<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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or
[_] 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 000-21237
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RENTAL SERVICE CORPORATION
--------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-0569350
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6929 E. Greenway Parkway, Suite 200, Scottsdale, Arizona 85254
- -------------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(480) 905-3300
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.)
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
filing requirements for the past 90 days.
Yes X No
--- ---
There were 24,268,770 shares of Rental Service Corporation's common stock,
$.01 par value, outstanding at May 14, 1999.
<PAGE>
RENTAL SERVICE CORPORATION
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I Financial Information
- ---------------------------------
<S> <C>
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1999 (unaudited) and December 31, 1998......................... 1
Consolidated Statements of Income
Three months ended March 31, 1999 and 1998 (unaudited)................... 2
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 (unaudited)................... 3
Notes to Consolidated Financial Statements - March 31, 1999 (unaudited).... 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 9
PART II Other Information
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ITEM 1. Legal Proceedings......................................................... 16
ITEM 2. Changes in Securities and Use of Proceeds................................. 17
ITEM 5. Other Information......................................................... 17
ITEM 6. Exhibits and Reports on Form 8-K.......................................... 18
Signatures............................................................................ 19
</TABLE>
(i)
<PAGE>
Part I. Financial Information
------------------------------
Item 1. Consolidated Financial Statements
Rental Service Corporation
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
------
Cash and cash equivalents.................................................... $ 12,208 $ 3,466
Accounts receivable, net..................................................... 122,266 124,230
Parts and supplies inventories, net.......................................... 47,869 47,216
Deferred taxes............................................................... 28,736 28,736
Rental equipment, principally machinery, at cost, net........................ 665,436 656,207
Operating property and equipment, at cost, net............................... 67,561 67,629
Intangible assets, net....................................................... 405,239 401,239
Other assets, net............................................................ 21,097 23,853
----------- -----------
$1,370,412 $1,352,576
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable............................................................. $ 48,412 $ 24,721
Payroll and other accrued expenses........................................... 30,526 31,581
Accrued interest payable..................................................... 8,732 4,605
Income taxes payable......................................................... 6,265 476
Deferred taxes............................................................... 65,073 64,996
Bank debt and long term obligations.......................................... 785,497 808,712
----------- -----------
Total liabilities.......................................................... 944,505 935,091
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares 500,000
Issued and outstanding shares - none....................................... - -
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 24,266,491 at March 31, 1999 and 24,089,645
at December 31, 1998...................................................... 243 241
Additional paid-in capital.................................................. 376,433 373,646
Common stock issuable - 77,174 shares at March 31, 1999 and 220,185 shares
at December 31, 1998....................................................... 1,640 3,988
Deferred compensation expense............................................... (2,946) (3,162)
Cumulative currency translation adjustment.................................. (75) (76)
Retained earnings........................................................... 50,612 42,848
----------- -----------
Total stockholders' equity................................................. 425,907 417,485
----------- -----------
$1,370,412 $1,352,576
=========== ===========
</TABLE>
See accompanying notes.
1
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Rental Service Corporation
Consolidated Statements of Income
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------------
1999 1998
-------------------- --------------------
(Unaudited)
<S> <C> <C>
Revenues:
Equipment rentals........................................................... $115,707 $ 70,179
Sales of parts, supplies and new equipment.................................. 34,132 27,227
Sales of used equipment..................................................... 24,913 11,257
----------- -----------
Total revenues............................................................ 174,752 108,663
Cost of revenues:
Cost of equipment rentals, excluding rental equipment depreciation.......... 58,802 37,073
Depreciation, rental equipment.............................................. 26,985 15,461
Cost of sales of parts, supplies and new equipment.......................... 25,873 21,249
Cost of sales of used equipment............................................. 16,449 7,944
----------- -----------
Total cost of revenues.................................................... 128,109 81,727
----------- -----------
Gross profit................................................................. 46,643 26,936
Selling, general and administrative expense.................................. 9,929 5,659
Depreciation and amortization, excluding rental equipment depreciation....... 3,324 2,024
Amortization of intangibles.................................................. 3,274 2,085
----------- -----------
Operating income............................................................. 30,116 17,168
Interest expense, net........................................................ 16,500 7,583
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Income before income taxes................................................... 13,616 9,585
Provision for income taxes................................................... 5,852 4,101
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Net income................................................................... $ 7,764 $ 5,484
=========== ===========
Net income per common share.................................................. $ .32 $ .27
=========== ===========
Weighted average common shares............................................... 24,087 20,419
=========== ===========
Net income per common share, assuming dilution............................... $ .32 $ .27
=========== ===========
Weighted average common shares, assuming dilution............................ 24,558 20,568
=========== ===========
</TABLE>
See accompanying notes.
2
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Rental Service Corporation
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1999 1998
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(Unaudited)
<S> <C> <C>
Operating activities
Net income............................................................. $ 7,764 $ 5,484
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 33,583 19,570
Provision for losses on accounts receivable.......................... 439 428
Amortization of deferred compensation expense........................ 217 -
Currency translation adjustment...................................... 1 -
Gain on sale of used equipment....................................... (8,464) (3,313)
Changes in operating assets and liabilities, net of effect of
business acquisitions:
Accounts receivable............................................... 1,633 4,033
Parts and supplies inventories.................................... (598) (3,592)
Other assets...................................................... 2,762 (790)
Accounts payable.................................................. 23,691 17,971
Payroll and other accrued expenses................................ (2,457) (4,389)
Accrued interest payable.......................................... 4,127 (398)
Income taxes payable.............................................. 5,789 4,128
------------ ----------
Net cash provided by operating activities.............................. 68,487 39,132
Investing activities
Acquisitions of rental operations, net of cash acquired................ (10,320) (107,753)
Cash purchases of rental equipment and operating property
and equipment......................................................... (51,597) (70,664)
Proceeds from sale of used equipment................................... 24,913 11,257
------------ ----------
Net cash used in investing activities.................................. (37,004) (167,160)
Financing activities
Proceeds from bank debt................................................ 167,711 216,904
Payments on bank debt.................................................. (190,701) (93,568)
Payments on long term obligations...................................... (97) (3)
Proceeds from exercise of stock options................................ 4 53
Proceeds from QSP Plan offerings....................................... 342 172
------------ ----------
Net cash provided by (used in) financing activities.................... (22,741) 123,558
------------ ----------
Net increase (decrease) in cash and cash equivalents................... 8,742 (4,470)
Cash and cash equivalents at beginning of period....................... 3,466 8,932
------------ ----------
Cash and cash equivalents at end of period............................. $ 12,208 $ 4,462
============ ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................................. $ 12,373 $ 7,981
Cash paid for income taxes............................................. 6 -
</TABLE>
See accompanying notes.
3
<PAGE>
Rental Service Corporation
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Rental Service
Corporation ("RSC" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. These unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
Certain amounts in the prior period financial statements have been
reclassified to conform with the current period financial statement
presentation.
2. Business Acquisitions
A principal component of the Company's business strategy is to continue to
grow through acquisitions that augment its present operations as well as provide
entry into new geographic markets. In keeping with this strategy, the Company
has made numerous acquisitions of rental operations. These acquisitions have
been accounted for as purchases and, accordingly, the acquired tangible and
identifiable intangible assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition with any excess purchase price
reflected as goodwill in the accompanying consolidated financial statements.
Purchase accounting values for all acquisitions are initially assigned on a
preliminary basis, and are subject to adjustment when final information as to
the fair values of the net assets acquired is available. Such information
generally relates to the fair value of rental equipment acquired as evidenced by
appraisals, and the final determination of liabilities assumed. At March 31,
1999, the amount of assets and liabilities subject to preliminary valuation is
not considered material and the Company does not expect that any adjustments to
these amounts would result in a material change in the Company's financial
position or results of operations. The operations of the acquired businesses are
included in the consolidated statements of income from the date of effective
control of each such acquisition.
The following table sets forth, for the periods indicated, the net assets
acquired, liabilities assumed, common stock issued or issuable and cash purchase
price for these acquisitions (in thousands).
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
Assets acquired...................................... $ 3,830 $ 54,508
Goodwill and covenants not to compete................ 7,274 69,489
Less: common stock issued or issuable................ (689) (10,750)
Less: liabilities assumed............................ (95) (5,494)
----------- -----------
Cash purchase price.................................. $10,320 $107,753
=========== ===========
Number of acquisitions............................... 2 7
</TABLE>
4
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Rental Service Corporation
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The following table sets forth the unaudited pro forma results of operations
for each period in which acquisitions occurred, and for the immediately
preceding period, as if the acquisitions were consummated at the beginning of
the immediately preceding period (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Total revenues....................................... $175,598 $135,880
Net income........................................... 7,759 5,253
Net income per common share.......................... .32 .25
Net income per common share, assuming dilution....... .32 .25
</TABLE>
Pending Merger with NationsRent
On January 20, 1999, the Company entered into a merger agreement with
NationsRent, Inc., which provides, subject to the terms and conditions set forth
therein, for NationsRent to be merged with and into the Company. Upon completion
of the merger, each outstanding share of NationsRent common stock will be
converted into 0.355 of a share of RSC's common stock and all outstanding
options to purchase shares of NationsRent common stock will be assumed by the
Company and converted into options to purchase RSC common stock (subject to
adjustment for the exchange ratio). The merger, which is expected to be
accounted for as a pooling of interests, is subject to stockholder approvals and
other customary conditions.
On May 7, 1999, RSC and NationsRent began to negotiate an amendment to the
merger agreement. The negotiations between RSC and NationsRent are ongoing. The
board of directors has determined that disclosure of the possible terms of any
amendment to the merger agreement prior to an agreement in principle would
jeopardize the continuation of these negotiations and, accordingly, has
instructed RSC's management not to disclose the possible terms until an
agreement has been reached or, upon the advice of counsel, as may otherwise be
required by law.
The Company is capitalizing all expenses related to the merger, and will
charge these expenses to its consolidated statement of income during the period
in which the merger is completed. At March 31, 1999, the Company had
capitalized $2.3 million of merger-related expenses.
3. Earnings Per Share
The following table sets forth the computation of the denominator for earnings
per share and earnings per share, assuming dilution (in thousands).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1999 1998
---------- ------------
(Unaudited)
<S> <C> <C>
Denominator:
Weighted average shares outstanding............................. 24,162 20,174
Common stock issuable in connection with acquisitions........... 173 251
Common stock to be issued in connection with the QSP Plan....... 8 -
Unvested restricted stock outstanding........................... (256) (6)
---------- ---------
Denominator for earnings per share............................... 24,087 20,419
Effect of dilutive securities:
Add-back of unvested restricted stock outstanding............... 256 6
Common stock options............................................ 215 135
Unvested restricted stock not yet outstanding................... - 8
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Dilutive potential common shares............................... 471 149
---------- ---------
Denominator for earnings per share, assuming dilution............ 24,558 20,568
========== =========
</TABLE>
5
<PAGE>
Rental Service Corporation
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. Bank Debt and Long Term Obligations
Bank debt and long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
---------- -----------
1999 1998
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(Unaudited)
<S> <C> <C>
$650 million revolving line of credit (the "Revolver") with banks;
interest at the prime rate plus 0.75%, due monthly, or the Eurodollar
rate plus 2.25%, due on demand, at the Company's option; principal
due November 24, 2003. The interest rates in effect at March 31,
1999 and December 31, 1998 were 7.2% and 7.8%, respectively.......... $481,294 $503,775
$100 million term loan (the "Term Loan," and together with the
Revolver, the "Bank Facility") with banks; interest at the prime
rate plus 2.25%, due monthly, or the Eurodollar rate plus 3.75%,
due on demand, at the Company's option; principal due in annual
installments of $1 million in each of 1998 through 2003, with the
remaining principal balance due on December 2, 2004. The interest
rates in effect at March 31, 1999 and December 31, 1998 were 8.7%
and 9.3%, respectively............................................... 99,000 99,000
Cdn. $28 million revolving line of credit (the "Canadian Credit
Facility") with banks; interest at the Canadian prime rate plus 2.25%,
due monthly, or the Eurodollar rate plus 1.75%, due on demand, at
the Company's option; principal due December 2, 2002. The interest
rates in effect at March 31, 1999 and December 31, 1998 were 9% and
8.75%, respectively.................................................. 2,856 3,365
$200 million 9% Senior Subordinated Notes due 2008 (the "Senior
Subordinated Notes"); interest due semi-annually each May 15 and
November 15, beginning November 15, 1998............................. 200,000 200,000
Other.................................................................. 2,347 2,572
---------- ----------
$785,497 $808,712
========== ==========
</TABLE>
At March 31, 1999, $168.7 million was available for borrowing by the Company
under the Revolver.
At March 31, 1999, the Company was in compliance with all covenants of the
Bank Facility, the Canadian Credit Facility and the Senior Subordinated Notes.
In connection with the merger with NationsRent, the Company has entered into a
commitment letter for a $1.5 billion financing package with several
institutions, including the agent under the Bank Facility. This new credit
facility is expected to consist of a $1.1 billion revolving credit facility and
a $400 million term loan. Upon completion of the merger, this new credit
facility will be implemented and will replace the Bank Facility and the
revolving credit facility and term loan of NationsRent. In connection with the
signing of the commitment letter, the Company and NationsRent each paid an
initial underwriting fee of $1.5 million. Additionally, a non-refundable
"ticking fee" equal to 0.5% of the commitment (calculated on a per annum basis)
is payable monthly in arrears for the period from May 15, 1999 until the
implementation date of the new credit facility.
5. Subsequent Events
United Rentals' Tender Offer
On April 5, 1999, United Rentals, Inc. commenced an unsolicited tender offer
for all of the outstanding shares of RSC's common stock at a price of $22.75 per
share in cash. This tender offer is subject to the fulfillment of certain
conditions, including, among other things, the termination of the merger
agreement with NationsRent and
6
<PAGE>
Rental Service Corporation
Notes to Consolidated Financial Statements (continued)
(Unaudited)
the invalidation of the related termination fees and stock option granted to
NationsRent. The Company's board of directors has determined that United
Rentals' tender offer is inadequate and not in the best interests of RSC or its
stockholders. Accordingly, the board of directors recommended that RSC
stockholders reject the tender offer and not tender their shares to United
Rentals. The board of directors has also determined that the tender offer is not
reasonably likely to be consummated on the terms proposed by United Rentals
because consummation of the tender offer is subject to significant conditions
not within RSC's or United Rentals' control.
In connection with their tender offer, United Rentals filed preliminary proxy
materials to solicit proxies from RSC stockholders to vote against the merger
with NationsRent and also mailed a consent solicitation statement soliciting
written consents from RSC stockholders to remove the current members of the
Company's board of directors and replace them with hand-picked nominees of
United Rentals. RSC has filed a consent revocation statement in opposition of
United Rentals' solicitation, in which the board of directors recommended that
RSC stockholders oppose United Rentals' attempt to acquire the Company at an
inadequate price by gaining control of the board of directors.
United Rentals has also commenced litigation against the Company, its board of
directors and NationsRent alleging breaches of fiduciary duty by the directors
in connection with certain provisions of the merger agreement. United Rentals
has also commenced litigation against the Company, NationsRent and NationsRent's
chief executive officer alleging, among other things, certain violations of the
federal securities laws. Due to the preliminary status of this litigation, the
ultimate outcome cannot be reasonably estimated at this time.
Stockholder Rights Plan
In light of the United Rentals tender offer, and based upon prior discussions
and presentations by its legal and financial advisors, the board of directors
adopted a stockholder rights plan on April 15, 1999, and in connection therewith
authorized and declared a dividend of rights thereunder.
In connection with the rights plan, the board of directors declared a dividend
of one preferred share purchase right for each share of common stock outstanding
at the close of business on April 30, 1999. Each right will entitle the
registered holder thereof, after the rights become exercisable and until April
16, 2009 (or the earlier redemption, exchange or termination of the rights), to
purchase from RSC one one-thousandth (1/1,000th) of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share, at a price of $150.00
per one one-thousandth (1/1,000th) of a preferred share, subject to certain
anti-dilution adjustments. Until the earlier to occur of (1) 10 days following a
public announcement that a person or group of affiliated or associated persons
has acquired, or obtained the right to acquire, beneficial ownership of 10% or
more of the Company's common stock (an "Acquiring Person"), or (2) the
occurrence of the tenth business day (or such later date as may be determined by
action of the RSC board of directors prior to such time as any person or group
of affiliated persons becomes an Acquiring Person) following the commencement or
announcement of an intention to make a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 10% or more of the Company's common stock (the earlier of (1) and (2)
being called the "Distribution Date"), the rights will be evidenced, with
respect to any certificate representing common stock outstanding as of the
record date, by such certificate.
The board of directors adopted the rights plan after considering (1) the
inadequacy of the price offered to RSC stockholders in the United Rentals tender
offer, (2) the risk that the United Rentals tender offer will not be consummated
and (3) the Company's plan to complete its merger with NationsRent. The rights
are designed to assure that all RSC stockholders receive fair and equal
treatment in the event of any proposed takeover and to guard against partial
tender offers, open market accumulations and other abusive tactics to gain
control of RSC without paying all stockholders a control premium. The rights
will cause substantial dilution to a person or group that acquires 10% or more
of the Company's common stock on terms not approved by the board of directors.
The rights should not interfere with any merger or other business combination
approved by the board of directors at any time prior to the first date that a
person or group has become an Acquiring Person.
The complete stockholder rights plan is an exhibit to this Quarterly Report on
Form 10-Q, and is incorporated herein by reference.
7
<PAGE>
Rental Service Corporation
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Acquisitions
Subsequent to March 31, 1999, the Company has completed three additional
acquisitions for an aggregate purchase price of $6.4 million in cash (including
the payoff of assumed debt).
As of May 14, 1999, the Company was party to non-binding letters of intent to
acquire four equipment rental businesses for an aggregate purchase price of $5.9
million in cash (including the payoff of assumed debt). Each of these
acquisitions is subject to a number of closing conditions, including the
execution of definitive purchase agreements, the completion of due diligence
investigations and board of directors approval.
8
<PAGE>
Rental Service Corporation
March 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the Company's consolidated financial
condition and results of operations should be read in conjunction with the
Company's unaudited consolidated financial statements and footnotes thereto
included elsewhere in this Quarterly Report on Form 10-Q and the Company's
audited consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Results of Operations
Revenues. Total revenues for the three months ended March 31, 1999 increased
60.8% to $174.8 million from $108.7 million in the three months ended March 31,
1998. This increase was primarily due to the growth related to our significant
investments in capital expenditures, the inclusion of revenues from the
acquisitions of 19 businesses (consisting of 46 locations) and the opening of 21
start-up locations since March 31, 1998. Rental equipment revenues increased
64.9% to $115.7 million from $70.2 million in 1998. This increase was primarily
due to the larger rental fleet resulting from acquisitions and capital
expenditures. Sales of parts, supplies and new equipment increased 25.4% to
$34.1 million from $27.2 million in 1998. This increase was due primarily to the
increased number of rental locations selling these items and the acquisitions of
businesses that were dealers for selected new equipment manufacturers. Sales of
used equipment increased 121.3% to $24.9 million from $11.3 million in 1998.
This increase was due primarily to the increased disposals resulting from our
larger rental fleet and our focus on maximizing the timing of sales of used
equipment to satisfy the increased customer demand normally experienced in the
first four to five months of the year.
Gross Profit. Gross profit for the three months ended March 31, 1999 increased
to $46.6 million (26.7% of total revenues) from $26.9 million (24.8% of total
revenues) in the three months ended March 31, 1998. This increase was primarily
attributable to our increased number of locations and larger rental fleet. Gross
margin on equipment rentals increased to 25.9% of equipment rental revenues from
25.1% in 1998. This increase was primarily due to our continued focus on cost
control and the greater profit flow-through achieved from the larger rental
fleet. Gross margin on sales of parts, supplies and new equipment increased to
24.2% of sales from 22% in 1998. This increase was primarily due to an increase
in general retail sales activity resulting from our increased number of
locations, which has lessened the impact of the lower margin sales of
maintenance, repair and operating supplies that represented a greater portion of
our sales revenue in 1998. Gross margin on sales of used equipment increased to
34% of sales from 29.4% in 1998. This increase was due primarily to our focus on
maximizing the timing of sales of used equipment to satisfy the increased
customer demand normally experienced in the first four to five months of the
year.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended March 31, 1999 was $9.9
million (5.7% of total revenues) compared to $5.7 million (5.2% of total
revenues) in the three months ended March 31, 1998. This increase was the result
of the greater number of locations and employees resulting from our acquisitions
and start-ups completed since March 31, 1998. Selling, general and
administrative expense will continue to increase in future periods as we make
additional acquisitions and start-ups in keeping with our growth strategy.
Depreciation and Amortization, excluding rental equipment depreciation.
Depreciation and amortization remained consistent at 1.9% of total revenues for
the three month periods ended March 31, 1999 and 1998.
Amortization of Intangibles. Amortization of intangibles remained consistent
at 1.9% of total revenues for the three month periods ended March 31, 1999 and
1998.
Interest Expense, net. Interest expense for the three months ended March 31,
1999 was $16.5 million compared to $7.6 million in the three months ended March
31, 1998. This increase was the result of our increased average debt outstanding
in 1999 versus 1998 and from the issuance of the 9% Senior Subordinated Notes in
May 1998 at a higher rate than our other debt. Our increased debt has resulted
from the financing of acquisitions, capital expenditures and start-up locations.
Interest expense will continue to increase in subsequent periods to the extent
we borrow under our credit facilities, or otherwise, to fund these activities.
9
<PAGE>
Rental Service Corporation
March 31, 1999
Provision for Income Taxes. Provision for income taxes was $5.9 million for
the three months ended March 31, 1999 compared to $4.1 million in the three
months ended March 31, 1998. Our effective tax rate was 43% in 1999 compared to
42.8% in 1998.
Liquidity and Capital Resources
Our primary uses of cash have been the funding of capital expenditures,
acquisitions and start-up locations. We have historically financed these
activities primarily through the issuance of equity or debt securities, secured
bank borrowings and net cash provided by operating activities. We had cash and
cash equivalents of $12.2 million at March 31, 1999 and $3.5 million at December
31, 1998.
Operating activities. Our operating activities provided net cash flow of $68.5
million during the three months ended March 31, 1999 compared to $39.1 million
during the three months ended March 31, 1998. The principal causes for the
increase in operating cash flow between periods were higher net income,
increased depreciation and amortization and higher average accounts payable.
Investing activities. Our investing activities used $37 million in cash during
the three months ended March 31, 1999 compared to $167.2 million during the
three months ended March 31, 1998. This decrease was attributable to a lower
combined level of acquisitions and capital expenditures in 1999. Acquisition
spending totaled $10.3 million in 1999 versus $107.8 million in 1998. In
addition, we made capital expenditures of $51.6 million in 1999 versus $70.7
million in 1998. Capital expenditures in both periods were primarily for
purchases of rental equipment. Included in investing activities were proceeds
from the sale of used equipment, which were $24.9 million in 1999 and $11.3
million in 1998.
Financing activities. Our financing activities used $22.7 million in cash in
1999, while they provided $123.6 million in cash in 1998. This variance was
primarily due to a higher level of borrowings under our revolving line of credit
(the "Revolver") during 1998 in order to finance our higher levels of
acquisitions and capital expenditures.
From time to time, we have amended the Revolver to, among other things,
increase its availability, adjust the interest rate margins, extend its maturity
date and modify various covenants. During 1997, we added a $100 million term
loan (the "Term Loan," and together with the Revolver, the "Bank Facility") to
this financing package.
During 1998, we amended the Bank Facility to, among other things:
. increase the availability under the Revolver to $650 million;
. increase the interest rate margins for the Revolver by 0.50%;
. increase the allowed levels of capital expenditures and investments to
$365 million in 1998, $325 million in each of 1999 and 2000, $400
million in 2001, $525 million in 2002, $625 million in 2003 and $725
million in 2004 (plus amounts reinvested from asset sales);
. adjust certain financial and other covenants, including the minimum
interest coverage and maximum total debt to EBITDA ratios;
. increase the allowed level of acquisitions to $300 million plus the net
cash proceeds from any equity or permitted subordinated debt offerings
completed during the term of the Bank Facility;
. increase the commitment fee to 0.50% of the unused commitment, with
reductions available based on our achievement of specified total debt to
EBITDA ratios; and
. extend the maturity date of the Revolver to November 24, 2003.
The amended and restated Revolver contains provisions to periodically adjust
the prime and Eurodollar interest rate margins based on our achievement of
specified total debt to EBITDA ratios. The total amount of credit available
under the Revolver is limited to a borrowing base equal to the sum of (1) 85% of
eligible accounts receivable of our domestic subsidiaries and (2) 90% of the
value (lower of net book value or orderly liquidation
10
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Rental Service Corporation
March 31, 1999
value) of eligible rental equipment through December 31, 1999; 85% of the value
of eligible rental equipment from January 1, 2000 through December 31, 2000; and
80% of the value of eligible rental equipment from January 1, 2001 through the
expiration date of the Revolver.
The Term Loan consists of a $100 million seven-year term loan facility, which
requires mandatory principal payments of $1 million on each of its first six
anniversaries (1998 - 2003), with the remaining principal balance due at
maturity (December 2, 2004). Interest on the Term Loan is payable at either the
prime rate plus 2.25% or the Eurodollar rate plus 3.75% (at our option).
The Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank
Facility also contains covenants and provisions that restrict, among other
things, our ability to:
. incur additional indebtedness;
. incur liens on our property;
. enter into contingent obligations;
. make certain capital expenditures and investments;
. engage in certain sales of assets;
. merge or consolidate with or acquire another person or engage in other
fundamental changes;
. enter into leases;
. engage in certain transactions with affiliates; and
. declare or pay dividends on our common stock.
At March 31, 1999, we were in compliance with all covenants of the Bank
Facility.
Borrowings under the Bank Facility are secured by all of the personal property
of our domestic subsidiaries and a pledge of the capital stock and intercompany
debt of those subsidiaries. We are a guarantor of the obligations of our
domestic subsidiaries under the Bank Facility, and have granted liens on
substantially all of our assets (including the stock of our domestic
subsidiaries) to secure this guaranty. In addition, our domestic subsidiaries
are guarantors of the obligations of the other subsidiaries under the Bank
Facility. The obligation of the lenders to make loans or issue letters of credit
under the Bank Facility is subject to certain customary conditions.
At May 14, 1999, the principal amount outstanding under the Revolver was
$528.2 million, the average interest rate on these borrowings was 7.2%, and
$121.8 million was available for borrowing under the Revolver.
On August 21, 1998, Rental Service Corporation of Canada Ltd. ("RSC Canada"),
a wholly owned subsidiary of RSC, entered into a Cdn. $28 million revolving line
of credit with lenders (or affiliates) who are parties to the Bank Facility (the
"Canadian Credit Facility"). The total amount of credit available under the
Canadian Credit Facility is limited to a borrowing base equal to the sum of (1)
85% of eligible accounts receivable of RSC Canada and (2) 85% of the value
(lower of net book value or orderly liquidation value) of eligible rental
equipment of RSC Canada. The Canadian Credit Facility contains provisions to
periodically adjust the prime and Eurodollar interest rate margins based on
RSC's achievement of specified total debt to EBITDA ratios. The Canadian Credit
Facility is secured by substantially all of the assets of RSC Canada and any of
its subsidiaries, and is guaranteed by RSC, with the guarantee being secured by
the stock of RSC Canada. The Canadian Credit Facility expires on December 2,
2002 and contains other terms substantially similar to those contained in the
Bank Facility. At March 31, 1999, we were in compliance with all covenants of
the Canadian Credit Facility. At May 14, 1999, there was $9 million outstanding
under the Canadian Credit Facility, with $5.3 million available for borrowing.
On May 13, 1998 we issued $200 million aggregate principal amount of 9% Senior
Subordinated Notes due 2008 (the "Senior Subordinated Notes") in a private
placement pursuant to Rule 144A. The net proceeds of the
11
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Rental Service Corporation
March 31, 1999
offering were used to repay indebtedness under the Revolver in order to provide
borrowing availability for general corporate purposes, including acquisitions.
The Senior Subordinated Notes call for semi-annual interest payments on May 15
and November 15 of each year (beginning November 15, 1998) and mature on May 15,
2008. The Senior Subordinated Notes are guaranteed by substantially all of our
current and future domestic subsidiaries, and contain covenants restricting
additional indebtedness, certain payments by us and our subsidiaries, asset
sales, liens, mergers and consolidations and transactions with affiliates. At
March 31, 1999, we were in compliance with all covenants of the Senior
Subordinated Notes.
In connection with the merger with NationsRent, the Company has entered into a
commitment letter for a $1.5 billion financing package with several
institutions, including the agent under the Bank Facility. This new credit
facility is expected to consist of a $1.1 billion revolving credit facility and
a $400 million term loan. Upon completion of the merger, this new credit
facility will be implemented and will replace the Bank Facility and the
revolving credit facility and term loan of NationsRent. In connection with the
signing of the commitment letter, the Company and NationsRent each paid an
initial underwriting fee of $1.5 million. Additionally, a non-refundable
"ticking fee" equal to 0.5% of the commitment (calculated on a per annum basis)
is payable monthly in arrears for the period from May 15, 1999 until the
implementation date of the new credit facility.
Acquisitions and Start-ups. As part of our growth strategy, we are continually
involved in the investigation and evaluation of potential acquisitions and
start-up locations. We are currently evaluating a number of acquisition
opportunities and start-up locations, and may at any time be a party to one or
more non-binding letters of intent or acquisition agreements. At December 31,
1998, we operated 241 locations throughout the United States and Canada. Since
December 31, 1998, we have completed five acquisitions of equipment rental
businesses with an aggregate of eight locations and have opened four new start-
up locations. This brings our total number of locations to 253 as of May 14,
1999.
During the three months ended March 31, 1999, we completed two acquisitions of
equipment rental businesses with a combined total of four locations. These
acquisitions were completed for an aggregate purchase price of $10.3 million in
cash (including the payoff of assumed debt), 5,000 shares of common stock and
the assumption of certain liabilities.
During the three months ended March 31, 1998, we completed seven acquisitions
of equipment rental businesses with a combined total of 22 locations. These
acquisitions were completed for an aggregate purchase price of $107.8 million in
cash (including the payoff of assumed debt), 450,109 shares of common stock and
the assumption of certain liabilities.
During the three months ended March 31, 1999, we opened three new start-up
locations. During the three months ended March 31, 1998, we opened two new
start-up locations and consolidated two acquired locations with existing
locations serving the same markets.
Subsequent to March 31, 1999, we have completed three additional acquisitions
for an aggregate purchase price of $6.4 million in cash (including the payoff of
assumed debt). These acquisitions had a combined four locations in Canada (2),
Illinois (1) and Iowa (1). Additionally, we have opened one new start-up
location in Iowa.
As of May 14, 1998, we were also party to non-binding letters of intent to
acquire four equipment rental businesses for an aggregate purchase price of $5.9
million in cash (including the payoff of assumed debt). Each of these
acquisitions is subject to a number of closing conditions, including the
execution of definitive purchase agreements, the completion of due diligence
investigations and board of directors approval. These letters of intent are non-
binding and we have not completed our related due diligence investigations. As
such, we cannot predict whether these letters of intent will lead to definitive
agreements, whether the terms of any definitive agreements will be the same as
the terms contemplated by the letters of intent or whether any of these
transactions will be consummated.
On January 20, 1999, we entered into a merger agreement with NationsRent,
Inc., which provides, subject to the terms and conditions set forth therein, for
NationsRent to be merged with and into RSC. Upon completion of the merger, each
outstanding share of NationsRent common stock will be converted into 0.355 of a
share of RSC's common stock and all outstanding options to purchase shares of
NationsRent common stock will be assumed by us
12
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Rental Service Corporation
March 31, 1999
and converted into options to purchase RSC common stock (subject to adjustment
for the exchange ratio). The merger, which is expected to be accounted for as a
pooling of interests, is subject to stockholder approvals and other customary
conditions.
On May 7, 1999, RSC and NationsRent began to negotiate an amendment to the
merger agreement. The negotiations between RSC and NationsRent are ongoing. The
board of directors has determined that disclosure of the possible terms of any
amendment to the merger agreement prior to an agreement in principle would
jeopardize the continuation of these negotiations and, accordingly, has
instructed RSC's management not to disclose the possible terms until an
agreement has been reached or, upon the advice of counsel, as may otherwise be
required by law.
The Company is capitalizing all expenses related to the merger, and will
charge these expenses to its consolidated statement of income during the period
in which the merger is completed. At March 31, 1999, the Company had
capitalized $2.3 million of merger-related expenses.
On April 5, 1999, United Rentals, Inc. commenced an unsolicited tender offer
for all of the outstanding shares of RSC's common stock at a price of $22.75 per
share in cash. This tender offer is subject to the fulfillment of certain
conditions, including, among other things, the termination of the merger
agreement with NationsRent and the invalidation of the related termination fees
and stock option granted to NationsRent. The Company's board of directors has
determined that United Rentals' tender offer is inadequate and not in the best
interests of RSC or its stockholders. Accordingly, the board of directors
recommended that RSC stockholders reject the tender offer and not tender their
shares to United Rentals. The board of directors has also determined that the
tender offer is not reasonably likely to be consummated on the terms proposed by
United Rentals because consummation of the tender offer is subject to
significant conditions not within RSC's or United Rentals' control.
In connection with their tender offer, United Rentals filed preliminary proxy
materials to solicit proxies from RSC stockholders to vote against the merger
with NationsRent and also mailed a consent solicitation statement soliciting
written consents from RSC stockholders to remove the current members of the
Company's board of directors and replace them with hand-picked nominees of
United Rentals. RSC has filed a consent revocation statement in opposition of
United Rentals' solicitation, in which the board of directors recommended that
RSC stockholders oppose United Rentals' attempt to acquire the Company at an
inadequate price by gaining control of the board of directors.
General. Our liquidity and capital resources have been and will continue to be
significantly impacted by our growth strategy and the need to offer customers a
modern and well-maintained rental fleet. To pursue our growth strategy, we must
be able to complete acquisitions, open start-up locations and make the capital
expenditures necessary to expand and maintain our rental fleet. At May 12, 1999,
we were obligated, under non-cancelable purchase commitments, to purchase $71.9
million of equipment. These equipment purchases are expected to be financed with
cash flow from operations and through borrowings under the Revolver.
We believe our cash flow from operations, together with availability under the
Revolver and vendor financing in appropriate cases, will be sufficient to
support our operations and capital liquidity requirements for at least the next
twelve months. However, if significant additional acquisition opportunities
arise, we may need to seek additional capital. These acquisitions and
discretionary capital expenditures could be financed through the incurrence of
additional indebtedness (including convertible debt) or the issuance of common
or preferred stock (which may be issued to third parties or to sellers of
acquired businesses), depending on market conditions. If this financing were not
available, our growth strategy could be hampered and our cash flow from
operations reduced, thereby constraining funds available for growth and
acquisitions. Additional indebtedness generally would increase our leverage and
may make us more vulnerable to economic downturns. It may also limit our ability
to withstand competitive pressures. There can be no assurance our business will
generate sufficient cash flow or that future borrowings or additional capital,
if and when required, will be available on terms acceptable to us, or at all.
13
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Rental Service Corporation
March 31, 1999
Year 2000
We are aware of the issues associated with the programming code in existing
computer and software systems as the Year 2000 approaches. The Year 2000 problem
is pervasive and complex, as virtually every computer operation could be
affected in some way by the rollover of the two-digit year value to "00." The
issue is whether systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize this
information could generate erroneous data or cause complete system failures.
We have completed an initial evaluation of our internal information technology
and non-information technology systems and have appointed a Year 2000 project
manager to coordinate our efforts. We have received confirmation from all of our
current significant systems' vendors that each of their systems will, upon
completion of a minor upgrade to our accounting system that is expected to be
completed prior to May 30, 1999, properly handle the rollover to the Year 2000.
Our systems are generally newer and have been originally designed to be Year
2000 compliant. The costs of developing the portions of our systems related to
Year 2000 issues are therefore part of our total information systems costs and
are not separately tracked.
We are continuing to perform internal evaluations of our systems with respect
to Year 2000 issues. The evaluations completed to-date have not resulted in any
significant problems and we have not encountered any conditions requiring
contingency planning. We are also considering the need for independent testing
of our systems, which will be followed by the development of contingency plans
as necessary. We expect testing to be completed by the end of the third quarter
of 1999. We expect the costs of testing will not be material to our financial
position. Although there can be no assurance, we believe the potential Year 2000
problem will not have a material effect on our financial position or results of
operations.
We are also continuing to survey third parties with whom we have material
relationships, which includes our equipment vendors and other major service
providers, to provide reasonable assurances as to their state of readiness
related to the Year 2000. Risk assessments and contingency plans, where
required, are expected to be finalized by the end of the second quarter of 1999.
To the extent vendors and service providers do not provide satisfactory evidence
that their products and services are Year 2000 compliant, we will seek to obtain
the necessary products and services from alternative sources. There can be no
assurance, however, that Year 2000 remediation by vendors and service providers
will be completed on a timely basis or that qualified replacement vendors and
service providers will be available. Any failure of third parties' systems could
have a material adverse impact on our computer systems, business, results of
operations and financial condition, however, we believe the impact of any
failure would be limited. Additionally, Year 2000 problems involving third
parties may have a negative impact on the general economy or on the ability of
businesses to receive essential services (i.e., telecommunications, utilities,
banking services, etc.). Any such occurrence could have a material adverse
effect on our business, results of operations and financial condition.
We believe the most reasonably likely worst case scenario resulting from a
Year 2000 problem would be a short-term inability to process orders, billings,
payables and payroll in a timely manner, as we would have to resort to
alternative manual procedures. However, in view of our Year 2000 readiness
efforts to date, we believe significant disruptions are unlikely, and any
disruptions would be both short-term and manageable.
14
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Rental Service Corporation
March 31, 1999
Forward-Looking Statements
We have made forward-looking statements in this report that are subject to a
number of risks and uncertainties, including without limitation, those described
in our Annual Report on Form 10-K for the year ended December 31, 1998 and other
risks and uncertainties indicated from time to time in our filings with the SEC.
These forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include the information concerning possible or assumed future results
of operations. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
Readers should understand that the following important factors, in addition to
those discussed in the referenced SEC filings, could affect our future financial
results, and could cause actual results to differ materially from those
expressed in our forward-looking statements:
. the implementation of our growth strategy;
. the integration of acquisitions;
. the availability of additional capital;
. variations in stock prices and interest rates;
. competition and fluctuations in quarterly operating results; and
. other risks and uncertainties described in our filings with the SEC.
We make no commitment to disclose any revisions to forward-looking
statements, or any facts, events or circumstances after the date hereof that may
bear upon forward-looking statements.
15
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Rental Service Corporation
March 31, 1999
Part II. Other Information
- ---------------------------
Item 1. Legal Proceedings
Certain Litigation
The Delaware Litigation. On April 5, 1999, United Rentals and its
wholly owned subsidiary, UR Acquisition, filed a complaint against RSC,
NationsRent and RSC's directors in the Court of Chancery of the State
of Delaware, alleging breaches of fiduciary duty by the directors in
respect to certain provisions of the merger agreement. The plaintiffs
are seeking an order requiring RSC to provide United Rentals and UR
Acquisition a "fair and equal opportunity" to acquire RSC and enjoining
the defendants from taking any further action with respect to the
termination fee and cross option provisions of the merger agreement.
On April 8, 1999, the Delaware Chancery Court granted the plaintiffs'
application for expedited discovery in the Delaware Litigation and
scheduled a hearing on the plaintiffs' application for a preliminary
injunction for May 17, 1999. On April 16, 1999, RSC answered the
plaintiffs' complaint in the Delaware Litigation.
On May 10, 1999, the plaintiffs amended and supplemented their
complaint in the Delaware litigation, alleging, among other things, (1)
breaches of fiduciary duties and the duty of candor owed to RSC
stockholders under Delaware law by the RSC board of directors in
connection with the merger agreement, and (2) that NationsRent aided
and abetted the RSC board of directors in the alleged breach of their
duties. The amended complaint seeks, among other things, (1) a
determination that the termination amounts and the stock option
agreements are unlawful and invalid, (2) a determination that the
adoption of and failure to redeem the rights granted to RSC's
stockholders of record as of April 30, 1999 under the Rights Agreement
dated April 16, 1999, between RSC and ChaseMellon Shareholder Services,
L.L.C., as rights agent, constitutes a breach of the fiduciary duties
of the RSC board of directors, (3) an order requiring RSC and the RSC
board of directors to provide United Rentals with a fair and equal
opportunity to acquire RSC, and (4) an order enjoining NationsRent and
its employees, agents and all persons acting on its behalf from aiding
and abetting the breach of the duties of the directors on the RSC board
of directors to RSC stockholders.
The Connecticut Litigation. On April 7, 1999, UR Acquisition and
United Rentals filed a verified complaint against NationsRent's chief
executive officer, RSC and NationsRent in the United States District
Court for the District of Connecticut alleging, among other things,
certain violations by the defendants of the federal securities laws.
The plaintiffs are seeking declaratory relief that the defendants
violated Sections 14(a), 14(d) and 14(e) of the Exchange Act and are
requesting an order requiring the defendants to make all appropriate
disclosures and correct allegedly false and misleading statements and
omissions of material fact made by NationsRent regarding the
superiority of the NationsRent merger to the United Rentals tender
offer and by RSC regarding the anticipated schedule for the RSC special
meeting. In addition, plaintiffs seek injunctive relief enjoining the
defendants and certain other persons from, among other things, (1)
soliciting from any stockholder of RSC any proxy, consent or
authorization to vote any shares of RSC common stock at any meeting to
be held in connection with the NationsRent merger, and (2) soliciting
any stockholder of RSC with respect to whether or not to tender shares
of RSC common stock in the United Rentals tender offer, in either case,
unless and until the defendants comply in full with all applicable
provisions of the federal securities laws.
On April 8, 1999, the plaintiffs in the Connecticut Litigation filed
applications for expedited discovery and a preliminary injunction with
the court.
16
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Rental Service Corporation
March 31, 1999
Item 1. Legal Proceedings (continued)
On April 16, 1999, RSC answered the complaint in the Connecticut
Litigation and filed a counterclaim against the plaintiffs seeking
declaratory and injunctive relief. Defendants' counterclaim alleged,
among other things, that United Rentals violated Sections 14(d) and
14(e) of the Exchange Act by misstating, concealing and failing to
adequately disclose certain material terms of the tender offer relating
to the certain conditions of the tender offer.
On April 22, 1999, RSC amended its counterclaims. In addition to its
counterclaims filed on April 15, 1999, RSC's amended counterclaims also
allege violations of Section 8 of the Clayton Act by United Rentals in
connection with its pending consent solicitation. Specifically, RSC
alleges, among other things, that United Rentals' attempt to replace
RSC's board of directors with nine nominees, six of whom are current
officers and/or directors of United Rentals, would, if such nominees
were elected, result in a violation of the prohibitions of the Clayton
Act with respect to interlocking directorates among competitors. RSC
seeks, among other things, additional declaratory and injunctive relief
with respect to its amended counterclaims.
General Litigation
In addition, we are party to various litigation matters, in most
cases involving ordinary and routine claims incidental to our business.
The ultimate legal and financial liability with respect to pending
litigation cannot be estimated with certainty, but we believe, based on
our examination of these matters, that the ultimate liability will not
have a material adverse effect on our business, financial condition or
results of operations.
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended March 31, 1999, we issued 148,011 shares of
common stock in connection with certain acquisitions to J. Scott Allred
(5,000 shares); Andy G. Gessner (16,014 shares); Larry R. Bush (16,014
shares); Stacy Kelly Bush (404 shares); Larry R. Bush, trustee of the
Stacy Kelly Bush Trust (3,604 shares); Thomas H. Foster (29,877
shares); Equipment Lessors, Inc. (34,145 shares); Mark Mosak (11,044
shares); and James S. Peterson (31,909 shares). None of these issuances
of securities were registered under the Securities Act of 1933.
Each issuance of securities described above was carried out in
reliance on the exemptions from registration contained in Section 4(2)
of the Securities Act of 1933 as transactions not involving any public
offering. The recipients in each case represented their intention to
acquire the securities for investment only and not with a view of
distribution. All recipients had adequate access, through employment or
other relationships, to information about us.
Item 5. Other Information
We have established an executive committee of our board of directors
consisting of directors John M. Sullivan, as chairman, and Britton H.
Murdoch. The executive committee will work with and supervise our
executive management on a daily basis, including Robert M. Wilson and
Douglas A. Waugaman during the absence of Martin R. Reid, our Chairman
and Chief Executive Officer. As publicly announced, Mr. Reid, upon the
advice of his physicians, was granted a medical leave of absence to
pursue treatment of a heart condition. Mr. Waugaman was promoted to the
position of President and Chief Operating Officer on April 13, 1999.
17
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Rental Service Corporation
March 31, 1999
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------------------------------------------------------------------------
<C> <S>
3.1 Form of Amended and Restated Bylaws of the Company. (1)
10.1 Agreement and Plan of Merger, dated as of January 20, 1999, between
NationsRent, Inc. and Rental Service Corporation. (2)
10.2 Stock Option Agreement, dated as of January 20, 1999, between NationsRent,
Inc. and Rental Service Corporation. (2)
10.3 Stock Option Agreement, dated as of January 20, 1999, between Rental Service
Corporation and NationsRent, Inc. (2)
10.4 Voting Agreement, dated as of January 20, 1999, between Kirk Holdings
Limited Partnership, H. Family Investments, Inc. and Huizenga Investments
Limited Partnership, as shareholders, and Rental Service Corporation. (2)
10.5 Stockholder Rights Plan Agreement, dated as of April 16, 1999, between
Rental Service Corporation and ChaseMellon Shareholder Services, L.L.C.
which includes the form of Certificate of Designations of the Series A
Junior Participating Preferred Stock of Rental Service Corporation as
Exhibit A, the form of Right Certificate as Exhibit B and the Summary of
Rights to Purchase Preferred Shares as Exhibit C. (3)
10.6* Supplemental Indenture, dated as of March 30, 1999, by and among Rental
Service Corporation, the Subsidiary Guarantors and Norwest Bank, Minnesota
National Association, as trustee for the 9% Senior Subordinated Notes of
Rental Service Corporation due 2008.
10.7* Letter Agreement, dated March 24, 1999, among Bankers Trust Company; Bank of
America National Trust and Savings Association; BankBoston, N.A.; Merrill
Lynch Capital Corporation; Bank One, Arizona N.A. and Credit Lyonnais Los
Angeles Branch and Rental Service Corporation and NationsRent, Inc.
27.1* Financial Data Schedule.
</TABLE>
__________
* Filed herewith.
(1) Filed as an Exhibit to the Company's Current Report on Form
8-K dated January 28, 1999, and incorporated herein by
reference.
(2) Filed as an Exhibit to the Company's Current Report on Form
8-K dated April 8, 1999, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Current Report on Form
8-K dated April 16, 1999, and incorporated herein by
reference.
(b) Reports on Form 8-K
1) RSC filed a Current Report on Form 8-K dated January 28, 1999,
which discussed various terms of the merger with NationsRent
announced on January 20, 1999. This Form 8-K also announced an
amendment to RSC's bylaws.
18
<PAGE>
Rental Service Corporation
March 31, 1999
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 thereunto duly authorized.
RENTAL SERVICE CORPORATION
Date: May 14, 1999 By: /s/ Robert M. Wilson
--------------------------------------
Robert M. Wilson
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
19
<PAGE>
EXHIBIT 10.6
FIRST SUPPLEMENTAL INDENTURE
First Supplemental Indenture (this "First Supplemental Indenture"),
dated March 30, 1999, among Rental Service Corporation USA, Inc. (the
"Guarantor"), Rental Service Corporation (the "Company"), and Norwest Bank
Minnesota, N.A., as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of May 13, 1998, providing for
the issuance of an aggregate principal amount of up to $300,000,000 of 9% Senior
Subordinated Notes due 2008 (the "Securities");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantor shall execute and deliver to the Trustee a supplemental indenture
pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee
all of the Company's obligations under the Securities and the Indenture on the
terms and conditions set forth in the Indenture (the "Guarantee"); and
WHEREAS, pursuant to Sections 5.20 and 10.1 of the Indenture, the
Trustee is authorized to execute and deliver this First Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Securities as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guarantor irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the
principal of and interest on the Securities will be promptly paid in full when
due, subject to any applicable grace period, whether at maturity, by
acceleration or otherwise and interest on the overdue principal, if any, and
interest on any interest, to the extent lawful, of the Securities and all other
obligations of the Company to the Holders or the Trustee thereunder will be
promptly paid in full or performed, all in accordance with the terms hereof and
thereof; and (ii) in case of any extension of time of payment or renewal of any
Securities or of any such other obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, subject to any applicable grace period, whether at stated maturity, by
acceleration or otherwise, subject, however, in the case of clauses (i) and (ii)
above, to the limitations set forth in Section 11.5 of the Indenture.
<PAGE>
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Articles
XI and XII of the Indenture and reference is hereby made to such Indenture for
the precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such,
past, present or future of the Guarantor shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
THE TERMS OF ARTICLES XI AND XII OF THE INDENTURE ARE INCORPORATED
HEREIN BY REFERENCE.
3. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
4. Counterparts. The parties may sign any number of copies of this
First Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
5. Effect of Headings. The Section headings herein are for reference
purposes only and shall not affect in any way the meaning or interpretation
hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the date first above written.
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
_______________________________
Name: Robert M. Wilson
Title: Senior Vice President
RENTAL SERVICE CORPORATION USA, INC.
By: /s/ Robert M. Wilson
_______________________________
Name: Robert M. Wilson
Title: President
NORWEST BANK MINNESOTA, N.A.,
as Trustee
By: /s/ Jane Y. Schweiger
________________________________
Name: Jane Y. Schweiger
___________________
Title: Authorized Signatory
<PAGE>
EXHIBIT 10.7
BANKERS TRUST COMPANY
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
BANKBOSTON, N.A.
MERRILL LYNCH CAPITAL CORPORATION
BANK ONE, ARIZONA, NA
and
CREDIT LYONNAIS LOS ANGELES BRANCH
March 24, 1999
Mr. Robert M. Wilson Ms. Pamela K.M. Beall
Executive Vice President and Vice President and Treasurer
Chief Financial Officer NationsRent, Inc.
Rental Service Corporation 450 E. Las Olas Boulevard
6929 East Greenway Parkway, Suite 200 Ft. Lauderdale, FL 33301
Scottsdale, AZ 85254
Re: $1,500,000,000 Revolving Credit and Term Loan Facility
------------------------------------------------------
Dear Mr. Wilson and Ms. Beall:
You have advised us, Bankers Trust Company ("Bankers Trust"), Bank of
America National Trust and Savings Association ("Bank of America"), BankBoston,
N.A. ("BKB"), and Merrill Lynch Capital Corporation ("Merrill Lynch" and
together with Bankers Trust, Bank of America and BKB, the "Agents"), and Bank
One, Arizona, NA ("Bank One") and Credit Lyonnais Los Angeles Branch ("Credit
Lyonnais" and together with Bank One, the "Senior Managing Agents"), that, in
connection with the merger of NationsRent, Inc. ("NRI"), into Rental Service
Corporation ("RSC" and together with NRI, the "Companies"), with the surviving
entity to be known as RSC NationsRent, Inc. (hereinafter referred to as "RSC
NationsRent"), RSC NationsRent and its subsidiaries require a senior secured
facility of $1,500,000,000, consisting of a revolving credit facility of not
less than $900,000,000 and up to $1,100,000,000 (the "Revolving Credit
Facility") and a term loan facility of not less than $400,000,000 and up to
$600,000,000 (the "Term Loan Facility" and together with the Revolving Credit
Facility, collectively referred to herein as the "Credit Facility").
With respect to such Credit Facility, you have asked that we (or, if
applicable, our banking affiliates) each provide you with a commitment in the
respective amounts set forth opposite our names on the signature pages hereof.
Subject to the satisfaction of the conditions contained in this commitment
letter (this "Commitment Letter") and your acceptance hereof, each Agent and
Senior Managing Agent individually and not jointly, commits to lend the
respective amount of the Credit Facility (each such amount to be allocated on a
pro rata basis between the Revolving Credit Facility and the Term loan Facility)
set forth opposite such Agent's and Senior Managing Agent's name on the
signature pages hereof upon the terms and subject to the conditions set forth or
referred to herein and in the Summary Terms and Conditions attached hereto as
Exhibit A and incorporated herein by reference (the "Term Sheet").
<PAGE>
March 24, 1999
Page 2
Although the Term Sheet sets forth the principal terms of the proposed
Credit Facility, we reserve the right to propose terms in addition to these
terms that will not materially change or alter the terms of this Commitment
Letter and the Term Sheet. Moreover, the Term Sheet does not purport to include
all of the representations, warranties, covenants, defaults, definitions and
other terms that will be contained in the definitive documents for the
transaction or all of the conditions precedent which will need to be satisfied
prior to the closing of the transaction. Those matters which are not covered by
or made clear in the Term Sheet are subject to the mutual agreement of the
parties.
You hereby represent and warrant that (a) all information concerning each
of you and each of your subsidiaries (the "Information") that has been or will
be made available by you or on your behalf to us in connection with the
transactions contemplated hereby, is and will be, taken as a whole, complete and
correct in all material respects as of the date thereof, or the date of delivery
thereof, as the case may be, and that the Information consisting of financial
Information fairly presents in all material respects the financial condition, as
of the date(s) thereof, and results of operations, for the periods covered
thereby, of the entities covered thereby (except for footnotes and normal year-
end adjustments), and (b) all financial projections concerning each of you
and each of your subsidiaries (the "Projections") that have been or will be
prepared by you or on your behalf and made available to us have been or will be
prepared in good faith based upon assumptions deemed reasonable by you at the
time of preparation. You agree to revise the Information and Projections from
time to time in order that the foregoing representation and warranty remains
true through the completion or termination, as the case may be, of the
syndication process referred to below and the closing of the Credit Facility. In
arranging and syndicating the Credit Facility, we (and/or our securities
affiliates) and the other potential lenders in the Credit Facility (the
"Lenders") will be using and relying on the Information and the Projections
without independent verification thereof and will be sharing the Information and
the Projections with our affiliates.
Our (or our banking affiliates') obligations to fund our respective
commitments with respect to the Credit Facility are subject to (i) the
completion to our satisfaction of our due diligence activities and the
preparation, execution and delivery of comprehensive mutually acceptable loan
documentation incorporating the terms and conditions set forth in the Term Sheet
and such other covenants, representations, warranties, events of default and
conditions precedent customary for credit arrangements of this type similar to
those found in NRI's existing senior credit facility, (ii) there being no
material misstatements in or omissions from the materials which have previously
been furnished by you to us for our review, (iii) the absence of any material
adverse change in the business, condition, operations, performance, or
properties or prospects of you and your subsidiaries taken as a whole, (iv)
there being no material adverse changes which shall have occurred since the date
hereof in the syndication market for credit facilities of this type and no
disruptions or material adverse change in the financial or capital markets which
shall have occurred that would have a material adverse effect on such
syndication market, in each case as reasonably determined by the Arrangers (as
defined below), and there being no material adverse changes in governmental
regulations or policies affecting RSC NationsRent and its subsidiaries, the
Agents, the Senior Managing Agents, the Arrangers or the other Lenders involved
in this transaction which shall have occurred prior to the closing of this
Credit Facility, and (v) until the earlier of (x) completion of the syndication
of the Credit Facility (i.e., the syndication has resulted in the Agents and the
Senior Managing Agents achieving their desired hold levels, (y) December 31,
1999 or (z) receipt of consent of the Agents and the Senior Managing Agents,
there being no competing offering, placement or arrangement of any debt facility
(other than the Credit Facility) or debt security
<PAGE>
MARCH 24, 1999
Page 3
(including renewals thereof) by or on behalf of RSC NationsRent, NRI, RSC or any
of their subsidiaries. Each of the Agents and Senior Managing Agents (and/or
their securities affiliates) may terminate its respective commitment to arrange
or provide a portion of the Credit Facility if any material adverse change of
the kinds described in the foregoing sentence shall occur prior to the closing
of the transaction.
We will act as Agents for the Credit Facility, and, in our capacity as
Agents and Senior Managing Agents, we or our respective banking and securities
company affiliates, will perform all functions and exercise all authority
customarily performed and exercised in such role, including selection of counsel
and preparation, negotiation, execution and delivery of definitive documentation
for the Credit Facility. Bankers Trust and Bank of America will act as co-
syndication agents, EKB will act as administrative agent (the "Administrative
Agent"), Merrill Lynch will act as documentation agent and Bank One and Credit
Lyonnais will act as senior managing agents. BT Alex. Brown Incorporated,
NationsBanc Montgomery Securities LLC, BancBoston Robertson Stephens Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated will act as arrangers (the
"Arrangers").
The Arrangers will syndicate the Credit Facility and will manage all
aspects of the syndication, including the selection of Lenders acceptable to us
with the Companies' consent (such consent not to be unreasonably withheld),
communications with and invitations to prospective syndicate Lenders,
preparation of syndication materials, acceptance of commitments and final
allocation of commitments among Lenders. You agree to actively assist and
reasonably cooperate with us (and our securities affiliates) in this syndication
process, including assistance in preparation and review of appropriate
information memoranda and other materials for use in connection with syndication
of the Credit Facility and with presentation of information and attending one
or more meetings with prospective Lenders (other than the Agents and the Senior
Managing Agents).
You hereby agree that the Agents, the Senior Managing Agents and the
Arrangers shall have the right, after consultation with the Companies, to change
the pricing, structure, terms or amount of any portion of the Credit Facility if
they shall determine that such changes are advisable in order to ensure a
successful completion of the syndication or an optimal credit structure for the
Credit Facility, provided that the pricing on each of the Revolving Credit
-------- ----
Facility and the Term Loan Facility shall not be increased by more than one-
quarter of one percent (0.25%), respectively, and the aggregate amount of the
Credit Facility shall not be reduced below $1,500,000,000. In addition, you
hereby agree that the Administrative Agent, at the request of the Arrangers, may
reallocate the dollar amount of the Revolving Credit Facility and the Term Loan
Facility as set forth in the Term Sheet, provided that the aggregate amount of
the Revolving Credit Facility shall not be less than $900,000,000 and the
aggregate amount of the Term Loan Facility shall not be greater than
$600,000,000 and in any event the total Credit Facility shall be
$1,500,000,000. The provisions of this paragraph shall survive closing until the
earlier of completion of the syndication of the Credit Facility or December 31,
1999.
By executing this Commitment Letter, you agree (i) to indemnify and hold
harmless the Agents, the Senior Managing Agents, the Arrangers, the Lenders and
their respective affiliates, officers, directors, employees, agents and advisors
(each an "Indemnified Party") from and against and all damages, losses or
claims, and all reasonable costs and expenses (including without limitation
reasonable fees and expenses of counsel) that may be incurred, sustained or
required to be paid by any Indemnified Party by reason of or resulting from the
financing
<PAGE>
March 24, 1999
Page 4
arrangements contemplated hereby or any use of the proceeds thereunder; provided
that you shall not be liable to an Indemnified Party under this indemnification
provision for any matter resulting from the willful misconduct or gross
negligence of such Indemnified Party, (ii) to reimburse the Administrative Agent
for its reasonable out of pocket costs in connection with the preparation,
review, negotiation, execution and delivery of the definitive loan documentation
and the review of all relevant due diligence material, and (iii) to reimburse
the Arrangers for syndication, advisory and legal fees and expenses. Your
obligations under this paragraph shall survive any termination of this
Commitment Letter and shall be effective regardless of whether any definitive
loan documentation is executed or any loan is made under the Credit Facility;
provided that you shall not be liable to an Indemnified Party under this
indemnification provision for any matter resulting from the willful misconduct
or gross negligence of such Indemnified Party.
You agree that this Commitment Letter is for the benefit of RSC
NationsRent, NRI, RSC and their subsidiaries and neither RSC NationsRent, NRI
nor RSC shall assign any of its rights or obligations hereunder.
You agree that this Commitment Letter is for your confidential use only and
will not be disclosed by you or any of your subsidiaries to any person other
than your accountants, attorneys and other advisors, and then only in
connection with the transactions contemplated hereby and on a confidential
basis, except that following your acceptance hereof, you may make public
disclosure of the existence and amount of each Agent's and Senior Managing
Agent's (or such Agent's or Senior Managing Agent's banking affiliate)
respective commitment hereunder and such other public disclosures of the terms
and conditions hereof as you are required by law, in the reasonable opinion of
your counsel, to make.
To accept the offer extended hereby, please execute ten (10) counterparts
of this Commitment Letter and return them to Timothy M. Laurion, Director, at
BKB, and pay those fees due pursuant to the Fee Letter, dated as of the date
hereof (the "Fee Letter"), upon the execution of this Commitment Letter to BKB
for the account of the Agents and the Senior Managing Agents not later than
5:00 p.m., Boston time, on March ___, 1999. Unless definitive loan documentation
has been executed by all appropriate parties on or prior to June 30, 1999, the
commitments of the Agents and the Senior Managing Agents set forth in this
Commitment Letter will terminate as of the close of business on such date.
[The remainder of this page has been intentionally left blank.]
<PAGE>
March 24, 1999
Page 5
This Commitment Letter may be executed in any number of counterparts which
shall together constitute but one and the same agreement. This Commitment
Letter shall be governed by and construed in accordance with the laws of the
State of New York. This Commitment Letter supersedes all of our prior letters
and communications to you with respect to the Credit Facility and, together with
the Term Sheet, the Fee Letter and the letter, dated as of the date hereof,
among RSC, NRI, and BKB, regarding the Administrative Agent's fees (the
Administrative Agent's Fee Letter"), are the only agreements among us with
respect to the Credit Facility. To the extent that this Commitment Letter
and the Term Sheet are inconsistent, the Term Sheet shall be the controlling
document.
Very truly yours,
AMOUNT OF COMMITMENT: BANKERS TRUST COMPANY
$312,500,000
By: /s/ George Boronkay
-------------------------------------
Name: George Boronkay
Title: Managing Director
AMOUNT OF COMMITMENT: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
$312,500,000
By: /s/ Michael F. Murphy
-------------------------------------
Name: Michael F. Murphy
Title: V.P.
AMOUNT OF COMMITMENT: BANKBOSTON, N.A.
$312,500,000
By: /s/ Timothy M. Laurion
-------------------------------------
Name: Timothy M. Laurion
Title: Director
AMOUNT OF COMMITMENT: MERRILL LYNCH CAPITAL
CORPORATION
$312,500,000
By: /s/ Brian E. O'Callahan
-------------------------------------
Name: Brian E. O'Callahan
Title: Vice President
<PAGE>
March 24, 1999
Page 6
AMOUNT OF COMMITMENT: BANK ONE, ARIZONA, NA
$125,000,000
By: /s/ Steve Reinhart
-------------------------------------------
Name: Steve Reinhart
Title: Vice President
AMOUNT OF COMMITMENT: CREDIT LYONNAIS LOS ANGELES
BRANCH
$125,000,000
By: /s/ Dianne M. Scott
-------------------------------------------
Name: Dianne M. Scott
Title: First Vice President
Accepted and agreed to on and as of March 24, 1999:
RENTAL SERVICE CORPORATION NATIONSRENT, INC,
By: /s/ Robert M. Wilson By: /s/ Pamela K.M. Beall
----------------------------- -----------------------------------
Name: Robert M. Wilson Name: Pamela K.M. Beall
Title: Executive Vice President and Title: V.P. and Treasurer
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF RENTAL SERVICE CORPORATION AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,208
<SECURITIES> 0
<RECEIVABLES> 127,607
<ALLOWANCES> 5,341
<INVENTORY> 47,869
<CURRENT-ASSETS> 0
<PP&E> 904,723
<DEPRECIATION> 171,726
<TOTAL-ASSETS> 1,370,412
<CURRENT-LIABILITIES> 0
<BONDS> 785,497
0
0
<COMMON> 243
<OTHER-SE> 425,664
<TOTAL-LIABILITY-AND-EQUITY> 1,370,412
<SALES> 59,045
<TOTAL-REVENUES> 174,752
<CGS> 42,322
<TOTAL-COSTS> 128,109
<OTHER-EXPENSES> 16,088
<LOSS-PROVISION> 439
<INTEREST-EXPENSE> 16,500
<INCOME-PRETAX> 13,616
<INCOME-TAX> 5,852
<INCOME-CONTINUING> 7,764
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,764
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
