<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 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)
DELAWARE 94-3061974
- --------------------------------------- --------------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1581 Cummins Drive, Ste. 155, Modesto, California 95358
- ------------------------------------------------- ----------------------
(Address of Principal Executive Offices) (Zip Code)
(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 per value, outstanding
at August 1, 1998.
- --------------------------------------------------------------------------------
<PAGE>
U.S. RENTALS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I: Financial Information
ITEM 1. Financial Statements
Balance Sheets -
June 30, 1998 and December 31, 1997.................... 1
Statements of Operations -
Three and six months ended June 30, 1998 and 1997...... 2
Statements of Cash Flows -
Three and six months ended June 30, 1998 and 1997...... 3
Statement of Changes in Stockholders' Equity -
Three and six months ended June 30, 1998............... 4
Notes to Financial Statements -
June 30, 1998.......................................... 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7
PART II: Other Information
ITEM 1. Legal Proceedings.................................. 12
ITEM 2. Changes in Securities.............................. 12
ITEM 3. Defaults Upon Senior Securities.................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 5. Other Information.................................. 12
ITEM 6. Exhibits and Reports on Form 8-K................... 13
Signatures............................................................... 14
</TABLE>
<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>
<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>
<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 activities (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>
<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>
<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 $ -
</TABLE>
<PAGE>
U.S. RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Tables in thousands)
(Unaudited)
<TABLE>
<S> <C> <C>
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).
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>
<PAGE>
U.S. RENTALS, INC.
June 30, 1998
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.
<PAGE>
U.S. RENTALS, INC.
June 30, 1998
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.
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
<PAGE>
U.S. RENTALS, INC.
June 30, 1998
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.
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.
<PAGE>
U.S. RENTALS, INC.
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.
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
<PAGE>
U.S. RENTALS, INC.
June 30, 1998
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.
<PAGE>
U.S. RENTALS, INC.
June 30, 1998
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.
<PAGE>
U.S. RENTALS, INC.
June 30, 1998
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 Amended revolving note payable to Richard D. Colburn.
27.1 Financial data schedule.
(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.
<PAGE>
U.S. RENTALS, INC.
June 30, 1998
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.
U.S. RENTALS, INC.
(Registrant)
Date: August 7, 1998 By: /s/ JOHN S. MCKINNEY
-------------- --------------------------
John S. McKinney
Vice President
Chief Financial Officer
<PAGE>
EXHIBIT 10.1
REVOLVING CREDIT NOTE
$22,000,000.00 Modesto, California
April 6, 1998
FOR VALUE RECEIVED, the undersigned, a California corporation ("Maker"),
promises to pay to Richard D. Colburn or order ("Holder"), at Beverly Hills,
California, or at such other place as may be designated, on demand, the
principal balance ($22,000,000) plus accrued interest on an amount up to two
million dollars ($2,000,000) as represented by advances, repayments and
readvances.
Draws upon this Revolving Credit Note may be made in whole or in part as
requested by Holder from time to time. Interest thereon from the date thereof
shall accrue on the outstanding principal balance at the same rate charged by
Bank of America to U.S. Rentals, Inc. under the credit agreement between the
bank and the Company dated February 26, 1997. Changes in the rate hereunder
shall be effective as of the first day of each calendar month, but in no event
shall interest accrue at a rate in excess of the maximum rate of interest
allowable under California law. Interest shall be payable no later than
December 31, of each calendar year.
Principal and interest are payable in lawful money of the United States.
If action be instituted on this note, the undersigned corporation promises to
pay such sum as the court may fix as attorney's fees.
IN WITNESS THEREOF, the undersigned has executed this Note on the above date.
U.S. Rentals, Inc.
BY /s/ John S. McKinney
------------------------
John S. McKinney
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 22,510 22,510
<SECURITIES> 0 0
<RECEIVABLES> 74,124 74,124
<ALLOWANCES> 0 0
<INVENTORY> 19,040 19,040
<CURRENT-ASSETS> 0 0
<PP&E> 521,696 521,696
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 769,065 769,065
<CURRENT-LIABILITIES> 486,596 496,596
<BONDS> 0 0
0 0
0 0
<COMMON> 308 308
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 769,065 769,065
<SALES> 114,806 207,447
<TOTAL-REVENUES> 150,842 271,360
<CGS> 21,690 38,829
<TOTAL-COSTS> 101,757 195,718
<OTHER-EXPENSES> 23,999 39,225
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,891 8,293
<INCOME-PRETAX> 19,885 27,530
<INCOME-TAX> 7,994 11,067
<INCOME-CONTINUING> 11,891 16,463
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,891 16,463
<EPS-PRIMARY> .39 .54
<EPS-DILUTED> .37 .52
</TABLE>
