquisition costs............ (4,285) (4,285) -------- --------- --------- -------- -------- --------- Net cash used in investing activities.......................... (13,402) (702,258) (217,658) (25,666) (3,954) (962,938) Cash flows from financing activities: Shares repurchased and retired.......... (30,950) (30,950) Dividend distributions to parent........ (50,450) 50,450 Proceeds from debt...................... 452,912 3,290 456,202 Repayments of debt...................... (125,238) (168) (9,193) (134,599) Proceeds from sale-leaseback............ 193,478 193,478 Payments of financing costs............. (16,223) (185) (16,408) Capital contributions by parent......... 331 (331) Proceeds from the exercise of stock options................................ 331 331 Proceeds from dividends from subsidiary............................. 50,450 (50,450) -------- --------- --------- -------- -------- --------- Net cash provided by (used in) financing activities................ 19,831 454,810 3,122 (9,193) (516) 468,054 Effect of foreign exchange rates........ (7,264) (7,264) -------- --------- --------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents............................... (3,689) 13,319 943 10,573 Cash and cash equivalents at beginning of period................................. 3,689 16,414 3,708 23,811 -------- --------- --------- -------- -------- --------- Cash and cash equivalents at end of period.................................... $ $ 29,733 $ 4,651 $ 34,384 ======== ========= ========= ======== ======== ========= Supplemental disclosure of cash flow information: Cash paid for interest.................. $ 19,500 $ 218,346 $ 135 $ 10,782 $ 248,763 Cash paid for income taxes.............. $ 19,833 $ 3,913 $ 23,746 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......... $ 518,167 $ 11,037 $ 529,204 Liabilities assumed.................. (132,163) (957) (133,120) Less: Amounts paid in common stock of parent.................. (10,000) (10,000) Amounts paid through issuance of debt................. (65,500) (65,500) -------- --------- --------- -------- -------- --------- 310,504 10,080 320,584 Due to seller and other payments..... 26,753 26,753 -------- --------- --------- -------- -------- --------- Net cash paid..................... $ 337,257 $ 10,080 $ 347,337 ======== ========= ========= ======== ======== =========
64 65 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 1999
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total --------- ----------- ------------ ------------- ------------ ------------ (In thousands) Net cash provided by (used in) operating activities.............................. $ (4,824) $ 292,412 $ 13,185 $ 119,585 $ 1,002 $ 421,360 Cash flows from investing activities: Purchases of rental equipment......... (539,775) (99,365) (78,972) (718,112) Purchases of property and equipment... (14,181) (74,634) (20,366) (14,468) (123,649) Proceeds from sales of rental equipment............................ 113,982 106,737 14,959 235,678 Proceeds from sale of businesses........................... 1,040 2,354 3,127 6,521 Payments of contingent purchase price................................ (2,387) (4,265) (1,564) (8,216) Purchases of other companies.......... (915,937) (70,853) (986,790) Capital contributed to subsidiary..... (522,985) 522,985 In-process acquisition costs.......... (1,002) (1,002) --------- ----------- -------- --------- --------- ----------- Net cash used in investing activities......................... (537,166) (1,417,711) (14,905) (147,771) 521,983 (1,595,570) Cash flows from financing activities: Dividend distributions to parent...... (19,500) 19,500 Proceeds from debt.................... 1,025,843 26,524 31,249 1,083,616 Repayments of debt.................... (474,808) (20,958) (1,884) (497,650) Proceeds from sale-leaseback.......... 88,000 88,000 Payments of financing costs........... (18,995) (448) (19,443) Capital contributions by parent....... 522,985 (522,985) Proceeds from issuance of common stock and warrants, net of issuance costs................................ 64,701 64,701 Proceeds from issuance of Series A and B preferred stock, net of issuance costs....................... 430,800 430,800 Proceeds from the exercise of stock options.............................. 26,989 26,989 Proceeds from dividends from subsidiary........................... 19,500 (19,500) --------- ----------- -------- --------- --------- ----------- Net cash provided by financing activities......................... 541,990 1,123,525 5,566 28,917 (522,985) 1,177,013 Effect of foreign exchange rates...... 598 598 --------- ----------- -------- --------- --------- ----------- Net increase (decrease) in cash and cash equivalents............................. (1,774) 3,846 1,329 3,401 Cash and cash equivalents at beginning of period.................................. 1,774 16,257 2,379 20,410 --------- ----------- -------- --------- --------- ----------- Cash and cash equivalents at end of period.................................. $ $ $ 20,103 $ 3,708 $ 23,811 ========= =========== ======== ========= ========= =========== Supplemental disclosure of cash flow information: Cash paid for interest................ $ 19,500 $ 98,728 $ 1,194 $ 4,863 $ 124,285 Cash paid for income taxes............ $ 16,372 $ 1,137 $ 17,509 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired........ $ 1,371,807 $ 96,760 $ 1,468,567 Liabilities assumed................. (448,685) (23,697) (472,382) Less: Amounts paid through issuance of debt................ (7,185) (2,210) (9,395) --------- ----------- -------- --------- --------- ----------- Net cash paid.................... $ 915,937 $ 70,853 $ 986,790 ========= =========== ======== ========= ========= ===========
65 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. (Parent Company of United Rentals (North America), Inc.) We have audited the accompanying consolidated balance sheets of United Rentals (North America), Inc. as of December 31, 2001 and 2000 and the related consolidated statements of operations, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the management of United Rentals (North America), Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals (North America), Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /S/ ERNST & YOUNG LLP MetroPark, New Jersey February 19, 2002 66 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED BALANCE SHEETS
December 31 ---------------------- 2001 2000 ---------- ---------- (In thousands, except share data) Assets Cash and cash equivalents............................................................ $ 27,326 $ 34,384 Accounts receivable, net of allowance for doubtful accounts of $47,744 and $55,624 at 2001 and 2000, respectively........................................................ 450,273 469,594 Inventory............................................................................ 85,764 133,380 Prepaid expenses and other assets.................................................... 124,398 104,493 Rental equipment, net................................................................ 1,747,182 1,732,835 Property and equipment, net.......................................................... 383,260 387,432 Goodwill, net of accumulated amortization of $161,570 and $103,219 at 2001 and 2000, respectively................................................................. 2,199,774 2,215,532 Other intangible assets, net......................................................... 7,927 11,476 ---------- ---------- $5,025,904 $5,089,126 ========== ========== Liabilities and Stockholder's Equity Liabilities: Accounts payable.................................................................. $ 204,773 $ 260,155 Debt.............................................................................. 2,459,522 2,675,367 Deferred taxes.................................................................... 297,024 206,243 Accrued expenses and other liabilities............................................ 166,154 119,172 ---------- ---------- Total liabilities............................................................. 3,127,473 3,260,937 Commitments and contingencies Stockholder's equity: Common stock--$.01 par value, 3,000 shares authorized, 1,000 shares issued and outstanding................................................................. Additional paid-in capital........................................................ 1,518,078 1,507,661 Retained earnings................................................................. 410,480 327,475 Accumulated other comprehensive loss.............................................. (30,127) (6,947) ---------- ---------- Total stockholder's equity.................................................... 1,898,431 1,828,189 ---------- ---------- $5,025,904 $5,089,126 ========== ==========
See accompanying notes. 67 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 --------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Revenues: Equipment rentals.................................... $2,212,900 $2,056,683 $1,581,026 Sales of rental equipment............................ 147,101 347,678 235,678 Sales of equipment and merchandise and other revenues 526,604 514,500 416,924 ---------- ---------- ---------- Total revenues........................................ 2,886,605 2,918,861 2,233,628 Cost of revenues: Cost of equipment rentals, excluding depreciation.... 1,053,635 907,477 676,972 Depreciation of rental equipment..................... 320,963 328,131 280,641 Cost of rental equipment sales....................... 88,742 208,182 136,678 Cost of equipment and merchandise sales and other operating costs.................................... 383,795 386,501 314,419 ---------- ---------- ---------- Total cost of revenues................................ 1,847,135 1,830,291 1,408,710 ---------- ---------- ---------- Gross profit.......................................... 1,039,470 1,088,570 824,918 Selling, general and administrative expenses.......... 441,751 454,330 344,328 Restructuring charge.................................. 28,922 Non-rental depreciation and amortization.............. 98,901 78,583 57,941 ---------- ---------- ---------- Operating income...................................... 469,896 555,657 422,649 Interest expense...................................... 221,563 228,779 139,828 Other (income) expense, net........................... 6,421 (1,836) (1,646) ---------- ---------- ---------- Income before provision for income taxes and extraordinary item.................................. 241,912 328,714 284,467 Provision for income taxes............................ 103,332 136,416 116,628 ---------- ---------- ---------- Income before extraordinary item...................... 138,580 192,298 167,839 Extraordinary item, net of tax benefit of $6,759...... 11,317 ---------- ---------- ---------- Net income............................................ $ 127,263 $ 192,298 $ 167,839 ========== ========== ==========
See accompanying notes. 68 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Common Stock Accumulated ---------------- Additional Other Number Paid-in Retained Comprehensive Comprehensive of Shares Amount Capital Earnings Income (Loss) Income --------- ------ ---------- -------- ------------- ------------- (In thousands except share amounts) Balance, December 31, 1998............. 1,000 $ 984,345 $ 37,288 $ (281) Comprehensive income: Net income.......................... 167,839 $167,839 Other comprehensive income: Foreign currency translation adjustments..................... 598 598 -------- Comprehensive income................ $168,437 ======== Contributed capital from parent..... 522,985 Dividend distributions to parent.... (19,500) ----- - ---------- -------- -------- Balance, December 31, 1999............. 1,000 1,507,330 185,627 317 Comprehensive income: Net income.......................... 192,298 $192,298 Other comprehensive income: Foreign currency translation adjustments..................... (7,264) (7,264) -------- Comprehensive income................ $185,034 ======== Contributed capital from parent..... 331 Dividend distributions to parent.... (50,450) ----- - ---------- -------- -------- Balance, December 31, 2000............. 1,000 1,507,661 327,475 (6,947) Comprehensive income:............... Net income.......................... 127,263 $127,263 Other comprehensive income:......... Foreign currency translation adjustments..................... (16,137) (16,137) Cumulative effect on equity of adopting FAS 133, net of tax of $1,784............................. (2,516) (2,516) Derivatives qualifying as hedges, net of tax $3,212.................. (4,527) (4,527) -------- Comprehensive income................ $104,083 ======== Contributed capital from parent..... 10,417 Dividend distributions to parent.... (44,258) ----- ---------- -------- -------- Balance, December 31, 2001............. 1,000 $1,518,078 $410,480 $(30,127) ===== ========== ======== ========
See accompanying notes. 69 UNITED RENTALS (NORTH AMERICA), INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 ----------------------------------- 2001 2000 1999 ----------- --------- ----------- (In thousands) Cash Flows From Operating Activities: Net income....................................................................... $ 127,263 $ 192,298 $ 167,839 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................................. 419,864 406,714 342,403 Gain on sales of rental equipment.............................................. (58,359) (139,496) (99,000) Gain on sale of businesses..................................................... (4,084) (1,842) Restructuring charge........................................................... 10,893 Extraordinary item............................................................. 18,076 Deferred taxes................................................................. 100,683 109,280 41,820 Changes in operating assets and liabilities: Accounts receivable........................................................... 24,888 8,613 (93,716) Inventory..................................................................... 87,084 69,706 (6,544) Prepaid expenses and other assets............................................. 11,657 (77,579) 34,701 Accounts payable.............................................................. (58,713) 14,290 47,586 Accrued expenses and other liabilities........................................ 27,715 (65,062) (8,065) ----------- --------- ----------- Net cash provided by operating activities.................................. 711,051 514,680 425,182 ----------- --------- ----------- Cash Flows From Investing Activities: Purchases of rental equipment.................................................... (449,770) (808,204) (718,112) Purchases of property and equipment.............................................. (44,874) (140,699) (109,468) Proceeds from sales of rental equipment.......................................... 147,101 347,678 235,678 Proceeds from sale of businesses................................................. 19,246 6,521 Purchases of other companies..................................................... (54,838) (347,337) (986,790) Payments of contingent purchase price............................................ (2,103) (16,266) (8,216) ----------- --------- ----------- Net cash used in investing activities...................................... (404,484) (945,582) (1,580,387) ----------- --------- ----------- Cash Flows From Financing Activities: Capital contributions by Parent.................................................. 10,417 331 522,985 Proceeds from debt............................................................... 2,053,467 456,202 1,083,616 Payments on debt................................................................. (2,300,507) (134,599) (497,650) Proceeds from sale-leaseback..................................................... 12,435 193,478 88,000 Dividend distributions to Parent................................................. (44,258) (50,450) (19,500) Payments of financing costs...................................................... (29,042) (16,223) (19,443) ----------- --------- ----------- Net cash provided by financing activities.................................. (297,488) 448,739 1,158,008 Effect of foreign exchange rates................................................. (16,137) (7,264) 598 ----------- --------- ----------- Net increase (decrease) in cash and cash equivalents............................. (7,058) 10,573 3,401 Cash and cash equivalents at beginning of year................................... 34,384 23,811 20,410 ----------- --------- ----------- Cash and cash equivalents at end of year......................................... $ 27,326 $ 34,384 $ 23,811 =========== ========= =========== Supplemental disclosure of cash flow information: Cash paid for interest........................................................... $ 210,885 $ 229,263 $ 104,785 Cash paid for taxes, net of refunds.............................................. $ (30,799) $ 23,746 $ 17,509 Supplemental schedule of non cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired................................................... $ 21,465 $ 529,204 $ 1,468,567 Liabilities assumed............................................................ (4,612) (133,120) (472,382) Less: Amounts paid in common stock of the parent.................................... (10,000) Amounts paid through issuance of debt......................................... (600) (65,500) (9,395) ----------- --------- ----------- 16,253 320,584 986,790 Due to seller and other payments............................................... 38,585 26,753 ----------- --------- ----------- Net cash paid.................................................................... $ 54,838 $ 347,337 $ 986,790 =========== ========= ===========
See accompanying notes. 70 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation United Rentals (North America), Inc., ("URI") and subsidiaries is a wholly owned subsidiary of United Rentals, Inc., which is principally a holding company ("Holdings" or "Parent"). Holdings was incorporated in July 1998 and became the parent of URI on August 5, 1998, pursuant to the reorganization of the legal structure of URI. Prior to such reorganization, the name of URI was United Rentals, Inc. References herein to the "Company" refer to URI and its subsidiaries. Certain footnotes are not provided for the accompanying financial statements as the information in Notes 1 through 9, 11, 12 and 14 through 16 to the consolidated financial statements of United Rentals, Inc. included elsewhere in this report is substantially equivalent to that required for the consolidated financial statements of URI and its subsidiaries. Earnings per share data is not provided for the operating results of URI and subsidiaries, as they are wholly owned subsidiaries of Holdings. URI's various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder. Holdings provides certain services to URI in connection with its operations. These services principally include: (i) senior management services, (ii) finance related services and support, (iii) information technology systems and support and (iv) acquisition related services. In addition, Holdings leases certain equipment and real property that are made available for use by URI and its subsidiaries. URI has made, and expects to continue to make, certain payments to Holdings in respect of the services provided by Holdings to the Company. The expenses relating to URI's payments to Holdings are reflected on URI's financial statements as selling, general and administrative expenses. In addition, although not legally obligated to do so, URI has in the past made, and expects that it will in the future make, distributions to Holdings for, among other things, enabling Holdings to pay dividends on its preferred securities. 2. Capital Stock and Contributions At December 31, 2001, the Company has authorized 3,000 shares of its $0.01 par value common stock of which 1,000 shares are issued and outstanding. All of the issued and outstanding common shares are owned by its Parent. Pursuant to the reorganization described in Note 1, the net proceeds from the Company's initial public offering completed in December 1997 and the public offering completed in March 1998 have been reflected as Contributed Capital from the Parent in the accompanying statement of stockholder's equity. Holdings also contributed the net proceeds from the issuance of redeemable convertible preferred securities in August 1998 to URI. During 1999, Holdings contributed the net proceeds from the issuance of common stock in a public offering and the net proceeds from the issuance of perpetual convertible preferred stock to URI. 3. Condensed Consolidating Financial Information of Guarantor Subsidiaries Certain indebtedness of URI is guaranteed by URI's United States subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's foreign subsidiaries (the "non-guarantor subsidiaries"). 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 71 72 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) conveyance laws). Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, are presented. The condensed consolidating financial information of URI and its subsidiaries are as follows: CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2001
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------- ------------ ------------ (In thousands) ASSETS Cash and cash equivalents.................. $ 6,385 $ 19,798 $ 1,143 $ 27,326 Accounts receivable, net................... 7,142 418,260 24,871 450,273 Intercompany receivable (payable).......... 89,612 39,548 (129,160) Inventory.................................. 36,335 46,410 3,019 85,764 Prepaid expenses and other assets.......... 57,764 64,699 1,935 124,398 Rental equipment, net...................... 885,442 744,969 116,771 1,747,182 Property and equipment, net................ 135,240 231,508 16,512 383,260 Investment in subsidiaries................. 2,414,710 $(2,414,710) Intangible assets, net..................... 855,360 1,231,121 121,220 2,207,701 ---------- ---------- ---------- ----------- ---------- $4,487,990 $2,796,313 $ 156,311 $(2,414,710) $5,025,904 ========== ========== ========== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable........................ $ 38,436 $ 155,029 $ 11,308 $ 204,773 Debt.................................... 2,193,380 203,896 62,246 2,459,522 Deferred taxes.......................... 296,974 50 297,024 Accrued expenses and other liabilities.. 57,108 96,793 12,253 166,154 ---------- ---------- ---------- ----------- ---------- Total liabilities.................... 2,585,898 455,768 85,807 3,127,473 Commitments and contingencies Stockholder's equity: Common stock............................ Additional paid-in capital.............. 1,498,655 1,840,604 65,970 $(1,887,151) 1,518,078 Retained earnings....................... 410,480 499,941 27,618 (527,559) 410,480 Accumulated other comprehensive loss................................... (7,043) (23,084) (30,127) ---------- ---------- ---------- ----------- ---------- Total stockholder's equity........... 1,902,092 2,340,545 70,504 (2,414,710) 1,898,431 ---------- ---------- ---------- ----------- ---------- $4,487,990 $2,796,313 $ 156,311 $(2,414,710) $5,025,904 ========== ========== ========== =========== ==========
72 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2000
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------- ------------ ------------ (In thousands) ASSETS Cash and cash equivalents.................. $ 29,733 $ 4,651 $ 34,384 Accounts receivable, net................... $ 216,444 143,295 109,855 469,594 Intercompany receivable (payable).......... 319,423 (55,187) (264,236) Inventory.................................. 54,022 73,979 5,379 133,380 Prepaid expenses and other assets.......... 28,263 75,633 597 104,493 Rental equipment, net...................... 837,972 766,219 128,644 1,732,835 Property and equipment, net................ 139,871 231,195 16,366 387,432 Investment in subsidiaries................. 2,257,692 $(2,257,692) Intangible assets, net..................... 960,444 1,132,438 134,126 2,227,008 ---------- ---------- ---------- ----------- ---------- $4,814,131 $2,397,305 $ 135,382 $(2,257,692) $5,089,126 ========== ========== ========== =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accounts payable........................ $ 78,623 $ 165,677 $ 15,855 $ 260,155 Debt.................................... 2,647,144 3,484 24,739 2,675,367 Deferred taxes.......................... 186,091 20,702 (550) 206,243 Accrued expenses and other liabilities.. 86,560 18,862 13,750 119,172 ---------- ---------- ---------- ----------- ---------- Total liabilities.................... 2,998,418 208,725 53,794 3,260,937 Commitments and contingencies Stockholder's equity: Common stock............................ Additional paid-in capital.............. 1,488,238 1,830,500 65,657 $(1,876,734) 1,507,661 Retained earnings....................... 327,475 358,080 22,878 (380,958) 327,475 Accumulated other comprehensive loss................................... ( 6,947) ( 6,947) ---------- ---------- ---------- ----------- ---------- Total stockholder's equity........... 1,815,713 2,188,580 81,588 (2,257,692) 1,828,189 ---------- ---------- ---------- ----------- ---------- $4,814,131 $2,397,305 $ 135,382 $(2,257,692) $5,089,126 ========== ========== ========== =========== ==========
73 74 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 2001
Non- Guarantor Guarantor Other and Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals.......................... $ 907,070 $1,201,439 $104,391 $2,212,900 Sales of rental equipment.................. 63,612 70,331 13,158 147,101 Sales of equipment and merchandise and other revenues............................ 244,020 254,222 28,362 526,604 ---------- ---------- -------- --------- ---------- Total revenues................................ 1,214,702 1,525,992 145,911 2,886,605 Cost of revenues: Cost of equipment rentals, excluding depreciation............................... 376,634 626,867 50,134 1,053,635 Depreciation of rental equipment........... 150,619 149,868 20,476 320,963 Cost of rental equipment sales............. 38,702 42,088 7,952 88,742 Cost of equipment and merchandise sales and other operating costs.................. 177,659 185,223 20,913 383,795 ---------- ---------- -------- --------- ---------- Total cost of revenues........................ 743,614 1,004,046 99,475 1,847,135 ---------- ---------- -------- --------- ---------- Gross profit.................................. 471,088 521,946 46,436 1,039,470 Selling, general and administrative expenses.. 192,640 224,707 24,404 441,751 Restructuring charge.......................... 8,877 17,096 2,949 28,922 Non-rental depreciation and amortization...... 42,012 51,014 5,875 98,901 ---------- ---------- -------- --------- ---------- Operating income.............................. 227,559 229,129 13,208 469,896 Interest expense.............................. 211,220 7,834 2,509 221,563 Other (income) expense, net................... 25,586 (21,202) 2,037 6,421 ---------- ---------- -------- --------- ---------- Income (loss) before provision (benefit) for income taxes and extraordinary item........... (9,247) 242,497 8,662 241,912 Provision (benefit) for income taxes.......... (1,226) 100,636 3,922 103,332 ---------- ---------- -------- --------- ---------- Income (loss) before extraordinary item and equity in net earnings of subsidiaries....... (8,021) 141,861 4,740 138,580 Extraordinary item............................ 11,317 11,317 ---------- ---------- -------- --------- ---------- Income (loss) before equity in net earnings of subsidiaries.................................. (19,338) 141,861 4,740 127,263 Equity in net earnings of subsidiaries........ 146,601 $(146,601) ---------- ---------- -------- --------- ---------- Net income.................................... $ 127,263 $ 141,861 $ 4,740 $(146,601) $ 127,263 ========== ========== ======== ========= ==========
74 75 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 2000
Non- Guarantor Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ---------- ------------ ------------ ------------ ------------ (In thousands) Revenues: Equipment rentals......................... $ 851,541 $1,094,613 $110,529 $2,056,683 Sales of rental equipment................. 145,519 178,576 23,583 347,678 Sales of equipment and merchandise and other revenues........................... 253,798 229,219 31,483 514,500 ---------- ---------- -------- --------- ---------- Total revenues.............................. 1,250,858 1,502,408 165,595 2,918,861 Cost of revenues: Cost of equipment rentals, excluding depreciation............................. 364,047 494,350 49,080 907,477 Depreciation of rental equipment.......... 152,640 155,239 20,252 328,131 Cost of rental equipment sales............ 87,161 106,617 14,404 208,182 Cost of equipment and merchandise sales and other operating costs................ 197,190 164,186 25,125 386,501 ---------- ---------- -------- --------- ---------- Total cost of revenues...................... 801,038 920,392 108,861 1,830,291 ---------- ---------- -------- --------- ---------- Gross profit................................ 449,820 582,016 56,734 1,088,570 Selling, general and administrative expenses 184,135 245,431 24,764 454,330 Non-rental depreciation and amortization.... 33,692 39,618 5,273 78,583 ---------- ---------- -------- --------- ---------- Operating income............................ 231,993 296,967 26,697 555,657 Interest expense............................ 217,904 135 10,740 228,779 Other (income) expense, net................. 2,129 (4,285) 320 (1,836) ---------- ---------- -------- --------- ---------- Income before provision for income taxes.... 11,960 301,117 15,637 328,714 Provision for income taxes.................. 4,908 124,964 6,544 136,416 ---------- ---------- -------- --------- ---------- Income before equity in net earnings of subsidiaries................................ 7,052 176,153 9,093 192,298 Equity in net earnings of subsidiaries...... 185,246 $(185,246) ---------- ---------- -------- --------- ---------- Net income.................................. $ 192,298 $ 176,153 $ 9,093 $(185,246) $ 192,298 ========== ========== ======== ========= ==========
75 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 1999
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------ (In thousands) Revenues: Equipment rentals......................... $600,431 $ 880,182 $100,413 $1,581,026 Sales of rental equipment................. 113,982 106,737 14,959 235,678 Sales of equipment and merchandise and other revenues........................... 195,647 189,829 31,448 416,924 -------- ---------- -------- --------- ---------- Total revenues.............................. 910,060 1,176,748 146,820 2,233,628 Cost of revenues: Cost of equipment rentals, excluding depreciation............................. 250,959 381,718 44,295 676,972 Depreciation of rental equipment.......... 116,385 146,622 17,634 280,641 Cost of rental equipment sales............ 62,972 64,945 8,761 136,678 Cost of equipment and merchandise sales and other operating costs................ 161,902 128,328 24,189 314,419 -------- ---------- -------- --------- ---------- Total cost of revenues...................... 592,218 721,613 94,879 1,408,710 -------- ---------- -------- --------- ---------- Gross profit................................ 317,842 455,135 51,941 824,918 Selling, general and administrative expenses 144,341 177,456 22,531 344,328 Non-rental depreciation and amortization.... 29,667 24,617 3,657 57,941 -------- ---------- -------- --------- ---------- Operating income............................ 143,834 253,062 25,753 422,649 Interest expense............................ 132,929 1,428 5,471 139,828 Other (income) expense, net................. (1,549) (524) 427 (1,646) -------- ---------- -------- --------- ---------- Income before provision for income taxes.... 12,454 252,158 19,855 284,467 Provision for income taxes.................. 3,039 105,531 8,058 116,628 -------- ---------- -------- --------- ---------- Income before equity in net earnings of subsidiaries............................... 9,415 146,627 11,797 167,839 Equity in net earnings of subsidiaries...... 158,424 $(158,424) -------- ---------- -------- --------- ---------- Net income.................................. $167,839 $ 146,627 $ 11,797 $(158,424) $ 167,839 ======== ========== ======== ========= ==========
76 77 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2001
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------- ------------ ------------ (In thousands) Net cash provided by operating activities..... $ 622,289 $ 97,695 $ (8,933) $ 711,051 Cash flows from investing activities: Purchases of rental equipment.............. (277,032) (148,125) (24,613) (449,770) Purchases of property and equipment........ (13,159) (28,214) (3,501) (44,874) Proceeds from sales of rental equipment.... 63,612 70,331 13,158 147,101 Payments of contingent purchase price...... (2,103) (2,103) Purchases of other companies............... (53,565) (1,273) (54,838) ----------- --------- -------- ------- ----------- Net cash used in investing activities............................. (282,247) (106,008) (16,229) (404,484) Cash flows from financing activities: Dividend distributions to parent........... (44,258) (44,258) Proceeds from debt......................... 2,008,644 65 44,758 2,053,467 Repayments of debt......................... (2,292,186) (1,687) (6,634) (2,300,507) Proceeds from sale-leaseback............... 12,435 12,435 Payments of financing costs................ (28,709) (333) (29,042) Capital contributions by parent............ 10,417 10,417 ----------- --------- -------- ------- ----------- Net cash provided by (used in) financing activities................... (333,657) (1,622) 37,791 (297,488) Effect of foreign exchange rates........... (16,137) (16,137) ----------- --------- -------- ------- ----------- Net increase (decrease) in cash and cash equivalents.................................. 6,385 (9,935) (3,508) (7,058) Cash and cash equivalents at beginning of period....................................... 29,733 4,651 34,384 ----------- --------- -------- ------- ----------- Cash and cash equivalents at end of period....................................... $ 6,385 $ 19,798 $ 1,143 $ 27,326 =========== ========= ======== ======= =========== Supplemental disclosure of cash flow information: Cash paid for interest..................... $ 197,315 $ 10,561 $ 3,009 $ 210,885 Cash paid for income taxes................. $ (31,122) $ 323 $ (30,799) 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............ $ 20,264 $ 1,201 $ 21,465 Liabilities assumed..................... (4,468) (144) (4,612) Less: Amounts paid through issuance of debt............................. (600) (600) ----------- --------- -------- ------- ----------- 15,196 1,057 16,253 Due to seller and other payments........ 38,369 216 38,585 ----------- --------- -------- ------- ----------- Net cash paid........................ $ 53,565 $ 1,273 $ 54,838 =========== ========= ======== ======= ===========
77 78 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2000
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------- ------------ ------------ (In thousands) Net cash provided by operating activities........ $ 243,759 $ 227,855 $ 43,066 $ 514,680 Cash flows from investing activities: Purchases of rental equipment................. (489,259) (283,488) (35,457) (808,204) Purchases of property and equipment........... (34,477) (102,510) (3,712) (140,699) Proceeds from sales of rental equipment....... 145,519 178,576 23,583 347,678 Proceeds from sale of businesses.............. 16,246 3,000 19,246 Payments of contingent purchase price......... (3,030) (13,236) (16,266) Purchases of other companies.................. (337,257) (10,080) (347,337) --------- --------- -------- ------- --------- Net cash used in investing activities................................ (702,258) (217,658) (25,666) (945,582) Cash flows from financing activities: Dividend distributions to parent.............. (50,450) (50,450) Proceeds from debt............................ 452,912 3,290 456,202 Repayments of debt............................ (125,238) (168) (9,193) (134,599) Proceeds from sale-leaseback.................. 193,478 193,478 Payments of financing costs................... (16,223) (16,223) Capital contributions by parent............... 331 331 --------- --------- -------- ------- --------- Net cash provided by (used in) financing activities...................... 454,810 3,122 (9,193) 448,739 Effect of foreign exchange rates.............. (7,264) (7,264) --------- --------- -------- ------- --------- Net increase (decrease) in cash and cash equivalents..................................... (3,689) 13,319 943 10,573 Cash and cash equivalents at beginning of period.......................................... 3,689 16,414 3,708 23,811 --------- --------- -------- ------- --------- Cash and cash equivalents at end of period.......................................... $ $ 29,733 $ 4,651 $ 34,384 ========= ========= ======== ======= ========= Supplemental disclosure of cash flow information: Cash paid for interest........................ $ 218,346 $ 135 $ 10,782 $ 229,263 Cash paid for income taxes.................... $ 19,833 $ 3,913 $ 23,746 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............... $ 518,167 $ 11,037 $ 529,204 Liabilities assumed........................ (132,163) (957) (133,120) Less: Amounts paid in common stock of parent.............................. (10,000) (10,000) Amounts paid through issuance of debt................................ (65,500) (65,500) --------- --------- -------- ------- --------- 310,504 10,080 320,584 Due to seller and other payments........ 26,753 26,753 --------- --------- -------- ------- --------- Net cash paid........................... $ 337,257 $ 10,080 $ 347,337 ========= ========= ======== ======= =========
78 79 UNITED RENTALS (NORTH AMERICA), INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 1999
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total ----------- ------------ ------------- ------------ ------------ (In thousands) Net cash provided by operating activities..... $ 292,412 $ 13,185 $ 119,585 $ 425,182 Cash flows from investing activities: Purchases of rental equipment.............. (539,775) (99,365) (78,972) (718,112) Purchases of property and equipment........ (74,634) (20,366) (14,468) (109,468) Proceeds from sales of rental equipment................................. 113,982 106,737 14,959 235,678 Proceeds from sale of businesses........... 1,040 2,354 3,127 6,521 Payments of contingent purchase price...... (2,387) (4,265) (1,564) (8,216) Purchases of other companies............... (915,937) (70,853) (986,790) ----------- -------- --------- --------- ----------- Net cash used in investing activities............................. (1,417,711) (14,905) (147,771) (1,580,387) Cash flows from financing activities: Dividend distributions to parent........... (19,500) (19,500) Proceeds from debt......................... 1,025,843 26,524 31,249 1,083,616 Repayments of debt......................... (474,808) (20,958) (1,884) (497,650) Proceeds from sale-leaseback............... 88,000 88,000 Payments of financing costs................ (18,995) (448) (19,443) Capital contributions by parent............ 522,985 522,985 ----------- -------- --------- --------- ----------- Net cash provided by financing activities............................. 1,123,525 5,566 28,917 1,158,008 Effect of foreign exchange rates........... 598 598 ----------- -------- --------- --------- ----------- Net increase (decrease) in cash and cash equivalents.................................. (1,774) 3,846 1,329 3,401 Cash and cash equivalents at beginning of period....................................... 1,774 16,257 2,379 20,410 ----------- -------- --------- --------- ----------- Cash and cash equivalents at end of period....................................... $ $ 20,103 $ 3,708 $ 23,811 =========== ======== ========= ========= =========== Supplemental disclosure of cash flow information: Cash paid for interest..................... $ 98,728 $ 1,194 $ 4,863 $ 104,785 Cash paid for income taxes................. $ 16,372 $ 1,137 $ 17,509 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired............ $ 1,371,807 $ 96,760 $ 1,468,567 Liabilities assumed..................... (448,685) (23,697) (472,382) Less: Amounts paid through issuance of debt............................. (7,185) (2,210) (9,395) ----------- -------- --------- --------- ----------- Net cash paid........................ $ 915,937 $ 70,853 $ 986,790 =========== ======== ========= ========= ===========
79 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES Board of Directors United Rentals, Inc. We have audited the consolidated financial statements of United Rentals, Inc. as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, and have issued our report thereon dated February 26, 2002, included elsewhere in this Form 10-K. Our audits also included the financial statement schedules listed in Item 14(a)(2). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP MetroPark, New Jersey February 19, 2002 80 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. CONDENSED BALANCE SHEET
December 31 ---------------------- 2001 2000 ---------- ---------- (In thousands) Assets Property and equipment, net............... $ 26,793 $ 34,807 Investment in and advances to subsidiaries 1,904,000 1,839,952 ---------- ---------- $1,930,793 $1,874,759 ========== ========== Liabilities and Stockholders' Equity Liabilities: Debt................................... $ 300,000 $ 300,000 Accrued expenses and other liabilities. 5,283 28,816 ---------- ---------- Total liabilities.................. 305,283 328,816 Commitments and contingencies Series A and B preferred stock............ 430,800 Stockholders' equity: Series C and D preferred stock......... 5 Common stock........................... 734 711 Additional paid-in capital............. 1,243,586 765,529 Deferred compensation.................. (55,794) Retained earnings...................... 467,106 355,850 Accumulated other comprehensive loss... (30,127) (6,947) ---------- ---------- Total stockholders' equity......... 1,625,510 1,115,143 ---------- ---------- $1,930,793 $1,874,759 ========== ==========
See accompanying notes. 81 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31 ---------------------------- 2001 2000 1999 -------- -------- -------- (In thousands) Selling, general and administrative expenses...... $ 8,267 Non-rental depreciation and amortization.......... $ 7,862 $ 7,718 4,926 -------- -------- -------- Operating loss.................................... (7,862) (7,718) (13,193) Interest expense.................................. 19,500 19,500 19,500 Other (income) expense, net....................... 9,689 -------- -------- -------- Loss before benefit for income taxes.............. (27,362) (27,218) (42,382) Benefit for income taxes.......................... 11,355 11,295 17,487 -------- -------- -------- Net loss before equity in earnings of subsidiaries (16,007) (15,923) (24,895) Equity in earnings of subsidiaries................ 127,263 192,298 167,561 -------- -------- -------- Net income........................................ $111,256 $176,375 $142,666 ======== ======== ========
See accompanying notes. 82 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. CONDENSED CASH FLOW INFORMATION
Year Ended December 31, ------------------------------ 2001 2000 1999 --------- -------- --------- (In thousands) Net cash used in operating activities................. $ $ (16,826) (6,429) $ (4,824) Cash flows from investing activities: Purchase of property and equipment................. (2,674) (13,071) (14,181) Capital contributed to subsidiary.................. (10,417) (331) (522,985) --------- -------- --------- Net cash used in investing activities.......... (13,091) (13,402) (537,166) Cash flows from financing activities: Proceeds from issuance of common stock and warrants, net of issuance costs.................. 64,701 Proceeds from the issuance of preferred stock, net of issuance costs................................ 430,800 Proceeds from debt................................. Shares repurchased and retired..................... (24,758) (30,950) Proceeds from the exercise of stock options........ 10,417 331 26,989 Proceeds from dividends from subsidiary............ 44,258 50,450 19,500 --------- -------- --------- Net cash provided by financing activities...... 29,917 19,831 541,990 --------- -------- --------- Net increase in cash and cash equivalents............. Cash and cash equivalents at beginning of period...... --------- -------- --------- Cash and cash equivalents at end of period............ $ -- $ -- $ -- ========= ======== =========
See accompanying notes. 83 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED RENTALS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation United Rentals, Inc. is principally a holding company ("Holdings") and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries. In the parent company-only financial statements, Holdings, investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. Holdings share of net income of its unconsolidated subsidiaries is included in consolidated income using the equity method. The parent company-only financial statements should be read in conjunction with the Company's consolidated financial statements. 2. Debt See Note 10 to the Consolidated Financial Statements for information concerning debt. 3. Guarantee See Note 10 to the Consolidated Financial Statements for information concerning the guarantee. 84 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS UNITED RENTALS, INC.
Additions ------------------ Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Other Deductions of Period ----------- ---------- ---------- ------- ---------- --------- (In thousands) Year ended December 31, 2001: Allowance for doubtful accounts.................. $55,624 $31,194 $ 906(a) $39,980(c) $47,744 Reserve for inventory obsolescence and shrinkage. 15,461 9,229 554(b) 15,839(d) 9,395 Insurance reserves............................... 15,428 87,238 84,107(e) 18,559 Year ended December 31, 2000: Allowance for doubtful accounts.................. $58,376 $38,431 $14,791(a) $55,974(c) $55,624 Reserve for inventory obsolescence and shrinkage. 16,782 9,124 11,302(b) 21,747(d) 15,461 Insurance reserves............................... 22,750 63,728 71,050(e) 15,428 Year ended December 31, 1999: Allowance for doubtful accounts.................. 43,481 46,121 23,568(a) 54,794(c) 58,376 Reserve for inventory obsolescence and shrinkage. 9,288 6,857 11,975(b) 11,338(d) 16,782 Insurance reserves............................... 20,553 47,087 44,890(e) 22,750
- -------- (a)Represents allowance for doubtful accounts established through acquisitions. (b)Represents reserve for inventory obsolescence and shrinkage assumed through acquisitions. (c)Represents write-offs of accounts, net of recoveries. (d)Represents write-offs of inventory items. (e)Represents payments. 85 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information required by this Item is incorporated by reference to the applicable information in the 2002 Proxy Statement, including the information set forth under the captions "Election of Directors" and "Compliance with Section 11(A) of the Securities Exchange Act of 1934". The "2002 Proxy Statement" refers to the Company's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, prior to April 30, 2002. Item 11. Executive and Director Compensation The information required by this Item is incorporated by reference to the applicable information in the 2002 Proxy Statement, including the information set forth under the captions "Executive and Director Compensation" and "Compensation Committee Interlocks and Insider Participation". Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is incorporated by reference to the applicable information in the 2002 Proxy Statement, including the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management". Item 13. Certain Relationships and Related Transactions The information required by this Item is incorporated by reference to the applicable information in the 2002 Proxy Statement, including the information set forth under the caption "Certain Transactions". Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1)Consolidated Financial Statements: Report of Independent Auditors United Rentals, Inc. Consolidated Balance Sheets--December 31, 2001 and 2000 United Rentals, Inc. Consolidated Statements of Operations for the years ended December 31, 2001, 2000, and 1999 United Rentals, Inc. Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000, and 1999 United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements Report of Independent Auditors United Rentals (North America), Inc. Consolidated Balance Sheets--December 31, 2001 and 2000 United Rentals (North America), Inc. Consolidated Statements of Operations for the years ended December 31, 2001, 2000, and 1999 86 United Rentals (North America), Inc. Consolidated Statements of Stockholder's Equity for the years ended December 31, 2001, 2000, and 1999 United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements (a)(2) Financial Statement Schedules: Report of Independent Auditors on Financial Statement Schedules Schedule I Condensed Financial Information of Registrant Schedule II Valuation and Qualifying Accounts Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the financial statements or notes thereto. (a)(3) Exhibits
Exhibit Number Description of Exhibit - ------ ---------------------- 2(a) Amended and Restated Agreement and Plan of Merger dated as of August 31, 1998, among United Rentals, Inc., UR Acquisition Corporation and U.S. Rentals, Inc. (incorporated by reference to Exhibit 2 of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 3(a) Amended and Restated Certificate of Incorporation of United Rentals, Inc., (incorporated by reference to exhibit 3.1 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 3(b) Certificate of Amendment to the United Rentals, Inc. Amended and Restated 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., (incorporated by reference to exhibit 3.2 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 3(d) Form of Certificate of Designation for Series A Perpetual Convertible Preferred Stock (incorporated by reference to Exhibit 4(k) to the United Rentals, Inc. Registration Statement on Form S-3, No. 333-64463) together with a certificate of amendment thereto (incorporated by reference to exhibit A of the United Rentals, Inc. Proxy Statement dated July 22, 1999) 3(e) Form of Certificate of Designation for Series B Perpetual Convertible Preferred Stock (incorporated by reference to exhibit B of the United Rentals, Inc. Proxy Statement on Schedule 14A dated July 22, 1999) 3(f) Form of Certificate of Designation for Series C Perpetual Convertible Preferred Stock (incorporated by reference to exhibit 3(f) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001) 3(g) Form of Certificate of Designation for Series D Perpetual Convertible Preferred Stock (incorporated by reference to exhibit 3(g) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001) 3(h) Form of Certificate of Designation for Series E Junior Participating Preferred Stock (incorporated by reference to Exhibit A of Exhibit 4 of the United Rentals, Inc. Current Report on Form 8-K filed on October 5, 2001)
87
Exhibit Number Description of Exhibit - ------ ---------------------- 3(i) Rights Agreement dated September 28, 2001 between United Rentals, Inc. and American Stock Transfer & Trust Co., as Rights Agent (incorporated by reference to Exhibit 4 of the United Rentals, Inc. Current Report on Form 8-K filed on October 5, 2001) 3(j) Amended and Restated Certificate of Incorporation of United Rentals (North America), Inc., (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(k) By-laws of United Rentals (North America), Inc., (incorporated by reference to Exhibit 3.4 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 4(a) Form of certificate representing United Rentals, Inc. Common Stock (incorporated by reference to Exhibit 4 of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117) 4(b) Certificate of Trust of United Rentals Trust I (incorporated by reference to Exhibit 4(a) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463)- 4(c) Amended and Restated Trust Agreement dated August 5, 1998 among United Rentals, Inc., The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, and the Administrative Trustees named therein (incorporated by reference to Exhibit 10(ii) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(d) Indenture dated August 5, 1998 by and between United Rentals, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10(hh) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(e) Guarantee Agreement dated August 5, 1998 between United Rentals, Inc. and The Bank of New York (incorporated by reference to Exhibit 10(jj) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(f) Form of Certificate representing 6 1/2% Convertible Quarterly Income Preferred Securities (incorporated by reference to Exhibit 4(e) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463) 4(g) Form of Certificate representing 6 1/2% Convertible Subordinated Debentures (incorporated by reference to Exhibit 4(f) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463) 4(h) Indenture dated May 22, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 4(b) of the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 4(i) Indenture dated August 12, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 10(bb) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(j) Indenture dated December 15, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 10(uu) to Amendment No. 1 to the United Rentals (North America), Inc. Registration Statement on Form S-4, No. 333-64227)
88
Exhibit Number Description of Exhibit - ------ ---------------------- 4(k) Indenture dated March 23, 1999 among United Rentals (North America), Inc., the Guarantors named therein and The Bank of New York, as trustee (incorporated by reference to exhibit 4(q) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 4(l) Indenture dated as of April 20, 2001 among United Rentals (North America), Inc., the Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10(b) to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 2001) 4(m) Form of Registration Rights Agreement relating to the Series B Perpetual Convertible Preferred Stock between United Rentals, Inc. and Chase Equity Associates, LP (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 4(n) Amended and Restated Registration Rights Agreement relating to Series A Perpetual Convertible Preferred Stock and Series B Perpetual Convertible Preferred Stock among United Rentals, Inc., Bradley S. Jacobs, Apollo Investment Fund IV, LP and Apollo Overseas Partners IV, LP (incorporated by reference to exhibit D of the United Rentals, Inc. Proxy Statement dated July 22, 1999) 10(a) Amended and Restated Credit Agreement dated as of April 20, 2001 between United Rentals, Inc., United Rentals (North America), Inc., various financial institutions, and The Chase manhattan Bank, as U.S. Administrative Agent (incorporated by reference to Exhibit 10(a) to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 2001) 10(b) Form of Warrant Agreement (incorporated by reference to exhibit 10(c) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)(1)++ 10(c) Form of Indemnification Agreement for Officers and Directors (incorporated by reference to exhibit 10(f) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(d) 1997 Stock Option Plan (incorporated by reference to exhibit 10(b) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(e) 1998 Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 99.1 to United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171)++ 10(f) 1998 Supplemental Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 4.6 to the United Rentals, Inc. Registration Statement on Form S-8, No. 333-70345) 10(g) 2001 Senior Stock Plan of United Rentals, Inc. (incorporated by reference to Appendix B to United Rentals, Inc. Definitive Proxy Statement dated April 30, 2001)++ 10(h) 2001 Stock Plan of United Rentals, Inc. (incorporated by reference to Exhibit 4.6 to United Rentals, Inc. Registration Statement on Form S-8, No. 333-60458)++ 10(i) Employment Agreement with Bradley S. Jacobs, dated as of September 19, 1997 (incorporated by reference to exhibit 10(g) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(j) Amendment No. 1 to Employment Agreement with Bradley S. Jacobs, dated as of December 24, 1999 (incorporated by reference to exhibit 10(p) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)++
89
Exhibit Number Description of Exhibit - ------ ---------------------- 10(k) Employment Agreement with John N. Milne, dated as of September 19, 1997 (incorporated by reference to exhibit 10(h) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(l) Amendment No. 1 to Employment Agreement with John N. Milne, dated as of December 24, 1999 (incorporated by reference to exhibit 10(r) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)++ 10(m) Employment Agreement with Michael J. Nolan, dated as of October 14, 1997 (incorporated by reference to exhibit 10(i) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(n) Amendment No. 1 to Employment Agreement with Michael J. Nolan, dated as of December 24, 1999 (incorporated by reference to exhibit 10(t) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)++ 10(o) Subscription Agreement dated November 14, 1997, from Wayland R. Hicks (Incorporated by reference to exhibit 10(r) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)++ 10(p) Agreement dated November 14, 1997, with Wayland R. Hicks (incorporated by reference to exhibit 10(s) of United Rentals, Inc., Registration Statement on Form S-1, Registration No. 333-39117)++ 10(q) Amendment No. 1 to Employment Agreement with Wayland R. Hicks, dated as of December 24, 1999 (incorporated by reference to exhibit 10(y) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)++ 10(r) Amendment No. 2 to Employment Agreement with Wayland R. Hicks, dated as of November 14, 2000 (incorporated by reference to exhibit 10(z) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 2000)++ 10(s) Senior Restricted Stock Agreement with Bradley S. Jacobs, dated June 5, 2001 (incorporated by reference to Exhibit 10.1 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)++ 10(t) Senior Restricted Stock Agreement with Wayland R. Hicks, dated June 5, 2001 (incorporated by reference to Exhibit 10.2 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)++ 10(u) Senior Restricted Stock Agreement with John N. Milne, dated June 5, 2001 (incorporated by reference to Exhibit 10.3 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)++ 10(v) Senior Restricted Stock Agreement with Michael J. Nolan, dated June 5, 2001 (incorporated by reference to Exhibit 10.4 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)++ 10(w) Preferred Stock Purchase Agreement dated December 21, 1998 between United Rentals, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (incorporated by reference to exhibit 10(y) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 10(x) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock, dated June 28, 1999, among United Rentals, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P., together with an Amendment dated as of July 16, 1999 (incorporated by reference to exhibit C of the United Rentals, Inc. Proxy Statement dated July 22, 1999)
90
Exhibit Number Description of Exhibit - ------ ---------------------- 10(y) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock dated July 16, 1999 between United Rentals, Inc. and Chase Equity Associates, L.P. (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 10(z) Purchase Agreement dated April 12, 2001 relating to the initial sale by United Rentals (North America), Inc. of $450 million aggregate principal amount of 103/4% Senior Notes due 2008 (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended March 31, 2001) 10(aa) Agreement dated September 28, 2001 among United Rentals, Inc., Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., and Chase Equity Associates, L.P. relating to the exchange of Series A Perpetual Convertible Preferred Stock for Series C Perpetual Convertible Preferred Stock and the exchange of Series B Perpetual Convertible Preferred Stock for Series D Perpetual Convertible Preferred Stock (incorporated by reference to Exhibit 10 of the United Rentals, Inc. Report on Form 8-K filed on October 5, 2001) 10(bb) Purchase and Lock-Up Agreement among Richard D. Colburn and AYR Inc. and United Rentals, Inc., dated March 17, 2002 (incorporated by reference to Exhibit 99.1 of the United Rentals, Inc. Report on Form 8-K filed on March 18, 2002) 10(cc) Purchase and Lock-Up Agreement between Colburn Music Fund and United Rentals, Inc., dated March 17, 2002 (incorporated by reference to Exhibit 99.2 of the United Rentals, Inc. Report on Form 8-K filed on March 18, 2002) 10(dd)* Underwriting Agreement dated March 19, 2002, among United Rentals, Inc., Bradley S. Jacobs, Bradley Jacobs LLC, John Milne, Michael Nolan, Wayland Hicks and Credit Suisse First Boston Corporation 21* Subsidiaries of United Rentals, Inc. 23* Consent of Ernst & Young LLP
- -------- * Filed herewith. ++This document is a management contract or compensatory plan or arrangement. (1)United Rentals, Inc. issued a warrant in this form to the following current and former officers and other employees of United Rentals, Inc. (or in certain cases to an entity controlled by such officer) for the number of shares indicated: Bradley S. Jacobs (5,000,000); John N. Milne (714,286); Michael J. Nolan (285,715); others (342,847). (b) Reports on Form 8-K: 1. Form 8-K filed on October 5, 2001 (earliest event reported September 28, 2001); Items 5 and 7 were reported. 2. Form 8-K filed on October 29, 2001 (earliest event reported October 25, 2001); Items 7 and 9 were reported. 3. Form 8-K filed on November 15, 2001 (earliest event reported November 12, 2001); Items 7 and 9 were reported. 91 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED RENTALS, INC. Date: March 28, 2002 By: /s/ Michael J. Nolan Michael J. Nolan Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signatures Title Date ---------- ----- ---- /S/ BRADLEY S. JACOBS Chairman of the Board of Directors and March 28, 2002 ----------------------- Chief Executive Officer (Principal Bradley S. Jacobs Executive Officer) /s/ WAYLAND R. HICKS Director March 28, 2002 ----------------------- Wayland R. Hicks /S/ JOHN N. MILNE Director March 28, 2002 ----------------------- John N. Milne /S/ JOHN S. MCKINNEY Director March 28, 2002 ----------------------- John S. McKinney /S/ LEON D. BLACK Director March 28, 2002 ----------------------- Leon D. Black /S/ RICHARD D. COLBURN Director March 28, 2002 ----------------------- Richard D. Colburn /S/ RONALD M. DEFEO Director March 28, 2002 ----------------------- Ronald M. DeFeo /S/ MICHAEL S. GROSS Director March 28, 2002 ----------------------- Michael S. Gross 92 Signatures Title Date ---------- ----- ---- /S/ RICHARD J. HECKMANN Director March 28, 2002 ------------------------ Richard J. Heckmann /S/ TIMOTHY J. TULLY Director March 28, 2002 ------------------------ Timothy J. Tully /S/ CHRISTIAN M. WEYER Director March 28, 2002 ------------------------ Christian M. Weyer /S/ MICHAEL J. NOLAN Chief Financial Officer (Principal March 28, 2002 ------------------------ Financial Officer) Michael J. Nolan /S/ JOSEPH B. SHERK Vice President, Corporate March 28, 2002 ------------------------ Controller (Principal Joseph B. Sherk Accounting Officer) 93 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED RENTALS (NORTH AMERICA), INC. Date: March 28, 2002 /s/ MICHAEL J. NOLAN By: _______________________________ Michael J. Nolan Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signatures Title Date ---------- ----- ---- /S/ BRADLEY S. JACOBS Chairman of the Board March 28, 2002 ----------------------- of Directors and Chief Bradley S. Jacobs Executive Officer (Principal Executive Officer) /S/ WAYLAND R. HICKS Director March 28, 2002 ----------------------- Wayland R. Hicks /S/ JOHN N. MILNE Director March 28, 2002 ----------------------- John N. Milne /S/ JOHN S. MCKINNEY Director March 28, 2002 ----------------------- John S. McKinney /S/ LEON D. BLACK Director March 28, 2002 ----------------------- Leon D. Black /S/ RICHARD D. COLBURN Director March 28, 2002 ----------------------- Richard D. Colburn /S/ RONALD M. DEFEO Director March 28, 2002 ----------------------- Ronald M. DeFeo /S/ MICHAEL S. GROSS Director March 28, 2002 ----------------------- Michael S. Gross 94
Signatures Title Date ---------- ----- ---- /S/ RICHARD J. HECKMANN Director March 28, 2002 - ------------------------ Richard J. Heckmann /S/ DAVID C. KATZ Director March 28, 2002 - ------------------------ David C. Katz /S/ TIMOTHY J. TULLY Director March 28, 2002 - ------------------------ Timothy J. Tully /S/ CHRISTIAN M. WEYER Director March 28, 2002 - ------------------------ Christian M. Weyer /S/ MICHAEL J. NOLAN Chief Financial Officer (Principal Financial March 28, 2002 - ------------------------ Officer) Michael J. Nolan /S/ JOSEPH B. SHERK Vice President, Corporate Controller March 28, 2002 - ------------------------ (Principal Accounting Officer) Joseph B. Sherk
95 EX-10.(DD) 3 dex10dd.txt UNDERWRITING AGREEMENT Exhibit 10(dd) Execution Copy UNITED RENTALS, INC. Common Stock, $.01 par value --------------- Underwriting Agreement ---------------------- March 19, 2002 Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Ladies and Gentlemen: The stockholders of United Rentals, Inc., a Delaware corporation (the "Company"), named in Schedule I hereto (the "Selling Stockholders") propose, subject to the terms and conditions stated herein, to sell to Credit Suisse First Boston Corporation (the "Underwriter") an aggregate of 8,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), of the Company. The 8,000,000 shares to be sold by the Selling Stockholders are herein called the "Shares". 1. (a) The Company represents and warrants to, and agrees with, the Underwriter that: (1) A registration statement on Form S-3 (File No. 333-41419-99) (the "Shelf Registration Statement") in respect of 6,630,000 of the Shares and a registration statement on Form S-8 (File No. 333-70345) (the "S-8 Registration Statement" and, together with the Shelf Registration Statement, the "Initial Registration Statements") in respect of 1,370,000 of the Shares have been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statements and any post-effective amendments thereto, each in the form heretofore delivered to you, excluding exhibits thereto, have been declared effective by the Commission in such form; no other document with respect to the Initial Registration Statements or documents incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of any Initial Registration Statement or any post-effective amendments thereto has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in any Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Securities Act of 1933, as amended (the "Act"), is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statements including all exhibits thereto and including (i) the information contained in the forms of final prospectuses filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the applicable Initial Registration Statement at the time it was declared effective; and (ii) the documents incorporated by reference in the prospectus contained in any Initial Registration Statement at the time such part of such Initial Registration Statement became effective, each as amended at the time such part of such Initial Registration Statement became effective or hereafter becomes effective, are hereinafter collectively called the "Registration Statements"; each such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called a "Prospectus"; any reference herein to any Preliminary Prospectus or any Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or any Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to any Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the applicable Initial Registration Statement that is incorporated by reference in such Registration Statement); (2) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriter expressly for use therein; (3) The documents incorporated by reference in any Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and as of such date none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in any Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue I-2 statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriter expressly for use therein; (4) Each Registration Statement conforms, and the Prospectus included in each such Registration Statement and any further amendments or supplements to such Registration Statement or such Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to such Registration Statement and any amendment thereto and as of the applicable filing date as to such Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriter expressly for use therein; (5) The accountants who certified the financial statements and supporting schedules included in any Registration Statement are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of Regulation S-X under the Act; (6) Each of the historical financial statements included in any Registration Statement, together with related schedules and notes, present fairly (on a consolidated basis where so indicated) the financial condition of the entity or entities to which such financial statement purports to relate (the "Reported Entity") at the date(s) indicated and the statement of operations (or income or earnings as indicated in the applicable financial statement) and cash flows and (in the case of a Reported Entity for which a statement of stockholders' equity is included) stockholders' equity (and partners' capital if so indicated in the applicable financial statement) of the Reported Entity for the period(s) specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as otherwise indicated in such financial statements). Any supporting schedules included in any Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected historical financial information and the summary historical financial information included in any Registration Statement present fairly the information shown therein and, in the case of historical financial data or information of the Company, have been compiled on a basis consistent with that of the audited financial statements included in such Registration Statement; (7) The Company has not taken or caused to be taken and will not take or cause to be taken, either directly or indirectly, any action designed to cause or I-3 result in, or which action constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the market price of any security in contravention of any applicable law, including but not limited to those actions prohibited by Section 9(a) of the Exchange Act, the rules and regulations thereunder and Regulation M promulgated by the Commission; (8) Neither the Company nor any of the Subsidiaries (as defined below) has sustained since the date of the latest financial statements included or incorporated by reference in any Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree which would be material to the Company and the Subsidiaries taken as a whole, otherwise than as reserved for as disclosed in the Company's financial statements; and since the respective dates as of which information is given in any Prospectus, except as otherwise stated therein, (i) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise (a "Material Adverse Effect"), whether or not arising in the ordinary course of business; (ii) there has not been any change in the capital stock of the Company (other than the issuance of Common Stock issued pursuant to outstanding stock options) or increase in the long-term debt (other than accretion or scheduled repayments thereof and other than borrowing under the Company's existing revolving credit facility made in the ordinary course of business) of the Company and the Subsidiaries taken as a whole that would be required to be disclosed in the Prospectus so that it would not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein in order to make the statements therein not misleading; (iii) there have been no transactions entered into by the Company or any of the Subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and the Subsidiaries considered as one enterprise that would be required to be disclosed in the Prospectus so that it would not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein in order to make the statements therein not misleading; and (iv) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock; (9) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in each Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not cause a Material Adverse Effect; I-4 (10) Each subsidiary of the Company that is a corporation or partnership (each, a "Subsidiary") has been duly organized and is validly existing as a corporation or limited partnership in good standing under the laws of the jurisdiction of its organization, has corporate or partnership power and authority to own, lease and operate its properties and to conduct its business as described in each Prospectus and is duly qualified as a foreign corporation or limited partnership to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in each Prospectus, all of the issued and outstanding capital stock of each such Subsidiary that is a corporation has been duly authorized and validly issued, is fully paid and non-assessable and all of the outstanding partnership interests of each such Subsidiary that is a limited partnership has been issued in accordance with the applicable limited partnership law; all of such outstanding capital stock and partnership interests of each such Subsidiary is owned by the Company, directly or through Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity (except for any security interest or pledge contemplated by the Amended and Restated Credit Agreement, dated as of April 20, 2001, among the Company, United Rentals (North America), Inc. ("URNA"), various financial institutions and The Chase Manhattan Bank, as U.S. Administrative Agent (the "Credit Agreement")); none of the outstanding shares of capital stock or partnership interests of any Subsidiary was issued in violation of the preemptive or similar rights of any security holder of such Subsidiary. The only Subsidiaries of the Company (other than inactive Subsidiaries) are the Subsidiaries listed in a certificate of officers of the Company to be delivered to the Underwriter prior to the Time of Delivery and each Subsidiary of the Company which constitutes a "significant subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X under the Act) (each, a "Significant Subsidiary"), is marked with a "*" in such certificate; (11) The Company has an authorized capitalization as set forth in the most recent balance sheet incorporated by reference in the Prospectus. As of March 18, 2002, there were 74,234,351 shares of Common Stock outstanding (including shares that the Company has agreed to repurchase as described in the 8-K filed March 18, 2002). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and conform to the description thereof contained in each Prospectus; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any security holder of the Company; (12) This Agreement has been duly authorized, executed and delivered by the Company; I-5 (13) The Shares sold by the Selling Stockholders to the Underwriter hereunder have been duly and validly authorized and are duly and validly issued and fully paid and non-assessable and conform to the description of the Common Stock contained in each Prospectus; (14) The statements set forth in each Prospectus, insofar as they purport to constitute a summary of the terms of the Common Stock, and under the caption "Underwriting", insofar as they purport to describe the provisions of the laws (other than Canadian laws) and documents referred to therein, are accurate, complete and fair in all material respects; (15) Neither the Company nor any of its Subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them may be bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and any other agreement or instrument entered into or issued or to be entered into or issued by the Company in connection with the transactions contemplated hereby or thereby or in any Prospectus and the consummation of the transactions contemplated herein and in any Prospectus and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or a Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries pursuant to, the Agreements and Instruments except for such conflicts, breaches or defaults or liens, charges or encumbrances that, singly or in the aggregate, would not result in a Material Adverse Effect, nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any of its Subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its Subsidiaries or any of their assets or properties. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Subsidiaries; (16) No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any of its Subsidiaries' principal suppliers, I-6 manufacturers, customers or contractors, which, in either case, may reasonably be expected to result in a Material Adverse Effect; (17) There is no action, suit, proceeding, inquiry or investigation before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any Subsidiary thereof which is required to be disclosed in the Prospectus (other than as will be disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of this Agreement or the performance by the Company of its obligations hereunder. The aggregate of all pending legal or governmental proceedings to which the Company or any Subsidiary thereof is a party or of which any of their respective property or assets is the subject which are not described in any Prospectus including ordinary routine litigation incidental to the business, would not reasonably be expected to result in a Material Adverse Effect; (18) There are no contracts or documents which are required to be described in each Prospectus which will not be so described; (19) The Company and its Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its Subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect; (20) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder or by the Company in connection with the offering, issuance or sale of the Shares hereunder or the consummation of the transactions contemplated by this Agreement; except (i) the registration under the Act of the Shares; (ii) such as may be required under foreign or state securities or blue sky laws in connection with the purchase and distribution of the Shares by the Underwriter; (iii) such as may be required after the Time of Delivery pursuant to the Company's periodic reporting requirements on its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports an Form 8-K to be filed I-7 with the Commission under Sections 13 and 15(d), respectively, of the Exchange Act; and (iv) such as may be required pursuant to Rule 424(b) under the Act; (21) The Company and its Subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, except where the failure to so possess such Government Licenses would not, singly or in the aggregate, have a Material Adverse Effect; the Company and its Subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have, singly or in the aggregate, a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect; (22) The Company and its Subsidiaries have good and marketable title to all real property described in any Prospectus as owned by the Company and its Subsidiaries and good title to all other properties described in such Prospectus as owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (i) are pursuant to or permitted by the Credit Agreement as described in the Prospectus or (ii) do not, singly or in the aggregate, materially interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in any Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease, which claim, if upheld, would result in a Material Adverse Effect; (23) Neither the Company nor any Subsidiary is, or upon the sale of the Shares as herein contemplated will be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"); (24) Except as described in each Prospectus or except as would not, singly or in the aggregate, result in a Material Adverse Effect: (i) neither the Company nor any of its Subsidiaries is in violation of any federal, state, local or I-8 foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"); (ii) neither the Company nor any of its Subsidiaries is lacking any permits, authorizations and approvals required under any applicable Environmental Laws or are in violation of the requirements of such Environmental Laws; (iii) there are no pending or, to the knowledge of the Company, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its Subsidiaries; and (iv) to the knowledge of the Company there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its Subsidiaries relating to Hazardous Materials or any Environmental Laws; (25) Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in any Prospectus are not based on or derived from sources that are reliable and accurate in all material respects; (26) The Company and each of its Subsidiaries have filed all necessary federal, state, local and foreign income, payroll, franchise and other tax returns (after giving effect to extensions) and have paid all taxes shown as due thereon (except where the failure to so file or pay would not, singly or in the aggregate, have a Material Adverse Effect), and there is no tax deficiency that has been, or to the knowledge of the Company is likely to be, asserted against the Company, any of its Subsidiaries or any of their properties or assets that would result in a Material Adverse Effect, except for taxes that are being contested in good faith by appropriate proceedings and with respect to which the Company has established adequate reserves in accordance with GAAP; (27) Neither the Company nor any of its Subsidiaries is or has ever been a Personal Holding Company within the meaning of Section 542 of the Internal Revenue Code of 1986, as amended; (28) Neither the Company nor any Subsidiary has received notice from any insurer providing insurance coverage for the Company and its Subsidiaries or agent of such insurer that capital improvements or other expenditures will have to be made in order to continue present insurance coverage, except such as would I-9 not reasonably be expected, singularly or in the aggregate, to have a Material Adverse Effect; (29) The Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; (30) Other than pursuant to this Agreement, there are no contracts, agreements or understandings between either the Company or its Subsidiaries and any person that give rise to a valid claim against the Company, any of its Subsidiaries or the Underwriter for a brokerage commission, finder's fee or other like payment relating to the transactions contemplated hereby; (31) No person or entity has the legal right by contract or otherwise to require registration under the Act of shares of capital stock or other securities convertible into capital stock of the Company solely because of the filing or effectiveness of any Registration Statement and the consummation of the transactions contemplated by this Agreement (such rights are hereinafter referred to as "Registration Rights"), except for any such rights that have been waived in writing; (32) Neither the Company nor any of its Subsidiaries has violated any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a Material Adverse Effect; and (33) Any certificate signed by any officer of the Company or any of its Subsidiaries delivered to the Underwriter or to counsel for the Underwriter pursuant to this Agreement shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. (b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, the Underwriter with respect to himself or itself that: (1) No consent, approval, authorization or order is required for the execution and delivery by such Selling Stockholder of this Agreement or for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, except such as have been obtained under the Act and such as may be required under state securities or Blue Sky laws or securities laws of any jurisdiction outside the United States in connection with the purchase and distribution of such I-10 Shares by the Underwriter; and such Selling Stockholder has full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; (2) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of its obligations under this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the Articles of Incorporation, any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder, except that no representation is made under this paragraph (2) as to any violation under any securities or Blue Sky laws or securities laws of any jurisdiction outside the United States in connection with the purchase and distribution of the Shares by the Underwriter; (3) Such Selling Stockholder has, and immediately prior to the Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, good and valid title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims; and, upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the Underwriter; (4) In order to document the Underwriter's compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you, prior to or at the Time of Delivery (as hereinafter defined), a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof); (5) The sale of the Shares by the Selling Stockholder is not subject to the preemptive or other similar rights of any securityholder of the Company arising under any applicable contract of such Selling Stockholder, except for such rights that have been previously waived; and (6) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus with the latest date, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities (whether issued by the I-11 Company or an affiliate of the Company) that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities, without your prior written consent. The foregoing will not prohibit a private placement or pledge of any such securities, provided the transferee agrees to be bound by the terms of this "lock-up" provision. 2. Subject to the terms and conditions herein set forth, each of the Selling Stockholders severally agrees to sell to the Underwriter, and the Underwriter agrees to purchase from each of the Selling Stockholders, at a purchase price per share of $26.25, the number of Shares set forth opposite such Selling Stockholder's name in Schedule I. 3. The Underwriter proposes to offer the Shares for sale upon the terms and conditions set forth in the Prospectuses. 4. (a) The Shares to be purchased by the Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as the Underwriter may request upon at least forty-eight hours' prior notice to the Selling Stockholders shall be delivered by or on behalf of the Selling Stockholders to the Underwriter, through the facilities of the Depository Trust Company ("DTC"), for the account of the Underwriter, against payment by or on behalf of the Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the accounts specified by the Selling Stockholders (including to the Company for the option exercise price on behalf of the selling stockholders) to the Underwriter, at least forty-eight hours in advance. The Selling Stockholders will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New York 10010 (the "Designated Office"). The time and date of such delivery and payment shall be 9:30 a.m., New York time, on March 22, 2002 or such other time and date as the Underwriter, the Company and the Selling Stockholders may agree upon in writing (the "Time of Delivery"). (b) The documents to be delivered at the Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriter pursuant to Section 7(k) hereof, will be delivered at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at the Time of Delivery. A meeting will be held at the Closing Location prior to the Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. 5. The Company agrees with the Underwriter: (a) To prepare each Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the I-12 Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to any Registration Statement or Prospectus prior to the Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to any Registration Statement has been filed or becomes effective or any supplement to any Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of any Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of any Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriter with copies of each Prospectus and each amendment or supplement thereto in such quantities as you may from time to time reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the date of any Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which such Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary or desirable during such same period to amend or supplement any Prospectus or to file under the Exchange Act any document incorporated by reference in any Prospectus in order to comply with the Act or the Exchange Act, to notify you and upon your request to file such I-13 documents and to prepare and furnish without charge to the Underwriter and to any dealer in securities as many copies as you may reasonably request of an amended Prospectus or a supplement to the applicable Prospectus which will correct such statement or omission or effect such compliance, and in case the Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of any Prospectus, upon request but at the expense of the Underwriter, to prepare and deliver to the Underwriter as many copies as the Underwriter may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statements (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any shares of any class of common stock of the Company or any other securities that are convertible into, or exercisable or exchangeable for, or that represent the right to receive, common stock of the Company, without your prior written consent. The foregoing agreement will not limit the Company's ability to (i) make equity or equity-based awards pursuant to existing written compensation plans; (ii) issue shares upon exercise or conversion of outstanding options, warrants and convertible securities; (iii) issue shares, warrants or convertible securities as consideration for acquisitions, provided that the number of shares, warrants or convertible securities (calculated on a common stock equivalent basis in the case of warrants and convertible securities) that may be issued as consideration for acquisitions may not exceed 5,000,000 unless the recipients of such excess shares, warrants or convertible securities agree with the Company (which agreement may not be amended without the prior written consent of the Underwriter) to be subject to the foregoing lock-up agreement with respect to such excess shares, warrants or convertible securities; or (iv) issue shares upon the exercise of any warrants or convertible securities issued pursuant to the preceding clause provided that such shares will be subject to the foregoing lock-up to the same extent, if any, as the warrants or convertible securities pursuant to which such shares were issued; (f) Not to be or become, at any time prior to the expiration of two years after the Time of Delivery, an open-end investment company, unit investment trust, closed-end investment company or face-amount certificate company that is or is required to be registered under Section 8 of the 1940 Act; and I-14 (g) During a period of five years from the date of whichever Prospectus is filed the latest, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders of the Company generally, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any securities exchange on which the Common Stock or any class of securities of the Company is listed; and (ii) such additional public information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission). 6. The Company and the Selling Stockholders covenant and agree with the Underwriter (it being understood that as between the Company and the Selling Stockholders there may be other agreements as to the payment or reimbursement of such expenses, but that such agreements will not affect the rights of the Underwriter to have the following expenses paid or to reimburse the Underwriter for such expenses as provided herein) that (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of each Registration Statement, any Preliminary Prospectus and each Prospectus and any amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriter and dealers; (ii) the cost of printing or producing this Agreement, any Blue Sky and Legal Investment Memoranda, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriter in connection with such qualification and in connection with the Blue Sky and legal investment surveys; (iv) the filing fees incident to, and the fees and disbursements of counsel for the Underwriter in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (v) the cost of preparing stock certificates; (vi) the costs and charges of any transfer agent and registrar; and (vii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section; and (b) each Selling Stockholder will pay or cause to be paid all costs and expenses incident to the performance of such Selling Stockholder's obligations hereunder which are not otherwise specifically provided for in this Section, including (i) any fees and expenses of counsel for such Selling Stockholder, and (ii) all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriter hereunder. In connection with clause (b)(ii) of the second preceding sentence, the Underwriter agrees to pay New York State stock transfer tax, and the Selling Stockholders agree to reimburse the Underwriter for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that except as provided in this Section 6 and in Sections 8 and 10 hereof, the Underwriter will pay all of I-15 its own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriter hereunder, as to the Shares to be delivered at the Time of Delivery, shall be subject, in its discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of the Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions: (a) Each Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; no stop order suspending the effectiveness of any Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Cravath, Swaine & Moore, counsel for the Underwriter, shall have furnished to you such opinion or opinions, dated the Time of Delivery, with respect to the matters as you may reasonably request, and such counsel shall have received such papers, and information as they may reasonably request to enable them to pass upon such matters; (c) Ehrenreich Eilenberg & Krause LLP, counsel for the Company, shall have furnished to you their written opinion, dated such time of Delivery, in form and substance satisfactory to you, to the effect set forth in Annex II hereto; (d) Weil, Gotshal & Manges LLP, counsel for the Company, shall have furnished to you their written opinion, dated the Time of Delivery, in form and substance satisfactory to you, to the effect set forth in Annex III hereto; (e) Oscar D. Folger shall have furnished to you his written opinion with respect to the Selling Stockholders, dated the Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) This Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder; and the sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with its obligations under this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, (A) any New York, I-16 Delaware or federal law or regulation (other than securities or blue sky laws, as to which he must not express any opinion); or (B) to his knowledge, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the limited liability company agreement of Bradley Jacobs, LLC or, to his knowledge, any order, rule or regulation of any New York, Delaware or federal court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (ii) No consent, approval, authorization or order of any New York, Delaware or federal governmental authority that such counsel has, in the exercise of customary professional diligence, recognized as applicable to the Selling Stockholder or transactions of the type contemplated by this Agreement is required for the consummation of the transactions contemplated by this Agreement in connection with the Shares to be sold by such Selling Stockholder hereunder, except such as may be required under federal or state securities or Blue Sky laws or under securities laws of jurisdictions outside the United States in connection with the purchase and distribution of such Shares by the Underwriter; and (iii) Assuming that the Underwriter acquires the Shares being sold to it pursuant to the Agreement without notice of an adverse claim thereto, upon (a)(1) indication by the Depositary Trust Company ("DTC") by book entry that the Shares have been credited to the Underwriter's securities account at DTC or (2) DTC's acquisition of the Shares for the Underwriter and acceptance of the Shares for the Underwriter's securities account and (b) payment therefor in accordance with the terms of the Agreement, no action based on an adverse claim may be validly asserted against the Underwriter with respect to its interest in the Shares. For purposes of this Paragraph, the terms "adverse claim", "notice of an adverse claim" and "securities account" have the respective meanings ascribed thereto in Section 8-102(a)(1), 8-105 and 8-501 of the Uniform Commercial Code in effect in the State of New York. I-17 In rendering the opinion in paragraph (iii), such counsel may rely upon a certificate of each Selling Stockholder in respect of matters of fact as to ownership of, and liens, encumbrances, equities or claims on, the Shares sold by such Selling Stockholder, provided that such counsel shall state that they believe that both you and they are justified in relying upon such certificate; (f) On the date of any Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to any Registration Statement filed subsequent to the date of this Agreement and also at any Time of Delivery, each accounting firm whose report is included or incorporated by reference in any Prospectus shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto; (g) (i) Neither the Company nor any of the Subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in any Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which would be material to the Company and the Subsidiaries taken as a whole otherwise than as set forth or contemplated in such Prospectus or reserved for as disclosed in the Company's financial statements or financial statements of certain Subsidiaries included in such Prospectus; and (ii) since the respective dates as of which information is given in any Prospectus there shall not have been any change in the capital stock or long-term debt (other than accretion thereof and other than borrowings in the ordinary course of business under the Credit Facility with respect to working capital requirements for the ongoing operation of the Company and the Subsidiaries) of the Company and the Subsidiaries taken as a whole or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and the Subsidiaries taken as a whole, otherwise than as set forth or contemplated in such Prospectus that would be required to be disclosed in the Prospectus so that it would not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein in order to make the statements therein not misleading, the effect of which, in any such case described in Clause (i) or (ii), is in the judgment of the Underwriter so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Shares being delivered at the Time of Delivery on the terms and in the manner contemplated in this Agreement and in the Prospectus; (h) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act; and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities; I-18 (i) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Exchange or on the National Association of Securities Dealers Automated Quotation System; (ii) a suspension or material limitation in trading in the Company's securities on the Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; or (iv) any attack on, outbreak or escalation of hostilities or act of terrorism involving the United States, any declaration of war by Congress or any other national or international calamity or emergency if, in the judgment of the Underwriter, the effect of any such attack, outbreak, escalation, act, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or sale of and payment for the Shares; (j) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and (k) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at the Time of Delivery certificates of officers of the Company or, in the case of any Selling Stockholder, of such Selling Stockholder, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (g) of this Section. 8. (a) The Company will indemnify and hold harmless the Underwriter against any losses, claims, damages or liabilities, to which the Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, any Registration Statement or any Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Underwriter for any legal or other expenses reasonably incurred by the Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, Registration Statement or Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Underwriter expressly for use therein. I-19 (b) The Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, Registration Statement or Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, Registration Statement or Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Underwriter expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying partly shall, without the written consent of the indemnified partly, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim; and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. An indemnifying party shall not be required to indemnify an indemnified party hereunder with respect to any settlement or compromise of, or consent to entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder if such settlement, compromise or consent is entered into or made or given by the indemnified party without the consent of the indemnifying party. I-20 (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received, in case of the Company, by the Company and the Selling Stockholders on the one hand and, in the case of the Underwriter, the Underwriter on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of, in the case of the Company, the Company and the Selling Stockholders on the one hand and, in the case of the Underwriter, the Underwriter on the other in connection with the statement or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriter on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriter, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriter on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholders, and the Underwriter agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Underwriter within the I-21 meaning of the Act; and the obligations of the Underwriter under this Section 8 shall be in addition to any liability which the Underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. The Company and the Selling Stockholders may enter into other agreements amongst themselves with respect to the indemnity obligations hereunder. 9. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders, and the Underwriter, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the Underwriter or any controlling person of the Underwriter, or the Company, or the Selling Stockholders or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Shares. 10. If for any reason any Shares are not delivered by or on behalf of a Selling Stockholder as provided herein, such Selling Stockholder on a pro rata basis (based on the number of Shares to be sold by such Selling Stockholder hereunder) will reimburse the Underwriter for all out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred by the Underwriter in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Selling Stockholders shall then be under no further liability to the Underwriter in respect of the Shares not so delivered except as provided in Sections 6 hereof. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriter shall be delivered or sent by mail, telex or facsimile transmission to Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New York 10010-3629, Attention: Transactions Advisory Group; if to any Selling Stockholder, shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule I hereto, with a copy to Oscar D. Folger, 521 Fifth Avenue, 24th Floor, New York, New York 10175; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary, with a copy to Oscar D. Folger, 521 Fifth Avenue, 24th Floor, New York, New York 10175. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 11. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriter, the Company and the Selling Stockholders and, to the extent provided in Sections 8 and 9 hereof, the officers and directors of the Company and each person who controls the Company or the Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from the Underwriter shall be deemed a successor or assign by reason merely of such purchase. I-22 12. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 13. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 14. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us eight counterparts hereof, and upon the acceptance hereof by you this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriter, the Company and the Selling Stockholders. I-23 Any person executing and delivering this Agreement as Attorney-in-Fact for any Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, UNITED RENTALS, INC. By: ---------------------------- Name: Title: BRADLEY S. JACOBS ---------------------------- Name: BRADLEY JACOBS, LLC By: ---------------------------- Name: JOHN MILNE ---------------------------- Name: MICHAEL NOLAN ---------------------------- Name: WAYLAND HICKS ---------------------------- Name: I-24 Accepted as of the date hereof: Credit Suisse First Boston Corporation By: ---------------------------- Name: Title: I-25 SCHEDULE I
- ------------------------------------------------------------------------------------------------------------- Number of Shares to be Sold ---------- - ------------------------------------------------------------------------------------------------------------- Bradley S. Jacobs(a) 2,807,800 Bradley Jacobs, LLC (b) 3,292,200 John Milne(c) 850,000 Michael Nolan(d) 350,000 Wayland Hicks(e) 700,000 Total ................................................... 8,000,000 - -------------------------------------------------------------------------------------------------------------
(a) Notices for this Selling Stockholder shall be addressed to: (b) Notices for this Selling Stockholder shall be addressed to: (c) Notices for this Selling Stockholder shall be addressed to: (d) Notices for this Selling Stockholder shall be addressed to: (e) Notices for this Selling Stockholder shall be addressed to: I-26 ANNEX I Pursuant to Section 7(f) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriter to the effect that: 1. We are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; 2. In our opinion, the consolidated financial statements and financial statement schedules audited by us and included in the Prospectus or Registration Statement comply as to form in all material respects with the applicable requirements of the Act and the related published rules and regulations thereunder, and, if applicable, we have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited, consolidated interim financial statements, selected financial data, pro forma financial information, financial forecasts and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been furnished to the Underwriter hereto; 3. We have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus as indicated in their reports thereon copies of which have been separately furnished to the Underwriter and on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph 6(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, nothing came to our attention that caused us to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations; 4. The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus agrees with the corresponding amounts (after restatements where applicable) in the audited consolidated financial statements for such five fiscal years; 5. We have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to our attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; 6. On the basis of limited procedures not constituting an audit in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to our attention that caused us to believe that: (i) the unaudited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations and are not in conformity with generally accepted accounting principles applied on the basis substantially consistent with the basis for the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus; (ii) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included in the Prospectus; (iii) the unaudited financial statements which were not included in the Prospectus but from which were derived any unaudited condensed financial statements referred to in Clause (i) and any unaudited income statement data and balance sheet items included in the prospectus and referred to in Clause (ii) were not determined on a basis substantially consistent with the basis for the audited consolidated financial statements included in the Prospectus; (iv) any unaudited pro forma consolidated condensed financial statements included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; I-2 (v) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stork upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest financial statements included in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or stockholders' equity or other items specified by the Underwriter, or any increases in any items specified by the Underwriter, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vi) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in Clause (v) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Underwriter, or any increases in any items specified by the Underwriter, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Underwriter, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter; and 7. In addition to the examination referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs 3 and 6 above, they have carried out certain specified procedures, not constituting an audit in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Underwriter, which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. I-3 ANNEX II FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 7(c) As to various questions of fact material to our opinion, we have relied upon the certificates of officers and upon certificates of public officials. With regard to the due incorporation of corporations (other than the Company) and the good standing of corporations (other than the Company), we have (subject to the next sentence) relied entirely upon certificates of public officials. With regard to the tax good standing of certain corporations (other than the Company), we have relied solely upon a certificate of an officer of such corporation to the effect that the corporation has filed the most recent annual report required by the law of such jurisdiction and that all franchise taxes required to be paid under such law have been paid. We have also examined such corporate documents and records and other certificates, and have made such investigations of law, as we have deemed necessary in order to render the opinion hereinafter set forth. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents submitted to us as copies. We have also assumed that all documents examined by us have been duly and validly authorized, executed and delivered by each of the parties thereto other than the Company. In this opinion, (i) "Significant Subsidiary" means United Rentals Northwest, Inc., an Oregon corporation, United Rentals Gulf, Inc., a Delaware corporation, and United Equipment Rentals Gulf, L.P., a Texas limited partnership, (ii) "Corporate Significant Subsidiary" means each Significant Subsidiary other than United Equipment Rentals Gulf, L.P and (iii) "Delaware Significant Subsidiary" means United Rentals Gulf, Inc. 1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. 2. The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in any Prospectus and to enter into and perform its obligations under the Underwriting Agreement. 3. The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. 4. The Company has an authorized capitalization as set forth in each Prospectus. The Shares have been duly authorized and validly issued and II-1 are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of any preemptive or other similar rights of any security holder of the Company arising by statute or the Company's certificate of incorporation or by-laws or, to the best of our knowledge (after due inquiry), any other preemptive or other similar rights of any security holder of the Company. 5. Each Corporate Significant Subsidiary is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. 6. The Delaware Significant Subsidiary has been duly incorporated and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in any Prospectus. Except as otherwise disclosed in each Prospectus, all of the issued and outstanding capital stock of the Delaware Significant Subsidiary has been duly authorized and validly issued and is fully paid and non-assessable and, to the best of our knowledge, all of the Issued and outstanding capital stock of each Corporate Significant Subsidiary is owned by the Company, directly or through Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity (except as contemplated by the Credit Agreement). None of the outstanding shares of capital stock of the Delaware Significant Subsidiary or, to the best of our knowledge any other Significant Subsidiary, was issued in violation of the preemptive or similar rights of any security holder of such Significant Subsidiary arising pursuant to statute or such Subsidiary's certificate of incorporation or by-laws or, to the best of our knowledge, any other preemptive or other similar rights of any security holder of such Significant Subsidiary. 7. United Equipment Rentals Gulf, L.P., is duly organized and validly existing as a limited partnership under the laws of the State of Texas and is duly qualified as a foreign limited partnership to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. The Underwriting Agreement has been duly authorized, executed and delivered by the Company. 8. If any documents are incorporated by reference in any Registration Statement, such documents (other than the financial statements and supporting schedules therein, as to which no opinion need be rendered), when they were filed with the Commission, complied as to form in all II-2 material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereof. 9. To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any Subsidiary is a party, or to which the property or assets of the Company or any Subsidiary thereof is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in the Underwriting Agreement or the performance by the Company of its obligations thereunder or the transactions contemplated by each Prospectus. 10. The information in each Prospectus, to the extent that it constitutes summaries of matters of law, has been reviewed by us and is correct in all material respects. The statements set forth in each Prospectus under the caption "Description of Capital Stock" incorporated by reference on the registration statements on Form 8-A, dated November 7, 1998, and August 6, 1998, insofar as they purport to constitute a summary of the terms of the Stock, are accurate summaries in all respects of such terms. 11. To the best of our knowledge (after due inquiry), neither the Company nor any Subsidiary is in violation of its charter or by-laws. 12. To the best of our knowledge, neither the Company nor any Subsidiary thereof is in default in the due performance or observance of, or is in violation of, any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in any Prospectus or incorporated by reference therein which violations or defaults are required to be described in such Prospectus and are not so described or would, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect or effect the validity of the Shares. 13. No filing, authorization, approval, consent or order of any court or governmental authority or agency (other than such as may be required under the applicable securities laws of the various jurisdictions in which the Shares will be offered or sold, as to which we need express no opinion) is required by the Company in connection with the due authorization, execution and delivery of the Underwriting Agreement or in connection with the offering, issuance, sale or delivery of the Shares to the Underwriter or the resale thereof by the Underwriter in accordance with the Underwriting Agreement, except for filings and other actions required under or pursuant to the Act, the Exchange Act, and other federal or state securities or "blue sky" laws and the rules of the New York Stock Exchange, as to which we express no opinion. II-3 14. The execution, delivery and performance of the Underwriting Agreement, and the consummation of the transactions contemplated in the Underwriting Agreement and in each Prospectus and compliance by the Company with its obligations under the Underwriting Agreement, (i) after reasonable investigation, do not and will not (subject to the next sentence), whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(15) of the Underwriting Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary thereof pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (except for such conflicts, breaches or defaults, Repayment Events or liens, charges or encumbrances that would not have a Material Adverse Effect); (ii) result in any violation of the provisions of the charter or by-laws of the Company or any Subsidiary; or (iii) to the best of our knowledge (after due inquiry), result in any violation of the provisions of any applicable law, statute, rule or regulation of the United States of America or included in the Delaware General Corporate Law or Delaware Revised Uniform Limited Partnership Act (except we express no opinion as to "blue sky" laws), judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties, assets or operations. No opinion is rendered pursuant to clause (i) of the preceding sentence with respect to (collectively, the "Excluded Agreements"): (a) any agreement relating to any indebtedness or proposed indebtedness described in the Company's Report of Form 10-K for the year ended December 31, 2000 under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Information Concerning the Credit Facility and Other Indebtedness" (excluding the indebtedness described in the paragraph that begins "Other Debt") or in any Report on 10-Q incorporated in any Prospectus; (ii) Master Lease Agreement, dated as of December 17, 1999, between United Rentals (North America), Inc. and UR (NA) 1999 Trust, as amended by the amendment thereto dated as of December 27, 2000, and (iii) Master Lease Agreement, dated as of June 30, 2000, between United Rentals (North America), Inc. and UR (NA) 2000 Trust, as amended by the amendment thereto dated as of December 27, 2000. 15. The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. II-4 16. To the best of our knowledge, no person or entity has the legal right to require registration under the Act of shares of capital stock or other securities convertible into capital stock of the Company solely because of the filing or effectiveness of any Registration Statement and the consummation of the transactions contemplated by the Underwriting Agreement (except for such rights that have been waived in writing). 17. Each Registration Statement and each Prospectus and any further amendments and supplements thereto made by the Company prior to the Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder. In addition, we have participated in conferences with officers and representatives of the Company, counsel to the Underwriter, representatives of the independent accountants for the Company and the Underwriter at which the contents of each Registration Statement and related matters were discussed. Although we have not undertaken, except as otherwise indicated in this opinion, to investigate or verify independently, and do not assume responsibility for, the accuracy, completeness or fairness of the statements contained in any Registration Statement or Prospectus, except for those referred to in Clause (10) above, on the basis of the information that we gained in the course of the performance of such services and our representation of the Company, we confirm to you that nothing that came to our attention in the course of such review or representation has caused us to believe that (i) as of the applicable effective date, any Registration Statement or any further amendment thereto made by the Company prior to the Time of Delivery (except for financial statements and schedules and other financial data included or incorporated by reference therein, if any, as to which we make no statement), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that as of its date or the date hereof, any Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included or incorporated by reference therein, if any, as to which such counsel need make no statement), at the time such Prospectus was issued, at the time any such amended or supplemented Prospectus was issued or at the Time of Delivery, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (ii) that there are any franchise agreements, indentures, mortgages, loan agreements, notes, leases or other contracts or instruments required to be described or referred to in each Prospectus that are not described or referred to in the Prospectus or that any descriptions of or references to any of the foregoing are not correct in all material respects. In rendering such opinion, such counsel may rely, as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or II-5 other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). Such counsel may in addition rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel reasonably satisfactory to counsel to the Underwriter. II-6 ANNEX III FORM OF OPINION OF COMPANY'S COUNSEL TO BE DELIVERED PURSUANT TO SECTION 7(d) 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as described in the Prospectuses and to enter into and perform its obligations under the Underwriting Agreement. 2. The Shares conform to the description of the Common Stock set forth in each Prospectus. 3. The execution, delivery and performance of the Underwriting Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company. The Underwriting Agreement has been duly and validly executed and delivered by the Company. 4. No consent, approval, waiver, license or authorization or other action by or filing with any New York, Delaware corporate or federal governmental authority is required in connection with the execution and delivery by the Company of the Underwriting Agreement or the consummation by the Company of the transactions contemplated thereby, except for filings and other actions required under or pursuant to the Act and the Exchange Act and the rules and regulations promulgated thereunder, any other federal or state securities or "blue sky" laws, and the rules of the New York Stock Exchange, as to which we express no opinion. 5. The Company is not an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the 1940 Act. 6. The execution and delivery by the Company of the Underwriting Agreement, the consummation of the transactions contemplated thereby and by the Prospectus and compliance by the Company with its obligations under the Underwriting Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or a default or Repayment Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries pursuant to, the Financing Documents (as defined below) or any agreement or instrument which was entered into or executed by the Company or any such Subsidiary as required under any of the Financing Documents, except for such conflicts, breaches, defaults, Repayment Events, liens, charges or encumbrances that would not reasonably be expected to have a Material Adverse Effect. As used above, the term "Financing Documents" means, collectively: (i) the Amended and III-1 Restated Credit Agreement, dated as of April 20, 2001, among the Company, United Rentals (North America), Inc. ("URNA"), United Rentals of Canada, Inc., various financial institutions and The Chase Manhattan Bank, as U.S. Administrative Agent; (ii) the Indenture, dated as of May 22, 1998, among URNA, its subsidiaries party thereto and State Street Bank and Trust Company as Trustee relating to URNA's 9 1/2% senior subordinated notes due 2008; (iii) the Indenture, dated as of August 12, 1998, among URNA, its subsidiaries party thereto and State Street Bank and Trust Company as Trustee relating to URNA's 8.8% senior subordinated notes due 2008; (iv) the Indenture, dated as of December 15, 1998, among URNA, its subsidiaries party thereto and State Street Bank and Trust Company as Trustee relating to URNA's 9 1/4% senior subordinated notes due 2009; (v) the Indenture, dated as of March 23, 1999, among URNA, its subsidiaries party thereto and The Bank of New York as Trustee relating to URNA's 9% senior subordinated notes due 2009; (vi) the Indenture, dated as of April 20, 2001, among URNA, its subsidiaries party thereto and The Bank of New York as Trustee relating to URNA's 10 3/4% senior notes due 2008; and (vii) any agreement or instrument which was entered into or executed by the Company or any such Subsidiary pursuant to or as required under any Financing Document. We have participated in conferences with directors, officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Underwriter and representatives of counsel for the Underwriter, at which conferences the contents of each Registration Statement and each Prospectus and related matters were discussed, and, although we have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in each Registration Statement and Prospectus, no facts have come to our attention which lead us to believe that any Registration Statement, on the effective date thereof, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading, or that any Prospectus, on the date thereof or on the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that we express no view with respect to the financial statements and related notes, the financial statement schedules and the other financial and accounting data included or incorporated by reference in any Registration Statement or Prospectus). The opinions expressed herein are limited to the laws of the State of New York, the corporate laws of the State of Delaware and the federal laws of the United States, and we express no opinion as to the effect on the matters covered by this letter of the laws of any other jurisdiction. The opinions expressed herein are rendered solely for your benefit in connection with the transactions described herein. Those opinions may not be used or relied upon by III-2 any other person, nor may this letter or any copies hereof be furnished to a third party, filed with a governmental agency, quoted, cited or otherwise referred to without our prior written consent. III-3 EX-21 4 dex21.txt SUBSIDIARIES OF UNITED RENTALS, INC Exhibit 21 UNITED RENTALS, INC. & SUBSIDIARIES Those corporations which are indented represent subsidiaries of the corporation under which they are indented.
- ---------------------------------------------------------------------------------------------------- State of Name of Subsidiary Incorporation - ---------------------------------------------------------------------------------------------------- United Rentals, Inc. Delaware - ---------------------------------------------------------------------------------------------------- United Rentals Trust I Delaware - ---------------------------------------------------------------------------------------------------- United Rentals (North America), Inc. Delaware - ---------------------------------------------------------------------------------------------------- All Cities Trailer Exchange, Inc. California - ---------------------------------------------------------------------------------------------------- Rentals Unlimited, Incorporated Rhode Island - ---------------------------------------------------------------------------------------------------- United Rentals Gulf, Inc. Delaware - ---------------------------------------------------------------------------------------------------- United Rentals (Delaware), Inc. Delaware - ---------------------------------------------------------------------------------------------------- Provisto, S. de R.L. de C.V. (United Rentals (Delaware), Mexico Inc. owns 99.99%, United Rentals Northwest, Inc. owns .01% ) - ---------------------------------------------------------------------------------------------------- United Rentals, S. de R.L. de C.V. (United Rentals Mexico (Delaware), Inc. owns 99.99%, United Rentals Northwest, Inc. owns .01% ) - ---------------------------------------------------------------------------------------------------- United Rentals of Nova Scotia (No.1), ULC Nova Scotia - ---------------------------------------------------------------------------------------------------- United Rentals of Nova Scotia (No.2), ULC Nova Scotia - ---------------------------------------------------------------------------------------------------- UR Canadian Financing Partnership (United Nova Scotia Rentals Nova Scotia (No.1), ULC is 99% Managing Partner, United Rentals Nova Scotia (No.2), ULC is 1% Non-Managing Partner) - ---------------------------------------------------------------------------------------------------- United Equipment Rentals Gulf, L.P. Texas (United Rentals Gulf, Inc. is 99% L.P., United Rentals (North America), Inc. is 1% G.P.) - ---------------------------------------------------------------------------------------------------- United Rentals of Canada, Inc. Canada - ---------------------------------------------------------------------------------------------------- Hickman Rent-Alls (1999)Ltd. Newfoundland - ---------------------------------------------------------------------------------------------------- 794815 Alberta Inc. Alberta - ---------------------------------------------------------------------------------------------------- United Rentals Highway Technologies, Inc. (f/k/a Liddell Bros., Inc.) Massachusetts - ---------------------------------------------------------------------------------------------------- Highway Rentals, Inc. Nevada - ---------------------------------------------------------------------------------------------------- United Rentals Highway Technologies Gulf, Inc. Delaware - ---------------------------------------------------------------------------------------------------- United Rentals Highway Technologies, L.P. Texas (United Rentals Highway Technologies Gulf, Inc. is 6.75% L.P.,United Rentals Gulf, Inc. is 92.25% L.P. and United Rentals (North America), Inc. is 1% G.P.) - ---------------------------------------------------------------------------------------------------- United Rentals Northwest, Inc. (f/k/a High Reach, Inc.) Oregon - ---------------------------------------------------------------------------------------------------- United Rentals Receivables LLC I ("SPV I") Delaware - ---------------------------------------------------------------------------------------------------- United Rentals Receivables LLC II ("SPV II") Delaware - ---------------------------------------------------------------------------------------------------- United Rentals Southeast, Inc. Delaware - ---------------------------------------------------------------------------------------------------- United Rentals Southeast Holding LLC (United Rentals Georgia Southeast, Inc. is 99% Non-Managing Member, United Rentals (North America),Inc. is 1% Managing Member) - ---------------------------------------------------------------------------------------------------- United Rentals Southeast, L.P. (United Rentals Georgia Southeast Holding LLC. is 99% L.P., United Rentals (North America), Inc. is 1% G.P.) - ---------------------------------------------------------------------------------------------------- Wanamaker Rents, Incorporated California - ---------------------------------------------------------------------------------------------------- Wynne Systems, Inc. California - ----------------------------------------------------------------------------------------------------
EX-23 5 dex23.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23 CONSENT OF INDEPENDENT AUDITIORS We consent to the incorporation by reference in the Registration Statements of United Rentals, Inc. (Form S-3 No.'s 333-41419-99, 333-70151, 333-70255, 333-64463, 333-86197, and 333-57916), the Registration Statement of United Rentals, Inc. (Form S-8 No. 333-70345) pertaining to the 1997 Stock Option Plan, 1998 Stock Option Plan, and 1998 Supplemental Stock Option Plan, the Registration Statement of United Rentals, Inc. (Form S-8 No. 333-60458) pertaining to the 2001 Stock Plan, the Registration Statements of United Rentals, Inc. (Form S-8 No. 333-74091 and 333-87903) pertaining to the options outstanding in connection with the 1997 Performance Award Plan of U.S. Rentals assumed pursuant to the merger with U.S. Rentals and the Registration Statement of United Rentals, Inc. (Form S-8 No. 333-39770) pertaining to the United Rentals, Inc. 401(k) Investment Plan and United Rentals, Inc. Acquisition Plan, of our report dated February 19, 2002 with respect to the consolidated financial statements and schedules of United Rentals, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2001, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP MetroPark, New Jersey March 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----