<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
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: 1-12623
----------------
U.S. RENTALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3061974
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1501 CUMMINS DRIVE, STE. 155, MODESTO, CALIFORNIA 95358
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(209) 544-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE )
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 month (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes [X] No [_]
There were 30,774,975 shares of common stock, $.01 par value, outstanding at
August 1, 1998.
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<PAGE>
EXPLANATORY NOTE
This amendment no. 1 to the Company's report on Form 10-Q for its quarter
ended June 30, 1998, is being filed to add information with regards to Year
2000 issues under Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<PAGE>
TABLE OF CONTENTS
PART I: Financial Information
<TABLE>
<C> <S> <C>
ITEM 1. Financial Statements
Balance Sheets--June 30, 1998 and December 31, 1997........... 3
Statements of Operations--Three and six months ended June 30,
1998 and 1997................................................. 4
Statements of Cash Flows--Three and six months ended June 30,
1998 and 1997................................................. 5
Statement of Changes in Stockholders' Equity--Three and six
months ended June 30, 1998................................... 6
Notes to Financial Statements--June 30, 1998.................. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 9
PART II: Other Information
ITEM 1. Legal Proceedings............................................. 13
ITEM 2. Changes in Securities......................................... 13
ITEM 3. Defaults Upon Senior Securities............................... 13
ITEM 4. Submission of Matters to a Vote of Security Holders........... 13
ITEM 5. Other Information............................................. 13
ITEM 6. Exhibits and Reports on Form 8-K.............................. 13
Signatures................................................................ 14
</TABLE>
2
<PAGE>
U.S. RENTALS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents............................. $ 22,510 $ 3,104
Accounts receivable, net.............................. 74,124 60,906
Inventories........................................... 19,040 17,379
Rental equipment, net................................. 521,696 390,598
Property and equipment, net........................... 93,130 78,014
Goodwill, net......................................... 26,398 23,114
Prepaid expenses and other assets..................... 12,167 12,696
-------- --------
Total assets...................................... $769,065 $585,811
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable and other liabilities................ $ 78,264 $ 75,048
Note payable to related party......................... 21,500 17,000
Notes payable, other.................................. 357,100 203,300
Deferred taxes........................................ 29,732 25,077
-------- --------
Total liabilities................................. 486,596 320,425
-------- --------
Stockholders' equity:
Common stock, $.01 par value--authorized 100,000,000
shares; issued and outstanding 30,774,975 shares as
of June 30, 1998 and 30,748,975 as of December 31,
1997............................................... 308 307
Paid-in capital..................................... 244,830 244,211
Retained earnings................................... 37,331 20,868
-------- --------
Total stockholders' equity........................ 282,469 265,386
-------- --------
Total liabilities and stockholders' equity........ $769,065 $585,811
======== ========
</TABLE>
3
<PAGE>
U.S. RENTALS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental revenue............... $ 114,806 $ 77,109 $ 207,447 $ 142,439
Rental equipment sales....... 18,489 9,274 31,555 16,475
Merchandise and new equipment
sales....................... 17,547 10,051 32,358 18,501
---------- ---------- ---------- ----------
Total revenues............. 150,842 96,434 271,360 177,415
---------- ---------- ---------- ----------
Cost of revenues:
Rental equipment expense..... 24,016 18,678 46,016 36,176
Rental equipment
depreciation................ 24,534 15,708 45,979 30,021
Cost of rental equipment
sales....................... 9,610 4,631 15,898 8,016
Cost of merchandise and new
equipment sales............. 12,080 7,442 22,931 13,936
Direct operating expense..... 31,517 22,698 64,894 43,881
---------- ---------- ---------- ----------
Total cost of revenues..... 101,757 69,157 195,718 132,030
---------- ---------- ---------- ----------
Gross profit............... 49,085 27,277 75,642 45,385
Selling, general and
administrative expense........ 20,124 10,427 31,550 17,977
Non-rental depreciation........ 3,766 2,724 7,491 4,654
Amortization of goodwill....... 109 41 184 44
Termination cost of deferred
compensation agreements....... -- -- -- 20,290
---------- ---------- ---------- ----------
Operating income........... 25,086 14,085 36,417 2,420
Other expense, net............. -- -- -- (473)
Related party interest expense,
net........................... (310) (223) (594) (171)
Interest expense, net.......... (4,891) (504) (8,293) (2,057)
---------- ---------- ---------- ----------
Income (loss) before income
taxes and extraordinary
item...................... 19,885 13,358 27,530 (281)
Income tax expense............. 7,994 5,343 11,067 14,455
---------- ---------- ---------- ----------
Income (loss) before
extraordinary item........ 11,891 8,015 16,463 (14,736)
Extraordinary item, net of tax
benefit of $995............... -- -- -- 1,511
---------- ---------- ---------- ----------
Net income (loss).......... $ 11,891 $ 8,015 $ 16,463 $ (16,247)
========== ========== ========== ==========
Basic net income (loss) before
extraordinary item per share.. $ 0.39 $ 0.26 $ 0.54 $ (0.53)
---------- ---------- ---------- ----------
Diluted net income (loss)
before extraordinary item per
share......................... $ 0.37 $ 0.26 $ 0.52 $ (0.52)
---------- ---------- ---------- ----------
Basic and diluted extraordinary
item per share................ $ -- $ -- $ -- $ (0.05)
---------- ---------- ---------- ----------
Basic net income (loss) per
share......................... $ 0.39 $ 0.26 $ 0.54 $ (0.58)
---------- ---------- ---------- ----------
Diluted net income (loss) per
share......................... $ 0.37 $ 0.26 $ 0.52 $ (0.57)
---------- ---------- ---------- ----------
Basic weighted average shares
outstanding................... 30,768,502 30,748,975 30,760,301 27,946,777
========== ========== ========== ==========
Diluted weighted average shares
outstanding................... 32,245,254 30,975,435 31,920,944 28,537,859
========== ========== ========== ==========
</TABLE>
4
<PAGE>
U.S. RENTALS, INC.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1998 1997 1998 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss)................. $ 11,891 $ 8,015 $ 16,463 $ (16,247)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization... 28,409 18,082 53,654 34,547
Gain on sale of equipment....... (9,249) (5,104) (16,281) (9,006)
Principal adjustment on notes
receivable..................... -- -- -- (146)
Provision for doubtful accounts. 3,015 1,764 5,142 3,236
Deferred taxes.................. 4,963 1,742 4,655 9,380
Interest income not collected... -- -- -- (294)
Interest expense not paid....... -- -- -- 495
Loss on early extinguishment of
debt........................... -- -- -- 2,506
Changes in operating assets and
liabilities accounts receivable.. (15,561) (9,117) (17,970) (14,812)
Inventories..................... (1,782) (1,546) (1,197) (1,399)
Prepaid expenses and other
assets......................... 3,027 1,068 3,102 552
Accounts payable and other
liabilities.................... 1,446 9,286 1,142 9,127
--------- -------- --------- ---------
Net cash provided by operating
activities......................... 26,159 24,190 48,710 17,939
--------- -------- --------- ---------
Investing activities:
Acquisition of rental operations.. (1,274) (20,919) (9,344) (22,676)
Purchases of rental equipment..... (114,387) (64,258) (189,813) (92,511)
Proceeds from sale of rental
equipment........................ 18,489 9,274 31,555 16,475
Purchases of property and
equipment, net................... (11,590) (11,127) (20,622) (17,173)
Funding of notes receivable, net.. -- 32 -- 253
--------- -------- --------- ---------
Net cash used in investing activi-
ties............................. (108,762) (86,998) (188,224) (115,632)
--------- -------- --------- ---------
Financing activities:
Proceeds from (payments on) line
of credit, net................... (154,000) 45,000 (98,000) (13,267)
Proceeds from (payments) on senior
notes............................ 252,000 -- 252,000 (92,506)
Payments on other obligations..... (100) (100) (200) (200)
Proceeds from related party note.. 500 18,000 4,500 18,000
Proceeds from issuance of common
stock, net of issuance costs..... 369 -- 620 185,950
Cash retained by the predecessor
in connection with
Recapitalization................. -- -- -- (998)
Dividends paid.................... -- -- -- (1,905)
--------- -------- --------- ---------
Net cash provided by financing
activities......................... 98,769 62,900 158,920 95,074
--------- -------- --------- ---------
Net increase (decrease) in cash..... 16,166 92 19,406 (2,619)
Cash at beginning of period......... 6,344 195 3,104 2,906
--------- -------- --------- ---------
Cash at end of period............... $ 22,510 $ 287 $ 22,510 $ 287
========= ======== ========= =========
Supplemental non-cash flow
information:
Distribution of net assets to
stockholder in connection with
the IPO.......................... $ 3,221
=========
</TABLE>
5
<PAGE>
U.S. RENTALS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS EQUITY
---------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1997...................... 30,748,975 $307 $244,211 $20,868 $265,386
Net income................. -- -- -- 16,463 16,463
Stock options exercised.... 26,000 1 520 -- 521
Income tax benefit from
stock options exercised... -- -- 99 -- 99
---------- ---- -------- ------- --------
Balance at June 30, 1998... 30,774,975 $308 $244,830 $37,331 $282,469
========== ==== ======== ======= ========
</TABLE>
6
<PAGE>
U.S. RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
(TABLES IN THOUSANDS)
(UNAUDITED)
1. INTRODUCTION
The Registrant's initial public offering ("IPO") was declared effective on
February 20, 1997. Prior to the IPO, the equipment rental business was
operated by Ayr, Inc., a California corporation (the "Predecessor") that was
treated as an S corporation under the Internal Revenue Code. The Registrant
did not have any operations prior to its IPO. Prior to the closing of the IPO,
the Predecessor transferred substantially all of its operating assets and
associated liabilities to the Registrant in exchange for 20,748,975 shares of
Common Stock of the Registrant, representing all of the Registrant's
outstanding capital stock prior to the IPO. The Predecessor retained only non-
operating assets and liabilities, including approximately $25.7 million of
notes receivable from related parties and approximately $24.4 million of notes
payable to related parties. These transactions are referred to as the
"Recapitalization" in this report.
Unless otherwise indicated, the "Company" means the Predecessor prior to the
IPO and the Registrant on or after the IPO.
2. BASIS OF PRESENTATION
The accompanying unaudited financial statements 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 interim periods
are not necessarily indicative of the results that may be expected for a full
year.
3. BANK DEBT AND LONG-TERM OBLIGATIONS
Bank debt and long-term obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Notes payable:
Senior notes payable to various parties, interest
payable semi-annually ranging from 6.71% to 6.93%, due
2006 to 2010.......................................... $252,000 $ --
Revolving line of credit, interest payable monthly at
money market rates (6.08% to 6.14% at June 30, 1998
and 6.03% to 6.34% at December 31, 1997).............. 105,000 203,000
Notes payable related to the purchase of certain
businesses, imputed interest averaging 7%, due through
1999.................................................. 100 300
-------- --------
357,100 203,300
Note payable to related party:
Demand note payable to majority stockholder of
Predecessor interest at a variable rate, payable
monthly, 5.9% at June 30, 1998 and December 31, 1997.. 21,500 17,000
-------- --------
$378,600 $220,300
======== ========
</TABLE>
On February 26, 1997, the Company repaid the bank notes, the old revolving
line of credit and senior notes utilizing proceeds from its IPO. The early
extinguishment of debt generated an extraordinary loss of $1.5 million (net of
income tax benefit of $995,000).
7
<PAGE>
U.S. RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On February 26, 1997, the Company entered into a $300.0 million unsecured
line of credit with a bank maturing no later than February 25, 2002. The
Company believes it is in compliance with all covenants in the credit
agreement.
On April 28, 1998, the Company completed a $252.0 million private placement
of senior unsecured notes. The Company believes it is in compliance with all
covenants in the senior note agreement.
4. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------
1998 1997
------- -------
<S> <C> <C>
One-time charge for cumulative deferred taxes as of the date of
the IPO as if the Company had always been subject to taxes as
a C corporation............................................... $ -- $ 7,520
Income tax provision for the period subsequent to the IPO...... 11,067 6,935
------- -------
$11,067 $14,455
======= =======
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1998 VS. SECOND QUARTER 1997
Results Of Operations
Revenues. Total revenues for the three months ended June 30, 1998 increased
56.4% to $150.8 million from $96.4 million for the same period in 1997. Rental
revenue increased 48.9% to $114.8 million or 76.1% of total revenues for the
three months ended June 30, 1998, as compared to $77.1 million or 80.0% of
total revenues for the same period in 1997. Of the $37.7 million increase in
rental revenue, $24.7 million was due primarily to 46 new locations that were
added subsequent to March 31, 1997. The remaining increase of approximately
$13.0 million was due to increased equipment rental fleet at existing
locations and rental volume. Rental revenue as a percentage of total revenue
decreased due to the Company's efforts to take advantage of opportunities in
the used equipment sales and merchandise and new equipment sales markets. Used
rental equipment sales increased 99.4% to $18.5 million or 12.3% of total
revenues for the three months ended June 30, 1998 from $9.3 million or 9.6% of
total revenues for the same period in 1997 due to increased customer demand,
increased sales efforts across the nation, alternative financing sources for
customers and additional locations. Merchandise and new equipment sales
increased 74.6% for the three months ended June 30, 1998 to $17.5 million or
11.6% of total revenues as compared to $10.1 million or 10.4% of total
revenues for the same period in 1997. This increase was primarily due to the
increase in the related rental revenue, expansion of product lines within
resale showrooms, as well as a 57% increase in the number of operating
locations since March 31, 1997.
Gross Profit. Gross profit for the three months ended June 30, 1998
increased 80.0% to $49.1 million from $27.3 million for the same period in
1997 primarily due to increased rental revenue and certain economies achieved
through the Company's continued investment in new equipment. Gross profit from
rentals increased 55.1% to $66.3 million for the three months ended June 30,
1998 from $42.7 million for the same period in 1997 as a result of higher
rental volume. Rental gross profit as a percent of rental revenue increased to
57.7% for the three months ended June 30, 1998 from 55.4% for the same period
in 1997. This increase was due primarily to a 48.9% increase in rental revenue
partially offset by an increase in rental equipment expense of 28.6% due to
the impact of increased rental volume. Gross profit from sales of used rental
equipment increased 91.2% to $8.9 million from $4.6 million for the same
period in 1997 due to increased demand for used equipment, but continued to
decrease as a percent of such sales due to the mix of sales toward later model
equipment. Gross profit from sales of merchandise and new equipment increased
109.5% for the three months ended June 30, 1998 as compared to the same period
in 1997 due to the impact of increased rental volume on the sale of
merchandise, a concerted effort to expand product lines and an increase in new
equipment sales and customer volume. Gross profit on the sale of merchandise
and new equipment also increased as a percentage of total revenue. Direct
operating expenses for the three months ended June 30, 1998 increased 38.9% to
$31.5 million as compared to $22.7 million for the same period in 1997.
However, as a percentage of total revenue, direct operating expenses for the
three month period decreased to 20.9% compared to 23.5% for the same period in
1997. The decrease reflects certain economies achieved as a result of higher
rental volume and increased utilization.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended June 30, 1998 increased
93.0% to $20.1 million compared to $10.4 million for the same period in 1997.
The increase was primarily due to higher profit sharing expense, and to a
lessor extent, higher bad debt and credit and collection expenses for the
three months ended June 30, 1998 as compared to the same period in 1997. These
expenses are directly related to the increase in profitability and revenue
volume.
Interest Expense, net. Interest expense increased 870.4% to $4.9 million for
the three months ended June 30, 1998 from $.5 million for the same period in
1997. The increase was primarily due to a $252.0 million private placement of
senior unsecured notes in April 1998 and higher average debt outstanding under
the credit facility during the three months ended June 30, 1998 as compared to
same period of 1997. The increase in average debt outstanding was the result
of the Company's significant capital expenditures.
9
<PAGE>
Income Taxes. For the three months ended June 30, 1998 the Company's income
was taxed at an effective rate of 40.2% compared to 40.0% for the same period
in 1997.
SIX MONTHS 1998 VS. SIX MONTHS 1997
Results Of Operations
Revenues. Total revenues for the first six months of 1998 increased 53.0% to
$271.4 million from $177.4 million for the same period in 1997. Rental revenue
increased 45.6% to $207.4 million or 76.4% of total revenues for the first six
months of 1998, as compared to $142.4 million or 80.3% of total revenues for
the same period in 1997. Of the $65.0 million increase in rental revenue,
$47.6 million was due primarily to 39 new locations that were added subsequent
to June 30, 1997. The remaining increase of approximately $17.4 million was
due to increased equipment rental fleet at existing locations and rental
volume. Rental revenue as a percentage of total revenue decreased due to the
Company's efforts to take advantage of opportunities in the used equipment
sales and merchandise and new equipment sales markets. In addition to the
above, severe weather conditions along the West Coast related to El Nino,
slowed construction activity resulting in lower than expected rental volume
during the first quarter of 1998. Used rental equipment sales increased 91.5%
to $31.6 million or 11.6% of total revenues for the first six months of 1998
from $16.5 million or 9.3% of total revenues for the same period in 1997. This
increase was due to continued customer demand, increased sales efforts across
the nation and alternative financing sources for customers. Merchandise and
new equipment sales increased 74.9% for the first six months of 1998 to $32.4
million or 11.9% of total revenues as compared to $18.5 million or 10.4% of
total revenues for the same period in 1997. This increase was primarily due to
the increase in the related rental revenue, expansion of product lines within
resale showrooms, as well as a 44% increase in the number of operating
locations since June 30, 1997.
Gross Profit. Gross profit for the first six months of 1998 increased 66.7%
to $75.6 million from $45.4 million for the same period in 1997 primarily due
to increased rental revenue and certain economies achieved through the
Company's continued investment in new equipment. Gross profit from rentals
increased 51.4% to $115.5 million for the first six months of 1998 from $76.2
million for the same period in 1997 as a result of higher rental volume.
Rental gross profit as a percent of rental revenue increased to 55.7% for the
first six months of 1998 from 53.5% for the same period in 1997. This increase
was due primarily to a 45.6% increase in rental revenue partially offset by an
increase in rental equipment expense of 27.2% due to the impact of increased
rental volume. Gross profit from sales of used rental equipment increased
85.1% to $15.7 million from $8.5 million for the same period in 1997 due to
increased demand for used equipment, but continued to decrease as a percent of
such sales due to the mix of sales toward later model equipment. Gross profit
from sales of merchandise and new equipment increased 106.5% for the first six
months of 1998 as compared to the same period in 1997 due to the impact of
increased rental volume on the sale of merchandise, a concerted effort to
expand product lines and an increase in new equipment sales and customer
volume. Gross profit on the sale of merchandise and new equipment also
increased as a percentage of total revenue. Total gross profit was negatively
impacted by an increase in direct operating expenses for the first six months
of 1998 of 47.9% to $64.9 million as compared to $43.9 million for the same
period in 1997. The increase reflects staffing and facilities costs resulting
from an increased number of rental yards and higher maintenance costs
necessary to support the increased size of the rental fleet and an increase in
rental volume. As a percentage of total revenue, direct operating expenses
decreased slightly to 23.9% in the first six months of 1998 from 24.7% for the
same period in 1997. The decrease was primarily due to the maturation of new
locations and the related rise in revenues.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the first six months of 1998 increased 75.5% to
$31.6 million compared to $18.0 million for the same period in 1997. The
increase was primarily due to higher profit sharing expense, bad debt and
credit and collection expenses for the first six months of 1998 as compared to
the same period in 1997. These expenses are directly related to the increase
in profitability and revenue volume.
10
<PAGE>
Termination Cost of Deferred Compensation Agreements. Other operating
expense for the first six months of 1997 consists of a one-time compensation
expense related to the termination of the Predecessor's deferred incentive
compensation agreements just prior to the IPO in February 1997.
Interest Expense, net. Interest expense increased 303.2% to $8.3 million for
the first six months of 1998 from $2.1 million for the same period in 1997.
The increase was primarily due to a $252.0 million private placement of senior
unsecured notes in April 1998 and higher average debt outstanding under the
credit facility during the first six months of 1998 as compared to the same
period of 1997. The increase in average debt outstanding was the result of the
Company's significant investment in capital expenditures.
Income Taxes. Prior to its IPO, the Company was taxed as an S corporation
for federal and state purposes. Upon the IPO, the Company recorded a $7.5
million one-time charge for cumulative deferred tax liabilities. For the first
six months of 1998 the Company's income was taxed at an effective rate of
40.2% compared to 40.0% for the period from February 26, 1997 to June 30,
1997.
LIQUIDITY AND CAPITAL RESOURCES
In conjunction with the IPO, the Company entered into a new credit facility
that provides availability of up to $300.0 million with its existing lenders
(the "Credit Facility") of which $195.0 million was available at June 30,
1998.
The Company has primarily used cash to purchase rental equipment as well as
acquire and start up new rental yards. The Company historically has financed
its cash requirements primarily through net cash provided by operating
activities and borrowings under its Credit Facility. In addition to the
Company's Credit Facility, the Company completed a $252.0 million private
placement of senior unsecured notes on April 28, 1998. The Company believes
that cash flow from operations and availability under its Credit Facility will
be sufficient to support its operations, expansion and liquidity requirements
for at least the next 12 months.
For the first six months of 1998, the Company's operating activities before
changes in operating assets and liabilities provided net cash flow of $63.6
million as compared to $24.5 million for the same period in 1997. The $39.1
million increase was primarily due to increased operating income (exclusive of
depreciation and amortization expenses, gains on sale of rental equipment and
the deferred compensation agreement termination costs) of $25.4 million. The
$25.4 million increase in operating income was due to higher revenues
associated with increased investment in rental equipment, increases in the
number of locations, and enhanced focus on merchandise and new equipment
sales.
Net cash used in investing activities was $188.2 million for the first six
months of 1998 as compared to $115.6 million for the same period in 1997. This
increase was primarily due to the continued investment in rental equipment,
purchase of non-rental property and equipment, partially offset by increased
sales of used rental equipment. The increase in rental fleet relates to newly
opened or acquired yards and the continued expansion of rental fleet at
existing locations. Rental equipment purchases for the first six months of
1998 were $189.8 million as compared to $92.5 million for the same period in
1997.
Net cash provided by financing activities was $158.9 million for the first
six months of June 1998 as compared to $95.1 million for the same period in
1997. The principal cause for the variation between periods was the receipt of
the net proceeds from the $252.0 million private placement of Senior unsecured
notes which were then used in part to pay borrowings under the Credit
Facility.
U.S. Rentals believes that its management information systems are year 2000
compliant. At minimal cost over the past two years the Company has upgraded
its proprietary systems and the Company's software vendors have advised the
Company that the systems provided by them are year 2000 compliant. U.S.
Rentals does not believe that year 2000 will have a material adverse effect on
its business relationships with its suppliers or customers, or have a material
adverse effect on its business, results of operations or financial condition.
11
<PAGE>
CERTAIN RISK FACTORS THAT MAY IMPACT FUTURE OPERATING RESULTS
Statements in this report may contain forward-looking statements that
represent the Company's expectations or beliefs concerning the continued
sufficiency of the Company's cash to meet expected capital expenditures and
interest expense and the likelihood of completing the previously announced
agreement to merge with United Rentals, Inc.
The Company cautions that these statements are qualified by important
factors that could cause actual results to differ from those in the forward-
looking statements: the Company's ability to acquire or start more rental
yards and the timing, pricing and related costs of the acquisitions and
openings, the effective integration of the acquired businesses and new yards,
variations in seasonal rental patterns principally due to the effect of
weather on construction activity, increased competition due to larger
companies expanding into previously less competitive markets, the cyclical
nature of the equipment rental industry, the timing and financing of capital
expenditures for fleet expansions, and general economic conditions in the
Company's markets including the possible impact of interest rate fluctuations.
In addition, the market price of the Company's common stock could be subject
to significant variation due to fluctuations in the Company's operating
results, changes in earnings estimates by securities analysts and other
factors, including the announcement of an agreement by the Company to merge
with United Rentals, Inc. Although the Company expects the merger will be
completed in the third quarter of 1998, there can be no assurance the merger
will be completed in the third quarter or at all.
Fluctuations in Quarterly Operating Results. The Company has experienced
fluctuations in operating results in interim periods in certain geographic
regions due to seasonality. Weather conditions, such as El Nino, sometimes
affect quarterly revenues. As a result, the Company may not learn of revenue
shortfalls until late in the quarter. The Company's operating expenses are
based in part on its expectations for future revenues and are relatively fixed
in the short term. Any revenue shortfall below expectations could have an
immediate and significant adverse effect on results of operations.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 7, 1998, at which all six
Directors were re-elected to the Board, one new Director was elected to the
Board, and the appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year 1998 was ratified. No other
matters were presented at the meeting. The number of shares of the Company's
Common Stock present at the meeting, by proxy or in person, collectively
represented 94.7% of the voting interest of all shares of stock outstanding
and eligible to vote at the Annual Meeting.
The holders of the Common Stock elected all Directors as follows:
<TABLE>
<CAPTION>
VOTES
NOMINEES VOTES FOR WITHHELD
-------- ---------- ---------
<S> <C> <C>
Richard D. Colburn.................................... 27,792,973 2,967,002
William F. Berry...................................... 28,459,405 2,300,570
John S. McKinney...................................... 28,459,405 2,300,570
James P. Miscoll...................................... 28,459,405 2,300,570
Robert D. Paulson..................................... 28,459,405 2,300,570
Keith W. Renken....................................... 28,459,405 2,300,570
Jeremiah H. B. Kean................................... 28,459,405 2,300,570
</TABLE>
The votes cast for the ratification of the appointment of Price Waterhouse
LLP as the Company's accountants were as follows: 29,127,460 for, 4,825
withheld and 4,045 abstained.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
10.1* Amended revolving note payable to Richard D. Colburn.
27.1* Financial data schedule.
</TABLE>
- --------
* Previously filed under 10Q (1-12623) for the quarter ended June 30, 1998.
(b) Reports on 8-K
1) The Company filed a Current Report on Form 8-K, dated June 15, 1998,
announcing the signing of an Agreement and Plan of Merger to merge U.S.
Rentals, Inc. with United Rentals, Inc. In connection with the merger, each
outstanding share of common stock of U.S. Rentals, Inc. will be converted into
the right to receive 0.9625 of a share of common stock of United Rentals, Inc.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Amendment No. 1 to be signed on
its behalf by the undersigned thereunto duly authorized.
U.S. RENTALS, INC.
(Registrant)
/s/ John S. McKinney
Date: August 24, 1998 By: _________________________________
John S. McKinney
Vice President
Chief Financial Officer
14
