<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
<TABLE>
<CAPTION>
<S> <C>
Date of report (Date of earliest event reported) April 17, 1998 (February 3, 1998)
----------------------------------------
</TABLE>
RENTAL SERVICE CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 000-21237 33-0569350
- -------------------------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
</TABLE>
6929 East Greenway Parkway, Suite 200, Scottsdale, Arizona 85254
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(602) 905-3300
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
14505 North Hayden Road, Suite 322, Scottsdale, Arizona 85260
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
THE CURRENT REPORT ON FORM 8-K OF RENTAL SERVICE CORPORATION DATED FEBRUARY 18,
1998 IS HEREBY AMENDED TO INCLUDE THE ADDITION OF THE FOLLOWING INFORMATION:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
The audited financial statements of JDW Enterprises, Inc. d.b.a Valley
Rentals ("Valley") as of December 31, 1996 and 1997 and for the years
then ended are attached as Exhibit 99.1 to this Current Report on Form
8-K.
(b) Pro Forma Financial Information
The unaudited pro forma consolidated financial data of Rental Service
Corporation, including the acquisition of Valley, is attached as
Exhibit 99.2 to this Current Report on Form 8-K.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------------------------------------------------------
<S> <C>
23.1 Consent of Weintraub & Morrison, P.C.
99.1 Audited Financial Statements of JDW Enterprises, Inc. d.b.a
Valley Rentals as of December 31, 1996 and 1997 and for the
years then ended.
99.2 Rental Service Corporation Unaudited Pro Forma Consolidated
Financial Data.
</TABLE>
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RENTAL SERVICE CORPORATION
Date: April 17, 1998 By: /s/ Robert M. Wilson
----------------------------------
Robert M. Wilson
Senior Vice President
Chief Financial Officer
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- --------------------------------------------------------------
<S> <C>
23.1 Consent of Weintraub & Morrison, P.C.
99.1 Audited Financial Statements of JDW Enterprises, Inc. d.b.a
Valley Rentals as of December 31, 1996 and 1997 and for the
years then ended.
99.2 Rental Service Corporation Unaudited Pro Forma Consolidated
Financial Data.
</TABLE>
4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Current Report on Form 8-K of Rental
Service Corporation of our report dated March 3, 1998, with respect to the
financial statements of JDW Enterprises, Inc d.b.a Valley Rentals as of December
31, 1996 and 1997 and for the years then ended.
/s/ WEINTRAUB & MORRISON, P.C.
Scottsdale, Arizona
April 16, 1998
<PAGE>
EXHIBIT 99.1
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
Financial Statements
For the Years Ended December 31, 1997 and 1996
and
Auditors' Report
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Independent Auditors' Report............................................. 1
Financial Statements
Balance Sheets...................................................... 2
Statements of Operations............................................ 3
Statements of Changes in Stockholders Equity........................ 4
Statements of Cash Flows............................................ 5-6
Notes to the Financial Statements................................... 7-15
</TABLE>
<PAGE>
W E I N T R A U B & M O R R I S O N , P . C .
Certified Public Accountants
American Institute of Certified Public Accountants
Arizona Society of Certified Public Accountants
Independent Auditor's Report
----------------------------
The Shareholders and Board of Directors of
JDW Enterprises, Inc. d.b.a. Valley Rentals
Gilbert, Arizona
We have audited the accompanying balance sheets of JDW Enterprises, Inc. d.b.a.
Valley Rentals ("Valley") as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of Valley's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 financial statements referred to above present fairly, in
all material respects, the financial position of JDW Enterprises, Inc. d.b.a.
Valley Rentals as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Weintraub & Morrison, P.C.
Weintraub & Morrison, P.C.
Scottsdale, Arizona
March 3, 1998
Officers of the firm 6908 E. Thomas Road, Suite 302
Gary T. Weintraub, C.P.A. Scottsdale, Arizona 85251
Scott G. Morrison, C.P.A. Telephone (602) 424-7855
Fred P. Schanck, C.P.A. Fax (602) 424-3750
1
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 73,784 $ 31,303
Accounts receivable net of allowance
for doubtful accounts of $664,451 and
$67,964 at December 31, 1997 and 1996
respectively (Notes 1 (c) and 3) 8,719,938 8,003,236
Other receivables and prepaid expenses (Note 8) 1,556,070 605,988
Inventory (Notes 1 (d) and 4) 2,859,017 2,049,601
Rental equipment, principally machinery, at
cost net of accumulated depreciation of
$17,019,555 and $12,066,731 at December 31, 1997
and 1996, respectively (Notes 1 (e) and 5) 33,539,944 29,236,418
Operating property and equipment at cost,
net (Notes 1 (e), 5 and 7) 7,855,684 8,571,946
Intangible assets, net of accumulated
amortization of $43,333 and $23,333 for
December 31 1997 and 1996 respectively
(Note 6) 56,667 76,667
Other assets 178,502 -
----------- -----------
$54,839,606 $48,575,159
=========== ===========
LIABILITIES
Accounts payable $ 2,553,213 $ 2,212,778
Payroll and other accrued expenses 917,539 960,598
Bank debt and long-term obligations
(Notes 5 and 10) 37,325,388 32,376,913
Obligations under capital lease (Notes 5 and 10) 963,445 1,583,097
Related party obligations (Notes 5, 8 and 10) 3,396,027 3,529,778
----------- -----------
Total liabilities 45,155,612 40,663,164
----------- -----------
Commitments and contingencies (Notes 9 and 10)
STOCKHOLDERS' EQUITY
Capital stock
Authorized 1,000,000 shares of common
stock with no par value. Issued and
outstanding, 600,000 shares 600,000 600,000
Retained earnings 9,083,994 7,311,995
----------- -----------
Total stockholders' equity 9,683,994 7,911,995
----------- -----------
$54,839,606 $48,575,159
=========== ===========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
2
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues (Notes 1 (b) and 8):
Rental revenues $30,830,358 $27,720,279
Sales of parts, supplies and
new equipment 2,709,488 3,068,140
Sales of used equipment 3,190,708 1,979,675
----------- -----------
Total revenues 36,730,554 32,768,094
----------- -----------
Cost of revenues (Note 1 (b)):
Cost of equipment rentals, excluding
rental equipment depreciation 15,851,843 13,778,296
Depreciation, rental equipment 6,830,630 6,104,424
Cost of parts, supplies and new
equipment 1,754,926 2,193,619
Cost of used equipment 2,093,056 1,309,521
----------- -----------
Total cost of revenues 26,530,455 23,385,860
----------- -----------
Gross profit 10,200,099 9,382,234
Selling, general and administrative expenses 4,420,942 3,650,849
Depreciation and amortization, excluding
rental equipment depreciation 864,324 673,127
----------- -----------
Income from operations 4,914,833 5,058,258
Other income (expense)
Net interest expense (Note 8) (3,396,142) (3,248,766)
Gain on sale of property (Note 8) 480,308 -
----------- -----------
Income before income taxes 1,998,999 1,809,492
Provision for income taxes (Note 1 (f)) - -
----------- -----------
Net income $ 1,998,999 $ 1,809,492
=========== ===========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
3
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Number Stated Retained
of Shares Value Earnings Total
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at
January 1, 1996 600,000 $600,000 $5,652,503 $6,252,503
Net income - - 1,809,492 1,809,492
Common stock issued - - - -
Dividends paid - - (150,000) (150,000)
--------- -------- ---------- ----------
Balances at
January 1, 1997 600,000 600,000 7,311,995 7,911,995
Net income - - 1,998,999 1,998,999
Common stock issued - - - -
Dividends - - (227,000) (227,000)
--------- -------- ---------- ----------
Balances at
December 31, 1997 600,000 $600,000 $9,083,994 $9,683,994
========= ======== ========== ==========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
4
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities
Cash received from customers $ 36,013,852 $ 30,830,982
Cash paid to suppliers and employees (23,667,783) (20,760,732)
Interest paid (3,540,209) (3,347,614)
Interest received 143,514 98,848
------------ ------------
Net cash provided by operating activities 8,949,374 6,821,484
------------ ------------
Cash flows from investing activities
Capital expenditures (14,624,965) (9,799,349)
Proceeds from property sale 1,750,000 -
------------ ------------
Net cash used by investing activities (12,874,965) (9,799,349)
------------ ------------
Cash flows from financing activities
Proceeds from bank debt and long-term
obligations 31,816,689 13,247,983
Principal payments on bank debt and
long-term obligations (27,621,617) (10,142,559)
Dividends paid (227,000) (150,000)
------------ ------------
Net cash provided by financing activities 3,968,072 2,955,424
------------ ------------
Net increase (decrease) in cash and
cash equivalents 42,481 (22,441)
Cash and cash equivalents, beginning of year 31,303 53,744
------------ ------------
Cash and cash equivalents, end of year $ 73,784 $ 31,303
============ ============
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
5
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31, 1997 and 1996
Reconciliation of Net Income to Net Cash Provided by Operating Activities
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Net income $1,998,999 $ 1,809,492
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 7,694,954 6,777,558
Gain on sale of property (480,308) -
Cost of equipment sold (net of
accumulated depreciation) 2,093,056 1,309,521
Change in assets and liabilities
(Increase) in accounts receivable (716,702) (1,937,112)
(Increase) in inventory (809,416) (358,945)
(Increase) in prepaid expenses and
other receivables (950,083) (169,343)
(Increase) in other assets (178,502) -
(Decrease) increase in accounts
payable 340,435 (205,152)
(Decrease) in payroll and other accrued
liabilities (43,059) (404,535)
---------- -----------
Net cash provided by operating activities $8,949,374 $ 6,821,484
========== ===========
</TABLE>
The Notes to the Financial Statements are an integral part of these statements.
6
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SIGNIFICANT ACCOUNTING POLICIES
a. Valley's activities and operating cycle. Valley is engaged in the
---------------------------------------
equipment rental and retailing industries in the states of Arizona and
New Mexico. In June, 1997, Valley acquired substantially all
operations of Lucas Equipment Rental.
The nature of Valley's business is such that short-term obligations
are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the accompanying
balance sheets are presented on an unclassified basis.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that were used.
b. Revenue and cost recognition. The accompanying financial statements
----------------------------
are prepared on the accrual basis of accounting.
Revenues are recognized when earned. Costs of good sold and operating
costs are charged to expense as incurred.
c. Accounts receivable. Valley provides for potentially uncollectible
-------------------
accounts receivable by use of the allowance method. The allowance is
provided based upon a review of the individual accounts outstanding,
and prior history of uncollectible accounts receivable. As of
December 31, 1997 and 1996, an allowance has been provided for
potentially uncollectible accounts receivable.
d. Inventory. Inventory quantities and valuations are determined by
---------
using the first in first out method. Inventory is stated at the lower
of cost or market, based on a physical count at December 31, 1997 and
1996 respectively
e. Property and equipment and depreciation. Property and equipment are
---------------------------------------
carried at cost. When retired or otherwise disposed of, the related
carrying value and accumulated depreciation are cleared from the
respective accounts and the net difference less any amount realized
from disposition is reflected in earnings.
Maintenance and repairs, including the replacement of minor items, are
expensed as incurred, and major additions to property and equipment
are capitalized.
7
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is computed primarily by the straight-line method with
estimated salvage values over the following useful lives:
Years
---------
Rental equipment 3 - 5
Vehicles, machinery and equipment 3 - 5
Leasehold improvements 31.5
Furniture, fixtures and computer equipment 5 - 7
Land and building 0 - 31.5
f. Income taxes. No provision for income taxes is reflected in the
------------
accompanying statements because the corporation, with the consent of
its stockholders, filed an election with the Internal Revenue Service
to be treated as an S Corporation. Accordingly, all attributes of
taxable income, credits and special deductions are passed directly to
the stockholders for inclusion on their individual income tax returns.
g. Pension plan. Valley sponsors an I.R.C. Section 401 (k) plan that
------------
covers employees that have completed one year of service and have
reached twenty one years of age. Contributions to the plan are made
monthly. Valley matches 25% of the employee contribution and the
employee vests immediately. For 1997 and 1996, Valley's matching
contributions to the plan were $78,415 and $71,431 respectively.
h. Cash equivalents. Valley considers all highly liquid debt instruments
----------------
purchased with a maturity of three months or less to be cash
equivalents.
i. Advertising Costs. Advertising costs are charged to expense when
-----------------
incurred. Included in sales expenses for the years ended December 31,
1997 and 1996 were advertising costs of $403,392 and $331,374,
respectively.
j. Reclassification. Certain items in the financial statements for the
----------------
year ended December 31, 1996 have been reclassified to be consistent
with the classifications adopted for the year ended December 31, 1997
with no effect on net income.
8
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
2. CONCENTRATION OF CREDIT RISK
Valley, in the ordinary course of business, maintains bank balances in
excess of Federal Deposit Insurance Corporation Insurance Limits.
3. ACCOUNTS RECEIVABLE AND UNBILLED RENTALS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Accounts receivable $9,384,389 $8,071,200
Less: Allowance for doubtful accounts 664,451 67,964
---------- ----------
$8,719,938 $8,003,236
========== ==========
</TABLE>
Valley has recorded unbilled rental income for rental contracts which, by
their terms, have time remaining under the contract at December 31, 1997
and 1996. Unbilled but earned rental revenues at December 31, 1997 and
1996 amounted to $1,160,929 and $803,762, respectively.
4. INVENTORY
At December 31, 1997 and 1996, inventory categories and amounts were as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Shop and yard inventory $2,043,335 $1,158,479
Merchandise for resale 770,409 564,897
Used equipment for sale - 282,218
Fuel and oil 45,273 44,007
---------- ----------
$2,859,017 $2,049,601
========== ==========
</TABLE>
9
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
5. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Notes payable
-------------
Notes payable to Wells Fargo Bank,
collateralized by rental equipment
and personal guarantees of the share-
holders, principal is due in monthly
installments of $43,750 and 2.0% of
the outstanding balance (minimum
$184,000) through May, 2001. The
notes bear interest at prime plus
.125% (8.375% at December 31, 1996),
interest is payable monthly. $ - $12,237,645
Note payable to Wells Fargo Bank,
collateralized by accounts receivable,
inventory and personal guarantees of
the shareholders, due in monthly
installments of interest only. The
notes bear interest at 8.25% at
December 31, 1996. - 3,348,081
Notes payable to Imperial Bank,
collateralized by accounts receivable,
inventory and personal guarantees of
the shareholders, due in monthly
installments of interest only at
8.45% and 9.0%. The notes were paid off
February 3, 1998. 4,433,235 -
Notes payable to Imperial Bank,
collateralized by land and buildings,
interest due in monthly installments
at 8.45% and 9.0%. The notes were paid
off February 3, 1998. 2,768,351 -
Notes payable to Wells Fargo Bank,
collateralized by land and buildings,
principal and interest due in monthly
installments of $9,755 and $25,146
through July, 2016. The notes bear
interest from 8.375% to 9.25%. - 3,895,667
</TABLE>
10
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
5. LONG-TERM DEBT AND OBLIGATION UNDER CAPITAL LEASE (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Notes payable to various equipment
companies and individuals, collater-
alized by the equipment purchased,
principal and interest due in monthly
installments from $192 to $25,824.
The notes bear interest from 4.9% to
11.0%. The notes were paid off
February 3, 1998. 30,123,802 12,895,520
---------- ----------
Subtotal note payable 37,325,388 32,376,913
---------- ----------
Obligations under capital lease
-------------------------------
Capital leases payable, secured by the
equipment leased bear interest from
5.91% to 23.85% and are payable in
monthly installments from $454 to
$20,790, the capital leases were paid
off February 3, 1998 963,445 1,583,097
---------- ----------
Related party loans
-------------------
Notes payable to Danny L. and Mary J.
Evans are subordinated to bank debt,
interest is due quarterly and
the principal is due on demand. The
notes and interest may not be paid
without obtaining approval of the banks.
The notes bear interest at 8.75% at
December 31, 1996 and 1997. The notes
were paid off February 6, 1998. 2,090,000 2,090,000
Notes payable to shareholders are
subordinated to bank debt, interest
is due quarterly and the principal
is due on demand. The notes and
interest may not be paid without
obtaining approval of the banks.
The notes bear interest at 8.75%
at December 31, 1997 and 1996. The
notes were paid off February 6, 1998. 850,000 850,000
</TABLE>
11
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
5. LONG-TERM DEBT AND OBLIGATION UNDER CAPITAL LEASE (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Notes payable to shareholders, collater-
alized by rental equipment purchased,
principal and interest due in monthly
installments of $7,315. The notes bear
interest at 7.9%. The notes were paid
off February 3, 1998 456,027 589,778
----------- -----------
Subtotal, related party loans 3,396,027 3,529,778
----------- -----------
Total $41,684,860 $37,489,788
=========== ===========
Maturities on long-term debt are as follows:
Year ending December 31, 1998 $41,684,806
===========
</TABLE>
Interest expense charged to operations for years ended December 31, 1997
and 1996 was $3,539,656 and $3,347,614, respectively.
Minimum future lease payments under capital leases as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
Year ending December 31, 1998 $1,148,868
Less: Amount representing interest 174,529
----------
974,339
Less: Amount representing sales tax 10,894
----------
Present value of net minimum lease payments $ 963,445
==========
</TABLE>
Amortization on the assets collateralizing the capital leases is included
in depreciation and amortization expense.
6. INTANGIBLE ASSETS
Goodwill represents the aggregate excess of the cost of companies acquired
over the fair value of their net assets at dates of acquisition and is
being amortized on the straight line method over a five year period.
Amortization expense charged to operations for 1997 and 1996 was $20,000 in
each year.
12
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
7. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Vehicles, machinery and equipment $3,407,527 $ 3,285,967
Leasehold improvements 99,760 36,321
Furniture, fixtures and
computer equipment 1,110,074 1,039,712
Land and building 5,270,844 6,003,937
---------- -----------
Total 9,888,205 10,365,937
Less: Accumulated depreciation and
amortization 2,032,521 1,793,991
---------- -----------
$7,855,684 $ 8,571,946
========== ===========
</TABLE>
8. RELATED PARTY TRANSACTIONS
Accounts receivable
-------------------
Included in accounts receivable is $0 and $86,388 for 1997 and 1996,
respectively, that is due from J.H. Kelly, Inc., a corporation controlled
by a 50% shareholder of Valley.
Other receivables
-----------------
In addition, other receivables include $52,533 and $35,874 for 1997 and
1996, respectively, due from a 25% shareholder of Valley.
Rental equipment
----------------
For the year ended December 31, 1997, Valley rented equipment from a
related party (Bald Eagle Equipment Co.) totaling $369,753.
Operating property and equipment
--------------------------------
For the year ended December 31, 1997, Valley sold to JDW Real Estate
L.L.C., I and II the land and buildings located in Phoenix and Tucson. The
properties were sold (based on appraisal) for $1,750,000 and resulted in a
gain of $480,308. The properties had a cost basis of $1,499,242 and
accumulated depreciation of $229,550 at the time of sale.
13
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
8. RELATED PARTY TRANSACTIONS
Notes payable, related party
----------------------------
At December 31, 1997 and 1996, Valley has notes payable to Danny L. and
Mary J. Evans in the amount of $2,090,000. The notes are subordinated to
applicable bank debt and bear interest at 8.75%. During 1996, J.H. Kelly,
Inc. distributed its notes receivable from Valley to its shareholders Danny
L. and Mary J. Evans.
At December 31, 1997 and 1996, Valley has notes payable to its stockholders
in the amount of $850,000. The notes are subordinated to applicable bank
debt and bear interest at 8.75%.
Valley purchased rental equipment in the amount of $600,456 from two
Company shareholders during 1996. The shareholder notes resulting from this
transaction bear interest at 7.9% and total $456,027 and $589,778 at
December 31, 1997 and 1996, respectively.
Rental revenue and retail sales
-------------------------------
Valley rents and sells equipment to J.H. Kelly, Inc. For the years ended
December 31, 1997 and 1996, Valley recognized revenues of $147,417 and
$48,864, respectively, from J.H. Kelly, Inc.
Interest expense
----------------
Interest expense paid on the shareholder notes amounted to $299,941 and
$340,563, respectively, for the years ended December 31, 1997 and 1996.
9. COMMITMENTS AND CONTINGENCIES
Valley is currently leasing various facilities and equipment under
operating leases expiring through the year 2001. All operating leases were
paid off February 3, 1998.
Future minimum lease payments are as follows:
Year ended December 31, 1998 $4,779,265
==========
14
<PAGE>
JDW ENTERPRISES, INC.
D.B.A. VALLEY RENTALS
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997 and 1996
10. SUBSEQUENT EVENT
On February 3, 1998, the shareholders of Valley agreed to sell to Rental
Service Corporation substantially all assets of the corporation. The
assets sold included accounts receivable, inventory, rental equipment and
other operating assets and excluded land and buildings. The agreement also
required simultaneous pay-off of all liabilities of Valley including
payables, notes, capital leases and operating leases.
15
<PAGE>
EXHIBIT 99.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data of Rental
Service Corporation (the "Company") presents the unaudited pro forma
consolidated statement of operations for the year ended December 31, 1997, and
the unaudited pro forma consolidated balance sheet at December 31, 1997. The pro
forma consolidated statement of operations for the year ended December 31, 1997
has been adjusted to give effect to the Company's acquisition of substantially
all of the assets of JDW Enterprises, Inc. d.b.a Valley Rentals ("Valley") (the
"Valley Acquisition"). The unaudited pro forma consolidated statement of
operations has been adjusted as if the Valley Acquisition had occurred on
January 1, 1997. The unaudited pro forma consolidated balance sheet gives effect
to the Valley Acquisition as if it had occurred on December 31, 1997. The Valley
Acquisition was completed on February 3, 1998 and Valley's balance sheet was
consolidated with the Company's under the purchase method of accounting as of
that date.
The pro forma acquisition adjustments represent, in the opinion of the
Company's management, all adjustments necessary to present fairly the Company's
pro forma results of operations and financial position and are based upon
available information and certain assumptions considered reasonable under the
circumstances. The pro forma consolidated financial data presented herein does
not purport to present what the Company's financial position or results of
operations would actually have been had such events leading to the pro forma
acquisition adjustments in fact occurred on the date or at the beginning of the
period indicated or to project the Company's financial position or results of
operations for any future date or period.
The unaudited pro forma consolidated financial information should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto and management's discussion thereof contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VALLEY PRO FORMA
HISTORICAL ACQUISITION ACQUISITION PRO FORMA
COMPANY (1) ADJUSTMENTS COMBINED
------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals............................................ $170,704 $30,831 $ -- $201,535
Sales of parts, supplies and equipment....................... 90,559 5,900 -- 96,459
-------- ------- ------- --------
Total revenues................................................ 261,263 36,731 -- 297,994
Cost of revenues:
Cost of equipment rentals, excluding equipment
rental depreciation......................................... 87,552 15,852 -- 103,404
Depreciation, equipment rentals.............................. 37,413 6,831 (369) (2) 43,875
Cost of sales of parts, supplies and equipment............... 67,666 3,848 -- 71,514
-------- ------- ------- --------
Total cost of revenues........................................ 192,631 26,531 (369) 218,793
-------- ------- ------- --------
Gross profit.................................................. 68,632 10,200 369 79,201
Selling, general and administrative expense................... 20,996 4,421 (200) (3) 25,217
Depreciation and amortization, excluding equipment
rental depreciation.......................................... 5,373 844 (169) (4) 6,048
Amortization of intangibles................................... 3,907 20 1,410 (5) 5,337
-------- ------- ------- --------
Operating income.............................................. 38,356 4,915 (672) 42,599
Non-operating (income) expense................................ -- (480) 480 (6) --
Interest expense, net......................................... 14,877 3,396 3,718 (7) 21,991
-------- ------- ------- --------
Income before income taxes and extraordinary items............ 23,479 1,999 (4,870) 20,608
Provision for income taxes.................................... 10,330 -- (1,262) (8) 9,068
-------- ------- ------- --------
Income before extraordinary items............................. $ 13,149 $ 1,999 $(3,608) $ 11,540
======== ======= ======= ========
Income before extraordinary items per common share............ $ .96 $ .82
Weighted average common shares................................ 13,653 14,089 (9)
Income before extraordinary items per common share,
assuming dilution............................................ $ .94 $ .80
Weighted average common shares, assuming dilution............. 13,927 14,363 (9)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations
2
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(1) Represents the results of the Valley Acquisition prior to its acquisition
by the Company.
(2) Represents the elimination of the historical carrying value of rental
equipment depreciation of the Valley Acquisition of $6,831,000 and the
Company's estimate of $6,462,000 for depreciation assuming the rental fleet
acquired was adjusted to fair market value at the beginning of the period
presented. As a result, pro forma depreciation decreased by $369,000.
(3) Represents the elimination of the compensation expense for one stockholder
of Valley, as such stockholder will not be employed by the Company.
(4) Represents the elimination of the historical carrying value of depreciation
and amortization, excluding equipment rental depreciation, of the Valley
Acquisition of $844,000 and the Company's estimate of $675,000 for
depreciation excluding those assets not acquired and assuming the assets
acquired were adjusted to fair market value at the beginning of the period
presented. As a result, pro forma depreciation decreased by $169,000.
(5) Represents the Company's estimate of the amortization of goodwill for the
Valley Acquisition, as if this acquisition was consummated at the beginning
of the period presented.
(6) Represents the elimination of income earned on assets not acquired in the
Valley Acquisition.
(7) Represents the elimination of historical interest expense of $3,396,000 and
the addition of $7,114,000 of interest expense on borrowings to fund the
Valley Acquisition, as if the transaction was consummated at the beginning
of the period presented. As a result, pro forma interest expense increased
by $3,718,000.
(8) Represents the adjustment to provide income taxes at the Company's 1997
effective tax rate of 44.0%.
(9) Weighted average common shares includes 435,602 shares issued for the Valley
Acquisition.
3
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------
PRO FORMA
HISTORICAL VALLEY ACQUISITION PRO FORMA
COMPANY ACQUISITION(1) ADJUSTMENTS COMBINED
---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 8,932 $ 74 $ (74) (2) $ 8,932
Accounts receivable, net............................. 62,028 8,720 -- 70,748
Other receivables and prepaid expense................ 3,217 1,556 (1,556) (2) 3,217
Income tax receivable................................ 638 -- -- 638
Parts and supplies inventories, net.................. 31,714 2,859 -- 34,573
Deferred taxes....................................... 15,241 -- -- 15,241
Rental equipment, net................................ 314,696 33,540 2,210 (3) 350,446
Operating property and equipment, net................ 35,799 7,856 (4,856) (2) (3) 38,799
Intangible assets, net............................... 220,166 57 53,614 (4) 273,837
Other assets, net.................................... 6,895 178 (178) (2) 6,895
-------- ------- ------- --------
$699,326 $54,840 $49,160 $803,326
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................................... $ 34,911 $ 2,553 $(2,553) (2) $ 34,911
Payroll and other accrued expenses................... 31,937 918 (918) (2) 31,937
Accrued interest payable............................. 2,179 -- -- 2,179
Income taxes payable................................. 1,686 -- -- 1,686
Deferred taxes....................................... 30,857 -- -- 30,857
Bank debt and long term obligations.................. 306,975 38,289 55,311 (5) 400,575
Related party notes payable.......................... -- 3,396 (3,396) (2) --
-------- ------- ------- --------
Total liabilities.................................... 408,545 45,156 48,444 502,145
Stockholders' equity:
Preferred stock..................................... -- -- -- --
Common stock........................................ 198 600 (596) (6) 202
Additional paid-in capital.......................... 270,927 -- 10,396 (6) 281,323
Common stock issuable............................... 6,000 -- -- 6,000
Retained earnings................................... 13,656 9,084 (9,084) (6) 13,656
-------- ------- ------- --------
Total stockholders' equity........................... 290,781 9,684 716 301,181
-------- ------- ------- --------
$699,326 $54,840 $49,160 $803,326
======== ======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(1) The purchase method of accounting has been used in preparing the Unaudited
Pro Forma Consolidated Financial Statements of the Company with respect to
the Valley Acquisition. Purchase accounting values have been assigned to the
Valley Acquisition on a preliminary basis and are subject to adjustment when
final information as to the fair values of the net assets acquired is
available.
(2) Represents assets not acquired, or liabilities not assumed, in the Valley
Acquisition.
(3) Represents the Company's preliminary estimates of the adjustments necessary
to record the assets acquired at fair market value.
(4) Represents the estimated fair market value of goodwill represented by the
excess purchase price over the estimated fair market value of the net assets
acquired in the Valley Acquisition.
(5) Represents borrowings under the Company's Revolver to fund the Valley
Acquisition.
(6) Represents the elimination of the equity accounts of Valley and the effect
of the issuance of 435,602 shares of the Company's Common Stock for the
Valley Acquisition.
5
