<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998
REGISTRATION NO. 333-41419
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
UNITED RENTALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7353 06-1493538
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION) NUMBER)
FOUR GREENWICH OFFICE PARK
GREENWICH, CONNECTICUT 06830
(203) 622-3131
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRADLEY S. JACOBS
UNITED RENTALS, INC.
FOUR GREENWICH OFFICE PARK
GREENWICH, CONNECTICUT 06830
(203) 622-3131
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
Copies of all communications to:
JOSEPH EHRENREICH, ESQ. STEPHEN M. BESEN, ESQ.
EHRENREICH EILENBERG KRAUSE & ZIVIAN LLP WEIL, GOTSHAL & MANGES LLP
11 E. 44TH STREET 767 FIFTH AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10153
(212) 986-9700 (212) 310-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Subject to
lock-up restrictions (which expire at various times ranging from September
1998 to December 2000) from time to time, as determined by the holders of the
securities registered hereby, after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<PAGE>
PROSPECTUS
22,211,696 SHARES
UNITED RENTALS, INC.
COMMON STOCK
----------------
This Prospectus relates to 22,211,696 shares of Common Stock ("Common
Stock") of United Rentals, Inc., a Delaware corporation (the "Company"), that
may from time to time be sold by the holders thereof identified herein (the
"Selling Security Holders"). See "Selling Security Holders." ALL OF THE SHARES
OF COMMON STOCK COVERED BY THIS PROSPECTUS ARE SUBJECT TO CERTAIN LOCK-UP
RESTRICTIONS AS DESCRIBED BELOW. THE COMMON STOCK COVERED BY THIS PROSPECTUS
MAY NOT BE PUBLICLY SOLD PRIOR TO THE EXPIRATION OR TERMINATION OF THE
APPLICABLE LOCK-UP RESTRICTION.
The shares to which the Prospectus relates include: (i) 15,530,407 currently
outstanding shares which were sold by the Company in private placements, (ii)
318,712 currently outstanding shares which were issued as consideration for an
acquisition, (iii) 6,344,058 authorized and unissued shares of Common Stock
that may hereafter be acquired by Selling Security Holders pursuant to certain
outstanding warrants (the "Warrants") which were sold by the Company in
private placements and (iv) 18,519 authorized and unissued shares of Common
Stock that may hereafter be acquired by Selling Security Holders pursuant to a
convertible note that the Company issued as part of the consideration for an
acquisition. The Company will not receive any of the proceeds from the sales
of shares of Common Stock by the Selling Security Holders. However, the
Company will receive the proceeds from any exercise of the Warrants. See "Use
of Proceeds."
None of the shares of Common Stock covered by this Prospectus may be
publicly sold or transferred for a period of 180 days after March 5, 1998
without the prior written consent of Merrill Lynch & Co. ("Merrill Lynch") on
behalf of the underwriters for a public offering commenced by the Company on
such date, pursuant to lock-up agreements entered into in connection with such
offering. Upon expiration of such 180-day lock-up period, approximately
2,496,121 of the shares of Common Stock covered by this Prospectus will
continue to be subject to lock-up agreements with the Company that prohibit
the sale or transfer of such shares without the prior written consent of the
Company. Such lock-up agreements lapse in December 1998 (with respect to
707,241 shares), March 1999 (with respect to 21,429 shares), December 1999
(with respect to 728,671 shares) and December 2000 (with respect to 1,038,780
shares).
The Common Stock is traded on the New York Stock Exchange under the symbol
"URI". See "Price Range of Common Stock."
The Common Stock offered by the Selling Security Holders (the "Resale
Shares") may be sold from time to time by the Selling Security Holders
directly to purchasers, or alternatively, may be offered from time to time
through agents, brokers, dealers or underwriters, who may receive compensation
in the form of concessions or commissions from the Selling Security Holder or
purchasers of the Resale Shares (which compensation may be in excess of
customary commissions). Sales of the Resale Shares may be made in one or more
transactions through the New York Stock Exchange, in over-the-counter markets,
in privately negotiated transactions or otherwise, and such sales may be made
at the market price prevailing at the time of sale, a price related to such
prevailing market price or a negotiated price.
Any brokers, dealers or agents that participate in the distribution of the
Resale Shares may be deemed to be underwriters and any commissions received by
them and any profit on the resale of such shares positioned by them might be
deemed to be underwriting discounts and commissions under the Securities Act
of 1933.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is March 5, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 11
Certain Information Concerning Public Offering........................... 11
Dividend Policy.......................................................... 11
Price Range of Common Stock.............................................. 12
Capitalization........................................................... 13
Selected Historical and Pro Form Consolidated Financial Information...... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 21
Management............................................................... 28
Principal Stockholders................................................... 35
Description of Capital Stock............................................. 37
Certain Charter and By-Law Provisions.................................... 38
Selling Security Holders................................................. 42
Plan of Distribution..................................................... 44
Legal Matters............................................................ 45
Experts.................................................................. 45
Available Information.................................................... 45
Financial Statements..................................................... F-1
</TABLE>
----------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE SECURITIES COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR THE SELLING SECURITY HOLDERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, (i) the terms "United Rentals" and "the Company" refer collectively
to United Rentals, Inc. and its subsidiaries and (ii) the term the "Acquired
Companies" refers collectively to the 21 companies acquired by the Company
since its formation in September 1997. All financial and operating data for the
Company contained herein with respect to the year ended December 31, 1997 is on
a pro forma basis giving effect to the acquisition of the Acquired Companies
and the financing thereof as of January 1, 1997.
On March 5, 1998, the Company commenced a public offering (the "Offering") of
7,500,000 shares of Common Stock. Unless otherwise indicated, the information
contained in this Prospectus assumes no exercise of the over-allotment option
(described under "Certain Information Concerning Public Offering") granted to
the underwriters in connection with the Offering.
THE COMPANY
United Rentals was formed in September 1997 for the purpose of creating a
large, geographically diversified equipment rental company in the United States
and Canada. The Company commenced equipment rental operations in October 1997
by acquiring six established companies and acquired 15 additional companies in
the first two months of 1998. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and other individuals. The Company also
engages in related activities such as selling used rental equipment, acting as
a distributor for certain new equipment, and selling related merchandise and
parts. The Company had pro forma revenues of $188.2 million during the year
ended December 31, 1997.
United Rentals currently operates 68 rental locations in 16 states and
Canada. The Company's locations are managed by experienced professionals who
have extensive industry experience and substantial knowledge of the local
markets served. These managers generally are former owners or employees of the
businesses acquired by the Company. The types of rental equipment offered by
the Company include a broad range of light to heavy construction and industrial
equipment (such as pumps, generators, forklifts, backhoes, cranes, bulldozers,
aerial lifts and compressors), general tools and equipment (such as hand tools
and garden and landscaping equipment) and special event equipment (such as
tents, tables and chairs). The equipment mix varies at each of the Company's
locations, with some locations offering a general mix and some specializing in
specific equipment categories. As of February 13, 1998, the Company's rental
equipment included approximately 34,500 units (not including special event
equipment), had an original purchase price of approximately $225 million and
had a weighted average age (based on original purchase price) of approximately
3.6 years.
THE INDUSTRY
The Company estimates that the U.S. equipment rental industry (including used
and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of approximately 21% from 1992 through 1996 (based upon revenues
reported for such period, the latest period for which data is available, by the
Rental Equipment Register, an industry trade publication). The Company believes
that this growth primarily reflects increasing recognition by customers of the
many advantages that equipment rental may offer compared with ownership,
including the ability to: (i) avoid the large capital investment required for
equipment purchases, (ii) reduce storage and maintenance costs, (iii)
supplement owned equipment, thereby increasing the range and number of jobs
that can be worked on, (iv) access a broad selection of equipment and select
the equipment best suited for each particular job, (v) obtain equipment as
needed and minimize the costs associated with idle equipment, and (vi) access
the latest technology without investing in new equipment.
The equipment rental industry is highly fragmented and consists of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. Based
upon rental revenues reported by the Rental Equipment Register for 1996 (the
latest year for which such revenues have been reported): (i) there were only
five equipment rental companies that had 1996
1
<PAGE>
equipment rental revenues in excess of $100 million (with the largest company
having had 1996 equipment rental revenues of approximately $400 million), (ii)
the largest 100 equipment rental companies combined had less than a 20% share
of the market based on 1996 equipment rental revenues and the Company's
estimate of the size of the market (with the largest company having had a
market share of less than 3%), and (iii) there were approximately 100 equipment
rental companies that had 1996 equipment rental revenues between $5 million and
$100 million. In addition, the Company estimates that there are more than
20,000 companies with annual equipment rental revenues of less than $5 million.
The Company believes that the fragmented nature of the industry presents
substantial consolidation and growth opportunities for companies with access to
capital and the ability to implement a disciplined acquisition program and
effectively integrate and operate acquired companies.
GROWTH STRATEGY
The Company's growth strategy is to expand through a disciplined acquisition
program, the opening of new rental locations and internal growth and to further
diversify its equipment categories and customer markets. The Company believes
that as it expands it should gain competitive advantages relative to smaller
operators, including greater purchasing power, a lower cost of capital, the
ability to provide customers with a broader range of equipment and services and
with newer and better maintained equipment, and greater flexibility to transfer
equipment among locations in response to customer demand.
The Company is seeking to acquire companies of varying size, including
relatively large companies to serve as platforms for regional development and
smaller companies to complement existing or anticipated locations. In
evaluating potential acquisition targets, the Company considers a number of
factors, including the quality of the target's rental equipment and management,
the opportunities to improve operating margins and increase internal growth at
the target, the economic prospects of the region in which the target is
located, the potential for additional acquisitions in the region, and the
competitive landscape in the target's markets. The Company will seek expansion
opportunities in the United States and Canada and will pursue acquisition
candidates with varying types of equipment and customer specializations. The
Company believes that geographic and customer diversification will allow the
Company to participate in the overall growth of the equipment rental industry
and reduce the Company's sensitivity to fluctuations in regional economic
conditions or changes that affect particular market segments.
The Company believes that there will be significant opportunities to improve
operating margins at acquired companies through the efficient integration of
new and existing operations, the elimination of duplicative costs, reduction in
overhead, the centralization of functions such as purchasing and information
technology, and the application of best practices. The Company also believes
that a lack of capital has constrained expansion and modernization at many
small and mid-sized equipment rental companies and that as a result there is
significant potential to increase internal growth at many acquired companies
through capital investment. The Company will seek to increase internal growth
by investing in additional and more modern equipment, using advanced
information technology systems to improve asset utilization and tracking,
increasing sales and marketing efforts, expanding the customer segments and
geographic areas served, and opening complementary locations.
BACKGROUND
The Company was founded by eight of the Company's officers, who contributed
an aggregate of $44.4 million in cash to the capital of the Company. Each of
the founders was formerly a senior executive of United Waste Systems, Inc.
("United Waste"), a solid waste management company that was sold in August
1997, or a senior member of United Waste's acquisition team. United Waste
executed a growth strategy that combined a disciplined acquisition program
(including over 200 acquisitions completed from January 1995 through August
1997), the integration and optimization of acquired facilities, and internal
growth. The Company believes that the extensive experience of its management
team in acquiring and effectively integrating and operating acquisition targets
should enable the Company to capitalize on consolidation opportunities in the
equipment rental industry.
United Rentals, Inc. was incorporated under the laws of the State of Delaware
in August 1997, initially capitalized in September 1997 and commenced rental
operations in October 1997 by acquiring six established equipment rental
companies. The executive offices of the Company are located at Four Greenwich
Office Park, Greenwich, Connecticut 06830, and its telephone number is (203)
622-3131.
2
<PAGE>
SECURITIES OFFERED
Common Stock Offered........
This Prospectus relates to up to 22,211,696
shares of Common Stock of the Company that may be
sold from time to time by the Selling Security
Holders. See "Selling Security Holders." ALL OF
THE SHARES OF COMMON STOCK COVERED BY THIS
PROSPECTUS ARE SUBJECT TO CERTAIN LOCKUP
RESTRICTIONS AS DESCRIBED BELOW. THE COMMON STOCK
COVERED BY THIS PROSPECTUS MAY NOT BE SOLD PRIOR
TO THE EXPIRATION OR TERMINATION OF THE
APPLICABLE LOCK-UP RESTRICTIONS. The shares to
which the Prospectus relates include (i)
15,530,407 currently outstanding shares which
were sold by the Company in private placements,
(ii) 318,712 currently outstanding shares which
were issued as consideration for an acquisition,
(iii) 6,344,058 authorized and unissued shares of
Common Stock that may be acquired pursuant to
certain outstanding Warrants which were sold by
the Company in private placements and (iv) 18,519
authorized and unissued shares of Common Stock
that may hereafter be acquired pursuant to a
convertible note that the Company issued as part
of the consideration for an acquisition.
Lock-up Restrictions........
None of the shares of Common Stock covered by
this Prospectus may be publicly sold or
transferred for a period of 180 days after March
5, 1998 without the prior written consent of
Merrill Lynch on behalf of the underwriters for
the Offering, pursuant to lock-up agreements
entered into in connection with the Offering.
Upon expiration of such 180-day lock-up period,
approximately 2,496,121 of the shares of Common
Stock covered by this Prospectus will continue to
be subject to lock-up agreements with the Company
that prohibit the sale or transfer of such shares
without the prior written consent of the Company.
Such lock-up agreements lapse in December 1998
(with respect to 707,241 shares), March 1999
(with respect to 21,429 shares), December 1999
(with respect to 728,671 shares) and December
2000 (with respect to 1,038,780 shares).
Common Stock Outstanding....
Upon completion of the Offering (and giving
effect to the expected cancellation of 137,600
shares of Common Stock as described under
"Management's Discussion and Analysis of
Financial Condition and Results of Operations--
Consideration Paid for the Acquired Companies"),
there will be 32,081,208 shares outstanding
(33,206,208 if the over-allotment option granted
to the underwriters is exercised in full).(1)
New York Stock Exchange URI
Symbol......................
Use of Proceeds............. The Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling
Security Holders. The Company may, in the future,
receive proceeds from the exercise of the
Warrants referenced in this Prospectus, but only
if such Warrants are exercised and then only in
an amount equal to the exercise price thereof
($10.00 per share) multiplied by the number of
Warrants exercised. Assuming all such Warrants
are exercised, the aggregate net proceeds to the
Company from such excercises would be
3
<PAGE>
approximately $63.4 million. The Company expects
to use any such proceeds for future acquisitions,
capital expenditures and general corporate
purposes.
- --------
(1) Does not include (i) 6,519,058 shares issuable upon the exercise of
outstanding warrants, which provide for a weighted average exercise price
of $10.12 per share, (ii) 961,333 shares issuable upon the exercise of
outstanding options granted pursuant to the Company's 1997 Stock Option
Plan, which provide for exercise prices ranging from $10.00 to $30.00 per
share, the weighted average exercise price being $13.47 per share, (iii)
4,038,667 shares reserved for possible future grants of options under the
Company's 1997 Stock Option Plan, and (iv) shares issuable upon conversion
of a $300,000 convertible note which provides for a conversion price of
$16.20 per share. See "Management--Capital Contributions by Officers and
Directors" and "Description of Capital Stock--Warrants, Options and
Convertible Notes."
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain risks that
should be considered in connection with an investment in the Common Stock
offered hereby.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Company was incorporated in August 1997 and commenced equipment rental
operations in October 1997 by acquiring six established rental companies. The
Company acquired 15 additional companies in the first two months of 1998. The
following unaudited pro forma income statement data for the year ended December
31, 1997 gives effect to the acquisition of each of the Acquired Companies, the
financing of each such acquisition and all issuances of Common Stock after the
beginning of such period, as if all such transactions had occurred at the
beginning of such period. The following unaudited pro forma balance sheet data
as of December 31, 1997 gives effect to the 15 acquisitions completed by the
Company subsequent to such date and the financing of each such acquisition, as
if all such transactions had occurred on such date. The following unaudited pro
forma as adjusted balance sheet data gives effect to the foregoing and to
completion of the Offering and the application of a portion of the estimated
net proceeds therefrom to repay outstanding indebtedness under the Company's
revolving credit facility (the "Credit Facility"). See "Certain Information
Concerning Public Offering--Use of Proceeds From Offering" and
"Capitalization."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------- ----------------------
PERIOD FROM
AUGUST 14, 1997
(INCEPTION) THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997
----------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $ 10,633 $ 188,185
Gross profit............ 3,811 69,771
Operating income........ 238 26,085
Interest expense ....... 454 9,076
Other (income) expense,
net.................... (270) (1,734)
---------------------- ----------------------
Income before income
taxes.................. 54 18,743
Income taxes............ 20 7,472
---------------------- ----------------------
Net income.............. $ 34 $ 11,271
====================== ======================
Basic earnings per
share.................. $ 0.00 $ 0.46
====================== ======================
Diluted earnings per
share.................. $ 0.00 $ 0.43
====================== ======================
Depreciation and
amortization........... $ 1,301 $ 26,502
EBITDA(1)............... $ 1,539 $ 52,587
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 68,608 $ 50 $ 70,435
Rental equipment, net... 33,408 140,482 140,482
Total assets............ 169,110 329,736 400,121
Debt.................... 1,074 119,665 9,831
Stockholders' equity.... 157,730 173,182 353,401
</TABLE>
(1) As used herein, "EBITDA" means net income less non-operating income plus
interest, non-operating expenses, income taxes, depreciation, amortization
and other non-cash items. Management believes that EBITDA, as presented,
represents a useful measure of assessing the performance of the Company's
ongoing operating activities as it reflects the earnings trends of the
Company without the impact of interest, income taxes, non-operating income
and expenses and certain non-cash charges. EBITDA is not intended as an
alternative to cash flow from operating activities as a measure of
liquidity or as an alternative to net income as an indicator of the
Company's operating performance.
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following Risk Factors should be considered carefully in evaluating an
investment in the Common Stock.
RECENTLY FORMED COMPANY; LIMITED OPERATING HISTORY
The Company was incorporated in August 1997 and commenced equipment rental
and related operations in October 1997 by acquiring six established rental
companies. The Company acquired 15 additional companies in the first two
months of 1998. Due to the recent commencement of the Company's operations,
the Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. Furthermore, the Company's historical
financial statements included herein, which cover the period from inception
through December 31, 1997, do not fully reflect the Company's current
operations in view of the fact that (i) the results of the six companies
acquired in October 1997 are reflected in such financial statements for only a
portion of the period covered thereby and (ii) the results of the 15 companies
acquired in the first two months of 1998 are not reflected in such financial
statements.
ACQUIRED COMPANIES NOT HISTORICALLY OPERATED AS A COMBINED BUSINESS
Although the Acquired Companies have been in existence an average of 21
years, the businesses of these companies have not historically been operated
as a combined business. There can be no assurance that the Company will be
able to integrate successfully the businesses of the Acquired Companies (or
the businesses of any companies acquired in the future), to operate them
profitably on a combined basis, or to manage effectively the combined
business. Failure by the Company to integrate successfully or manage
effectively the Acquired Companies could have a material adverse effect on the
Company's results of operations and financial condition.
RISKS RELATING TO GROWTH STRATEGY
Principal components of the Company's growth strategy include continued
expansion through an ongoing acquisition program, the opening of start-up
locations, and internal growth. However, there can be no assurance that the
Company will successfully implement its growth strategy or that, if
implemented, such strategy will result in continued profitability. In
addition, under the terms of the Company's Credit Facility, the Company may
not make acquisitions unless certain financial conditions are satisfied or the
consent of the lenders is obtained. Furthermore, there can be no assurance
that the Company's growth rate will be comparable to the past or future growth
rate of the overall equipment rental industry or any segment thereof. The
Company's growth strategy involves a number of risks and uncertainties,
including:
Availability of Acquisition Targets and Sites for Start-up Locations. The
Company may encounter substantial competition in its efforts to identify and
acquire appropriate acquisition candidates and sites for start-up locations,
which could have the effect of increasing prices for acquisitions or such
sites. There can be no assurance that the Company will succeed in identifying
appropriate acquisition candidates or sites for start-up locations or that the
Company will be able to acquire any acquisition candidate or site that it does
identify on terms that are acceptable to the Company.
Need to Integrate New Operations. As the Company grows, the Company intends
to focus substantial efforts on the efficient integration of new operations,
the elimination of duplicative costs and the reduction of overhead. There can
be no assurance, however, that the Company will be successful in these efforts
or that these efforts may not in certain circumstances adversely affect
existing operations.
Need to Recruit Additional Personnel. The Company will require additional
personnel in order to implement its growth strategy and support expanded
operations. Accordingly, the Company is in the process of recruiting
additional operating, acquisition, finance and other personnel from the
equipment rental industry and from other industries. There can be no
assurance, however, that the Company will succeed in recruiting the requisite
qualified personnel as and when needed.
6
<PAGE>
Certain Risks Related to Start-up Locations. The Company expects that start-
up locations may initially have a negative impact on results of operations and
margins due to several factors, including: (i) the Company will incur
significant start-up expenses in connection with establishing each start-up
location and (ii) it will generally take some time following the commencement
of operations at a start-up location before profitability can be achieved.
There can be no assurance that any start-up location will become profitable
within the first several years of operations, if at all.
DEPENDENCE ON ADDITIONAL CAPITAL TO FINANCE GROWTH
The Company's growth strategy will require substantial capital investment.
Capital will be required by the Company for, among other purposes, completing
acquisitions, establishing new rental locations, integrating completed
acquisitions, acquiring rental equipment and maintaining the condition of its
rental equipment. The Company intends to pay for future acquisitions using
cash, capital stock, notes and/or assumption of indebtedness. To the extent
that cash generated internally and cash available under the Credit Facility is
not sufficient to provide the capital required for such purposes and future
operations, the Company will require additional debt and/or equity financing
in order to provide for such capital. There can be no assurance, however, that
such financing will be available or, if available, will be available on terms
satisfactory to the Company. Failure by the Company to obtain sufficient
additional capital in the future could limit the Company's ability to
implement its business strategy. Future debt financings, if available, may
result in increased interest and amortization expense, increased leverage and
decreased income available to fund further acquisitions and expansion, and may
limit the Company's ability to withstand competitive pressures and render the
Company more vulnerable to economic downturns. Future equity financings may
dilute the equity interest of existing stockholders.
POSSIBLE UNDISCOVERED LIABILITIES OF ACQUIRED COMPANIES
Although the Company performs a due diligence investigation of each business
that it acquires, there may nevertheless be liabilities of the Acquired
Companies or future acquired companies that the Company fails or is unable to
discover during its due diligence investigation and for which the Company, as
a successor owner, may be responsible. The Company seeks to minimize the
impact of these liabilities by obtaining indemnities and warranties from the
seller which may be supported by deferring payment of a portion of the
purchase price. However, these indemnities and warranties, if obtained, may
not fully cover the liabilities due to their limited scope, amount, or
duration, the financial limitations of the indemnitor or warrantor, or other
reasons.
DEPENDENCE ON MANAGEMENT
The Company is highly dependent upon its senior management team. The loss of
the services of any member of senior management may have a material adverse
effect on the Company. The Company's Credit Facility provides that the failure
of certain members of the Company's current senior management to continue to
hold executive positions with the Company for a period of 30 consecutive days
constitutes an event of default under the Credit Facility unless replacement
officers satisfactory to the lenders are appointed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The Company does not presently maintain "key
man" life insurance with respect to members of senior management.
The Company's rental locations are managed by local managers who have
extensive experience in the equipment rental industry and substantial
knowledge of the local markets served. These managers are generally former
owners or employees of the businesses acquired by the Company. The loss of one
or more of these managers may have a material adverse effect on the Company in
the event that the Company is unable to find a suitable replacement in a
timely manner.
The Company's present dependence on regional and local managers is
heightened by the fact that the Company's founding senior management team,
while having substantial acquisition and operating experience in other
industries (particularly the solid waste industry), did not have experience in
the equipment rental industry prior to founding the Company.
7
<PAGE>
NEED FOR INTEGRATED INFORMATION TECHNOLOGY SYSTEMS
The Company is in the process of installing an integrated information
technology system that will link all locations, integrate operating and
financial data on a Company-wide basis, and enable the real-time tracking of
rental transactions, equipment availability, inventory and other data. The
Company expects that this system will become operational at substantially all
the Company's existing locations in March 1998. The Company thereafter will be
required to expand the system on an ongoing basis as it adds locations.
Although the Company expects the system to become operational in March 1998,
there can be no assurance that the Company will not encounter unexpected
delays or that such system when operational will function in accordance with
the Company's expectations. Failure of the system to become operational or to
function as expected could negatively impact the Company's ability to
implement its growth strategy. Until the new system is operational, each
acquired business will continue to use the systems that it had in place at the
time it was acquired. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Information Technology System."
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include public companies or divisions of public
companies; regional competitors which operate in one or more states; small,
independent businesses with one or two rental locations; and equipment vendors
and dealers who both sell and rent equipment directly to customers. Certain of
the Company's competitors are larger and have greater financial resources than
the Company. There can be no assurance that the Company will not encounter
increased competition from existing competitors or new market entrants or that
equipment manufacturers will not commence, or increase their efforts, to rent
or sell equipment directly to the Company's customers. In addition, to the
extent that competitors seek to gain or retain market share by reducing
prices, the Company may be required to lower its prices, thereby affecting
operating results. See "Business--Competition."
SENSITIVITY TO GENERAL ECONOMIC AND WEATHER CONDITIONS
The Company believes that the equipment rental business is sensitive to
changes in economic conditions and that demand for rental equipment can be
reduced significantly by adverse weather conditions. There can be no assurance
that the Company's business and financial condition will not be adversely
affected by (i) changes in general economic conditions, including national,
regional and local changes in construction and industrial activity, (ii)
increases in interest rates that may result in a higher cost of capital to the
Company, or (iii) adverse weather conditions that may decrease construction
and industrial activity.
QUARTERLY FLUCTUATIONS OF OPERATING RESULTS
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations
(which generally will require a period of time to become profitable) and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors. These
factors, among others, may result in the Company's results of operations in
some future periods not meeting expectations, which could have a material
adverse impact on the market price of the Common Stock.
LIABILITY AND INSURANCE
The Company is subject to various possible claims, including claims for
personal injury or death caused by equipment rented or sold by the Company or
motor vehicle accidents involving Company delivery and service personnel and
compensation and other employment related claims. The Company carries a broad
range of insurance for the protection of its assets and operations. However,
such coverage is subject to a deductible of $250,000 and limited to a maximum
of $25 million per occurrence. In addition, the Company does not maintain
8
<PAGE>
insurance coverage for environmental liability, since the Company believes
that the cost for such coverage is high relative to the benefit that it
provides. Furthermore, certain types of claims, such as claims for punitive
damages or for damages arising from intentional misconduct, which are often
alleged in third party lawsuits, might not be covered by the Company's
insurance. There can be no assurance that insurance will continue to be
available to the Company on economically reasonable terms, if at all, that
existing or future claims will not exceed the level of the Company's insurance
or relate to matters not covered by the Company's insurance (such as
environmental liability), or that the Company will have sufficient capital
available to pay any uninsured claims.
ENVIRONMENTAL REGULATION
The Company uses hazardous materials, such as solvents, to clean and
maintain its rental equipment and generates and disposes of wastes such as
used motor oil, radiator fluid, solvents and batteries. In addition, the
Company currently dispenses, or may in the future dispense, petroleum products
from underground and above-ground storage tanks located at certain rental
locations. These and other activities of the Company are subject to various
federal, state and local laws and regulations governing the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and wastes. Under such laws, an owner or lessee of real estate may
be liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knew
of, or was responsible for, the presence of such hazardous or toxic
substances. Although the Company investigates each business or property that
it acquires or leases and believes there are no existing material liabilities
relating to non-compliance with environmental laws and regulations, there can
be no assurance that there are no undiscovered potential liabilities relating
to non-compliance with environmental laws and regulations, that historic or
current operations have not resulted in undiscovered conditions that will
require investigation and/or remediation under environmental laws, or that
future uses or conditions will not result in the imposition of environmental
liability upon the Company or expose the Company to third-party actions such
as tort suits. Furthermore, there can be no assurance that changes in
environmental regulations in the future will not require the Company to make
significant capital expenditures to change methods of disposal of hazardous
materials or otherwise alter aspects of its operations. See "Business--
Environmental Regulation."
CONCENTRATED CONTROL
Immediately following completion of the Offering, the officers and directors
of the Company will own an aggregate of 13,262,414 shares of Common Stock and
currently exercisable warrants and options to purchase an additional 6,402,858
shares of Common Stock, representing on a pro forma basis giving effect to the
exercise of such warrants and options approximately 51% of the Common Stock to
be outstanding immediately following completion of the Offering (including
10,000,100 shares of Common Stock and warrants to purchase an additional
5,000,000 shares of Common Stock beneficially owned by Bradley S. Jacobs,
Chairman and Chief Executive Officer of the Company, representing on such a
pro forma basis approximately 40% of the Common Stock to be outstanding
immediately following completion of the Offering). Such share ownership may
effectively give such persons the ability to elect the entire Board of
Directors of the Company and to control the Company's management and affairs.
VOLATILITY OF STOCK PRICE
The market price of the Common Stock may experience significant volatility.
The market price of the Common Stock could be subject to significant variation
due to fluctuations in the Company's operating results, the degree of success
the Company achieves in implementing its business strategy, changes in
business or regulatory conditions affecting the Company, its customers or its
competitors, and other factors. In addition, the financial markets may
experience volatility that affects the market prices of securities in ways
unrelated to the operating performance of the issuers of such securities, and
such volatility may adversely affect the market price of the Common Stock.
9
<PAGE>
ABSENCE OF DIVIDENDS
The Company has never paid any dividends on its Common Stock and has no
plans to pay dividends on its Common Stock in the foreseeable future. Under
the terms of the Credit Facility, the Company is prohibited from paying
dividends on the Common Stock. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issued upon
exercise of warrants or options), or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and By-
laws, as well as applicable Delaware law, may have the effect of discouraging
unsolicited acquisition proposals or making it more difficult for a third
party to gain control of the Company. These provisions provide, among other
things, that (i) the Board of Directors shall be divided into three classes,
with directors of each class serving for a staggered three-year period, (ii)
directors may be removed only for cause and only upon the affirmative vote of
at least 66 2/3% of the voting power of all the then outstanding shares of
stock entitled to vote, (iii) stockholders may not act by written consent,
(iv) stockholder nominations and proposals may only be made if specified
advance notice requirements are complied with, (v) stockholders are precluded
from calling a special meeting of stockholders, and (vi) the Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
in one or more series and to fix the powers, preferences and rights of any
such series without stockholder approval. Moreover, under certain conditions,
Section 203 of the Delaware General Corporation Law may prevent the Company
from engaging in a "business combination" with an "interested stockholder."
See "Certain Charter and By-law Provisions."
10
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Resale Shares
by the Selling Security Holders. The Company may, in the future, receive
proceeds from the exercise of the Warrants referenced in this Prospectus, but
only if such warrants are exercised and then only in an amount equal to the
exercise price thereof ($10.00 per share) multiplied by the number of Warrants
exercised. Assuming all such Warrants are exercised, the aggregate net
proceeds to the Company from such exercises would be approximately $63.4
million. The Company expects to use any such proceeds for future acquisitions,
capital expenditures and general corporate purposes.
CERTAIN INFORMATION CONCERNING PUBLIC OFFERING
GENERAL
On March 5, 1998, the Company commenced a public offering (the "Offering")
of 7,500,000 shares of Common Stock. The Company has granted to the
underwriters for the Offering an option to purchase up to an additional
1,125,000 shares of Common Stock, exercisable within 30 days of March 5, 1998,
to cover over-allotments, if any.
USE OF PROCEEDS FROM OFFERING
The net proceeds to the Company from the Offering are estimated to be $180.2
million ($207.4 million if the underwriters' over-allotment option is
exercised in full), after deduction of the underwriting discount and estimated
offering expenses. The Company expects to use such net proceeds (i) to repay
approximately $132.4 million of outstanding indebtedness under the Company's
Credit Facility and (ii) for future acquisitions, capital expenditures and
general corporate purposes. Pending use of the net proceeds for such purposes,
the Company plans to invest the net proceeds in short-term, investment-grade,
interest-bearing securities.
Under the terms of the Credit Facility, the Company may borrow on a
revolving basis up to $155 million until October 8, 2000, at which time all
outstanding loans must be paid in full. Outstanding loans under the Credit
Facility bear interest at a rate per annum equal to, at the Company's option,
either the Eurodollar Rate (Reserve Adjusted) (as defined in the loan
agreement providing for the Credit Facility) applicable to each interest
period plus 1.5% to 2.5% per annum or the Alternate Reference Rate (as defined
in such loan agreement) from time to time in effect plus 0% to .25% per annum.
At March 5, 1998, the weighted average interest rate on the outstanding
indebtedness was 7.4%. The proceeds from the outstanding indebtedness under
the Credit Facility have been used by the Company to fund acquisitions. The
repayment of the outstanding indebtedness under the Credit Facility from the
proceeds of the Offering will give the Company additional flexibility to
reborrow funds under the Credit Facility for future acquisitions, capital
expenditures and general corporate purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" for additional information regarding the Credit Facility.
DIVIDEND POLICY
The Company intends to retain all earnings for the foreseeable future for
use in the operation and expansion of its business and, accordingly, the
Company currently has no plans to pay dividends on its Common Stock. The
payment of any future dividends will be determined by the Board of Directors
in light of conditions then existing, including the Company's earnings,
financial condition and capital requirements, restrictions in financing
agreements, business conditions and other factors. Under the terms of the
Credit Facility, the Company is prohibited from paying dividends on its Common
Stock. In addition, under Delaware law, the Company is prohibited from paying
any dividends unless it has capital surplus or net profits available for this
purpose. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock commenced trading on the New York Stock Exchange
on December 18, 1997 under the symbol "URI." The following table sets forth,
for the periods indicated, the high and low sales prices for the Common Stock,
as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
PRICE RANGE
---------------
1997 HIGH LOW
- ---- ------ -----
<S> <C> <C>
Fourth Quarter (from December 18, 1997)..................... $19 5/16 $14 3/8
<CAPTION>
1998
- ----
<S> <C> <C>
First Quarter (through March 5, 1998)....................... 27 3/8 17 1/4
</TABLE>
On March 5, 1998, the last sale price of the Common Stock as reported on the
New York Stock Exchange was $25.5625 per share. As of March 5, 1998, there
were approximately 151 holders of record of the Common Stock. The Company
believes that the number of beneficial owners is substantially greater than
the number of record holders, because a large portion of the Common Stock is
held of record in broker "street names."
12
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
December 31, 1997, on an historical basis, (ii) such capitalization on a pro
forma basis giving effect to the 15 acquisitions completed by the Company
subsequent to such date and the financing of each such acquisition, and (iii)
such pro forma capitalization as adjusted to give effect to completion of the
Offering and the application of a portion of the net proceeds therefrom to
repay indebtedness as described under "Certain Information Concerning Public
Offering--Use of Proceeds From Offering." This table should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto and the Pro Forma Consolidated Financial Statements and related Notes
thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Credit facility............................... $ -- $109,834 $ --
Equipment notes............................... 574 9,331 9,331
Convertible debt.............................. 500 500 500
-------- -------- --------
Total debt.................................. 1,074 119,665 9,831
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000
shares authorized; no shares issued and
outstanding.................................. -- -- --
Common Stock, $.01 par value, 75,000,000
shares authorized; 23,899,119 shares issued
and outstanding, 24,703,994 shares issued and
outstanding pro forma, and 32,203,994 shares
issued and outstanding pro forma as
adjusted(1)(2)............................... 239 247 322
Additional paid-in capital.................... 157,457 172,901 353,045
Retained earnings............................. 34 34 34
-------- -------- --------
Total stockholders' equity.................. 157,730 173,182 332,694
-------- -------- --------
Total capitalization............................ $158,804 $292,847 $363,232
======== ======== ========
</TABLE>
- --------
(1) Does not include (i) 6,519,058 shares issuable upon the exercise of
outstanding warrants, which provide for a weighted average exercise price
of $10.12 per share, (ii) 961,333 shares issuable upon the exercise of
outstanding options which provide for exercise prices ranging from $10.00
to $30.00 per share, the weighted average exercise price being $13.47 per
share, (iii) 4,038,667 shares reserved for possible future grants of
options under the Company's 1997 Stock Option Plan, (iv) shares issuable
upon conversion of a $300,000 convertible note which provides for a
conversion price of $16.20 per share and (v) 14,814 shares issued
subsequent to December 31, 1997, upon conversion of a $200,000 convertible
note. See "Management--Capital Contributions by Officers and Directors"
and "Description of Capital Stock--Warrants, Options and Convertible
Notes."
(2) Includes 137,600 shares that the Company expects will be cancelled in
connection with an adjustment to the stock consideration paid for one of
the Acquired Companies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Consideration Paid for the
Acquired Companies."
13
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The Company commenced rental operations in October 1997 by acquiring six
established rental companies (the "Initial Acquired Companies") and acquired
15 additional companies in the first two months of 1998. The following table
presents (i) selected unaudited historical income statement and balance sheet
data for the Initial Acquired Companies on a combined basis and (ii) selected
historical and pro forma income statement and balance sheet data for the
Company. The historical income statement and balance sheet data for the
Company are derived from the audited Consolidated Financial Statements of the
Company included elsewhere in this Prospectus. The data presented below with
respect to the Company should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto and the Pro Forma Consolidated
Financial Statements and related Notes thereto of the Company included
elsewhere in this Prospectus.
The following unaudited pro forma income statement data for the year ended
December 31, 1997 gives effect to the acquisition of each of the Acquired
Companies, the financing of each such acquisition and all issuances of Common
Stock after the beginning of such period, as if all such transactions had
occurred at the beginning of such period. The following unaudited pro forma
balance sheet data as of December 31, 1997 gives effect to the 15 acquisitions
completed by the Company subsequent to such date and the financing of each
such acquisition, as if all such transactions had occurred on such date. The
unaudited pro forma income statement data is not necessarily indicative of the
actual results of operations that would have occurred had the foregoing
transactions occurred at the beginning of the period presented or of the
results that may occur in the future. The following unaudited pro forma as
adjusted balance sheet data gives effect to the foregoing and to completion of
the Offering and the application of a portion of the estimated net proceeds
therefrom to repay outstanding indebtedness under the Credit Facility. See
"Certain Information Concerning Public Offering--Use of Proceeds from
Offering" and "Capitalization."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------------------------------- ----------
COMBINED INITIAL ACQUIRED COMPANIES COMPANY COMPANY
------------------------------------------------------- ------------------- ----------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, AUGUST 14, 1997 YEAR ENDED
---------------------------------- 1997 THROUGH (INCEPTION) THROUGH DECEMBER
1993 1994 1995 1996 ACQUISITION DATE(1) DECEMBER 31, 1997 31, 1997
------- ------- ------- ------- ------------------- ------------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $32,549 $38,179 $44,159 $51,889 $49,200 $10,633 $188,185
Total cost of
operations............. 22,961 24,829 28,563 34,737 32,677 6,822 118,414
------- ------- ------- ------- ------- ------- --------
Gross profit............ 9,588 13,350 15,596 17,152 16,523 3,811 69,771
Selling, general and
administrative
expense................ 7,772 9,898 11,537 12,435 12,021 3,311 38,571
Non-rental depreciation
and amortization....... 300 427 502 527 472 262 5,115
------- ------- ------- ------- ------- ------- --------
Operating income........ 1,516 3,025 3,557 4,190 4,030 238 26,085
Interest expense........ 770 846 1,416 2,123 2,288 454 9,076
Other (income) expense.. (336) (412) (306) (412) (382) (270) (1,734)
------- ------- ------- ------- ------- ------- --------
Income before taxes..... 1,082 2,591 2,447 2,479 2,124 54 18,743
Pro forma income
taxes(2)............... 433 1,036 979 992 850 20 7,472
------- ------- ------- ------- ------- ------- --------
Pro forma net
income(2).............. $ 649 $ 1,555 $ 1,468 $ 1,487 $ 1,274 $ 34 $ 11,271
======= ======= ======= ======= ======= ======= ========
Basic earnings per
share.................. $ 0.00 $ 0.46
======= ========
Diluted earnings per
share.................. $ 0.00 $ 0.43
======= ========
Depreciation and
amortization........... $ 4,207 $ 5,340 $ 6,630 $ 8,579 $ 7,344 $ 1,301 $ 26,502
EBITDA(3)............... $ 5,723 $ 8,365 $10,187 $12,769 $11,374 $ 1,539 $ 52,587
Dividends on Common
Stock.................. -- --
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------------------------------------- --------- -----------
COMBINED INITIAL ACQUIRED
COMPANIES COMPANY COMPANY
------------------------------- -------- ---------------------
AS OF DECEMBER 31,
---------------------------------------- AS OF DECEMBER 31,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- -------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 2,374 $ 2,349 $ 4,193 $ 3,227 $ 68,608 $ 50 $ 70,435
Rental equipment, net... 10,730 14,270 20,244 27,145 33,408 140,482 140,482
Total assets............ 20,380 25,254 37,022 43,681 169,110 329,736 400,121
Debt.................... 10,104 12,608 21,267 25,959 1,074 119,665 9,831
Stockholders' equity.... 9,003 9,638 10,941 12,308 157,730 173,182 353,401
</TABLE>
14
<PAGE>
- --------
(1) Acquisition Date represents with respect to each Initial Acquired Company
the date in October 1997 on which such Initial Acquired Company was
acquired by the Company.
(2) Certain of the Acquired Companies had elected to be treated as Subchapter
S Corporations prior to being acquired by the Company. In general, the
income or loss of a Subchapter S Corporation is passed through to its
owners rather than being subjected to taxes at the entity level. Pro forma
net income or loss for the Initial Acquired Companies reflects a provision
for income taxes as if all such companies were liable for federal and
state income taxes as taxable corporate entities for all periods
presented.
(3) As used herein, "EBITDA" means net income less non-operating income plus
interest, non-operating expenses, income taxes, depreciation, amortization
and other non-cash items. Management believes that EBITDA, as presented,
represents a useful measure of assessing the performance of the Company's
ongoing operating activities as it reflects the earnings trends of the
Company without the impact of interest, income taxes, non-operating income
and expenses and certain non-cash charges. EBITDA is not intended as an
alternative to cash flow from operating activities as a measure of
liquidity or as an alternative to net income as an indicator of the
Company's operating performance.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto, the unaudited Pro Forma
Consolidated Financial Statements and related Notes thereto and the "Selected
Historical and Pro Forma Consolidated Financial Information" of the Company
included elsewhere in this Prospectus.
GENERAL
The Company was organized in August 1997 and commenced equipment rental
operations in October 1997 by acquiring six established rental companies. The
Company acquired 15 additional companies in the first two months of 1998. Each
of the acquisitions completed by the Company to date has been accounted for as
a purchase.
The Acquired Companies primarily derived revenues from the following
sources: (i) equipment rental (including additional fees that may be charged
for equipment delivery, fuel, repair of rental equipment, and damage waivers),
(ii) the sale of used rental equipment, (iii) the sale of new equipment, and
(iv) the sale of related merchandise and parts. Rental revenues accounted for
67.0% of the Company's pro forma revenues during 1997.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of used and new equipment sold, personnel costs, occupancy costs,
supplies, and expenses related to information systems. The Company records
rental equipment expenditures at cost and depreciates equipment using the
straight-line method over the estimated useful life (which ranges from 2 to 10
years), after giving effect to an estimated salvage value of 0% to 10% of
cost.
Selling, general and administrative expense includes advertising and
marketing expenses, management salaries, and clerical and administrative
overhead.
Non-rental depreciation and amortization includes (i) depreciation expense
associated with equipment that is not offered for rent (such as vehicles,
computers and office equipment) and depreciation expense associated with
leasehold improvements and (ii) the amortization of intangible assets. The
Company's intangible assets include goodwill, which represents the excess of
the purchase price of acquired companies over the estimated fair market value
of the assets acquired.
The Company's acquisition of the Acquired Companies changed the cost
structures of these companies due to changes relating to depreciation and
amortization, interest expense, compensation to former owners and lease
expense for real estate. In view of these changes, the Company believes that
the pre-acquisition historical results of the Acquired Companies are not
indicative of future results. Therefore, the discussion below focuses on the
historical and pro forma results of the Company rather than on pre-acquisition
historical results of the Acquired Companies.
CONSIDERATION PAID FOR THE ACQUIRED COMPANIES
The aggregate consideration paid by the Company for the Acquired Companies
was $176.0 million and consisted of approximately $156.4 million in cash,
1,123,587 shares of Common Stock (including 137,600 shares which are expected
to be cancelled as described below), a convertible note in the principal
amount of $300,000, and warrants to purchase an aggregate of 30,000 shares of
Common Stock. In addition, the Company repaid or assumed outstanding
indebtedness of the Acquired Companies in the aggregate amount of $121.0
million. The Company also agreed in connection with two of the acquisitions to
pay the former owners additional amounts based upon specified future revenues.
Such amounts are limited to a maximum of $2.8 million in one case and Cdn$4.0
million in the other case.
The purchase agreement relating to the acquisition of one of the Acquired
Companies provides that the stock consideration paid by the Company in
connection with such acquisition is subject to adjustment based upon the
trading price of the Common Stock during the 60-day period commencing December
18, 1997. In accordance
16
<PAGE>
with such provision, the Company expects that 137,600 shares of Common Stock
issued by the Company in connection with such acquisition will be cancelled.
HISTORICAL RESULTS OF OPERATIONS
The Company's historical financial statements included herein cover the
period from August 14, 1997 (inception) through December 31, 1997. The Company
believes that its historical results for such period do not fully reflect its
current operations in view of the fact that (i) the results of the six
companies acquired in October 1997 are reflected in such financial statements
for only a portion of the period covered thereby and (ii) the results of the
15 companies acquired in the first two months of 1998 are not reflected in
such financial statements.
Revenues. Total revenues were $10.6 million for the period from August 14,
1997 through December 31, 1997. Equipment rental revenues accounted for 66.0%
of such revenues.
Gross Profit. For the period from August 14, 1997 through December 31, 1997,
the gross profit margin was (i) 39.6% from equipment rentals, (ii) 47.8% from
sales of rental equipment and (iii) 21.2% from sales of new equipment,
merchandise and other revenues.
Selling, General and Administrative Expense. For the period from August 14,
1997 through December 31, 1997, selling, general and administrative expense
("SG&A") was $3.3 million or 31.1% of total revenues.
Non-rental Depreciation and Amortization. For the period from August 14,
1997 through December 31, 1997, non-rental depreciation and amortization was
$262,000 or 2.5% of total revenues.
Interest Expense. For the period from August 14, 1997 through December 31,
1997, interest expense was $454,000. Interest expense principally related to
borrowings made under the Company's Credit Facility in order to fund a portion
of the purchase price of the six acquisitions completed in 1997.
Income Taxes. The Company's effective income tax rate for the period from
August 14, 1997 through December 31, 1997 was 37.9%.
PRO FORMA RESULTS OF OPERATIONS
The Pro Forma Consolidated Financial Statements included herein with respect
to 1997 give effect to the acquisition of each of the Acquired Companies, the
financing of each such acquisition, and all issuances of Common Stock after
the beginning of such period, as if all such transactions had occurred at the
beginning of the period. Such pro forma financial statements, however, do not
reflect (i) potential cost savings, synergies and efficiencies that may be
achieved through the integration of the businesses and operations of the
Acquired Companies, (ii) the expenses that the Company may incur as it seeks
to increase internal growth at the Acquired Companies, including expenditures
required in order to expand and modernize rental equipment, increase sales and
marketing efforts, expand and diversify the customer segments served and
install an integrated information technology system, and (iii) the additional
compensation expense relating to the Company's senior management which would
have been incurred had such compensation accrued commencing at the beginning
of the year (rather than in September 1997). The results reflected in such pro
forma financial statements are not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions of the
Acquired Companies occurred at the beginning of period presented or of future
results.
Revenues. Total revenues were $188.2 million for the year ended December 31,
1997. Equipment rental revenues accounted for 67.0% of such revenues.
Gross Profit. For the year ended December 31, 1997, the gross profit margin
from equipment rentals was 43.3% and the gross profit margin from sales of
equipment and merchandise and other revenues was 24.4%.
17
<PAGE>
Selling, General and Administrative Expense. For the year ended December 31,
1997, SG&A was $38.6 million or 20.5% of total revenues.
Non-rental Depreciation and Amortization. For the year ended December 31,
1997, non-rental depreciation and amortization was $5.1 million or 2.7% of
total revenues.
Interest Expense. Interest expense was $9.1 million for the year ended
December 31, 1997. Interest expense principally related to borrowings made
under the Company's Credit Facility in order to fund a portion of the purchase
price of the Acquired Companies.
Income Taxes. Pro forma income taxes was computed for the year ended
December 31, 1997 using an estimated rate of 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its cash requirements to date from (i) the sale of
Common Stock and warrants in private placements to the officers and directors
of the Company for aggregate consideration of $46.8 million, (ii) other sales
of Common Stock in private placements for aggregate consideration of $7.9
million, (iii) the sale of shares of Common Stock in the Company's initial
public offering in December 1997 for aggregate consideration of $101.1 million
(after deducting the underwriting discount) and (iv) borrowings under the
Company's Credit Facility.
On March 5, 1998, the Company commenced a public offering (the "Offering")
of 7,500,000 shares of Common Stock. The Company estimates that the net
proceeds from the Offering will be approximately $180.2 million ($207.4
million, if the underwriters' over-allotment option is exercised in full),
after deduction of the underwriting discount and estimated offering expenses.
See "Certain Information Concerning Public Offering."
The Company's Credit Facility with a group of financial institutions, for
which Bank of America National Trust and Savings Association acts as agent,
enables the Company to borrow up to $155 million on a revolving basis. The
facility terminates on October 8, 2000, at which time all outstanding
indebtedness is due. Up to $10 million of the Credit Facility is available in
the form of letters of credit. Borrowings under the Credit Facility accrue
interest, at the Company's option, at either (a) the Floating Rate (which is
equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) Bank of
America's reference rate, in each case, plus a margin ranging from 0% to 0.25%
per annum) or (b) the Eurodollar Rate (which is equal to Bank of America's
reserve adjusted eurodollar rate plus a margin ranging from 1.5% to 2.5% per
annum). As of March 5, 1998, there was approximately $132.4 million of
outstanding indebtedness under the Credit Facility. The Company plans to use a
portion of the net proceeds of the Offering to repay such indebtedness as
described under "Certain Information Concerning Public Offering--Use of
Proceeds From Offering." The Company will be able to reborrow the amounts so
repaid.
The Credit Facility contains certain covenants that require the Company to,
among other things, satisfy certain financial tests relating to: (a)
maintenance of minimum net worth, (b) the ratio of debt to net worth, (c)
interest coverage ratio, (d) the ratio of funded debt to cash flow, and (e)
the ratio of senior debt to tangible assets. The Credit Facility also contains
certain covenants that restrict the Company's ability to, among other things,
(i) incur additional indebtedness, (ii) permit liens to attach to its assets,
(iii) enter into operating leases requiring payments in excess of specified
amounts, (iv) declare or pay dividends or make other restricted payments with
respect to its equity securities (including the Common Stock) or subordinated
debt, (v) sell assets, (vi) make acquisitions unless certain financial
conditions are satisfied, and (vii) engage in any line of business other than
the equipment rental industry. The Credit Facility provides that the failure
by any two of Messrs. Jacobs, Milne, Nolan and Miner to continue to hold
executive positions with the Company for a period of 30 consecutive days
constitutes an event of default under the Credit Facility unless replacement
officers satisfactory to the lenders are appointed. The Credit Facility is
also subject to other customary events of default. The Credit Facility is
secured by substantially all of the assets of United Rentals, Inc. and by the
stock and assets of its subsidiaries.
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<PAGE>
The Company is currently in negotiations to increase the size of the Credit
Facility to approximately $300 million. The Company expects such increase to
become effective following completion of the Offering. There can be no
assurance, however, that such increase will become effective at such time, if
at all.
The Company expects that following completion of the Offering its principal
sources of cash will be borrowings under the Credit Facility and cash
generated from operations. The Company estimates that such sources will be
sufficient to fund the cash required for the Company's existing operations
(not including new acquisitions or start-up locations that are not currently
under development, which may require additional financing as discussed below)
for at least 12 months following completion of the Offering.
The Company expects that following the Offering its principal needs for cash
relating to its operations will be to fund (i) operating activities and
working capital, (ii) the purchase of equipment on an ongoing basis to
maintain the quality and competitiveness of its existing rental equipment,
(iii) the purchase of equipment required to expand and modernize the rental
equipment at certain locations, (iv) the purchase of equipment and other items
required to maintain sufficient inventory of the new equipment and related
merchandise and parts that the Company offers for sale, and (v) the
installation of an integrated information technology system.
The Company estimates that equipment expenditures for its existing locations
will be in the range of $25 million to $30 million over the next 12 months. In
addition, the Company expects that it will be required to make equipment
expenditures in connection with new acquisitions. The Company cannot quantify
at this time the amount of such equipment expenditures.
Principal elements of the Company's strategy include expansion through a
disciplined acquisition program and the opening of new rental locations. The
Company expects to pay for future acquisitions using cash, capital stock,
notes and/or assumption of indebtedness. The Company expects that cash
required for future acquisitions and start-up locations will be provided by a
combination of borrowings under the Credit Facility, cash generated from
operations, and future debt or equity financings. There can be no assurance
that any such future debt or equity financings will be available or, if
available, will be on terms satisfactory to the Company.
The Company is in the process of developing three start-up locations. See
"Business--Start-up Locations." The Company estimates that the aggregate costs
associated with such start-up locations will be in the range of $2.5 million
to $3.5 million (including expenditures of approximately $1.1 million incurred
to date). The Company believes that cash generated from operations and
borrowings under the Credit Facility will be sufficient to fund these costs
without additional debt or equity financings.
The Company is in the process of installing an integrated information
technology system and expects that this system will become operational in
March 1998 at substantially all the Company's existing locations. The Company
estimates that the cost of installing such system at the Company's existing 68
locations and up to 22 additional locations will be approximately $6.5 million
(including approximately $5.2 million expended to date). The Company will be
required to expand this system on an ongoing basis as it adds locations. The
Company believes that the system will be year 2000 compliant.
FLUCTUATIONS IN OPERATING RESULTS
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors.
The Company is continually involved in the investigation and evaluation of
potential acquisitions. In accordance with generally accepted accounting
principles, the Company capitalizes certain direct out-of-pocket expenditures
(such as legal and accounting fees) relating to potential or pending
acquisitions. Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, are expensed
as incurred. The Company's policy is to charge against earnings any
capitalized expenditures relating to any potential or pending acquisition that
the Company determines will not be consummated. There can be no
19
<PAGE>
assurance that the Company in future periods will not be required to incur a
charge against earnings in accordance with such policy, which charge,
depending upon the magnitude thereof, could adversely affect the Company's
results of operations.
The Company will be required to incur significant start-up expenses in
connection with establishing each start-up location. Such expenses may
include, among others, pre-opening expenses related to setting up the
facility, training employees, installing information systems and marketing.
The Company expects that in general start-up locations will initially operate
at a loss or at less than normalized profit levels. Consequently, the opening
of a start-up location may negatively impact the Company's margins until the
location achieves normalized profitability.
There may be a lag between the time that the Company purchases new equipment
and begins to incur the related depreciation and interest expenses and the
time that the equipment begins to generate revenues at normalized rates. As a
result, the purchase of new equipment, particularly equipment purchased in
connection with expanding and diversifying the Company's rental equipment, may
periodically reduce margins.
GENERAL ECONOMIC CONDITIONS AND INFLATION
The Company's operating results may be adversely affected by (i) changes in
general economic conditions, including national, regional and local changes in
construction and industrial activity, (ii) increases in interest rates that
may result in a higher cost of capital to the Company, or (iii) adverse
weather conditions that may decrease construction and other industrial
activity. Although the Company cannot accurately anticipate the effect of
inflation on its operations, the Company believes that inflation has not had,
and is not likely in the foreseeable future to have, a material impact on its
results of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in a primary financial statement. The Company is currently
evaluating the reporting formats recommended under this Statement. SFAS No.
131 establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments.
20
<PAGE>
BUSINESS
United Rentals was formed in September 1997 for the purpose of creating a
large, geographically diversified equipment rental company in the United
States and Canada. The Company commenced equipment rental operations in
October 1997 by acquiring six established companies and acquired 15 additional
companies in the first two months of 1998. The Company rents a broad array of
equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and other individuals. The
Company also engages in related activities such as selling used rental
equipment, acting as a distributor for certain new equipment, and selling
related merchandise and parts. The Company had pro forma revenues of $188.2
million during the year ended December 31, 1997. The Company's growth strategy
is to expand through a disciplined acquisition program, the opening of new
rental locations and internal growth and to further diversify its equipment
categories and customer markets. The Company believes that as it expands it
should gain competitive advantages relative to smaller operators, including
greater purchasing power, a lower cost of capital, the ability to provide
customers with a broader range of equipment and services and with newer and
better maintained equipment, and greater flexibility to transfer equipment
among locations in response to customer demand.
United Rentals currently operates 68 rental locations in 16 states and
Canada. The Company's locations are managed by experienced professionals who
have extensive industry experience and substantial knowledge of the local
markets served. These managers generally are former owners or employees of the
businesses acquired by the Company. The types of rental equipment offered by
the Company include a broad range of light to heavy construction and
industrial equipment (such as pumps, generators, forklifts, backhoes, cranes,
bulldozers, aerial lifts and compressors), general tools and equipment (such
as hand tools and garden and landscaping equipment) and special event
equipment (such as tents, tables and chairs). The equipment mix varies at each
of the Company's locations, with some locations offering a general mix and
some specializing in specific equipment categories. As of February 13, 1998,
the Company's rental equipment included approximately 34,500 units (excluding
special event equipment), had an original purchase price of approximately $225
million and had a weighted average age (based on original purchase price) of
approximately 3.6 years.
INDUSTRY OVERVIEW
The Company estimates that the U.S. equipment rental industry (including
used and new equipment sales by rental companies) generates annual revenues in
excess of $20 billion. The combined equipment rental revenues of the 100
largest equipment rental companies have increased at an estimated compound
annual rate of approximately 21% from 1992 through 1996 (based upon revenues
reported for such period, the latest period for which data is available, by
the Rental Equipment Register, an industry trade publication). The Company
believes that this growth primarily reflects the following trends:
Recognition of Advantages of Renting. There is increasing recognition of the
many advantages that equipment rental may offer compared with ownership,
including the ability to: (i) avoid the large capital investment required for
equipment purchases, (ii) reduce storage and maintenance costs, (iii)
supplement owned equipment thereby increasing the range and number of jobs
that can be worked on, (iv) access a broad selection of equipment and select
the equipment best suited for each particular job, (v) obtain equipment as
needed and minimize the costs associated with idle equipment, and (vi) access
the latest technology without investing in new equipment.
Increase in Contractor Rentals. There has been a fundamental shift in the
way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for peak
period capacity, meet specific job requirements or replace broken equipment--
many contractors are now also using rental equipment on an ongoing basis to
meet their long-term equipment requirements. A survey of contractors conducted
by Merrill Lynch & Co. in September 1996 (the last time such survey was
conducted) found that, on average, the percentage of contractor fleets that
was rented increased from 7% in 1994 to 15% at the time of the survey.
Outsourcing Trend. The general trend toward the corporate outsourcing of
non-core competencies is leading large industrial companies increasingly to
rent, rather than purchase, equipment that they require for repairing,
maintaining and upgrading their facilities.
21
<PAGE>
The equipment rental industry is highly fragmented, consisting of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses serving discrete local markets. Based
upon rental revenues reported by the Rental Equipment Register for 1996 (the
latest year for which such revenues have been reported): (i) there were only
five equipment rental companies that had 1996 equipment rental revenues in
excess of $100 million (with the largest company having had 1996 equipment
rental revenues of approximately $400 million), (ii) the largest 100 equipment
rental companies combined had less than a 20% share of the market based on
1996 equipment rental revenues and the Company's estimate of the size of the
market (with the largest company having had a market share of less than 3%),
and (iii) there were approximately 100 equipment rental companies that had
1996 equipment rental revenues between $5 million and $100 million. In
addition, the Company estimates that there are more than 20,000 companies with
annual equipment rental revenues of less than $5 million. The Company believes
that the fragmented nature of the industry presents substantial consolidation
and growth opportunities for companies with access to capital and the ability
to implement a disciplined acquisition program. The Company also believes that
the extensive experience of its management team in acquiring and effectively
integrating acquisition targets should enable the Company to capitalize on
these opportunities.
STRATEGY
The Company's objective is to expand its operations and build a large
geographically diversified equipment rental company in the United States and
Canada. The Company believes that as it expands it should gain competitive
advantages relative to smaller operators, including greater purchasing power,
a lower cost of capital, the ability to provide customers with a broader range
of equipment and services and with newer and better maintained equipment, and
greater flexibility to transfer equipment among locations in response to
customer demand. The Company's plan for achieving this objective includes the
following key elements:
Execute Disciplined Acquisition Program. The Company intends to expand
through a disciplined acquisition program. The Company will seek to acquire
companies of varying size, including relatively large companies to serve as
platforms for regional development and smaller companies to complement
existing or anticipated locations. In evaluating potential acquisition
targets, the Company considers a number of factors, including the quality of
the target's rental equipment and management, the opportunities to improve
operating margins and increase internal growth at the target, the economic
prospects of the region in which the target is located, the potential for
additional acquisitions in the region, and the competitive landscape in the
target's markets.
Improve Operating Margins. The Company plans to focus significant efforts on
improving operating margins at acquired companies through the efficient
integration of new and existing operations, the elimination of duplicative
costs, reduction in overhead, and centralization of functions such as
purchasing and information technology.
Increase Internal Growth. The Company believes that a lack of capital has
constrained expansion and modernization at many small and mid-sized equipment
rental companies and that as a result there is significant potential to
increase internal growth at many acquired companies through capital
investment. The Company will seek to increase internal growth by investing in
additional and more modern equipment, using advanced information technology
systems to improve asset utilization and tracking, increasing sales and
marketing efforts, expanding and diversifying the customer segments served,
expanding the geographic areas served, and opening complementary locations.
Open New Rental Locations. The Company also intends to grow by selectively
opening new rental locations in attractive markets where there are no suitable
acquisition targets available or where the cost of a start-up location would
be less than the cost of acquiring an existing business.
Diversify Locations, Equipment Categories and Customers. The Company plans
to diversify geographically and to focus on a broad range of equipment catego-
ries and customer markets within the equipment rental industry. The Company
believes that this will allow it to participate in the overall growth of the
equipment rental
22
<PAGE>
industry and reduce the Company's sensitivity to fluctuations in regional eco-
nomic conditions or changes that affect particular market segments. In order
to achieve this diversification, the Company will consider expansion opportu-
nities in the United States and Canada and will pursue acquisition candidates
with varying equipment mixes and customer specializations.
ACQUISITIONS
The Company believes that there will continue to be a large number of
attractive acquisition opportunities in the equipment rental industry due to
the highly fragmented nature of the industry, the inability of many small and
mid-sized equipment rental companies to expand and modernize due to capital
constraints, and the desire of many long-time owners for liquidity. The
Company has an experienced acquisition team, comprised of senior level
executives with extensive acquisition, operating and financial experience,
that is engaged in identifying and evaluating acquisition candidates and
executing the Company's acquisition program. The Company estimates that, since
the formation of the Company in September 1997, it has preliminarily reviewed
more than 150 potential acquisition candidates and has conducted preliminary
market studies or initiated due diligence on more than 50 of these candidates.
The table below provides certain information concerning the 21 acquisitions
completed by the Company to date:
<TABLE>
<CAPTION>
NUMBER OF YEARS IN 1997
COMPANY LOCATIONS RENTAL SITES BUSINESS REVENUES
- ------- ------------------------- ------------ -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1997 ACQUISITIONS:
Mercer Equipment Company North Carolina 3 9 $18.5
A&A Tool Rentals and
Sales, Inc. California 2 35 13.8
Coran Enterprises, Inc. California 4 33 9.5
(dba A-1 Rents) and
affiliate
J&J Rental Services Texas 1 19 8.7
Bronco Hi-Lift, Inc. Colorado 1 16 6.5
Rent-It Center, Inc. Utah 1 45 2.9
<CAPTION>
1998 ACQUISITIONS:
<S> <C> <C> <C> <C>
Access Rentals, Inc. and
affiliates Connecticut; Florida; 19 23 52.3
Indiana; Minnesota;
New Jersey; New
York; Pennsylvania;
South Carolina;
Tennessee; Washington;
Ontario, Canada
BNR Equipment Limited
and affiliates New York; Ontario, Canada 8 23 24.0
Channel Equipment
Holdings, Inc. and
affiliates Texas 4 20 11.5
Mission Valley Rentals,
Inc. California 4 22 8.6
Pro-Rentals, Inc. Washington 6 12 5.9
ASC Equipment Co., Inc. North Carolina 3 21 5.4
Nevada High Reach
Equipment, Inc. and
affiliate Nevada 3 13 4.5
Gene's Village Rental &
Sales, Inc. South Carolina 2 24 3.6
Manchester Equipment
Rental & Sales, Inc. Connecticut 1 11 3.3
San Leandro Equipment
Rentals Service, Inc. California 1 36 3.2
Darien Rental Services,
Inc. Connecticut 1 31 1.7
Rents Et. Al., Inc. California 1 10 1.4
Salisbury Rental Center,
Inc. North Carolina 1 10 1.3
Anchor Rental, Inc. Connecticut 1 15 1.0
A-1 Rents of Galveston,
Inc. Texas 1 16 0.6
</TABLE>
23
<PAGE>
The aggregate consideration paid by the Company for the Acquired Companies
was $176.0 million and consisted of approximately $156.4 million in cash,
1,123,587 shares of Common Stock (including 137,600 shares which are expected
to be cancelled as described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Consideration Paid for the
Acquired Companies") a convertible note in the principal amount of $300,000,
and warrants to purchase an aggregate of 30,000 shares of Common Stock. In
addition, the Company repaid or assumed outstanding indebtedness of the
Acquired Companies in the aggregate amount of approximately $121.0 million.
The Company also agreed in connection with two of the acquisitions to pay
additional amounts to the former owners based upon specified future revenues.
Such amounts are limited to a maximum of $2.8 million in one case and Cdn$4.0
million in the other case.
The Company at present is not party to any definitive agreements relating to
future acquisitions. However, the Company is continually investigating and
evaluating potential acquisition candidates and is currently a party to 16
non-binding letters of intent relating to the possible acquisition by the
Company of 16 additional companies having an aggregate of 38 rental locations.
Based upon information provided to the Company in connection with its
preliminary investigation of these businesses, the Company estimates that the
aggregate annualized revenues of these companies is approximately $70.9
million. However, in view of the preliminary nature of this estimate, there
can be no assurance that actual revenues will not differ. Furthermore, in view
of the fact that these letters of intent are non-binding and that the Company
has not completed its due diligence investigations with respect thereto, the
Company cannot predict whether these letters of intent will lead to definitive
agreements, whether the terms of any such definitive agreements will be the
same as the terms contemplated by the letters of intent or whether any
transaction contemplated by such letters of intent will be consummated.
START-UP LOCATIONS
The Company is in the process of developing three start-up locations (one in
Florida and two in Texas). These projects were commenced by certain of the
Acquired Companies, prior to their having been acquired by the Company, and
are being continued by the Company. The Company expects that the Florida
location will open in the first quarter of 1998 and that the two Texas
locations will open in the second quarter of 1998.
OPERATIONS
The Company currently operates 68 rental locations in 16 states and Canada.
The Company offers for rent a broad array of equipment including light to
heavy construction and industrial equipment, general tools and equipment, and
special event equipment. The Company also engages in related activities such
as selling used rental equipment, acting as a distributor for certain new
equipment, and selling related merchandise and parts. The Company's customer
base is diverse and includes construction industry participants, industrial
companies, and homeowners and other individuals.
EQUIPMENT RENTAL
The Company offers for rent a broad array of equipment on a daily, weekly,
monthly and multi-month basis. The following are examples of the types of
equipment that the Company offers for rent:
Construction and Industrial: aerial lifts, air compressors, backhoes,
boom lifts, bulldozers, cranes, ditching equipment, forklifts,
generators, high reach equipment, pumps, scissor lifts, tractors.
General Tools and Equipment: garden and landscaping equipment, hand
tools, high-pressure washers, paint sprayers, power tools, roto
tillers.
Special Event: barbecue grills, china and flatware, fountains,
lighting, staging and dance floors, tables and chairs, tents and
canopies.
24
<PAGE>
As of February 13, 1998, the Company's rental equipment included
approximately 34,500 units (excluding special event equipment) and had an
original purchase price of approximately $225 million and a weighted average
age (based on original purchase price) of approximately 3.6 years. The Company
estimates that (based on original purchase price) construction and industrial
equipment represents approximately 94% of the Company's rental equipment,
general tools and equipment represents approximately 5%, and special event
equipment represents approximately 1%. The Company also estimates that four
categories of construction and industrial equipment (aerial lifts, boom lifts,
scissor lifts and high reach equipment) represent approximately 47% of the
Company's rental equipment and accounted for approximately 34% of the
Company's pro forma revenues in 1997.
The equipment mix varies at each of the Company's locations, with some
locations offering a general mix and some specializing in specific equipment
categories. The Company expects that as it integrates the Acquired Companies
it will further expand and modernize its rental equipment and expand and
diversify the customer markets served by certain locations.
RELATED OPERATIONS
In addition to renting equipment, the Company is engaged in a variety of
related or complementary activities.
Sales of Used Equipment. The Company routinely sells used rental equipment
to adjust the age and composition of its rental fleet. The Company sells such
equipment through a variety of means including sales to the Company's existing
rental customers and local customer base, sales to used equipment dealers, and
sales through public auctions. The Company also participates in trade-in
programs in connection with purchasing new equipment.
Sales of New Equipment. The Company, at several locations, is a distributor
for various tool and equipment manufacturers, including American Honda Motor
Co. Inc. (generators and pumps), Edco Manufacturing (surfacing equipment),
Genie Industries, Inc. (aerial lifts), Grove Worldwide (aerial platforms),
Kubota (earthmoving equipment), Multiquip, Inc. (compaction equipment and
compressors), Milwaukee Electric Tool Corporation (power tools), Trak
International (loaders and forklifts), Stihl, Inc. (surface preparation
equipment) and Wacker (compaction equipment). In general, such manufacturers
may terminate the Company's distribution rights at any time.
Sales of Related Merchandise and Parts. The Company, at most locations,
sells a variety of merchandise that may be used in conjunction with rental
equipment (such as saw blades, fasteners, drill bits, hard hats, gloves and
other safety equipment) and also sells parts.
Other. The Company at certain locations offers equipment maintenance
services to customers for equipment that is owned by the customer. This
service is primarily provided with respect to equipment purchased from the
Company.
CUSTOMERS AND SALES AND MARKETING
The Company on a pro forma basis rented equipment to over 157,000 customers
in 1997. No single customer accounted for more than 1% of the Company's pro
forma revenues in 1997, and the Company's top 10 customers accounted for less
than 2.5% of the Company's pro forma revenues in 1997.
The composition of the Company's customer base varies widely by location and
is determined by several factors, including the equipment mix and marketing
focus of the particular location and the business composition of the local
economy. The Company's customer base consists of the following general
categories: (i) construction industry participants (such as construction
companies, contractors and subcontractors), (ii) industrial companies (such as
manufacturers, chemical companies, paper mills and utilities), and (iii)
homeowners and other individuals. The Company estimates that in 1997 (a) sales
to construction industry participants accounted for
25
<PAGE>
approximately 75% of the Company's pro forma revenues, (b) sales to industrial
companies accounted for approximately 17% of the Company's pro forma revenues,
and (c) sales to homeowners and others accounted for approximately 8% of the
Company's pro forma revenues.
The Company markets its products and services through a sales force
consisting of approximately 138 store-based salespeople and 115 field-based
salespeople. The Company supplements the activities of its sales force through
participation in industry trade shows and conferences, direct mailings, and
advertising in local industry publications and the yellow pages in the markets
it serves.
PURCHASING
The Company is in the process of centralizing the purchasing of certain
equipment items, particularly large items with a significant cost and items
that are purchased in volume. The Company believes that such centralization
will give it greater purchasing power with its suppliers and enable it to
obtain discounts.
INFORMATION TECHNOLOGY SYSTEM
The Company is in the process of installing an integrated information
technology system and expects that this system will become operational at
substantially all the Company's existing locations in March 1998. This system
will link all the Company's locations, integrate operating and financial data
on a Company-wide basis, and enable the real-time tracking of rental
transactions, equipment availability, inventory and other data. The Company
expects that this system will enable management to monitor and analyze a wide
range of operating and financial data, including (i) price and sales trends by
store, region, salesperson, equipment category, or customer, (ii) fleet
utilization by individual asset or asset class and (iii) financial results by
store or region. Until the new system is operational, each acquired business
will continue using the systems that it had in place at the time it was
acquired. The Company will be required to expand this system on an ongoing
basis as it adds locations.
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: public companies or divisions of public
companies (such as Hertz Equipment Rental Corporation, Prime Service, Inc.,
U.S. Rentals, Inc. and Rental Service Corporation); regional competitors which
operate in one or more states; small, independent businesses with one or two
rental locations; and equipment vendors and dealers who both sell and rent
equipment directly to customers. The Company believes that, in general, large
companies enjoy significant competitive advantages compared to smaller
operators, including greater purchasing power, a lower cost of capital, the
ability to provide customers with a broader range of equipment and services
and with newer and better maintained equipment, and greater flexibility to
transfer equipment among locations in response to customer demand. Certain of
the Company's competitors are larger and have greater financial resources than
the Company.
PROPERTIES
The Company currently operates 68 rental locations (60 in the United States
and 8 in Canada). The rental locations in the United States are in the
following 16 states: California (12), Colorado (1), Connecticut (4), Florida
(2), Indiana (1), Minnesota (2), New York (7), New Jersey (1), Nevada (3),
North Carolina (7), Pennsylvania (1), South Carolina (3), Tennessee (2), Texas
(6), Utah (1), and Washington (7). The rental locations in Canada are all in
Ontario. The Company's rental locations generally include facilities for
displaying equipment and, depending on the location, may include separate
equipment service areas and storage areas.
The Company leases each of its rental locations under leases providing for
various terms, including (i) 33 leases that provide for a remaining term of
more than five years (of which 26 provide for a renewal option), (ii) 23
leases that provide for a remaining term of between one and five years (of
which 13 provide for a renewal option), (iii) four leases that provide for a
remaining term of less than one year (of which two provide for a renewal
option) and (iv) eight leases that are on a month-to-month basis. These leases
were entered into (or assumed) in connection with the acquisitions of the
Acquired Companies and most of the lessors are the former owners of these
companies. The Company believes that its leases generally reflect market
terms.
26
<PAGE>
The Company maintains a fleet of vehicles that is used for delivery,
maintenance and sales functions. A portion of this fleet is owned and a
portion leased and, as of February 13, 1998, this fleet included 615 vehicles.
The Company's corporate headquarters are located in Greenwich, Connecticut,
where it leases approximately 15,000 square feet under a lease that extends
until 2001 (subject to extension rights).
ENVIRONMENTAL REGULATION
The Company uses hazardous materials, such as solvents, to clean and
maintain its rental equipment and generates and disposes of wastes such as
used motor oil, radiator fluid, solvents and batteries. In addition, the
Company currently dispenses, or may in the future dispense, petroleum products
from underground and above-ground storage tanks located at certain rental
locations. These and other activities of the Company are subject to various
federal, state and local laws and regulations governing the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and wastes. Under such laws, an owner or lessee of real estate may
be liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in, or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knew
of, or was responsible for, the presence of such hazardous or toxic
substances. Although the Company investigates each business or property that
it acquires or leases and believes there are no existing material liabilities
relating to non-compliance with environmental laws and regulations, there can
be no assurance that there are no undiscovered potential liabilities relating
to non-compliance with environmental laws and regulations, that historic or
current operations have not resulted in undiscovered conditions that will
require investigation and/or remediation under environmental laws, or that
future uses or conditions will not result in the imposition of environmental
liability upon the Company or expose the Company to third-party actions such
as tort suits. Furthermore, there can be no assurance that changes in
environmental regulations in the future will not require the Company to make
significant capital expenditures to change methods of disposal of hazardous
materials or otherwise alter aspects of its operations.
EMPLOYEES
At February 13, 1998, the Company employed 1,197 persons, including 31
corporate and regional management employees, 913 operational employees and 253
sales people. Of these employees, 346 are salaried personnel and 851 are
hourly personnel. Collective bargaining agreements relating to nine separate
locations cover approximately 83 of the Company's employees. The Company
considers its labor relations to be good.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material adverse effect on the business or financial
condition of the Company.
27
<PAGE>
MANAGEMENT
BACKGROUND
The Company was founded in September 1997 by the following officers of the
Company: Bradley Jacobs, John Milne, Michael Nolan, Robert Miner, Sandra
Welwood, Joseph Kondrup, Jr., Kai Nyby and Richard Volonino. Each of these
officers was formerly a senior executive of United Waste Systems, Inc.
("United Waste") or a senior member of United Waste's acquisition team. United
Waste, a solid waste management company, was formed in 1989 and sold in August
1997 to USA Waste Services, Inc. for stock consideration valued at over $2.2
billion. United Waste executed a growth strategy that combined a disciplined
acquisition program (including over 200 acquisitions completed from January
1995 through August 1997), the integration and optimization of acquired
facilities, and internal growth. At the time it was sold, United Waste was the
sixth largest provider of integrated, non-hazardous solid waste management
services in the United States, as measured by 1996 revenues.
OFFICERS, DIRECTORS AND KEY MANAGERS
The table below identifies, and provides certain information concerning, the
officers, directors and certain key managers of the Company. The Company
expects that an additional independent director will be appointed prior to May
1998. The Company also expects that Mr. Hicks, the Company's President and
Chief Operating Officer, will be appointed a director concurrently with the
appointment of such additional independent director.
<TABLE>
<CAPTION>
NAME AGE POSITIONS(1)(2)
---- --- ---------------
<S> <C> <C>
OFFICERS AND DIRECTORS
Bradley S. Jacobs....... 41 Chairman, Chief Executive Officer and Director
Wayland R. Hicks........ 55 President and Chief Operating Officer
John N. Milne........... 38 Vice Chairman, Chief Acquisition Officer, Secretary and Director
Michael J. Nolan........ 37 Chief Financial Officer
Robert P. Miner......... 48 Vice President, Finance
Sandra E. Welwood....... 42 Vice President, Corporate Controller
Kurtis T. Barker........ 37 Regional Vice President, Operations
Daniel E. Imig.......... 51 Regional Vice President, Operations
Joseph J. Kondrup,
Jr. ................... 39 Vice President, Acquisitions
Kai E. Nyby............. 44 Vice President, Acquisitions
Richard A. Volonino..... 55 Vice President, Acquisitions
Ronald M. DeFeo......... 45 Director
Richard J. Heckmann..... 54 Director
Gerald Tsai, Jr. ....... 68 Director
KEY MANAGERS
Joseph E. Bloodworth.... 46 Manager, District Operations
Joseph A. DiFrancesco... 38 Manager, District Operations
Joseph E. Doran......... 57 Manager, District Operations
William M. Rigsbee...... 41 Manager, District Operations
</TABLE>
- --------
(1) Each officer and director in the table has served in the position(s)
indicated since either September 1997 (in the case of the eight founders),
October 1997 (in the case of Messrs. Barker, Imig, DeFeo and Heckmann),
November 1997 (in the case of Mr. Hicks) or December 1997 (in the case of
Mr. Tsai). The Company's officers are elected by the Board of Directors
and, subject to the employment agreements described below, serve at the
discretion of the Board.
(2) For information concerning the term served by directors, see "--
Classification of Board of Directors."
28
<PAGE>
Bradley S. Jacobs founded United Waste Systems, Inc. in 1989 and served as
its Chairman and Chief Executive Officer from inception until the sale of the
company in August 1997. From 1984 to July 1989, Mr. Jacobs was Chairman and
Chief Operating Officer of Hamilton Resources Ltd., an international trading
company, and from 1979 to 1983, he was Chief Executive Officer of Amerex Oil
Associates, Inc., an oil brokerage firm that he co-founded.
Wayland R. Hicks served in various senior executive positions at Xerox
Corporation where he worked for 28 years (1966-1994). His positions at Xerox
Corporation included Executive Vice President, Corporate Operations (1993-
1994), Executive Vice President, Corporate Marketing and Customer Support
Operations (1989-1993) and Executive Vice President, Engineering and
Manufacturing--Xerox Business Products and Systems Group (1987-1989). Mr.
Hicks served as Vice Chairman and Chief Executive Officer of Nextel
Communications Corp. (1994-1995) and as Chief Executive Officer and President
of Indigo N.V. (1996-1997). He is also a director of Maytag Corporation.
John N. Milne was Vice Chairman and Chief Acquisition Officer of United
Waste Systems, Inc. from 1993 until August 1997 and held other senior
executive positions at United Waste from 1990 until 1993. Mr. Milne had
primary responsibility for implementing United Waste's acquisition program.
From September 1987 to March 1990, Mr. Milne was employed in the Corporate
Finance Department of Drexel Burnham Lambert Incorporated.
Michael J. Nolan served as the Chief Financial Officer of United Waste
Systems, Inc. from February 1994 until August 1997. He served in other finance
positions at United Waste from November 1991 until February 1994, including
Vice President, Finance, from October 1992 to February 1994. From 1985 until
November 1991, Mr. Nolan held various positions at the accounting firm of
Ernst & Young, including senior audit manager, and is a Certified Public
Accountant.
Robert P. Miner was an executive officer of United Waste Systems, Inc. from
November 1994 until August 1997, serving first as Vice President, Finance and
then Vice President, Acquisitions. Prior to joining United Waste, he was a
research analyst with PaineWebber Incorporated (November 1988 to October 1994)
and Needham & Co. (January 1987 to October 1988) and held various executive
positions at General Electric Environmental Services, Inc., Stauffer Chemical
Company, and OHM Corporation.
Sandra E. Welwood served as Vice President, Controller of United Waste
Systems, Inc. from March 1996 until August 1997. From October 1994 to February
1996, she was Assistant Controller of OSi Specialty, Inc., and from October
1993 to September 1994, was Director of Internal Audit of the Gartner Group,
Inc. Prior to this, Ms. Welwood was a senior audit manager at Ernst & Young
from September 1987 to September 1993, and held various positions (including
senior audit manager) at KPMG Peat Marwick from January 1980 to August 1987,
and is a Certified Public Accountant.
Kurtis T. Barker served as Vice President-Operations-Great Lakes Region of
United Waste Systems, Inc. from 1993 until August 1997. From 1991 to 1993, he
was an operations manager at Chambers Development Company, Inc. From 1990 to
1991, Mr. Barker was a project engineer at South Dakota Disposal Systems. From
1986 to 1990, he was a project engineer and then a general manager at Silver
King Mines, Inc.
Daniel E. Imig served as President-Mid-Central Region of Waste Management,
Inc. from 1996 to August 1997. From 1978 to 1996, Mr. Imig served in a number
of operating positions at Waste Management, Inc., including District Manager
and Division President.
Joseph J. Kondrup, Jr. was a senior member of United Waste's acquisition
team from March 1996 until August 1997, with responsibility for the company's
entry into and subsequent development of its Rocky Mountain Region. From July
1987 until March 1996, he was Division President of a subsidiary of Waste
Management, Inc.
Kai E. Nyby was a senior member of United Waste's acquisition team from 1995
until August 1997, with responsibility for acquisitions and business
development in the company's Midwest Region. From 1981 to 1995, Mr. Nyby was
the Regional Manager, Midwest Group for Waste Management, Inc. From 1973 to
1980, Mr. Nyby was General Manager, Operations for a subsidiary of Waste
Management, Inc.
29
<PAGE>
Richard A. Volonino was a senior executive officer of United Waste from
November 1991 until August 1997, serving as Chief Operating Officer from 1991
to 1992 and thereafter as Executive Vice President--Acquisitions. From May
1988 to October 1991, Mr. Volonino held various positions, including Vice
President, Operations, with Chambers Development Company, Inc., and from 1986
to December 1987, was District Manager at Laidlaw, Inc.
Ronald M. DeFeo is the Chief Executive Officer, President, Chief Operating
Officer and a director of Terex Corporation, a leading global provider of
equipment for the manufacturing, mining and construction industries. Mr. DeFeo
joined Terex in 1992 as President of the Terex heavy equipment group and was
appointed President and Chief Operating Officer in 1993 and Chief Executive
Officer in 1995. From 1984 to 1992, Mr. DeFeo held various management
positions at Tenneco, Inc., including Senior Vice President and Managing
Director.
Richard J. Heckmann has served since 1990 as Chairman, President and Chief
Executive Officer of United States Filter Corporation, a leading global
provider of industrial and commercial water and wastewater treatment systems
and services. Mr. Heckmann is also a director of USA Waste Services, Inc. and
K2 Inc.
Gerald Tsai, Jr. served as Chairman, Chief Executive Officer and President
of Delta Life Corporation, an insurance company, from 1993 until the sale of
the company in October 1997. Mr. Tsai was Chairman of the Executive Committee
of the Board of Directors of Primerica Corporation, a diversified financial
services company, from December 1988 until April 1991, and served as Chief
Executive Officer of Primerica Corporation from April 1986 until December
1988. Mr. Tsai is currently a private investor and serves as a director of
Meditrust Corporation, Proffitt's, Inc., Rite Aid Corporation, Sequa
Corporation, Triarc Companies, Inc. and Zenith National Insurance Corp. He
also serves as a trustee of Boston University and New York University Medical
Center.
Joseph E. Bloodworth founded J&J Rental Services, Inc. (and its
predecessors) and served as Chief Executive Officer and President from 1975
until October 1997 when J&J Rental Services, Inc. was acquired by United
Rentals.
Joseph A. DiFrancesco served as General Manager of Access Rentals, Inc. from
1989 until the acquisition of the company by United Rentals in January 1998
and as Controller of Access Rentals from 1985 until 1989. Mr. DiFrancesco is a
Certified Public Accountant.
Joseph E. Doran served as President of A&A Tool Rentals and Sales, Inc. from
1972 until the acquisition of the company by United Rentals in October 1997.
Mr. Doran served on the Board of Directors of the California Rental
Association for 12 years and was its President from 1985 to 1986.
William M. Rigsbee served as President of Mercer Equipment Company from 1990
until the acquisition of the company by United Rentals in October 1997. He has
been employed in the equipment rental industry since 1978. Mr. Rigsbee is a
former President of both the Carolina Rental Association and the North
Carolina Associated Equipment Distributors.
CAPITAL CONTRIBUTIONS BY OFFICERS AND DIRECTORS
The officers and directors of the Company listed below have made capital
contributions to the Company in the aggregate amount of $46.8 million
(excluding amounts paid by certain officers and directors in respect of shares
of Common Stock purchased by them in the Company's initial public offering in
December 1997). Such capital contributions were made in connection with the
sale to such officers and directors in private placements of an aggregate of
13,150,714 shares of Common Stock and 6,342,858 warrants ("Warrants"). Each
such Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $10.00 per share at any time prior to September 12, 2007.
Such shares and Warrants were sold at a price of $3.50 per unit consisting of
one share of Common Stock and one-half of a Warrant (except that Messrs.
Barker and Tsai purchased only Common Stock at a price of $3.50 per share and
Messrs. Hicks, Imig and Heckmann purchased only Common
30
<PAGE>
Stock at a price of $10.00 per share). The table below indicates (i) the
number of shares of Common Stock and the number of Warrants purchased by such
officers and directors (excluding shares purchased in the Company's initial
public offering) and (ii) the aggregate amount paid by such officers and
directors for such securities:
<TABLE>
<CAPTION>
SECURITIES PURCHASED(1)
-------------------------
COMMON
NAME STOCK WARRANTS PURCHASE PRICE
---- ------------ --------------------------
<S> <C> <C> <C>
Bradley S. Jacobs.................. 10,000,000 5,000,000 $35,000,000
Wayland R. Hicks................... 100,000 -- 1,000,000
John N. Milne...................... 1,428,571 714,286 5,000,000
Michael J. Nolan................... 571,429 285,715 2,000,000
Robert P. Miner.................... 285,714 142,857 1,000,000
Sandra E. Welwood.................. 100,000 50,000 350,000
Kurtis T. Barker................... 100,000 -- 350,000
Daniel E. Imig..................... 5,000 -- 50,000
Joseph J. Kondrup, Jr. ............ 100,000 50,000 350,000
Kai E. Nyby........................ 100,000 50,000 350,000
Richard A. Volonino................ 100,000 50,000 350,000
Richard J. Heckmann................ 20,000 -- 200,000
Gerald Tsai, Jr. .................. 240,000 -- 840,000
</TABLE>
- --------
(1) In certain cases includes securities owned by one or more entities
controlled by the named holder.
CLASSIFICATION OF BOARD OF DIRECTORS
The Board of Directors is divided into three classes. The term of office of
the first class (currently comprised of Mr. Tsai) will expire at the annual
meeting of stockholders following the date of this Prospectus, the term of
office of the second class (currently comprised of Mr. DeFeo and Mr. Heckmann)
will expire at the second annual meeting of stockholders following the date of
this Prospectus, and the term of office of the third class (currently
comprised of Mr. Jacobs and Mr. Milne) will expire at the third annual meeting
of stockholders following the date of this Prospectus. At each annual meeting
of stockholders, successors to directors of the class whose term expires at
such meeting will be elected to serve for three-year terms and until their
successors are elected and qualified. See "Certain Charter and By-Law
Provisions--Classified Board of Directors."
COMMITTEES OF THE BOARD
The Board of Directors has three standing committees: the Audit Committee,
the Compensation/Stock Option Committee, and the Special Stock Option
Committee.
The responsibilities of the Audit Committee include selecting the firm of
independent accountants to be appointed to audit the Company's financial
statements and reviewing the scope and results of the audit with the
independent accountants. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Compensation/Stock Option Committee include
making recommendations with respect to the compensation to be paid to officers
and directors, administering the Company's Stock Option Plan, and approving
the grant of options. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Special Stock Option Committee include approving
the grant of options to persons other than officers and directors of the
Company. The authority of this committee to approve the grant of options to
such persons is concurrent with the authority of the Compensation/Stock Option
Committee to approve such grants. The members of this committee are Messrs.
Jacobs and Milne.
COMPENSATION OF DIRECTORS
Each director of the Company is paid up to $2,500 per day for each Board of
Directors' meeting such director attends, together with an expense
reimbursement. Messrs. DeFeo, Heckmann and Tsai have each been granted options
to purchase an aggregate of 20,000 shares of Common Stock at an exercise price
of $15.00 per share.
31
<PAGE>
COMPENSATION OF CERTAIN OFFICERS
The Company's executive officers are being compensated, and each has been
compensated since joining the Company, in accordance with the terms of the
Employment Agreements described below.
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and each of the other executive
officers of the Company during the period August 14, 1997 (inception) through
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#)
- --------------------------- --------- ------------
<S> <C> <C>
Bradley S. Jacobs...................................... $97,039 --
Chief Executive Officer
Wayland R. Hicks....................................... 47,692(1) 450,000
President and Chief Operating Officer
John N. Milne.......................................... 63,577 --
Chief Acquisition Officer
Michael J. Nolan....................................... 58,558 --
Chief Financial Officer
Robert P. Miner........................................ 50,192 --
Vice President, Finance
</TABLE>
- --------
(1)Mr. Hicks' employment with the Company commenced on November 14, 1997.
The following tables summarize the options granted in 1997 to Mr. Hicks, the
potential value of these options at the end of the option term (assuming
certain levels of appreciation of the Company's Common Stock), and the total
number of options held by such executive officer as of December 31, 1997. None
of the other executive officers of the Company named in the Summary
Compensation Table above has been granted options.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATE OF STOCK
SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM(1)
OPTIONS EMPLOYEES PER EXPIRATION ---------------------------
NAME GRANTED IN 1997 SHARE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wayland R. Hicks........ 350,000(2) 38.7% $10.00 11/13/07 $ 2,201,131 $ 5,578,099
50,000(2) 5.5% $15.00 11/13/07 64,447 546,871
50,000(2) 5.5% $20.00 11/13/07 -- 296,871
</TABLE>
- --------
(1) These amounts are based on calculations at hypothetical 5% and 10%
compound annual appreciation rates prescribed by the Securities and
Exchange Commission and, therefore, are not intended to forecast possible
future appreciation, if any, of the Company's Common Stock price.
(2) These options are not currently vested. These options will vest one-third
in November 1998, one-third in November 1999 and one-third in November
2000. These options were granted pursuant to the Company's 1997 Stock
Option Plan.
32
<PAGE>
VALUE OF OPTIONS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
NAME DECEMBER 31, 1997 DECEMBER 31, 1997
- ---- ------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Wayland R. Hicks........ -- 450,000 -- $ 3,475,000
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the
executive officers of the Company. Certain information with regard to these
agreements is set forth below.
The agreements provide for base salary to be paid at a rate per annum as
follows: Mr. Jacobs ($290,000), Mr. Hicks ($400,000), Mr. Milne ($190,000),
Mr. Nolan ($175,000), and Mr. Miner ($150,000). The base salary payable to Mr.
Hicks is payable 50% in cash and 50% in Common Stock (valued at the average
closing sales price of the Common Stock during all trading days in the
calendar quarter preceding the quarter in which the payment is made). Shares
of Common Stock issued to Mr. Hicks are subject to certain restrictions on
transfer as described under "Principal Stockholders--Certain Agreements
Relating to Securities Held by Officers." The base salary payable to Messrs.
Jacobs and Milne is subject to possible upward annual adjustments based upon
changes in a designated cost of living index. The agreements do not provide
for mandatory bonuses. However, the agreements provide that in addition to the
compensation specifically provided for, the Company may pay such salary
increases, bonuses or incentive compensation as may be authorized by the Board
of Directors. The agreements with Messrs. Jacobs and Milne provide for each
such executive to receive an automobile allowance of at least $700 per month.
The agreement with Mr. Hicks provides for the Company to reimburse him for
certain relocation expenses up to a maximum of $100,000.
The employment agreements with the following executives provide that the
term shall automatically renew so that at all times the balance of the terms
will not be less than the period hereinafter specified with respect to such
executive: Mr. Jacobs (five years), Mr. Milne (five years), Mr. Nolan (three
years) and Mr. Miner (three years). The employment agreement with Mr. Hicks
provides for a term extending until November 2000. Under each of the
agreements, the Company or the employee may at any time terminate the
agreement, with or without cause, provided that if the Company terminates the
agreement, the Company is required to make severance payments to the extent
described in the following paragraph.
The employment agreements with Messrs. Jacobs and Milne provide that the
executive is entitled to severance benefits in the event that (i) his
employment agreement is terminated by the Company without Cause (as defined in
the employment agreement), (ii) the executive terminates his employment
agreement for Good Reason (as defined in the employment agreement) or because
of a breach by the Company of its obligations thereunder, (iii) his employment
is terminated as a result of death or (iv) the Company or the executive
terminates the employment agreement due to the disability of the executive.
The severance benefits include (i) a lump sum payment equal to five times the
sum of the executive's annual base salary at the time of termination plus the
highest annual bonus paid to the executive in the preceding three years and
(ii) the continuation of the executive's benefits for such specified period.
The employment agreement with Mr. Hicks provides that the executive is
entitled to a severance payment in the amount of $1 million in the event that
his employment agreement is terminated by the Company without Cause (as
defined in the employment agreement) or he terminates his employment for Good
Reason (as defined in the employment agreement). The employment agreements
with the other officers provide that the executive is entitled to severance
benefits of up to three months' base salary in the event that the executive's
employment agreement is terminated without Cause (as defined in the employment
agreement). The employment agreements with Messrs. Jacobs and Milne provide
that if any portion of the
33
<PAGE>
required severance payment to the executive constitutes an "excess parachute
payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code")), the executive is entitled to receive a payment
sufficient on an after-tax basis to offset any excise tax payable by the
executive pursuant to Section 4999 of the Code. Any payment constituting an
"excess parachute payment" would not be deductible by the Company.
Each of the agreements provides that all options at any time to be granted
to the executive will automatically vest upon a change of control of the
Company (as defined in the agreement).
Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been
granted options to purchase an aggregate of 450,000 shares of Common Stock.
For information concerning these options, see "--Compensation of Certain
Officers."
The agreement with Mr. Hicks provides that at each annual meeting of the
stockholders of the Company which occurs during the term of the agreement and
at which Mr. Hicks' term as director would be scheduled to expire, the Company
will nominate Mr. Hicks for re-election as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At the time the employment agreements with Messrs. Jacobs and Milne were
approved by the Board of Directors, the sole members of the Board were Messrs.
Jacobs and Milne. No compensation committee interlocks with other companies
have existed.
STOCK OPTION PLAN
The Board of Directors has adopted the Company's 1997 Stock Option Plan (the
"Stock Option Plan") which provides for the granting of options to purchase
not more than an aggregate of 5,000,000 shares of Common Stock. Some or all of
such options may be "incentive stock options" within the meaning of the Code.
All officers, directors and employees of the Company and other persons who
perform services on behalf of the Company are eligible to participate in the
Stock Option Plan. Each option granted pursuant to the Stock Option Plan must
provide for an exercise price per share that is at least equal to the fair
market value per share of Common Stock on the date of grant. No options may be
granted under the Stock Option Plan after August 31, 2007. The Company has
heretofore granted under the Stock Option Plan options to purchase an
aggregate of 961,333 shares of Common Stock (including the options granted to
Mr. Hicks as described under "--Employment Agreements"). These options have a
weighted average exercise price of $13.47 per share.
The Stock Option Plan provides that it is to be administered by the Board of
Directors (or by a committee appointed by the Board). The Board of Directors
(or any such committee) has full power and authority to interpret the
provisions, and supervise the administration, of the Stock Option Plan. The
Board of Directors (or any such committee) determines, subject to the
provisions of the Stock Option Plan, to whom options shall be granted, the
number of shares of Common Stock subject to an option, whether an option shall
be incentive or non-qualified, the exercise price of each option (which may
not be less than the fair market value on the date of grant), the period
during which each option may be exercised and the other terms and conditions
of each option.
CERTAIN TRANSACTIONS
The Company has from time to time purchased equipment from Terex Corporation
("Terex") and may do so in the future. Ronald M. DeFeo, a director of the
Company, is the chief executive officer, and a director, of Terex. During
1997, the Company purchased approximately $750,000 of equipment from Terex.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
GENERAL
The table below and the notes thereto set forth as of the date of this
Prospectus certain information concerning the beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of the Company's
Common Stock by (i) each director and executive officer of the Company and
(ii) all executive officers and directors of the Company as a group. Except as
indicated in the table, the Company does not know of any stockholder that is
the beneficial owner of more than 5% of the outstanding Common Stock of the
Company. For purposes of the table, each executive officer is deemed to be the
beneficial owner of all shares of Common Stock that may be acquired upon the
exercise of the Warrants held by such officer. The Warrants are currently
exercisable at an exercise price of $10.00 per share (representing an
aggregate exercise price of $61.4 million, assuming the exercise of all
Warrants held by executive officers).
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT OF COMMON STOCK OWNED(2)
BENEFICIALLY ----------------------------------------
NAME OWNED(1)(2) BEFORE OFFERING AFTER OFFERING
- ---- ------------------- ---------------- ----------------
<S> <C> <C> <C>
Bradley S. Jacobs....... 15,000,100(3)(4) 50.5% 40.3%
Wayland R. Hicks........ 100,000(5) * *
John N. Milne........... 2,142,857(6) 8.4% 6.5%
Michael J. Nolan........ 857,244(7) 3.4% 2.6%
Robert P. Miner......... 428,571(8) 1.7% 1.3%
Ronald M. DeFeo......... 22,000(9) * *
Richard J. Heckmann..... 40,000(10) * *
Gerald Tsai, Jr......... 310,000(11) 1.3% 1.0%
All executive officers
and directors as a
group
(8 persons)............ 18,900,772(12) 61.1% 49.2%
</TABLE>
- --------
*Less than 1%.
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on a given date, any security which such person or persons has the right
to acquire within 60 days after such date is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(2) In certain cases, includes securities owned by one or more entities
controlled by the named holder.
(3) Consists of 10,000,100 outstanding shares and 5,000,000 shares issuable
upon the exercise of currently exercisable Warrants.
(4) Mr. Jacobs has certain rights relating to the disposition of the shares
and Warrants owned by each of the other officers of the Company (as
described below under "--Certain Agreements Relating to Securities Held by
Officers"). By virtue of such rights, Mr. Jacobs is deemed to share
beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) of the shares owned by the other officers
of the Company. The shares that the table indicates are owned by Mr.
Jacobs do not include the shares with respect to which Mr. Jacobs is
deemed to share beneficial ownership as aforesaid. Including such shares,
Mr. Jacobs is deemed the beneficial owner of an aggregate of 19,133,672
shares of Common Stock (comprised of 12,790,814 outstanding shares and
6,342,858 shares issuable upon the exercise of outstanding Warrants).
(5) Does not include 450,000 shares issuable upon the exercise of options
(which are not currently exercisable) granted to Mr. Hicks. See
"Management--Compensation of Certain Officers." Also does not include any
shares that the Company is required to pay Mr. Hicks as part of his base
salary as described under "Management--Employment Agreements."
35
<PAGE>
(6) Consists of 1,428,571 outstanding shares and 714,286 shares issuable upon
the exercise of currently exercisable Warrants.
(7) Consists of 571,529 outstanding shares and 285,715 shares issuable upon
the exercise of currently exercisable Warrants.
(8) Consists of 285,714 outstanding shares and 142,857 shares issuable upon
the exercise of currently exercisable Warrants.
(9) Consists of 2,000 outstanding shares and 20,000 shares issuable upon the
exercise of currently exercisable options.
(10) Consists of 20,000 outstanding shares and 20,000 shares issuable upon the
exercise of currently exercisable options.
(11) Consists of 290,000 outstanding shares and 20,000 shares issuable upon
exercise of outstanding options.
(12) Consists of 12,697,914 outstanding shares, 6,142,858 shares issuable upon
the exercise of currently exercisable Warrants (which Warrants provide
for an exercise price of $10.00 per share, representing an aggregate
exercise price of $61.4 million assuming exercise of all the Warrants
held by executive officers), and 60,000 shares issuable upon the exercise
of currently exercisable options.
CERTAIN AGREEMENTS RELATING TO SECURITIES HELD BY OFFICERS
Prior to the Company's initial public offering, the officers of the Company
purchased Common Stock (and in certain cases Warrants) from the Company in
private placements, as described under "Management--Capital Contributions by
Officers of Directors." All shares of Common Stock and Warrants purchased by
the officers of the Company prior to the Company's initial public offering
(and any shares of Common Stock acquired upon exercise of such Warrants) are
referred to as the "Private Placement Securities."
Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has
entered into an agreement with the Company and Mr. Jacobs that provides that
(i) if Mr. Jacobs sells any Private Placement Securities that he beneficially
owns in a commercial, non-charitable transaction, then Mr. Jacobs is required
to use his best efforts to sell (and has the right to sell subject to certain
exceptions) on behalf of such officer a pro rata portion of such officer's
Private Placement Securities at then prevailing prices, and (ii) except for
sales that may be required to be made as aforesaid, the officer shall not
(without the prior written consent of the Company) sell or otherwise dispose
of the Private Placement Securities owned by such officer (subject to certain
exceptions for charitable gifts). The foregoing provisions of the agreements
terminate in September or October 2002.
Each officer of the Company (other than Mr. Jacobs and Mr. Hicks) has also
agreed pursuant to such agreements that the Company, in its sole discretion,
may (i) prior to September 1, 2005, repurchase the Private Placement
Securities owned by such officer in the event that such officer breaches any
agreement with the Company or acts adversely to the interest of the Company
and (ii) repurchase such Private Placement Securities without any cause
(provided that such repurchase right without cause will lapse with respect to
one-third of the securities on the first, second and third anniversaries of
the date of such agreements). The amount to be paid by the Company in the
event of a repurchase will be equal to the amount originally paid by such
officer for such securities plus an amount representing a 10% annual return on
such amount. See "Management--Capital Contributions by Officers and Directors"
for information concerning the amounts paid by such officers of the Company
for the Private Placement Securities owned by them.
Mr. Hicks has agreed that (i) he will not transfer any Private Placement
Securities purchased by him until November 1998 and (ii) he will not transfer
any shares of Common Stock that are hereafter issued to him as compensation
pursuant to his employment agreement for a one-year period following the date
of issuance. See "Management--Employment Agreements."
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"). As of the date of
this Prospectus, there are 24,718,808 shares of Common Stock outstanding.
After giving effect to the Offering, there will be 32,218,808 shares of Common
Stock outstanding (33,343,808 if the underwriters' over-allotment option is
exercised in full). The Company expects that 137,600 currently outstanding
shares will be cancelled as described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Consideration Paid
for the Acquired Companies." As of the date of this Prospectus, there are no
shares of Preferred Stock outstanding or reserved for issuance.
The following description of the Company's capital stock is a summary of the
material terms of such stock. The following does not purport to be complete
and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Certificate of Incorporation and By-laws.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share
held on all matters submitted to a vote at a meeting of stockholders. Each
stockholder may exercise such vote either in person or by proxy. Stockholders
are not entitled to cumulate their votes for the election of directors, which
means that, subject to such rights as may be granted to the holders of shares
of Preferred Stock, if any, the holders of more than 50% of the outstanding
shares of Common Stock are able to elect all of the directors to be elected by
holders of shares of Common Stock and the holders of the remaining shares of
Common Stock will not be able to elect any director. Subject to such
preferences to which holders of shares of Preferred Stock, if any, may be
entitled, the holders of outstanding shares of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company, the holders
of outstanding shares of Common Stock are entitled to share ratably in all
assets of the Company which are legally available for distribution to
stockholders, subject to the prior rights on liquidation of creditors and to
preferences, if any, to which holders of shares of Preferred Stock, if any,
may be entitled. The holders of outstanding shares of Common Stock do not have
any preemptive, subscription, redemption or sinking fund rights.
PREFERRED STOCK
The Company is authorized by its Certificate of Incorporation to issue up to
5,000,000 shares of Preferred Stock, in one or more series and containing such
rights, privileges and limitations, including dividend rights, voting rights,
conversion privileges, redemption rights, liquidation rights and/or sinking
fund rights, as may from time to time be determined by the Board of Directors
of the Company. Preferred Stock may be issued in the future in connection with
acquisitions, financings or such other matters as the Board of Directors deems
to be appropriate. In the event that any such shares of Preferred Stock shall
be issued, a Certificate of Designation, setting forth the series of such
Preferred Stock and the relative rights, privileges and limitations with
respect thereto, is required to be filed with the Secretary of State of the
State of Delaware. The effect of having such Preferred Stock authorized is
that the Company's Board of Directors alone, within the bounds and subject to
the federal securities laws and the Delaware General Corporation Law (the
"Delaware law"), may be able to authorize the issuance of Preferred Stock,
which may adversely affect the voting and other rights of holders of Common
Stock. The issuance of Preferred Stock may also have the effect of delaying or
preventing a change in control of the Company.
WARRANTS, OPTIONS AND CONVERTIBLE NOTES
There are currently outstanding warrants to purchase an aggregate of
6,519,058 shares of Common Stock. Such warrants provides for a weighted
average exercise price of $10.12 per share.
37
<PAGE>
There are currently outstanding options to purchase an aggregate of 961,333
shares of Common Stock. These options provide for exercise prices ranging from
$10.00 to $30.00 per share, with the weighted average exercise price being
$13.47 per share. Of these options, options to purchase an aggregate of 60,000
shares of Common Stock are currently exercisable and options to purchase
901,333 shares of Common Stock will become exercisable in installments over
specified periods.
A portion of the consideration paid by the Company for one of the Acquired
Companies consisted of a $300,000 convertible note, which note is convertible
into Common Stock at a conversion price per share equal to $16.20.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company serves as transfer agent and
registrar for the Common Stock.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The following brief description of certain provisions of the Company's
Certificate of Incorporation (the "Certificate") and By-laws does not purport
to be complete and is subject in all respects to the provisions of the
Certificate and By-laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
CLASSIFIED BOARD OF DIRECTORS
The Certificate provides that the Board shall be divided into three classes
and that the number of directors in each class shall be as nearly equal as is
possible based upon the number of directors constituting the entire Board. The
Certificate effectively provides that the term of office of the first class
will expire at the first annual meeting of stockholders following December
1997, the term of office of the second class will expire at the second annual
meeting of stockholders following December 1997, and the term of office of the
third class will expire at the third annual meeting of stockholders following
December 1997. At each annual meeting of stockholders, successors to directors
of the class whose term expires at such meeting will be elected to serve for
three-year terms and until their successors are elected and qualified.
The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the Board. At least two annual
meetings of stockholders, instead of one, will generally be required to effect
a change in a majority of the Board. Such a delay may help ensure that the
Company's directors, if confronted by a third party attempting to force a
proxy contest, a tender or exchange offer or other extraordinary corporate
transaction, would have sufficient time to review the proposal as well as any
available alternatives to the proposal and to act in what they believe to be
the best interests of the stockholders. However, such classification
provisions could also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. The classification of the Board could
thus increase the likelihood that incumbent directors will retain their
positions.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate provides that, subject to any rights of holders of Preferred
Stock to elect additional directors under specified circumstances, the number
of directors comprising the entire Board will be fixed from time to time by
action of not less than a majority of the directors then in office. If the
number of directors is at any time fixed at three or greater, then thereafter
in no event shall such number be less than three or more than nine,
38
<PAGE>
unless approved by action of not less than two-thirds of the directors then in
office. In addition, the Certificate provides that, subject to any rights of
holders of Preferred Stock, newly created directorships resulting from an
increase in the authorized number of directors or vacancies on the Board
resulting from death, resignation, retirement, disqualification or removal of
directors or any other cause may be filled only by the Board (and not by the
stockholders unless there are no directors in office), provided that a quorum
is then in office and present, or by a majority of the directors then in
office, if less than a quorum is then in office, or by the sole remaining
director. Accordingly, the Board could prevent any stockholder from enlarging
the Board and filling the new directorships with such stockholder's own
nominees.
Under the Delaware law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The Certificate provides that directors may be
removed only for cause and only upon the affirmative vote of holders of at
least 66 2/3% of the voting power of all the then outstanding shares of stock
entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class.
The provisions of the Certificate governing the number of directors, their
removal and the filling of vacancies may have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to gain control of the Company, or of attempting to
change the composition or policies of the Board, even though such attempts
might be beneficial to the Company or its stockholders. These provisions of
the Certificate could thus increase the likelihood that incumbent directors
retain their positions.
LIMITATION ON SPECIAL MEETINGS; NO STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate and the By-laws provide that (subject to the rights, if any,
of holders of any class or series of Preferred Stock then outstanding) (i)
only a majority of the Board of Directors or the chief executive officer will
be able to call a special meeting of stockholders; (ii) the business permitted
to be conducted at a special meeting of stockholders shall be limited to
matters properly brought before the meeting by or at the direction of the
Board of Directors; and (iii) stockholder action may be taken only at a duly
called and convened annual or special meeting of stockholders and may not be
taken by written consent. These provisions, taken together, prevent
stockholders from forcing consideration by the stockholders of stockholder
proposals over the opposition of the Board, except at an annual meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The By-laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as director, or to bring other business
before an annual meeting of stockholders of the Company (the "Stockholder
Notice Procedure").
The Stockholder Notice Procedure provides that, subject to the rights of any
holders of Preferred Stock, only persons who are nominated by or at the
direction of the Board, any committee appointed by the Board, or by a
stockholder who has given timely written notice to the Secretary of the
Company prior to the meeting at which directors are to be elected, will be
eligible for election as directors of the Company. The Stockholder Notice
Procedure provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of,
the Board, any committee appointed by the Board, or by a stockholder who has
given timely written notice to the Secretary of the Company of such
stockholder's intention to bring such business before such meeting. Under the
Stockholder Notice Procedure, to be timely, notice of stockholder nominations
or proposals to be made at an annual or special meeting must be received by
the Company not less than 60 days nor more than 90 days prior to the scheduled
date of the meeting (or, if less than 70 days' notice or prior public
disclosure of the date of the meeting is given, then the 15th day following
the earlier of (i) the day such notice was mailed or (ii) the day such public
disclosure was made).
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as director must contain
certain information about the nominating stockholder and the
39
<PAGE>
proposed nominee. Under the Stockholder Notice Procedure, a stockholder's
notice relating to the conduct of business other than the nomination of
directors must contain certain information about such business and about the
proposing stockholder. If the Chairman or other officer presiding at a meeting
determines that a person was not nominated, or other business was not brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
person will not be eligible for election as a director, or such business will
not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure affords the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform stockholders about such qualifications. By
requiring advance notice of other proposed business, the Stockholder Notice
Procedure also provides a more orderly procedure for conducting annual
meetings of stockholders and, to the extent deemed necessary or desirable by
the Board, provides the Board with an opportunity to inform stockholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with any recommendations as to the Board's position
regarding action to be taken with respect to such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although the By-laws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, the foregoing provisions may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, if the proper advance notice procedures are not followed,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
CERTAIN PROVISIONS RELATING TO POTENTIAL CHANGE OF CONTROL
The Certificate authorizes the Board and any committee of the Board to take
such action as it may determine to be reasonably necessary or desirable to
encourage any person or entity to enter into negotiations with the Board and
management regarding any transaction which may result in a change of control
of the Company, or to contest or oppose any such transaction which the Board
determines to be unfair, abusive or otherwise undesirable to the Company, its
business, assets, properties or stockholders. The Board or any such committee
is specifically authorized to adopt plans or to issue securities of the
Company including plans, rights, options, capital stock, notes, debentures or
other debt securities, which securities may be exchangeable or convertible
into cash or other securities on such terms and conditions as the Board or any
such committee determines. In addition, the Board or such committee of the
Board may provide that any holder or class of holders of such designated
securities will be treated differently than all other security holders in
respect of the terms, conditions, provisions and rights of such securities.
The existence of this authority or the actions which may be taken by the
Board pursuant thereto are intended to give the Board flexibility in order to
act in the best interests of stockholders in the event of a potential change
of control transaction. Such provisions may, however, deter potential
acquirors from proposing unsolicited transactions not approved by the Board
and might enable the Board to hinder or frustrate such a transaction if
proposed.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director will not be personally liable to
the Company or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware law, which
concerns unlawful payments of dividends, stock purchases or redemptions or
(iv) for any transaction from which the director derived an improper personal
benefit. If the Delaware law is subsequently amended to permit further
limitation of the personal liability of directors, the liability of a director
of the Company will be eliminated or limited to the fullest extent permitted
by the Delaware law as so amended.
40
<PAGE>
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate contains provisions requiring the affirmative vote of the
holders of at least 66 2/3% of the voting power of the Voting Stock to amend
certain provisions of the Certificate (including the provisions discussed
above relating to the size and classification of the Board, replacement and/or
removal of directors, action by written consent, special stockholder meetings,
the authorization for the Board to take steps to encourage or oppose, as the
case may be, transactions which may result in a change of control of the
Company, and limitation of the liability of directors) or to amend any
provision of the By-laws by action of stockholders. These provisions make it
more difficult for stockholders to make changes in the Certificate and the By-
laws, including changes designed to facilitate the exercise of control over
the Company.
41
<PAGE>
SELLING SECURITY HOLDERS
All of the 22,211,696 shares of Common Stock of the Company offered by this
Prospectus are being offered for the account of the Selling Security Holders.
ALL OF THE SHARES OF COMMON STOCK COVERED BY THIS PROSPECTUS ARE SUBJECT TO
CERTAIN LOCKUP RESTRICTIONS AS DESCRIBED BELOW. THE COMMON STOCK COVERED BY
THIS PROSPECTUS MAY NOT BE SOLD PRIOR TO THE EXPIRATION OR TERMINATION OF THE
APPLICABLE LOCK-UP RESTRICTION.
The shares of Common Stock covered by this Prospectus include (i) 15,530,407
currently outstanding shares which were sold by the Company in private
placements, (ii) 318,712 currently outstanding shares which were issued as
consideration for an acquisition, (ii) 6,344,058 authorized and unissued
shares of Common Stock that may hereafter be acquired by Selling Security
Holders pursuant to certain outstanding Warrants which were sold by the
Company in private placements and (iv) 18,519 authorized and unissued shares
of Common Stock that may hereafter be acquired by Selling Security Holders
pursuant to a convertible note (the "Convertible Note") that the Company
issued as part of the consideration for an acquisition.
None of the shares of Common Stock covered by this Prospectus may be
publicly sold or transferred for a period of 180 days after March 5, 1998
without the prior written consent of Merrill Lynch on behalf of the
underwriters for the Offering, pursuant to lock-up agreements entered into in
connection with the Offering. Upon expiration of such 180-day lock-up period,
approximately 2,496,121 of the shares of Common Stock covered by this
Prospectus will continue to be subject to lock-up agreements with the Company
that prohibit the sale or transfer of such shares without the prior written
consent of the Company. Such lock-up agreements lapse in December 1998 (with
respect to 707,241 shares), March 1999 (with respect to 21,429 shares),
December 1999 (with respect to 728,671 shares) and December 2000 (with respect
to 1,038,780 shares).
The Selling Security Holders are the persons identified in the table below
(and any successor or transferee of any of such persons that hereafter
acquires any of the Resale Shares, any of the Warrants or the Convertible Note
in a private placement and is identified in a Prospectus Supplement hereto).
The table below indicates with respect to each Selling Security Holder the
number of shares of Common Stock covered by this Prospectus that such Selling
Security Holder currently holds or may hereafter acquire upon the exercise of
Warrants or the Convertible Note. This Prospectus covers all shares of Common
Stock shown in the table below. Unless otherwise indicated by footnote
reference, all shares listed in the table are currently outstanding shares.
<TABLE>
<CAPTION>
NAME SHARES OF COMMON STOCK
---- ----------------------
<S> <C>
Alto, LLC............................................. 105,120
Andersen & Co......................................... 100,000
Ashwood Capital Pension Plan.......................... 14,286
BankAmerica Investment Corporation(1)................. 142,857
Kurtis Barker(2)...................................... 100,000
Joseph Bloodworth(3)(5)............................... 28,786
Scott Breault......................................... 7,143
Forrest Burnett, Trustee(3)........................... 18,519(4)
Sharon Brown and Ronald Brown......................... 28,572
May Charaf............................................ 22,858
Paul Devine........................................... 8,572
William Dogget(3)..................................... 72,867
John Drury............................................ 230,000
Equus II Incorporated(3).............................. 95,614
Frank Erwin(3)........................................ 54,407
Brady Garruth(3)...................................... 67,038
Virginia Geils........................................ 14,286
William Genco......................................... 26,280
David Gray............................................ 14,286
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
NAME SHARES OF COMMON STOCK
---- ----------------------
<S> <C>
Greenlands Holdings, Inc............................ 212,857
Richard Heckmann(2)................................. 20,000
HEMA Enterprises LLC................................ 26,280
Timothy Hickman(5).................................. 28,572
Wayland Hicks(2).................................... 100,000
John Howard and Patsy Howard........................ 14,286
Daniel Imig(2)...................................... 5,000
Albert Jacobs....................................... 30,000
Bradley Jacobs(2)................................... 8,436,800(10)
Bradley Jacobs, LLC(8).............................. 4,938,200(11)
Bradley Jacobs (1997) LLC(8)........................ 1,625,000(12)
Theodore Jacobs..................................... 37,143
Michael Jesselson 12/18/80 Trust.................... 138,572
Thomas Keegan....................................... 10,512
Jeffrey Klein....................................... 26,280
Joseph Kondrup, Jr.(2).............................. 150,000(6)
Joyce Miller........................................ 7,143
William Miller...................................... 4,286
John Milne(2)....................................... 2,142,857(6)
Richard Miner....................................... 2,858
Robert Miner(2)..................................... 428,571(6)
MINORCA Limited..................................... 72,000
Moorehead Property Company.......................... 100,000
Christopher Morley, Smith Barney Inc. IRA
Custodian.......................................... 10,714
Jeffrey Moslow...................................... 40,000
Mark Mulston and Mary Kathleen Mulston.............. 2,858
Patricia Nadal...................................... 100,000
Robert Nardone...................................... 21,429
Lewis Nevins and Linda Nevins....................... 4,286
Michael Nolan(2)(9)................................. 857,144(9)
Craig Nossel........................................ 28,572
Kai Nyby(2)......................................... 150,000(6)
Antonio Orellana(5)................................. 2,857
Patrick O'Shaughnessy............................... 10,512
Patterson&Co, CoreStates Bank NA, as Custodian for
Pilgrim Baxter Hybrid Partners I, LP............... 214,286
Lena Perez.......................................... 10,000
Sam Cortez Pina..................................... 10,511
Margaret-Mary Preston............................... 14,286
Proto Investments................................... 71,429
Mark Pytosh......................................... 26,280
Jack Rafferty(5).................................... 40,000
Marie Ransdale(5)................................... 5,715
Paula Seltzer(5).................................... 32,857
Jill Sosna and Lawrence Sosna....................... 28,572
Spencer Stuart(7)................................... 5,000
Marc Sulam.......................................... 26,280
Michael Sullivan.................................... 10,512
William Teichner.................................... 14,286
Gerald Tsai, Jr.(2)................................. 240,000
Donna Vella(5)...................................... 8,571
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
NAME SHARES OF COMMON STOCK
---- ----------------------
<S> <C>
Vishnu Associates, L.P................................ 54,286
Richard Volonino(2)................................... 150,000(6)
Robert Waldele........................................ 5,256
Debra Wasser and Alan Wasser.......................... 4,000
Sandra Welwood(2)..................................... 150,000(6)
Jonathan P. Wendell................................... 26,287
J. Bryan Williams III................................. 42,858
Tom Wirth............................................. 1,200
Leone Young, Smith Barney Inc. IRA Custodian,......... 10,715
1997 Proto Family Trust............................... 71,429
</TABLE>
- --------
(1) The indicated Selling Security Holder is an affiliate of Bank of America
National Trust and Savings Association, which acts as agent for the group
of financial institutions that have provided the Company's Credit
Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
(2) The indicated Selling Security Holder is an officer and/or director of
the Company as described under "Management."
(3) The shares indicated as being owned by this Selling Security Holder were
issued by the Company as consideration for an acquisition.
(4) Represents shares issuable upon conversion of the Convertible Note.
(5) The indicated Selling Security Holder is a non-officer employee of (or
consultant to) the Company.
(6) Two-thirds of the indicated shares represents currently outstanding
shares and one-third represents shares issuable upon exercise of
Warrants.
(7) The shares indicated as being owned by this Selling Security Holder were
issued by the Company as consideration for executive recruiting services
rendered by such Selling Security Holder.
(8) This entity is controlled by Bradley Jacobs, an officer and director of
the Company.
(9) Includes (i) 514,429 outstanding shares held by Mr. Nolan and 285,715
shares issuable upon exercise of Warrants held by Mr. Nolan, (ii) 50,000
shares held by Michael Nolan LLC, an entity controlled by Mr. Nolan, and
(iii) 7,000 shares held by Michael Nolan Irrevocable Education Trust, a
trust controlled by Mr. Nolan.
(10)Represents 6,707,800 outstanding shares and 1,729,000 shares issuable upon
exercise of Warrants.
(11) Represents 3,292,200 outstanding shares and 1,646,000 shares issuable
upon exercise of Warrants
(12) Represents 1,625,000 shares issuable upon exercise of Warrants.
PLAN OF DISTRIBUTION
The Selling Security Holders are offering shares of Common Stock for their
own account, and not for the account of the Company.
The Common Stock offered by the Selling Security Holders (the "Resale
Shares") may be sold from time to time by the Selling Security Holders
directly to purchasers or, alternatively, may be offered from time to time
through agents, brokers, dealers or underwriters, who may receive compensation
in the form of concessions or commissions from the Selling Security Holders or
purchasers of the Resale Shares (which compensation may be in excess of
customary commissions). Sales of the Resale Shares may be made in one or more
transactions through the New York Stock Exchange, in the over-the-counter
market, or in privately negotiated transactions or otherwise, and such sales
may be made at the market price prevailing at the time of sale, a price
related to such prevailing market price or a negotiated price.
To the extent required, the Company will use its best efforts to file during
any period in which offers or sales are being made one or more supplements to
this Prospectus to describe any material information with respect to the plan
of distribution not previously disclosed in this Prospectus or any material
change to such information in the Prospectus.
44
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the shares of Common Stock that may be
sold pursuant to this Prospectus will be passed upon for the Company by Weil,
Gotshal & Manges LLP, New York, New York, and Ehrenreich Eilenberg Krause &
Zivian LLP, New York, New York.
EXPERTS
The financial statements of United Rentals, Inc. at December 31, 1997 and
for the period from August 14, 1997 (Inception) to December 31, 1997, the
financial statements of J&J Rental Services, Inc. at December 31, 1996 and
October 22, 1997 and for each of the two years in the period ended December
31, 1996, the six months ended June 30, 1997 and for the period from July 1,
1997 to October 22, 1997, the financial statements of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997 and for each of the two years in the
period ended December 31, 1996 and for the period from January 1, 1997 to
October 24, 1997, and the financial statements of Mission Valley Rentals, Inc.
at June 30, 1996 and 1997 and for the years then ended, appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of A&A Tool Rentals & Sales, Inc. and
subsidiary as of October 19, 1997, October 31, 1996, and 1995, and for the
period from November 1, 1996 to October 19, 1997 and for the years ended
October 31, 1996 and 1995, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of MERCER Equipment Company appearing in this
Prospectus have been audited by Webster Duke & Co., independent auditors, as
set forth in their reports thereon included elsewhere herein and in the
Registration Statement of which this Prospectus is a part, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Coran Enterprises, Inc. (dba A-1 Rents)
and Monterey Bay Equipment Rental, Inc., appearing in this Prospectus and
Registration Statement, have been audited by Grant Thornton LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of BNR Group of Companies as of March 31,
1996 and 1997 and for the years ended March 31, 1996 and 1997, have been
included herein and in the Registration Statement in reliance upon the report
of KPMG, independent chartered accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The audited financial statements of Access Rentals, Inc. and Subsidiary and
Affiliate included in this Registration Statement have been included herein in
reliance on the report of Battaglia, Andrews & Moag, P.C., independent
certified public accountants, 210 East Main Street, Batavia, New York 14020,
for the periods indicated, given on the authority of that firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1
(together with all amendments thereto, the "Registration Statement"), under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and
45
<PAGE>
schedules filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any contract or other document referred to are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being deemed to be qualified in its entirety by such reference. The
Registration Statement, including all exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at the principal office of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Midwest Regional Office of
the Commission located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at the Northeast Regional office of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1204, Washington,
D.C. 20549, at prescribed rates.
The Company is subject to the informational and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, files periodic reports, proxy statements, and other
information with the Commission. Such periodic reports, proxy statements, and
other information may be inspected and copied at the public reference
facilities maintained by the Commission at the principal office of the
Commission in Washington, D.C., and at the Commission's regional offices at
the addresses stated above. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at the
address stated above. The Common Stock is listed on the New York Stock
Exchange (the "NYSE"), and the Registration Statement and such reports, proxy
statements and other information can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
The Commission maintains an Internet web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I. Pro Forma Consolidated Financial Statements of United Rentals, Inc.
Introduction........................................................ F-4
Pro Forma Consolidated Balance Sheets--December 31, 1997
(unaudited)........................................................ F-5
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1997 (unaudited)...................................... F-6
Notes to Pro Forma Consolidated Financial Statements................ F-7
II. Consolidated Financial Statements of United Rentals, Inc.
Report of Independent Auditors...................................... F-9
Consolidated Balance Sheet--December 31, 1997....................... F-10
Consolidated Statement of Operations for the period from August 14,
1997 (Inception) to December 31, 1997.............................. F-11
Consolidated Statement of Stockholders' Equity for the period from
August 14, 1997 (Inception) to December 31, 1997................... F-12
Consolidated Statement of Cash Flows for the period from August 14,
1997 (Inception) to December 31, 1997.............................. F-13
Notes to Consolidated Financial Statements.......................... F-14
III. Consolidated and Combined Financial Statements of Access Rentals,
Inc. and subsidiary and affiliate
Report of Independent Accountants................................... F-21
Consolidated and Combined Balance Sheets--March 31, 1996 and 1997
and December 31, 1997 (unaudited).................................. F-22
Consolidated and Combined Statements of Income for the Years Ended
September 30, 1994 and 1995, for the Six Months Ended March 31,
1996, for the Year Ended March 31, 1997 and for the Nine Months
Ended December 31, 1996 and 1997 (unaudited)....................... F-23
Consolidated and Combined Statement of Stockholders' Equity for the
Years Ended September 30, 1994 and 1995, for the Six Months Ended
March 31, 1996, for the Year Ended March 31, 1997 and for the Nine
Months Ended December 31, 1997 (unaudited)......................... F-24
Consolidated and Combined Statements of Cash Flows for the Years
Ended September 30, 1994 and 1995, for the Six Months Ended March
31, 1996, for the Year Ended March 31, 1997 and for the Nine Months
Ended December 31, 1996 and 1997 (unaudited)....................... F-25
Notes to Financial Statements....................................... F-26
IV. Combined Financial Statements of BNR Group of Companies
Report of Independent Auditors...................................... F-35
Combined Balance Sheets--March 31, 1996 and 1997 and December 31,
1997 (unaudited)................................................... F-36
Combined Statements of Earnings for the Years Ended March 31, 1996
and 1997 and for the Nine Months Ended December 31, 1996 and 1997
(unaudited)........................................................ F-37
Combined Statements of Stockholders' Equity for the Years Ended
March 31, 1996 and 1997 and for the Nine Months Ended December 31,
1997 (unaudited)................................................... F-38
Combined Statements of Cash Flows for the Years Ended March 31, 1996
and 1997 and for the Nine Months Ended December 31, 1996 and 1997
(unaudited)........................................................ F-39
Notes to Combined Financial Statements.............................. F-40
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
V. Financial Statements of Mission Valley Rentals, Inc.
Report of Independent Auditors...................................... F-49
Balance Sheets--June 30, 1996 and 1997 and December 31, 1997
(unaudited)........................................................ F-50
Statements of Operations for the Years Ended June 30, 1996 and 1997
and for the Six Months Ended December 31, 1996 and 1997
(unaudited)........................................................ F-51
Statements of Stockholders' Equity for the Years Ended June 30, 1996
and 1997 and for the Six Months Ended December 31, 1997
(unaudited)........................................................ F-52
Statements of Cash Flows for the Years Ended June 30, 1996 and 1997
and the Six Months Ended December 31, 1996 and 1997 (unaudited).... F-53
Notes to Financial Statements....................................... F-54
VI. Financial Statements of MERCER Equipment Company
Independent Auditor's Report........................................ F-60
Balance Sheets--December 31, 1996 and October 24, 1997.............. F-61
Statements of Income and Retained Earnings for the Years Ended
December 31, 1995 and 1996 and for the period from January 1, 1997
to October 24, 1997................................................ F-62
Statements of Cash Flows for the Years Ended December 31, 1995 and
1996 and for the period from January 1, 1997 to October 24, 1997... F-63
Notes to Financial Statements....................................... F-64
VII. Consolidated Financial Statements of A&A Tool Rentals & Sales,
Inc. and subsidiary
Report of Independent Auditors...................................... F-69
Consolidated Balance Sheets--October 31, 1995 and 1996 and October
19, 1997 and July 31, 1997 (unaudited)............................. F-70
Consolidated Statements of Operations for the Years Ended October
31, 1995 and 1996 and for the period from November 1, 1996 to
October 19, 1997 and for the Nine Months Ended July 31, 1996 and
1997 (unaudited)................................................... F-71
Consolidated Statements of Stockholders' Equity for the Years Ended
October 31, 1995 and 1996 and for the period from November 1, 1996
to October 19, 1997 ............................................... F-72
Consolidated Statements of Cash Flows for the Years Ended October
31, 1995 and 1996 and for the period from November 1, 1996 to
October 19, 1997 and for the Nine Months Ended July 31, 1996 and
1997 (unaudited)................................................... F-73
Notes to Consolidated Financial Statements.......................... F-74
VIII. Financial Statements of J&J Rental Services, Inc.
Report of Independent Auditors...................................... F-81
Balance Sheets--December 31, 1996 and October 22, 1997 ............. F-82
Statements of Income for the Years Ended December 31, 1995 and 1996,
for the Six Months Ended June 30, 1997 and for the period from July
1, 1997 to October 22, 1997........................................ F-83
Statements of Stockholders' Equity and Partners' Capital for the
Years Ended December 31, 1995 and 1996 and for the Six Months Ended
June 30, 1997 and for the period from July 1, 1997 to October 22,
1997............................................................... F-84
Statements of Cash Flows for the Years Ended December 31, 1995 and
1996, for the Six Months Ended June 30, 1997 and for the period
from July 1, 1997 to October 22, 1997.............................. F-85
Notes to Financial Statements....................................... F-86
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
IX. Combined Financial Statements of Coran Enterprises, Inc. dba A-1
Rents and Monterey Bay Equipment Rental, Inc.
Report of Independent Certified Public Accountants.................. F-93
Combined Statements of Earnings for the Years Ended December 31,
1995 and 1996 and for the period from January 1, 1997 to October
24, 1997 .......................................................... F-94
Combined Statements of Stockholders' Equity for the Years Ended De-
cember 31, 1995 and 1996 and for the period from January 1, 1997 to
October 24, 1997 .................................................. F-95
Combined Statements of Cash Flows for the Years Ended December 31,
1995 and 1996 and for the period from January 1, 1997 to October
24, 1997 .......................................................... F-96
Notes to Combined Financial Statements.............................. F-97
X. Financial Statements of Bronco Hi-Lift, Inc.
Report of Independent Auditors...................................... F-99
Balance Sheets--December 31, 1996 and October 24, 1997 ............. F-100
Statements of Income for the Years Ended December 31, 1995 and 1996
and for the period from January 1, 1997 to October 24, 1997........ F-101
Statements of Stockholders' Equity for the Years Ended December 31,
1995 and 1996 and for the period from January 1, 1997 to October
24, 1997........................................................... F-102
Statements of Cash Flows for the Years Ended December 31, 1995 and
1996 and for the period from January 1, 1997 to October 24, 1997... F-103
Notes to Financial Statements....................................... F-104
</TABLE>
F-3
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma consolidated balance sheets of the
Company as of December 31, 1997 give effect to the 15 acquisitions completed
by the Company subsequent to such date and the financing of each such
acquisition, as if all such transactions had occurred on December 31, 1997.
The accompanying unaudited pro forma consolidated statements of operations
of the Company for the year ended December 31, 1997 give effect to the
acquisition of each of the Acquired Companies, the financing of each such
acquisition and all issuances of Common Stock after the beginning of such
period, as if all such transactions had occurred at the beginning of the
period.
The pro forma consolidated financial statements are based upon certain
assumptions and estimates which are subject to change. These statements are
not necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected results in the
future.
The pro forma consolidated financial statements should be read in
conjunction with the Company's historical Consolidated Financial Statements
and related Notes included elsewhere in this Prospectus.
F-4
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
UNITED ACCESS BNR GROUP MISSION VALLEY OTHER PRO FORMA PRO FORMA
RENTALS, INC. RENTALS, INC. OF COMPANIES RENTALS, INC. ACQUISITIONS ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equiva-
lents................. $ 68,607,528 $ 362,817 $ 25,306 $ 505,541 $ 876,450 $(70,327,642)(a) $ 50,000
Accounts receivable,
net................... 7,494,636 10,557,474 5,096,644 721,252 4,978,461 28,848,467
Inventory............. 3,827,446 2,511,326 1,593,190 88,965 3,195,914 11,216,841
Rental equipment,
net................... 33,407,561 63,636,491 9,246,449 5,667,659 24,307,339 4,216,103 (b) 140,481,602
Property and
equipment, net........ 2,272,683 5,386,167 738,032 138,343 2,259,071 (1,514,270)(c) 9,280,026
Intangible assets,
net................... 50,533,736 2,212,368 765,841 2,537 78,817,557 (d) 132,332,039
Prepaid expenses and
other assets.......... 2,966,822 3,934,801 60,147 165,599 399,387 7,526,756
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total Assets....... $169,110,412 $88,601,444 $16,759,768 $8,053,200 $36,019,159 $ 11,191,748 $329,735,731
============ =========== =========== ========== =========== ============ ============
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Liabilities
Accounts payable..... $ 5,697,830 $ 7,160,756 $ 1,456,996 $ 805,462 $ 2,346,852 $ 17,467,896
Debt................. 1,074,474 51,505,595 7,575,767 5,536,280 21,460,482 $(77,895,216)(e) 119,664,530
110,407,148 (f)
Accrued expenses and
other
liabilities.......... 4,608,077 7,821,732 5,016,579 181,461 1,793,196 19,421,045
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total liabilities.. 11,380,381 66,488,083 14,049,342 6,523,203 25,600,530 32,511,932 156,553,471
------------ ----------- ----------- ---------- ----------- ------------ ------------
Stockholders' equity
Common stock......... 238,991 10,000 58,315 1,000 165,837 (235,152)(g) 247,039
8,048 (h)
Additional paid-in
capital.............. 157,457,418 (1,101,494) 223,824 877,670 (g) 172,901,599
15,444,181 (h)
Retained earnings
(deficit)............ 33,622 23,204,855 2,652,111 1,528,997 10,028,968 (37,414,931)(g) 33,622
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total stockholders'
equity............. 157,730,031 22,113,361 2,710,426 1,529,997 10,418,629 (21,320,184) 173,182,260
------------ ----------- ----------- ---------- ----------- ------------ ------------
Total liabilities
and stockholders'
equity............. $169,110,412 $88,601,444 $16,759,768 $8,053,200 $36,019,159 $ 11,191,748 $329,735,731
============ =========== =========== ========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements
F-5
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
UNITED MERCER A&A TOOL CORAN
RENTALS, EQUIPMENT RENTALS AND J & J RENTAL ENTERPRISES, BRONCO ACCESS BNR GROUP
INC. COMPANY SALES, INC. SERVICES, INC. INC. HI-LIFT, INC. RENTALS, INC. OF COMPANIES
----------- ----------- ----------- -------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment
rentals........... $ 7,018,564 $ 6,891,972 $ 6,022,196 $6,368,023 $6,743,497 $4,330,000 $42,316,423 $ 9,402,842
Sales of
equipment and
merchandise and
other revenue..... 3,614,834 8,181,440 5,424,246 703,413 974,713 1,091,176 9,942,738 14,612,355
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total revenues.. 10,633,398 15,073,412 11,446,442 7,071,436 7,718,210 5,421,176 52,259,161 24,015,197
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation...... 3,203,009 2,300,062 2,583,884 2,992,384 3,764,346 374,845 12,415,655 4,662,325
Rental equipment
depreciation...... 1,038,947 1,428,312 1,465,586 1,531,357 1,328,193 660,598 8,480,016 1,588,710
Cost of sales and
other operating
expenses.......... 2,580,162 6,602,793 4,775,637 373,500 257,838 673,163 8,861,832 10,360,520
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total cost of
revenues........ 6,822,118 10,331,167 8,825,107 4,897,241 5,350,377 1,708,606 29,757,503 16,611,555
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Gross profit....... 3,811,280 4,742,245 2,621,335 2,174,195 2,367,833 3,712,570 22,501,658 7,403,642
Selling, general
and administrative
expenses........... 3,311,669 3,245,256 2,178,383 1,500,395 1,768,439 2,353,924 10,439,727 5,402,206
Non-rental
depreciation and
amortization....... 262,102 114,654 124,648 86,272 15,370 85,707 1,354,639 104,486
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Operating income... 237,509 1,382,335 318,304 587,528 584,024 1,272,939 10,707,292 1,896,950
Interest expense... 454,072 686,512 642,478 559,000 170,183 229,154 3,700,559 501,428
Other (income)
expense, net....... (270,701) (147,362) (120,047) (37,724) (29,938) (809,146)
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Income before
provision for
income taxes....... 54,138 843,185 (204,127) 66,252 413,841 1,073,723 7,815,879 1,395,522
Provision for
income taxes....... 20,516 15,270 98,000 276,383 2,744,691 458,302
----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Net income......... $ 33,622 $ 843,185 $ (219,397) $ (31,748) $ 137,458 $1,073,723 $ 5,071,188 $ 937,220
=========== =========== =========== ========== ========== ========== =========== ===========
Basic Earnings per
share.............. $ 0.00
===========
Diluted Earnings
per share.......... $ 0.00
===========
<CAPTION>
MISSION VALLEY OTHER PRO FORMA PRO FORMA
RENTALS, INC. ACQUISITIONS ADJUSTMENTS CONSOLIDATED
-------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues
Equipment
rentals........... $7,852,751 $29,196,487 $126,142,755
Sales of
equipment and
merchandise and
other revenue..... 764,920 16,732,505 62,042,340
-------------- ------------- ------------
Total revenues.. 8,617,671 45,928,992 188,185,095
Cost of revenues
Cost of equipment
rentals,
excluding
depreciation...... 3,436,601 14,362,552 50,095,663
Rental equipment
depreciation...... 1,746,340 6,331,571 $(4,212,534)(a) 21,387,096
Cost of sales and
other operating
expenses.......... 517,661 11,985,137 (57,068)(b) 46,931,175
-------------- ------------- --------------- ------------
Total cost of
revenues........ 5,700,602 32,679,260 (4,269,602) 118,413,934
-------------- ------------- --------------- ------------
Gross profit....... 2,917,069 13,249,732 4,269,602 69,771,161
Selling, general
and administrative
expenses........... 3,062,607 9,496,388 (4,905,383)(c) 38,570,764
717,153 (d)
Non-rental
depreciation and
amortization....... 31,695 441,727 2,494,091 (e) 5,115,391
-------------- ------------- --------------- ------------
Operating income... (177,233) 3,311,617 5,963,741 26,085,006
Interest expense... 433,972 1,908,927 (8,280,685)(f) 9,075,457
8,069,857 (g)
Other (income)
expense, net....... (61,269) (257,700) (1,733,887)
-------------- ------------- --------------- ------------
Income before
provision for
income taxes....... (549,936) 1,660,390 6,174,569 18,743,436
Provision for
income taxes....... (72,801) 645,613 3,286,127 (h) 7,472,101
-------------- ------------- --------------- ------------
Net income......... $ (477,135) $ 1,014,777 $ 2,888,442 $ 11,271,335
============== ============= =============== ============
Basic Earnings per
share.............. $ 0.46
============
Diluted Earnings
per share.......... $ 0.43
============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements
F-6
<PAGE>
UNITED RENTALS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
United Rentals, Inc. was formed in September 1997 for the purpose of
creating a large geographically diversified equipment rental company in the
United States and Canada. The Company commenced equipment rental operations in
October 1997 by acquiring six established companies and acquired 15 additional
companies in the first two months of 1998. The Company rents a broad array of
equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and other individuals. The
Company also engages in related activities such as selling used rental
equipment, acting as a distributor for certain new equipment, and selling
related merchandise and parts.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial data presented in these pro forma consolidated
financial statements represent the financial position and results of
operations of (i) the Company as of December 31, 1997 and for the period from
inception to December 31, 1997 and (ii) the 15 acquisitions completed by the
Company subsequent to December 31, 1997, as of and for the year ended December
31, 1997. The results of operations for the year ended December 31, 1997 also
includes the results of operations of each Initial Acquired Company for the
period from January 1, 1997 through the date in October 1997 on which such
Initial Acquired Company was acquired by the Company (except that the
financial data of A & A Tool Rentals and Sales, Inc. included in the pro forma
consolidated statements of operations includes the period from November 1,
1996 through the acquisition date). Such data is derived from the respective
financial statements of such companies.
The historical financial statements of the BNR Group of Companies are stated
in Canadian dollars and prepared in accordance with Canadian generally
accepted accounting principles. The historical financial data for the BNR
Group of Companies presented in these pro forma consolidated financial
statements reflect the translation of these statements into US dollars and
have been adjusted to conform to US generally accepted accounting principles.
3. ACQUISITIONS
Since its formation, the Company has completed a total of 21 acquisitions.
These include the acquisition of the six Initial Acquired Companies in October
1997 and the acquisition of 15 additional companies (the "1998 Acquired
Companies") in the first two months of 1998.
The aggregate consideration paid by the Company for the Initial Acquired
Companies (the "1997 Acquisition Consideration") was $57.7 million and
consisted of approximately $53.6 million in cash, 318,712 shares of Common
Stock (including 137,600 shares which are expected to be cancelled as
described under "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Consideration Paid for Acquired Companies") and a
$300,000 convertible note.
The aggregate consideration paid by the Company for the 1998 Acquired
Companies (the "1998 Acquisition Consideration") was $118.3 million and
consisted of approximately $102.8 million in cash, 804,875 shares of Common
Stock, and warrants to purchase an aggregate of 30,000 shares of Common Stock.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of the 1998 Acquired Companies
approximates fair value, with the exception of rental equipment and other
property and equipment, which required adjustments to reflect fair market
value. The following table presents the allocation of purchase prices of each
of the 1998 Acquired Companies:
<TABLE>
<CAPTION>
ACCESS BNR GROUP
RENTALS, OF MISSION VALLEY OTHER COMBINED
INC. COMPANIES RENTALS, INC. ACQUISITIONS TOTAL
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchase price.......... $46,488,114 $15,490,704 $16,695,545 $39,617,440 $118,291,803
Net assets acquired..... 22,113,361 2,710,426 1,529,997 10,418,629 36,772,413
Fair value adjustments:
Rental equipment...... (909,859) 1,061,690 (299,048) 4,363,320 4,216,103
Property and
equipment............ (1,136,167) (38,032) 11,657 (351,728) (1,514,270)
----------- ----------- ----------- ----------- ------------
Intangibles recognized.. $26,420,779 $11,756,620 $15,452,939 $25,187,219 $78,817,557
=========== =========== =========== =========== ============
</TABLE>
F-7
<PAGE>
4. PRO FORMA ADJUSTMENTS
Balance sheet adjustments:
a. Records the portion of the 1998 Acquisition Consideration and debt
repayment paid from available cash on hand.
b. Adjusts the carrying value of rental equipment to fair market value.
c. Adjusts the carrying value of property and equipment to fair market
value.
d. Records the excess of the 1998 Acquisition Consideration over the
estimated fair value of net assets acquired.
e. Records the repayment of certain indebtedness of the 1998 Acquired
Companies.
f. Records the portion of the 1998 Acquisition Consideration and debt
repayment funded by borrowing under the Company's Credit Facility.
g. Records the elimination of the stockholders' equity of the 1998 Acquired
Companies.
h. Records the portion of the 1998 Acquisition Consideration paid in the
form of Common Stock and warrants.
Statement of operations adjustments:
a. Adjusts the depreciation of rental equipment and other property and
equipment based upon adjusted carrying values utilizing the following
lives (subject to a salvage value ranging from 0 to 10%):
<TABLE>
<S> <C>
Rental equipment.............................................. 2-9 years
Other property and equipment.................................. 2-15 years
</TABLE>
b. Adjusts the method of accounting for inventory at one of the Acquired
Companies from the LIFO method to the FIFO method.
c. Adjusts the compensation to former owners and executives of the Acquired
Companies to current levels of compensation.
d. Adjusts the lease expense for real estate utilized by the Acquired
Companies to current lease agreements.
e. Records the amortization of the excess of cost over net assets acquired
attributable to the acquisitions of the Acquired Companies using an
estimated life of 40 years.
f. Eliminates interest expense related to the outstanding indebtedness of
the Acquired Companies which was repaid by the Company.
g. Records interest expense relating to the portion of the 1997 Acquisition
Consideration and 1998 Acquisition Consideration funded through borrowing
under the Company's Credit Facility using a rate per annum of 7.3%.
h. Records a provision for income taxes at an estimated rate of 40%.
5. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net income by the weighted
average shares outstanding during the period. The weighted average outstanding
shares during the period is calculated as follows:
<TABLE>
<S> <C>
Basic:
Shares outstanding at December 31, 1997....................... 23,899,119
Shares issued for acquisitions................................ 804,875
----------
24,703,994
==========
Dilutive:
Shares outstanding at December 31, 1997....................... 23,899,119
Shares issued for acquisitions................................ 804,875
Common stock equivalents (based on the initial public offering
price of $13.50 per share)................................... 1,792,942
----------
26,496,936
==========
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc.
We have audited the accompanying consolidated balance sheet of United
Rentals, Inc. as of December 31, 1997 and the related consolidated statements
of operations, stockholders' equity and cash flows from August 14, 1997
(Inception) to December 31, 1997. These financial statements are the
responsibility of the management of United Rentals, Inc. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals, Inc. at December 31, 1997, and the results of its
operations and its cash flows from August 14, 1997 (Inception) to December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 30, 1998
F-9
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents......................................... $ 68,607,528
Accounts receivable, net of allowance for doubtful accounts of
$1,161,000....................................................... 7,494,636
Inventory......................................................... 3,827,446
Prepaid expenses and other assets................................. 2,966,822
Rental equipment, net............................................. 33,407,561
Property and equipment, net....................................... 2,272,683
Intangible assets, net of accumulated amortization of $241,000.... 50,533,736
------------
$169,110,412
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable................................................ $ 5,697,830
Debt............................................................ 1,074,474
Deferred taxes.................................................. 198,249
Accrued expenses and other liabilities.......................... 4,409,828
------------
Total liabilities............................................. 11,380,381
Commitments and contingencies
Stockholders' equity:
Preferred stock--$.01 par value, 5,000,000 shares authorized, no
shares issued and outstanding.................................. --
Common stock--$.01 par value, 75,000,000 shares authorized,
23,899,119 shares issued and outstanding....................... 238,991
Additional paid-in capital...................................... 157,457,418
Retained earnings............................................... 33,622
------------
Total stockholders' equity.................................... 157,730,031
------------
$169,110,412
============
</TABLE>
See accompanying notes.
F-10
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues:
Equipment rentals............................................... $ 7,018,564
Sales of rental equipment....................................... 1,011,071
Sales of new equipment, merchandise and other revenues.......... 2,603,763
-----------
Total revenues.................................................... 10,633,398
Cost of revenues:
Cost of equipment rentals, excluding depreciation............... 3,203,209
Depreciation of rental equipment................................ 1,038,747
Cost of rental equipment sales.................................. 527,523
Cost of new equipment and merchandise sales and other operating
costs.......................................................... 2,052,639
-----------
Total cost of revenues............................................ 6,822,118
-----------
Gross profit...................................................... 3,811,280
Selling, general and administrative expenses...................... 3,311,669
Non-rental depreciation and amortization.......................... 262,102
-----------
Operating income.................................................. 237,509
Interest expense.................................................. 454,072
Other (income) expense............................................ (270,701)
-----------
Income before provision for income taxes.......................... 54,138
Provision for income taxes........................................ 20,516
-----------
Net income........................................................ $ 33,622
===========
Basic earnings per share.......................................... $ 0.00
===========
Diluted earnings per share........................................ $ 0.00
===========
</TABLE>
See accompanying notes.
F-11
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31 , 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS
---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Balance, August 14, 1997 (Incep-
tion)............................... -- $ -- $ -- $ --
Issuance of common stock and war-
rants............................. 23,899,119 238,991 157,457,418
Net income......................... 33,622
---------- -------- ------------ -------
Balance, December 31, 1997........... 23,899,119 $238,991 $157,457,418 $33,622
========== ======== ============ =======
</TABLE>
See accompanying notes.
F-12
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................... $ 33,622
Adjustments to reconcile net income to net cash provided by oper-
ating activities:
Depreciation and amortization.................................. 1,300,849
Gain on sale of rental equipment............................... (483,548)
Deferred taxes................................................. (2,204)
Changes in operating assets and liabilities:
Accounts receivable.......................................... 609,529
Inventory.................................................... 631,484
Prepaid expenses and other assets............................ (755,545)
Accounts payable............................................. 281,056
Accrued expenses and other liabilities....................... (512,507)
------------
Net cash provided by operating activities.................. 1,102,736
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment.................................... (1,886,533)
Purchases of property and equipment.............................. (819,557)
Proceeds from sales of rental equipment.......................... 1,011,071
In-process acquisition costs..................................... (128,523)
Purchase of other companies...................................... (51,451,634)
------------
Net cash used in investing activities...................... (53,275,176)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants, net of
issuance costs.................................................. 154,788,110
Proceeds from debt............................................... 35,000,000
Repayment of debt................................................ (68,222,252)
Payment of debt financing costs.................................. (785,890)
------------
Net cash provided by financing activities.................. 120,779,968
------------
Net increase in cash and cash equivalents........................ 68,607,528
Cash and cash equivalents at beginning of period................. --
------------
Cash and cash equivalents at end of period................. $ 68,607,528
============
Supplemental disclosure of cash flow information:
Cash paid for interest......................................... $ 446,559
============
Supplemental schedule of non cash investing and financing
activities:
The Company acquired the net assets and assumed certain
liabilities of other companies as follows:
Assets, net of cash acquired................................. $ 98,876,932
Liabilities assumed.......................................... (43,300,749)
Less:
Amounts paid in common stock............................... (3,824,549)
Amount paid through issuance of convertible note........... (300,000)
------------
Net cash paid.................................................. $ 51,451,634
============
</TABLE>
See accompanying notes.
F-13
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
United Rentals, Inc. (together with its subsidiaries the "Company") was
incorporated in August 1997 for the purpose of creating a large,
geographically diversified equipment rental company in the United States and
Canada. The Company rents a broad array of equipment to a diverse customer
base that includes construction industry participants, industrial companies,
homeowners and others. The Company also engages in related activities such as
selling used rental equipment, acting as a distributor for certain new
equipment and selling related merchandise and parts. The nature of the
Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying balance sheet is presented on an
unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
Inventory
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of average weighted cost or market.
Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is two to ten years.
Rental equipment is depreciated to a salvage value of zero to ten percent of
cost. Rental equipment having a cost of $500 or less is expensed at the time
of purchase. Ordinary maintenance and repair costs are charged to operations
as incurred.
Revenue Recognition
Revenue related to the sale of equipment is recognized at the point of sale.
Revenue related to rental equipment is recognized over the contract term.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is two to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Intangible Assets
Intangible assets consist of the excess of cost over the value of
identifiable net assets of businesses acquired and are being amortized on a
straight line basis over their estimated useful lives of forty years.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable, accrued expenses and other liabilities approximate fair
value due to the immediate to short-term maturity of these financial
instruments. The fair value of notes payable is determined using current
interest rates for similar instruments as of December 31, 1997 and
approximates the carrying value of these notes due to the fact that the
underlying instruments include provisions to adjust note balances and interest
rates to approximate fair market value.
Advertising Expense
The Company expenses the cost of advertising as incurred. The Company
incurred $146,000 in advertising costs for the period August 14, 1997
(Inception) to December 31, 1997.
F-14
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically
diverse customers make up the Company's customer base. No single customer
represents greater than 10% of total accounts receivable. The Company controls
credit risk through credit approvals, credit limits, and monitoring
procedures.
Stock-Based Compensation
The Company accounts for its stock based compensation arrangements under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Since stock options will be granted by the Company with exercise prices at or
greater than the fair value of the shares at the date of grant, no
compensation expense will be recognized.
Computation of Earnings Per Share
Earnings per share is calculated under the provisions of recently issued
Statement 128, Earnings Per Share. Common Stock issued for consideration below
the initial public offering price ("IPO price") of $13.50 per share at which
shares were sold in the Company's initial public offering (the "IPO"), and
stock options and warrants granted with exercise prices below the IPO price
per share during the twelve months preceding the date of the initial filing of
the registration statement for the IPO are included in the calculation of
common equivalent shares at the IPO price per share.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is required to
adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in a primary financial statement. The Company is currently
evaluating the reporting formats recommended under this Statement. SFAS No.
131 establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments.
F-15
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
During October 1997, the Company purchased all of the outstanding stock of
the following six equipment rental companies for the indicated consideration:
<TABLE>
<CAPTION>
COMPANY CONSIDERATION
------- -------------
<S> <C>
A & A Tool Rentals and Sales, Inc........................... $ 8,593,520
Bronco High-Lift, Inc....................................... 7,949,568
Coran Enterprises, Inc...................................... 15,264,337
J & J Rental Services, Inc.................................. 3,824,549
Mercer Equipment Company.................................... 14,933,242
Rent-It Center, Inc......................................... 6,400,000
</TABLE>
All of the consideration paid for the acquisitions was in cash, with the
exception of Rent-It Center, Inc. which included a $300,000 convertible note
and J & J Rental Services, Inc. where all of the consideration was paid
through the issuance of 318,712 shares of the Company's Common Stock. These
shares are subject to adjustment so that their value will equal $3.8 million
based upon the average daily closing price of the Company's Common Stock
during the 60 day period beginning December 18, 1997. Contingent consideration
is due on the J & J Rental Services, Inc. acquisition based upon a percentage
of revenues up to a maximum of $2.8 million.
These acquisitions have been accounted for as purchases and, accordingly,
the results of their operations have been included in the Company's results of
operations from their respective acquisition dates. The purchase prices have
been allocated to the assets acquired and liabilities assumed based on their
respective fair values at their respective acquisition dates. Contingent
purchase price is capitalized when earned and amortized over the remaining
life of the related asset.
The Company has not completed its valuation of the 1997 purchases and the
purchase price allocations are subject to change when additional information
concerning asset and liability valuations are completed.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
1997 and 1996 as though each acquisition described above was made on January
1, for each of the periods.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................ $59,832,952 $51,889,258
Net income.......................................... 2,607,127 3,462,371
Basic earnings per share............................ $ 0.16 $ 0.22
Diluted earnings per share.......................... $ 0.14 $ 0.20
</TABLE>
The unaudited pro forma results are based upon certain assumptions and
estimates which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<S> <C>
Rental equipment................................................ $34,444,129
Less accumulated depreciation................................... (1,036,568)
-----------
Rental equipment, net........................................... $33,407,561
===========
</TABLE>
F-16
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<S> <C>
Furniture, fixtures and office equipment........................ $2,294,277
Less accumulated depreciation................................... (21,594)
----------
Property and equipment, net..................................... $2,272,683
==========
6. DEBT
Debt consists of the following:
Subordinated convertible notes.................................. $ 500,000
Equipment notes, interest at 7.0% to 10.6%, payable in various
monthly installments through 2001, secured by equipment........ 574,474
----------
Total debt...................................................... $1,074,474
==========
</TABLE>
The Company's credit facility with a group of financial institutions, for
which Bank of America National Trust and Savings Association acts as agent,
enables the Company to borrow up to $155 million on a revolving basis (the
"Credit Facility"). The facility terminates on October 8, 2000, at which time
all outstanding indebtedness is due. Up to $10 million of the Credit Facility
is available in the form of letters of credit. Borrowings under the Credit
Facility accrue interest, at the Company's option, at either (a) the Floating
Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5%
and (ii) Bank of America's reference rate, in each case, plus a margin ranging
from 0% to 0.25% per annum) or (b) the Eurodollar Rate (which is equal to Bank
of America's reserve adjusted eurodollar rate plus a margin ranging from 1.5%
to 2.5% per annum). As of December 31, 1997, there was no outstanding
indebtedness under the Credit Facility. The Credit Facility contains certain
covenants that require the Company to, among other things, satisfy certain
financial tests relating to: (a) maintenance of minimum net worth, (b) the
ratio of debt to net worth, (c) interest coverage ratio, (d) the ratio of
funded debt to cash flow, and (e) the ratio of senior debt to tangible assets.
The Credit Facility also contains certain covenants that restrict the
Company's ability to, among other things, (i) incur additional indebtedness,
(ii) permit liens to attach to its assets, (iii) enter into operating leases
requiring payments in excess of specified amounts, (iv) declare or pay
dividends or make other restricted payments with respect to its equity
securities (including the Common Stock) or subordinated debt, (v) sell assets,
(vi) make acquisitions unless certain financial conditions are satisfied, and
(vii) engage in any line of business other than the equipment rental industry.
The Credit Facility provides that the failure by any two of certain of the
Company's executive officers to continue to hold executive positions with the
Company for a period of 30 consecutive days constitutes an event of default
under the Credit Facility unless replacement officers satisfactory to the
lenders are appointed. The Credit Facility is also subject to other customary
events of default. The Credit Facility is secured by substantially all of the
assets of United Rentals, Inc. and by the stock and assets of its
subsidiaries.
The subordinated convertible notes consists of two notes; $300,000 in
principal bearing interest at 7% per annum and $200,000 in principal bearing
interest at 7 1/2% per annum. The $200,000 note was converted into 14,814
shares of Common Stock during January 1998. The $300,000 note is repayable in
equal quarterly installments of principal and interest through October, 2002,
is convertible into the Company's Common Stock at a conversion rate of $16.20
per share and is subordinated to the Company's Credit Facility.
F-17
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of the Company's debt for each of the next five years at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 244,260
1999.............................................................. 340,916
2000.............................................................. 239,020
2001.............................................................. 181,676
2002.............................................................. 68,602
----------
$1,074,474
==========
</TABLE>
7. INCOME TAXES
The provision for federal and state income taxes is as follows:
<TABLE>
<S> <C>
Current State....................................................... $22,720
Deferred State...................................................... 3,041
Deferred Federal.................................................... (5,245)
-------
$20,516
=======
</TABLE>
A reconciliation of the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to income before
provision for income taxes is as follows:
<TABLE>
<S> <C>
Computed tax benefit at statutory tax rate.......................... $18,407
Increase in tax benefit:
Tax-exempt interest income........................................ (91,971)
Non-deductible expense............................................ 77,078
State income taxes, net of Federal benefit........................ 17,002
-------
$20,516
=======
</TABLE>
The components of deferred income tax assets are as follows:
<TABLE>
<S> <C>
Accrual liabilities.............................................. $ 957,619
Net operating loss carryforward.................................. 313,719
Property & equipment............................................. 43,908
----------
$1,315,246
==========
</TABLE>
The components of deferred income tax liabilities are as follows:
<TABLE>
<S> <C>
Intangibles and other............................................... $633,132
========
</TABLE>
The Company has net short-term deferred tax assets in the amount of
$880,363, which are reported in the balance sheet in prepaid expenses and
other assets.
The Company has net operating loss carryforwards ("NOLs") of $845,681 for
income tax purposes that expire in 2012.
F-18
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK
Preferred Stock: The Company's board of directors has the authority to
designate 5,000,000 shares of $.01 par value preferred stock in series, to
establish as to each series the designation and number of shares to be issued
and the rights, preferences, privileges and restrictions of the shares of each
series, and to determine the voting powers, if any, of such shares. At
December 31, 1997, the Company's Board of Directors had not designated any
shares.
As of December 31, 1997 there are outstanding warrants to purchase an
aggregate of 6,344,058 shares of Common Stock. Each warrant provides for an
exercise price of $10.00 per share and may be exercised at any time until
September 12, 2007.
The Board of Directors has adopted the Company's 1997 Stock Option Plan (the
"Stock Option Plan") which provides for the granting of options to purchase
not more than an aggregate of 5,000,000 shares of Common Stock. All officers,
employees and others who render services to the Company are eligible to
participate in the Stock Option Plan. Each option granted pursuant to the
Stock Option Plan must provide for an exercise price per share that is at
least equal to the fair market value per share of Common Stock on the date of
grant. No options may be granted under the Stock Option Plan after August 21,
2007. The exercise price of each option, the period during which each option
may be exercised and the other terms and conditions of each option are
determined by the Board of Directors (or by a committee appointed by the
Board).
During 1997, 904,583 options to purchase shares of the Company's Common
Stock were granted and remain outstanding at December 31, 1997. The weighted
average exercise price per share of such options was $12.76. Such options had
exercise prices ranging from $10 to $30 per share. Of such options, 818,583
provided for an exercise price per share in the range of $10.00 to $19.99 (the
weighted average exercise price and weighted average remaining life of the
options in this range being $11.84 and 9.9 years, respectively) and 86,000
provided for an exercise price per share in the range of $20.01 to $30.00 (the
weighted average exercise price and weighted average remaining life of the
options in this range being $21.51 and 9.9 years, respectively).
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Financial Accounting
Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-
Based Compensation," the Company's net income and earnings per share would
have differed. The Black-Scholes option pricing model estimates fair value of
options using subjective assumptions which can materially affect fair value
estimates and, therefore, do not necessarily provide a single measure of fair
value of options. Using the Black-Scholes option pricing model and a risk-free
interest rate of 5.8%, a volatility factor for the market price of the
Company's Common Stock of .315 and a weighted-average expected life of options
of approximately three years, the Company's net loss, basic earnings per share
and diluted earnings per share would have been $(43,731), $0.00 and $0.00,
respectively. For purposes of these pro forma disclosures, the estimated fair
value of options is amortized over the options' vesting period. Since the
number of options granted and their fair value may vary significantly from
year to year, the pro forma compensation expense in future years may be
materially different.
At December 31, 1997 there are 6,344,058 shares of Common Stock reserved for
the exercise of warrants, 5,000,000 shares of Common Stock reserved for
issuance pursuant to options granted, and that may be granted in the future,
under the Company's 1997 Stock Option Plan and 33,332 shares of Common Stock
reserved for the future conversion of convertible debt.
F-19
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<S> <C>
Numerator:
Net income....................................................... $ 33,622
===========
Denominator:
Denominator for basic earnings per share--weighted-average
shares.......................................................... 16,319,193
Effect of dilutive securities:
Employee stock options.......................................... 116,061
Warrants........................................................ 1,736,899
-----------
Dilutive potential common shares
Denominator for diluted earnings per share--adjusted weighted-
average shares................................................. 18,172,153
===========
Basic earnings per share........................................... $ 0.00
===========
Diluted earnings per share......................................... $ 0.00
===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the
Company to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, by year and in
the aggregate, for noncancellable operating leases with initial or remaining
terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998.............................................................. $2,676,494
1999.............................................................. 1,860,615
2000.............................................................. 1,213,003
2001.............................................................. 1,155,995
2002.............................................................. 816,400
Thereafter........................................................ 1,929,430
----------
$9,651,937
==========
</TABLE>
Rent expense under non-cancellable operating leases for the period August
14, 1997 (Inception) to December 31, 1997 was $524,752.
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company completed the acquisition of 14
equipment rental companies (the "Acquisitions") and the aggregate
consideration paid by the Company for the Acquisitions was $116.4 million and
consisted of approximately $100.9 million in cash, 804,875 shares of Common
Stock and warrants to purchase 30,000 shares of Common Stock. The Company
funded a portion of the cash consideration for these acquisitions with cash on
hand and the balance with borrowings under the Credit Facility.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Access Rentals, Inc.
We have audited the accompanying consolidated balance sheet of Access
Rentals, Inc., and subsidiary as of March 31, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended September 30, 1994 and 1995, and the six months ended March 31,
1996. We have also audited the combined balance sheet of Access Rentals, Inc.,
and subsidiary and affiliate as of March 31, 1997, and the related combined
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1996 and
1997, and results of their operations and cash flows for the years ended
September 30, 1994 and 1995, the six months ended March 31, 1996 and the year
ended March 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Battaglia, Andrews & Moag, P.C.
Batavia, New York
January 22, 1998
F-21
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash.................................... $ 284,228 $ 399,196 $ 362,817
Accounts receivable, net................ 3,319,859 5,173,046 9,482,265
Unbilled receivables.................... -- -- 1,075,209
Inventory............................... 2,013,125 1,835,687 2,511,326
Rental equipment, net................... 30,865,058 49,551,170 63,636,491
Property and equipment, net............. 2,625,564 4,599,576 5,386,167
Due from related party.................. 1,121,814 1,860,102 2,071,971
Prepaid expenses and other assets....... 1,221,482 1,896,518 1,286,100
Deferred tax asset...................... 458,908 937,585 576,730
Intangibles............................. -- 1,375,005 2,212,368
----------- ----------- -----------
Total assets........................ $41,910,038 $67,627,885 $88,601,444
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable, accrued expenses and
other liabilities.................... $ 3,128,407 $ 3,601,707 $ 7,160,756
Deferred tax liability................ 4,675,199 6,350,541 7,821,732
Debt.................................. 19,109,094 39,782,237 51,505,595
----------- ----------- -----------
Total liabilities................... 26,912,700 49,734,485 66,488,083
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 10,000
shares authorized, 300, 300 and
10,000 shares issued and outstanding
for each respective year............. 300 300 10,000
Additional paid-in capital............ 4,500 4,500 4,500
Note receivable from stockholder...... (420,040) (515,606) (1,105,994)
Retained earnings..................... 15,426,922 18,411,049 23,278,389
Equity adjustment for foreign currency
translation.......................... (14,344) (6,843) (73,534)
----------- ----------- -----------
Total stockholders' equity.......... 14,997,338 17,893,400 22,113,361
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $41,910,038 $67,627,885 $88,601,444
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS NINE MONTHS ENDED
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
------------------------ MARCH 31, MARCH 31, ------------------------
1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $15,804,754 $18,382,243 $10,405,814 $30,615,602 $21,391,478 $33,092,299
Sales of equipment and
parts................. 4,731,889 9,426,936 3,629,373 8,963,128 9,279,272 10,258,882
----------- ----------- ----------- ----------- ----------- -----------
Total revenues......... 20,536,643 27,809,179 14,035,187 39,578,730 30,670,750 43,351,181
Cost of revenues:
Cost of rentals
excluding
depreciation.......... 4,867,059 6,129,103 3,870,961 9,937,663 7,341,151 9,819,143
Depreciation, equipment
rentals............... 2,825,381 3,405,797 2,139,726 6,509,012 4,701,737 6,672,741
Cost of equipment and
parts................. 3,468,073 7,115,826 2,703,494 6,494,156 5,200,774 7,568,450
----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues. 11,160,513 16,650,726 8,714,181 22,940,831 17,243,662 24,060,334
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 9,376,130 11,158,453 5,321,006 16,637,899 13,427,088 19,290,847
Selling, general and
administrative
expenses............... 4,414,362 5,394,286 2,329,997 8,747,215 6,261,115 7,953,627
Non-rental depreciation. 489,084 532,659 283,206 946,382 658,899 1,067,156
----------- ----------- ----------- ----------- ----------- -----------
Operating income....... 4,472,684 5,231,508 2,707,803 6,944,302 6,507,074 10,270,064
Interest expense........ 673,532 1,147,616 682,394 2,604,066 1,821,607 2,918,100
Other (income), net..... (220,289) (250,421) (295,443) (605,215) (363,828) (567,759)
----------- ----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes and
cumulative effect of
change in accounting
principle............. 4,019,441 4,334,313 2,320,852 4,945,451 5,049,295 7,919,723
Provision for income
taxes.................. 1,661,994 1,819,455 1,122,851 1,786,724 2,016,066 2,974,033
----------- ----------- ----------- ----------- ----------- -----------
Income before
cumulative effect of
change in accounting
principle............. 2,357,447 2,514,858 1,198,001 3,158,727 3,033,229 4,945,690
Cumulative effect of
change in method of
accounting for taxes... 46,325 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE FOREIGN
-------------- PAID-IN FROM TREASURY RETAINED CURRENCY
SHARES AMOUNT CAPITAL STOCKHOLDER STOCK EARNINGS TRANSLATION
------ ------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1993................... 6 $ 4,800 $ -- $ (128,069) $(200,000) $ 9,775,310 $ --
Prior period
adjustment............ (265,019)
------ ------- ------ ----------- --------- ----------- --------
Balance, October 1, as
restated............... 6 4,800 -- (128,069) (200,000) 9,510,291 --
Retroactive retirement
of treasury stock..... 200,000 (200,000)
Retroactive effect of
stock split........... 294 (4,500) 4,500
Advances on note
receivable from
stockholder, net...... (199,179)
Net income............. 2,403,772
------ ------- ------ ----------- --------- ----------- --------
Balance at September 30,
1994................... 300 300 4,500 (327,248) -- 11,714,063 --
Advances on note
receivable from
stockholder, net...... (44,180)
Net income............. 2,514,858 (5,557)
------ ------- ------ ----------- --------- ----------- --------
Balance at September 30,
1995................... 300 300 4,500 (371,428) -- 14,228,921 (5,557)
Advances on note
receivable from
stockholder, net...... (48,612)
Net income............. 1,198,001 (8,787)
------ ------- ------ ----------- --------- ----------- --------
Balance at March 31,
1996................... 300 300 4,500 (420,040) -- 15,426,922 (14,344)
Advances on note
receivable from
stockholder, net...... (105,566)
Affiliate owner
contributions......... 10,000
Affiliate owner
distributions......... (174,600)
Net income............. 3,158,727 7,501
------ ------- ------ ----------- --------- ----------- --------
Balance at March 31,
1997................... 300 300 4,500 (515,606) -- 18,411,049 (6,843)
Issuance of common
stock (unaudited)..... 9,700 9,700 (9,700)
Advances on note
receivable from
stockholder, net
(unaudited)........... (590,388)
Affiliate owner
distributions
(unaudited)........... (68,650)
Net income (unaudited). 4,945,690 (66,691)
------ ------- ------ ----------- --------- ----------- --------
Balance at December 31,
1997 (unaudited)....... 10,000 $10,000 $4,500 $(1,105,994) $ -- $23,278,389 $(73,534)
====== ======= ====== =========== ========= =========== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, SIX MONTHS YEAR ENDED DECEMBER 31,
------------------------ ENDED MARCH MARCH 31, --------------------------
1994 1995 31, 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization.......... 3,314,465 3,938,456 2,422,932 7,583,689 5,446,164 7,898,802
Deferred income taxes.. 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040
Gain on sales of
equipment............. (778,327) (1,274,170) (533,974) (1,543,192) (1,064,927) (1,767,358)
Cumulative effect of
change in method of
accounting for income
taxes................. (46,325) -- -- -- -- --
Change in assets and
liabilities:
Increase (decrease)
in:
Accounts receivable,
net................. (1,163,341) (43,024) 670,789 (1,853,187) (3,004,185) (4,309,219)
Unbilled receivables. -- -- -- -- -- (1,075,209)
Inventory............ (91,367) (357,333) (741,329) 177,438 (393,457) (675,639)
Prepaid expenses and
other assets........ (740,966) (92,290) 179,547 (584,753) 111,402 560,606
Increase (decrease)
in:
Accounts payable,
accrued expenses and
other liabilities... 213,105 949,842 402,186 473,300 129,992 3,559,049
----------- ----------- ----------- ------------ ------------ ------------
Total adjustments... 1,379,324 3,798,263 3,067,563 5,404,751 2,273,862 6,026,072
Net cash provided by
operating
activities......... 3,783,096 6,313,121 4,265,564 8,563,478 5,307,091 10,971,762
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale
of property and
equipment............. 2,715,240 4,498,860 3,511,441 5,223,214 3,662,918 6,076,640
Purchase of property
and equipment......... (2,497,803) (4,978,090) (3,789,714) (3,146,679) (333,516) (5,572,825)
Advances on loan
receivable--
stockholder........... (304,436) (248,462) (99,555) (389,594) (293,310) (697,153)
Repayments on loan
receivable--
stockholder........... 105,257 204,282 50,943 284,028 158,829 106,765
Advances on loan
receivable--related
party................. (13,000) -- (531,466) (759,690) (358,798) (246,543)
Repayments on loan
receivable--related
party................. 10,174 7,128 3,673 21,402 15,401 34,674
Advances on note
receivable............ -- (48,322) -- (77,851) -- --
Repayments on note
receivable............ (126,668) 3,283 2,554 6,255 4,632 31,128
Acquisition of
subsidiary............ -- (866,700) -- -- -- --
Payments for
intangibles........... -- -- -- (1,521,984) (1,521,984) (977,583)
----------- ----------- ----------- ------------ ------------ ------------
Net cash provided by
(used by) investing
activities.......... (111,236) (1,428,021) (852,124) (360,899) 1,334,172 (1,244,897)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Affiliate owner
distributions......... -- -- -- (174,600) -- (68,650)
Affiliate owner
contributions......... -- -- -- 10,000 10,000 --
Borrowings on debt
obligations........... 161,297 736,330 2,083,097 23,048,203 16,018,625 22,959,059
Principal payments on
debt obligations...... (3,932,202) (5,601,158) (5,234,451) (30,978,715) (22,599,866) (32,586,962)
----------- ----------- ----------- ------------ ------------ ------------
Net cash used by
financing
activities.......... (3,770,905) (4,864,828) (3,151,354) (8,095,112) (6,571,241) (9,696,553)
Equity translation...... -- (5,557) (8,787) 7,501 7,569 (66,691)
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease)
in cash................ (99,045) 14,715 253,299 114,968 77,591 (36,379)
CASH--BEGINNING OF
PERIOD................. 115,259 16,214 30,929 284,228 284,228 399,196
----------- ----------- ----------- ------------ ------------ ------------
CASH--END OF PERIOD..... $ 16,214 $ 30,929 $ 284,228 $ 399,196 $ 361,819 $ 362,817
=========== =========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-25
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995, AND AS OF AND FOR THE SIX
MONTHS ENDED
MARCH 31, 1996 AND AS OF AND FOR THE YEAR ENDED MARCH 31, 1997
(THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The accompanying financial statements include the financial statements of
Access Rentals, Inc. (the "Parent"), Access Lift Equipment, Inc. (the
"Subsidiary") which was acquired in February 1995 and Reinhart Leasing LLC
(the "Affiliate"). The Affiliate, which has common ownership to the Parent,
was formed on June 26, 1996.
The accompanying financial statements include the financial statements of
the Parent for the years ended September 30, 1994 and 1995, as of and for the
six months ended March 31, 1996, as of and for the year ended March 31, 1997
and as of December 31, 1997 and for the nine months ended December 31, 1996
and 1997 and the financial statements of the Subsidiary for the seven months
ended September 30, 1995, as of and for the three months ended December 31,
1995 (included in the financial statements for the six months ended March 31,
1996), as of and for the year ended December 31, 1996 (included in the
financial statements for the year ended March 31, 1997) and the nine months
ended December 31, 1996 and 1997. The consolidated financial statements have
been combined with the financial statements of the Affiliate for the six
months ended December 31, 1996 (included in the financial statements for the
nine months ended December 31, 1996) as of and for the nine months ended March
31, 1997 and as of and for the nine months ended December 31, 1997. All
material intercompany transactions and balances have been eliminated in
consolidation and combination.
BUSINESS
Access Rentals, Inc. and Subsidiary (the Company) rents, sells and repairs
aerial personnel lift equipment primarily to companies in the manufacturing
and construction industries. Sales and rentals primarily occur in areas where
the Company maintains offices, such as the states of New York, Minnesota,
Tennessee, Indiana, New Jersey, Pennsylvania, Connecticut, South Carolina,
Florida, Washington and in and around Toronto, Canada. The nature of the
Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the balance sheet is presented on an unclassified basis.
Reinhart Leasing, LLC rents and sells aerial personnel lift equipment solely
to Access Rentals, Inc.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet at December 31, 1997, and the statements of
income, stockholders' equity and cash flows for the nine month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
ACCOUNTS RECEIVABLE
It is the Company's policy to present accounts receivable net of an
allowance for uncollectible accounts. At March 31, 1996 and 1997 and December
31, 1997, the balance of the allowance for uncollectible accounts amounted to
$103,028, $228,885 and $380,000, respectively.
INVENTORY
Inventory consists of equipment and vehicles purchased for resale and
equipment parts purchased for repairs and resale. Equipment is valued at the
lower of cost or market, based on specific identification, and parts are
valued using the average cost method.
F-26
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventory amounted to:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment for resale.................. $ 1,371,741 $ 368,723 $ 842,295
Parts................................. 641,384 1,466,964 1,669,031
----------- ----------- -----------
Total............................... $ 2,013,125 $ 1,835,687 $ 2,511,326
=========== =========== ===========
</TABLE>
RENTAL EQUIPMENT
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated six-year useful life
with a 10% salvage value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is being depreciated using the
straight-line and declining balance methods over the estimated useful lives of
the respective assets.
The cost of normal maintenance and repairs is charged to expense as
incurred, whereas expenditures which materially extend property lives are
capitalized. When depreciable property is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income.
RENTAL REVENUE
Rental revenue is recorded as earned under the operating method.
ADVERTISING COSTS
The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $7,706, $11,349, $6,717,
$10,395, $6,454 and $26,982, for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997, respectively.
OTHER ASSETS/AMORTIZATION
During the year ended March 31, 1997 and the nine months ended December 31,
1997, the Company acquired assets of two companies. The acquisitions resulted
in goodwill and covenants not-to-compete amounting to approximately $1,777,500
and $700,000, respectively, which are being amortized using the straight-line
method over 15 years and 5 years, respectively. Total amortization expense
amounted to $128,295, $85,528 and $158,905 for the year ended March 31, 1997
and the nine months ended December 31, 1996 and 1997, respectively.
INCOME TAXES
The provision for income tax is based on earnings reported for financial
statement purposes, adjusted for transactions that do not enter into the
computation of income taxes payable. The Parent, Subsidiary and Affiliate file
separate tax returns. The Parent files tax returns in the United States and
the Subsidiary files tax returns in Canada. The Affiliate is a limited
liability company taxed as a partnership; therefore the members are taxed
individually on the income of the Affiliate and a provision for taxes has not
been made in the financial statements.
F-27
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATION OF CREDIT RISK
Credit is granted to substantially all of the Parent's customers throughout
the United States and the Subsidiary's customers throughout Canada. Management
feels that adequate reserves for potential credit losses are maintained.
FOREIGN CURRENCY TRANSLATION
The Company conducts business through a subsidiary located in Canada. The
Company regards the local currency of the subsidiary to be its functional
currency; consequently, translation gains and losses of the foreign subsidiary
are accumulated and reported as a separate component of stockholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on the
transactions denominated in a currency other than the local functional
currency are included in the results of operations.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. This affects the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
NOTE 2--RENTAL EQUIPMENT
RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER
1996 1997 31, 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment........................... $43,896,291 $66,007,890 $84,098,558
Less accumulated depreciation.............. 13,031,233 16,456,720 20,462,067
----------- ----------- -----------
Rental equipment, net...................... $30,865,058 $49,551,170 $63,636,491
=========== =========== ===========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 182,969 $ 182,969 $ 182,969
Buildings and improvements................... 949,741 1,346,619 1,779,975
Office and shop equipment.................... 833,209 1,341,605 1,387,020
Transportation equipment..................... 2,573,492 4,425,156 5,393,695
Less accumulated depreciation................ 1,913,847 2,696,773 3,357,492
---------- ---------- ----------
Property and equipment, net.................. $2,625,564 $4,599,576 $5,386,167
========== ========== ==========
</TABLE>
F-28
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--NET INVESTMENT IN SALES-TYPE LEASES
The Company leases some of its rental equipment to customers under sales-
type leases. The following summarizes the net investment in sales-type leases
which are included in prepaid and other assets on the balance sheet:
<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Total minimum lease payments to be received.... $ 418,679 $ 573,127 $ 716,961
Less unearned interest income.................. 26,950 38,773 39,627
--------- --------- ---------
Net investment in sales-type leases............ $ 391,729 $ 534,354 $ 677,334
========= ========= =========
</TABLE>
NOTE 4--DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Lines-of-credit.......................... $ 2,130,195 $ 3,788,341 $ 3,828,370
Present value of capital lease
obligations............................. 3,436,191 8,465,249 16,104,886
Various installment obligations
collateralized by rental and
transportation equipment. These notes
bear interest ranging from 6%-9.8%, with
repayment periods ranging from two to
five years.............................. 12,030,127 18,913,002 23,965,117
Term loan payable to a bank, monthly
payments of $50,500 including interest
at 7.84%, maturing July, 2006.
Collateralized by rental equipment...... 270,413 2,217,572 1,887,211
Term loan payable to a bank, requiring
monthly principle payments of $79,511,
plus interest at the prime rate plus
1.75%, or the sum of the LIBOR on the
request day plus 1.75% (7.3125% at
March 31, 1997), maturing July 2002. The
loan is collateralized by rental
equipment of the Affiliate.............. -- 5,088,735 4,325,469
Term loan payable to a bank, quarterly
principal payments of $46,021, plus
interest at 6%, maturing July 1999.
Collateralized by rental equipment of
the Parent.............................. 598,268 414,186 276,124
Subsidiary revolving term loan payable to
a bank, monthly principal payments
totaling Canadian $39,455, plus interest
at Canadian prime rate plus 0.5%, (5.25%
at March 31, 1997), maturing June 2000.
Collateralized by equipment of
Subsidiary and guaranteed by the
Parent.................................. 608,502 878,339 1,116,680
Mortgage payable to third-party lender,
monthly payments of $1,750 including
interest at 9%, maturing January 1998.
Collateralized by real property at 45
Center Street, Batavia, New York........ 35,398 16,813 1,738
----------- ----------- -----------
Total debt........................... $19,109,094 $39,782,237 $51,505,595
=========== =========== ===========
</TABLE>
F-29
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
BANK LINES-OF-CREDIT
The Parent has revolving bank lines-of-credit amounting to $5,000,000
(increased to $6,000,000 on September 1, 1997), which are payable on demand,
with interest due monthly at rates varying from 7.50% to 8.00% as of March 31,
1997. The agreements are collateralized by equipment and receivables of the
Parent. The outstanding balance on these lines-of-credit agreements amounted
to $3,788,341 at March 31, 1997.
The Parent also has revolving term lines-of-credit available from various
lending institutions which aggregate $63,700,000 as of March 31, 1997. The
Company pays interest on the outstanding balances of these agreements at rates
which ranged from 6.65% to 9.8% at March 31, 1997.
The Subsidiary has a $500,000 (Canadian denomination) revolving line-of-
credit available for operating cash requirements and a $2,400,000 (Canadian
denomination) term line-of-credit available to finance up to 75% of the cost
of equipment acquisitions. The operating line-of-credit is payable on demand,
with interest due monthly at the Canadian prime rate of interest plus 0.25%,
(5.00% at March 31, 1997). There was not an outstanding balance on the
operating line-of-credit agreement as of March 31, 1997. Advances on the
equipment line-of-credit are payable over 36 or 48 months, with interest due
monthly at Canadian prime plus 0.50%, (5.25% at March 31, 1997). The
outstanding balance on the equipment line-of-credit agreement was $878,339
(United States denomination) as of March 31, 1997. The line-of-credit
agreements are collateralized by accounts receivable and personal property of
the Subsidiary and are guaranteed by the Parent.
Current maturities of long-term debt for each of the five years subsequent
to March 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASE
OBLIGATIONS OBLIGATIONS TOTAL DEBT
----------- ----------- -----------
<S> <C> <C> <C>
1998.................................. $12,274,967 $2,283,984 $14,558,951
1999.................................. 7,097,078 2,168,855 9,265,933
2000.................................. 5,099,954 1,869,131 6,969,085
2001.................................. 3,002,236 1,379,399 4,381,635
2002.................................. 1,811,547 896,077 2,707,624
Thereafter............................ 2,031,206 1,492,772 3,523,978
----------- ---------- -----------
Total payments........................ 31,316,988 10,090,218 41,407,206
Less interest amount.................. -- 1,624,969 1,624,969
----------- ---------- -----------
Total debt.......................... $31,316,988 $8,465,249 $39,782,237
=========== ========== ===========
</TABLE>
CAPITAL LEASE OBLIGATIONS
The Company and Affiliate lease rental equipment under various agreements
classified as capital leases based on the provisions of Statement of Financial
Accounting Standards No. 13. The economic substance of the leases is that the
Company is financing the acquisition of the equipment through the leases and,
accordingly, they are recorded in the Company's assets and liabilities. These
assets are stated on the balance sheet at their capitalized cost, less
accumulated depreciation, of $4,115,887, $9,091,782 and $16,275,311 as of
March 31, 1996 and 1997 and December 31, 1997, respectively.
F-30
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--OPERATING LEASES
The Company leases building, shop and office space, and rental equipment
under various long-term and short-term operating lease agreements. Rent
expense under the agreements for the years ended September 30, 1994 and 1995,
six months ended March 31, 1996, year ended March 31, 1997, and nine months
ended December 31, 1996 and 1997 amounted to $328,892, $334,504, $174,189,
$825,229, $758,883 and $1,086,219, respectively.
The total future minimum rental payments required for noncancellable
operating leases as of March 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................... $ 513,782
1999........................................................... 342,859
2000........................................................... 363,925
2001........................................................... 267,697
2002........................................................... 410,846
Thereafter..................................................... 80,785
----------
Total...................................................... $1,979,894
==========
</TABLE>
NOTE 6--PROVISIONS FOR INCOME TAXES
The Company has provided for income tax based on consolidated net income.
Income tax expense is allocated to the Parent and Subsidiary based on the tax
liability and expense relating to the respective taxing authorities.
The provision for income taxes, calculated according to SFAS No. 109,
"Accounting for Income Taxes", amounted to:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS NINE MONTHS ENDED
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
--------------------- MARCH 31, MARCH 31, -----------------------
1994 1995 1996 1997 1996 1997
---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal income tax.... $ 651,914 $ 844,075 $ 336,022 $ 495,887 $ 699,193 $ 835,885
State income tax...... 338,000 296,054 114,774 93,415 268,000 301,000
Canadian business tax... -- 2,544 4,643 45,966 -- 2,108
---------- ---------- ----------- ----------- ---------- -----------
Total current....... 989,914 1,142,673 455,439 635,268 967,193 1,138,993
Deferred:
Federal income tax.... 577,859 455,576 336,121 866,666 849,733 1,320,725
State income tax...... 94,221 89,206 268,291 194,174 64,000 378,575
Canadian business tax... -- 132,000 63,000 90,616 135,140 135,740
---------- ---------- ----------- ----------- ---------- -----------
Total deferred...... 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040
---------- ---------- ----------- ----------- ---------- -----------
Total provision for
income taxes....... $1,661,994 $1,819,455 $ 1,122,851 $ 1,786,724 $2,016,066 $ 2,974,033
========== ========== =========== =========== ========== ===========
</TABLE>
Deferred taxes are recorded based on differences between the financial
statement and tax basis of assets and liabilities. Temporary differences which
give rise to a significant portion of deferred tax assets and liabilities
F-31
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
were the result of book and tax depreciation and revenue recognition timing
differences, allowance for uncollectible accounts, net operating loss
carryforwards of the Subsidiary and certain tax credits.
The Subsidiary has remaining Canadian net operating loss (NOL) carryforwards
of approximately $415,000 as of March 31, 1997 and December 31, 1997. The NOL
carryforwards begin to expire in 1998 and will be completely expired in 2001.
Application of statutory tax rates to combined pretax income will not be
representative of the provision for income taxes. As previously disclosed, the
income of the Affiliate is taxed individually at the member level.
NOTE 7--RELATED PARTY TRANSACTIONS
Officer Loan--The chief executive officer and a stockholder maintains a
floating loan with the Company. This loan is charged when personal
expenditures are paid by the Company on behalf of the officer. A loan
agreement exists between the parties, in which the Company charges interest of
8.5% on the average outstanding balance. The terms provide for the officer to
make regular, periodic payments to reduce the outstanding balance. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$420,040, $515,606 and $1,105,994, respectively. The amounts at March 31, 1997
and December 31, 1997 have been reduced in combination by the Affiliate's
capital account.
Loan Receivable--The Company has a loan receivable which represents cash
advances made to companies owned by an employee and the stockholders. The
Company charges interest on these loans at an annual rate of 8%. The balance
outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to
$1,121,814, $1,860,102 and $2,071,971, respectively.
Operating Lease Agreement--The Company leases shop, warehouse space and
aircraft from companies owned by an employee and the stockholders. The Company
also leases rental equipment from the Affiliate, the effect of which has been
eliminated in the combination of the financial statements. The leases are on a
month to month basis and require monthly payments of $41,000 for the shop and
warehouse space and $250,000 ($325,000 as of September 1, 1997) for rental
equipment. The terms of the equipment lease with the Affiliate were modified
during the nine months ended December 1997.
Sale/Leaseback of Property--On March 31, 1996, the Company sold four
buildings to a company owned by the stockholders for $1,725,000. Management
estimated that the market value of the property approximated the net book
value. The property is provided for in the operating lease, as disclosed
above.
NOTE 8--CASH FLOW DISCLOSURE INFORMATION
For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total interest paid amounted to $660,902, $1,132,222, $676,546,
$2,005,464, $1,447,752 and $2,120,907, respectively.
For the years ended September 30, 1994 and 1995, six months ended March 31,
1996, year ended March 31, 1997, and nine months ended December 31, 1996 and
1997, total taxes paid amounted to $887,760, $1,516,861, $584,371, $1,045,652,
$791,179 and $298,321, respectively.
During the years ended September 30, 1994 and 1995, six months ended March
31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996
and 1997, the Company and Affiliate purchased
F-32
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$7,368,661, $7,127,810, $7,968,504, $28,603,655, $27,336,255 and $21,237,266,
respectively, of equipment which was financed.
NOTE 9--RETIREMENT PLANS
The Parent maintains a defined contribution retirement plan for non-union
employees. The plan qualifies as a deferred compensation plan under Section
401(k) of the Internal Revenue Code. Company contributions are based on a 100%
match of the employees' elective deferral up to 4%.
The Parent also contributes to defined benefit pension plans for employees
covered under six union contracts, Locals #15C, #103, #138, #542C, #825 and
#832 of the International Union of Operating Engineers. A full description of
the membership, benefits and employer and employee obligations to contribute
to these plans are described in the Summary Plan Description and Annual
Reports of the plans.
The actuarial information needed to determine the liabilities and provide
the current disclosure information necessary under FASB No. 87 was
unavailable. Consequently, the financial statements for the years ended
September 30, 1994 and 1995, six months ended March 31, 1996, year ended March
31, 1997 and nine months ended December 1996 and 1997, do not reflect the
financial position, results of operations and expanded disclosures in
accordance with FASB No. 87.
The Subsidiary maintains a non-contributory pension plan, whereby the
Subsidiary contributes 4% of employee compensation to the plan. In addition,
the Subsidiary will contribute a 100% match of the employees' elective
deferral up to a maximum of 2%.
The cost of the plans for the years ended September 30, 1994 and 1995, six
months ended March 31, 1996, the year ended March 31, 1997, and the nine
months ended December 31, 1996 and 1997, amounted to approximately $151,669,
$192,541, $110,857, $329,712, $149,568 and $162,150, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Access Rentals, Inc. (Parent) guarantees debt obligations of the Subsidiary,
Access Lift Equipment, Inc., the Affiliate, Reinhart Leasing, LLC, and another
related company owned by the stockholders.
At December 31, 1997, the Company had outstanding purchase orders for
equipment in the amount of $4,240,564.
NOTE 11--CHANGE IN METHOD OF ACCOUNTING AND PRIOR YEAR ADJUSTMENT
The accompanying consolidated financial statements for the fiscal year ended
September 30, 1994 have been retroactively restated as a result of
management's change in method of accounting for rental income. In years prior
to the change, the Company recorded revenue for the entire rental period of a
contract upon billing. The change in accounting policy removes the portion of
rental billings pertaining to periods subsequent to the reporting period. The
effect of the restatement resulted in a $265,019 decrease to retained earnings
at September 30, 1993.
F-33
<PAGE>
ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A restatement of the September 30, 1994 consolidated statement of income is
summarized as follows:
<TABLE>
<CAPTION>
AS
PREVIOUSLY
REPORTED AS RESTATED
----------- -----------
<S> <C> <C>
Rental income.......................................... $14,730,347 $15,804,754
Income before taxes and cumulative effect of change in
accounting principle.................................. 4,127,869 4,019,441
Provision for income taxes............................. 1,715,048 1,661,994
Income before cumulative effect of change in accounting
principle............................................. 2,412,821 2,357,447
Cumulative effect of change in method of accounting for
income taxes.......................................... 46,325 46,325
Net income............................................. $ 2,459,146 $ 2,403,772
</TABLE>
NOTE 12--ACQUISITION OF SUBSIDIARY
Effective February 26, 1995, the Company acquired 100% of the outstanding
common stock of Access Lift Equipment, Inc., formerly Upright of Canada, Inc.,
for approximately $920,000.
The acquisition, accounted for in accordance with Accounting Principles
Board (APB) Opinion No. 16--Business Combinations, using the purchase method
of accounting, has resulted in the inclusion of the operating results of the
Subsidiary, from the date of acquisition, in the financial statements of the
Company.
NOTE 13--STOCKHOLDERS' EQUITY
On December 30, 1997, Access Rentals, Inc. (Parent) retired 6 shares of
treasury stock then issued its remaining 194 common shares with no par value.
Also, on December 30, 1997, Access Rentals, Inc. (Parent) amended its
certificate of incorporation to increase the number of authorized shares from
200 common with no par value to 100 Class A Voting common shares with a par
value of $1 and 9,900 Class B Non-voting common shares with a par value of $1,
effecting a stock split of 50 shares of new stock for each share of stock.
The retirement of treasury stock and the stock split were given retroactive
effect in the accompanying financial statements.
At December 31, 1997 the following common stock shares were authorized,
issued and outstanding:
<TABLE>
<S> <C>
Class A Voting, $1 par value....................................... 100
Class B Non-voting, $1 par value................................... 9,900
------
Total shares................................................... 10,000
======
</TABLE>
NOTE 14--SUBSEQUENT EVENTS
On September 1, 1997, the Company and Affiliate acquired certain assets of a
company engaged in primarily the same business as Access Rentals, Inc., with
operations in Florida. The purchase price, including the covenant not-to-
compete, amounted to approximately $4,988,850, for which the same amount of
debt was incurred.
During January 1998, the Company sold all real estate owned by the Company
to a related party company. The sales price was determined based upon
appraisals and approximated $605,000.
On January 21, 1998, the Company, Affiliate and stockholders entered into a
stock purchase agreement with United Rentals, Inc. (URI). Under the terms of
the stock purchase agreement, URI purchased all of the issued and outstanding
capital stock of the Company and substantially all of the assets of the
Affiliate. Also, as part of the transaction all of the stock of Access Lift
Equipment, Inc. (Subsidiary) was sold by Access Rentals, Inc., to United
Rentals of Canada, Inc., a wholly-owned subsidiary of URI.
NOTE 15--RECLASSIFICATIONS
Certain reclassifications have been made to previously issued financial
statements in order to conform them to current classifications.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors BNR Group of Companies
We have audited the combined balance sheets of BNR Group of Companies as at
March 31, 1996 and 1997 and the combined statements of earnings, stockholders'
equity and cash flows for the years then ended. These combined financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these combined financial statements present fairly, in all
material respects, the combined financial position of BNR Group of Companies
as at March 31, 1996 and 1997 and the results of their operations and their
cash flows for the years then ended in accordance with generally accepted
accounting principles in Canada.
Generally accepted accounting principles in Canada vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected results of operations for the years ended
March 31, 1996 and 1997 and stockholders' equity as at March 31, 1996 and
March 31, 1997 to the extent summarized in note 14 to the combined financial
statements.
/s/ KPMG
Chartered Accountants
Waterloo, Canada
February 3, 1998
F-35
<PAGE>
BNR GROUP OF COMPANIES
COMBINED BALANCE SHEETS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
--------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 45,817 $ 62,471 $ 36,157
Trade accounts receivable (note 2)...... 3,807,908 4,692,084 7,281,959
Inventories............................. 1,744,367 1,897,021 2,276,311
Income taxes recoverable................ -- 81,808 --
Prepaid expenses........................ 116,844 128,343 85,937
----------- ----------- -----------
5,714,936 6,861,727 9,680,364
Rental equipment (note 3)................. 8,668,609 10,593,547 13,211,100
Fixed assets (note 4)..................... 731,864 716,381 1,054,482
----------- ----------- -----------
$15,115,409 $18,171,655 $23,945,946
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 5).............. $ 120,373 $ 469,860 $ 1,469,042
Short-term borrowings (note 5).......... 1,428,176 1,407,830 1,752,252
Accounts payable........................ 1,950,163 1,957,643 2,081,720
Accrued liabilities..................... 946,688 686,351 433,945
Income taxes payable.................... 67,618 -- 475,417
Current portion of long-term debt (note
6)..................................... 1,618,749 2,390,758 3,233,715
----------- ----------- -----------
6,131,767 6,912,442 9,446,091
Long-term debt (note 6)................... 2,250,744 3,467,720 4,369,061
Redeemable shares (note 7)................ 4,534,975 4,424,975 4,424,975
Deferred income taxes..................... 681,518 975,570 1,385,392
Stockholders' equity:
Share capital (note 8).................. 83,319 83,319 83,319
Retained earnings....................... 1,433,086 2,307,629 4,237,108
----------- ----------- -----------
1,516,405 2,390,948 4,320,427
----------- ----------- -----------
$15,115,409 $18,171,655 $23,945,946
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-36
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF EARNINGS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rental revenue............. $ 9,286,562 $10,873,631 $ 9,333,864 $11,481,757
Sales of equipment, parts
and supplies.............. 12,276,498 15,829,146 12,292,494 15,836,495
Other...................... 847,000 788,306 682,980 757,443
----------- ----------- ----------- -----------
22,410,060 27,491,083 22,309,338 28,075,695
Cost of revenues:
Cost of equipment rentals,
excluding equipment rental
depreciation.............. 4,352,621 5,277,966 4,103,508 5,282,162
Depreciation on rental
equipment................. 1,609,690 1,936,254 1,451,671 1,715,542
Cost of sales, equipment,
parts and supplies........ 8,883,214 11,818,715 9,303,777 11,832,825
----------- ----------- ----------- -----------
14,845,525 19,032,935 14,858,956 18,830,529
----------- ----------- ----------- -----------
Gross profit................. 7,564,535 8,458,148 7,450,382 9,245,166
Selling, general and adminis-
tration..................... 5,728,380 6,386,710 4,528,911 5,623,444
Non-rental depreciation...... 71,748 78,354 56,903 123,246
----------- ----------- ----------- -----------
Operating earnings........... 1,764,407 1,993,084 2,864,568 3,498,476
Interest expense............. 565,106 691,559 514,503 517,347
----------- ----------- ----------- -----------
Earnings before income taxes. 1,199,301 1,301,525 2,350,065 2,981,129
Income taxes (note 9):
Current.................... 245,436 132,930 480,220 637,328
Deferred................... 118,677 294,052 288,251 409,822
----------- ----------- ----------- -----------
364,113 426,982 768,471 1,047,150
----------- ----------- ----------- -----------
Net earnings................. $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-37
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL EARNINGS TOTAL
------- ---------- ----------
<S> <C> <C> <C>
Balances, at March 31, 1995..................... $83,319 $ 597,898 $ 681,217
Net earnings.................................... -- 835,188 835,188
------- ---------- ----------
Balances, at March 31, 1996..................... 83,319 1,433,086 1,516,405
Net earnings.................................... -- 874,543 874,543
------- ---------- ----------
Balances, at March 31, 1997..................... 83,319 2,307,629 2,390,948
Net earnings (unaudited)........................ -- 1,933,979 1,933,979
Dividends (unaudited)........................... -- (4,500) (4,500)
------- ---------- ----------
Balances, at December 31, 1997 (unaudited)...... $83,319 $4,237,108 $4,320,427
======= ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-38
<PAGE>
BNR GROUP OF COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings............... $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979
Items not involving cash:
Depreciation and amorti-
zation.................. 1,681,438 2,014,608 1,508,574 1,838,788
Gain on disposal of
rental equipment........ (639,271) (839,394) (725,213) (764,999)
Gain on disposal of fixed
assets.................. (44,016) -- -- --
Deferred income taxes.... 118,677 294,052 288,251 409,822
Change in operating assets:
Accounts receivable...... (894,464) (884,176) (2,814,394) (2,589,875)
Inventories.............. (613,126) (152,654) (186,602) (379,290)
Prepaid expenses......... (63,687) (11,499) 3,516 42,406
Accounts payable......... 408,768 7,480 (209,735) 124,077
Accrued liabilities...... 387,747 (260,337) (600,645) (252,406)
Income taxes............. 9,712 (149,426) 338,842 557,225
----------- ----------- ----------- -----------
1,186,966 893,197 (815,812) 919,727
Cash flows from investing
activities:
Purchase of rental equip-
ment.................... (5,523,247) (7,355,356) (6,419,981) (7,976,473)
Proceeds on disposal of
rental equipment........ 2,900,664 4,333,558 3,489,908 4,408,377
Purchase of fixed assets. (91,794) (62,871) (50,489) (461,347)
Proceeds on disposal of
fixed assets............ 52,648 -- -- --
----------- ----------- ----------- -----------
(2,661,729) (3,084,669) (2,980,562) (4,029,443)
Cash flows from financing
activities:
Net advance (repayment)
of bank indebtedness.... 23,618 349,487 1,256,010 344,422
Net borrowings
(repayment) on short-
term borrowings......... 188,093 (20,346) 338,414 999,182
Borrowings on long-term
debt.................... 2,172,871 2,894,173 3,066,515 2,998,826
Payments on long-term
debt.................... (673,795) (905,188) (783,925) (1,254,528)
Repayment of shareholder
loans................... (41,180) -- -- --
Issuance of share capi-
tal..................... 69,520 -- -- --
Dividends................ -- -- -- (4,500)
Redemption of Class B
special shares.......... (229,725) (110,000) (110,000) --
----------- ----------- ----------- -----------
1,509,402 2,208,126 3,767,014 3,083,402
----------- ----------- ----------- -----------
Increase (decrease) in
cash...................... 34,639 16,654 (29,360) (26,314)
Cash, beginning of period.. 11,178 45,817 45,817 62,471
----------- ----------- ----------- -----------
Cash, end of period........ $ 45,817 $ 62,471 $ 16,457 $ 36,157
=========== =========== =========== ===========
Supplemental Schedule of
Cash Flow Information:
Cash paid during the pe-
riod for interest....... $ 565,106 $ 691,559 $ 514,503 $ 517,347
Cash paid during the pe-
riod for income taxes... 231,521 332,816 183,030 143,383
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-39
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
MARCH 31, 1996 AND 1997
(The information as at December 31, 1997 and for the nine months ended
December 31, 1996 and 1997 is unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The accompanying combined financial statements are presented in accordance
with accounting principles generally accepted in Canada (Canadian GAAP).
The combined financial statements include the accounts of BNR Equipment
Limited (BNR Kitchener), 754643 Ontario Limited (BNR Ottawa), 650310 Ontario
Limited (BNR Barrie), 766903 Ontario Inc. (BNR Owen Sound) and BNR Equipment,
Inc. (BNR Amherst).
As more fully described in note 15, on January 22, 1998, all of the
aforementioned companies were acquired by United Rentals, Inc. in a single
common transaction and, accordingly, these financial statements have been
prepared on a combined basis.
Each of the companies rents and sells industrial supplies and power
equipment. All significant intercompany accounts and transactions have been
eliminated on combination.
These financial statements are prepared on the basis of their predecessor
historical costs and do not include any adjustments that may result on the
acquisition of the BNR Group of Companies by United Rentals, Inc. as more
fully described in note 15.
(b) Interim financial statements:
The accompanying combined balance sheets and statements of stockholders'
equity at December 31, 1997 and the combined statements of earnings,
stockholders' equity and cash flows for the nine month periods ended December
31, 1996 and 1997 are unaudited and have been prepared on a basis that is
consistent with the audited combined financial statements included herein. In
the opinion of management, such unaudited combined financial statements
include all adjustments necessary to present fairly the information set forth
therein, which consist solely of normal recurring adjustments. The results of
operations for such interim periods are not necessarily indicative of results
for the full year.
(c) Revenue recognition:
Revenue related to the sale of industrial supplies and power equipment is
recognized at the point of sale. Revenue related to the rental of industrial
power equipment is recognized ratably over the contract term. The companies
generally rent equipment under short-term agreements of one month or less.
(d) Inventories:
Inventories consisting primarily of power tools, industrial supplies and
power equipment are valued at the lower of cost (first-in, first-out basis)
and net realizable value.
(e) Foreign currency translation:
Monetary assets and liabilities of the companies, which are denominated in
foreign currencies, are translated into Canadian dollars at exchange rates
prevailing at the balance sheet date. Exchange gains and losses resulting from
the translation of these amounts are reflected in the combined statement of
earnings in the period in which they occur.
F-40
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
(f) Rental equipment, fixed assets and depreciation:
Rental equipment and fixed assets are stated at acquisition cost.
Depreciation is provided using the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
----- ----- ----
<S> <C> <C>
Rental equipment...................................... Declining balance 15%
Buildings............................................. Declining balance 5%
Office and shop equipment............................. Declining balance 20%
Signs................................................. Declining balance 20%
Vehicles.............................................. Declining balance 20%
Parking lot........................................... Declining balance 8%
Leasehold improvements................................ Straight-line 20%
</TABLE>
(g) Deferred income taxes:
The companies account for income taxes on the deferred tax allocation
method. Under this method, timing differences between reported and taxable
income result in provisions for taxes not currently payable. Such timing
differences arise principally as a result of claiming depreciation and other
amounts for tax purposes at amounts differing from those charged to income.
(h) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. TRADE ACCOUNTS RECEIVABLE:
Trade accounts receivable are net of allowances for doubtful accounts of
$nil at March 31, 1996, $68,966 at March 31, 1997 and $215,591 at December 31,
1997.
3. RENTAL EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment........................ $18,335,170 $22,133,208 $26,466,262
Less accumulated depreciation........... 9,666,561 11,539,661 13,255,162
----------- ----------- -----------
$ 8,668,609 $10,593,547 $13,211,100
=========== =========== ===========
</TABLE>
F-41
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
4. FIXED ASSETS:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................... $ 201,600 $ 201,600 $ 201,600
Buildings................................ 617,977 617,977 623,066
Office and shop equipment................ 319,208 337,252 363,774
Signs.................................... 17,426 19,163 23,884
Vehicles................................. 53,020 53,020 388,361
Parking lot.............................. -- 7,560 26,448
Leasehold improvements................... 145,646 181,176 251,962
---------- ---------- ----------
1,354,877 1,417,748 1,879,095
Less accumulated depreciation and amorti-
zation.................................. 623,013 701,367 824,613
---------- ---------- ----------
$ 731,864 $ 716,381 $1,054,482
========== ========== ==========
</TABLE>
5. BANK INDEBTEDNESS AND SHORT-TERM BORROWINGS:
Bank indebtedness and short-term borrowings bear interest rates between
prime plus .50% to prime plus .75% and are secured by a general assignment of
book debts, security agreement over all inventories, first collateral
mortgages and demand debenture over land and buildings, a fixed charge and a
chattel mortgage over certain equipment and an assignment of fire insurance
over buildings and equipment.
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Bank loans, various term loans with
combined monthly payments of $123,078
(as at December 31, 1997) including
interest ranging from prime plus 1% to
prime plus 1.75% due from 1998 through
2001. Collateralized by certain
equipment and fixed assets............ $1,662,704 $2,406,572 $2,021,641
Lien notes, various notes with combined
monthly payments of $300,956 (as at
December 31, 1997) including interest
ranging from prime plus 1.25% to prime
plus 2%, due from 1998 through 2001.
Collateralized by specific equipment . 2,136,540 3,288,692 5,062,094
Other notes, various notes with
combined monthly payments of $26,106
(as at December 31, 1997) including
interest ranging from 2.9% to 10%, due
from 1998 through 2000. Collateralized
by specific equipment and vehicles.... 70,249 163,214 519,041
---------- ---------- ----------
3,869,493 5,858,478 7,602,776
Current portion of long-term debt...... 1,618,749 2,390,758 3,233,715
---------- ---------- ----------
$2,250,744 $3,467,720 $4,369,061
========== ========== ==========
</TABLE>
F-42
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
6. LONG-TERM DEBT (CONTINUED):
Annual principal payments over each of the next four years are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
1998............ $ 2,390,758 $ 3,233,715
1999............ 1,878,097 2,696,223
2000............ 1,280,955 1,448,045
2001............ 308,668 224,793
----------- -----------
$ 5,858,478 $ 7,602,776
=========== ===========
</TABLE>
7. REDEEMABLE SHARES:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
----------------- ----------------- -----------------
(UNAUDITED)
# $ # $ # $
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BNR EQUIPMENT LIMITED (BNR
KITCHENER)
Authorized:
Unlimited number of
Class A special
shares, non-voting,
redeemable
Unlimited number of
Class B special
shares, non-voting,
redeemable
Issued:
Class B special
shares.............. 875,975 875,975 765,975 765,975 765,975 765,975
754643 ONTARIO LIMITED (BNR
OTTAWA)
Authorized:
Unlimited number of
special shares, non-
voting, redeemable
Issued:
Special shares....... 159,000 159,000 159,000 159,000 159,000 159,000
650310 ONTARIO LIMITED (BNR
BARRIE)
Authorized:
Unlimited number of
Class C special
shares, non-voting,
redeemable
Unlimited number of
Class D special
shares, non-voting,
redeemable
Issued:
Class C special
shares.............. 1,000 2,315,000 1,000 2,315,000 1,000 2,315,000
Class D special
shares.............. 185,000 185,000 185,000 185,000 185,000 185,000
766903 ONTARIO INC. (BNR OWEN
SOUND)
Authorized:
Unlimited number of
Class C special
shares, non-voting,
redeemable
Issued:
Class C special
shares.............. 1,000 1,000,000 1,000 1,000,000 1,000 1,000,000
--------- --------- ---------
4,534,975 4,424,975 4,424,975
========= ========= =========
</TABLE>
F-43
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
7. REDEEMABLE SHARES (CONTINUED)
(a) Certain of the BNR Group of Companies have issued special shares, Class
B special shares and Class D special shares which are redeemable at the
holders option at $1 per share. Under Canadian generally accepted accounting
principles, these shares are presented as liabilities in the combined
financial statements at their redemption amounts.
(b) Certain of the BNR Group of Companies have issued Class C special shares
which are redeemable at the holders option at a fixed amount which is in
excess of their stated capital amounts. Under Canadian generally accepted
accounting principles, these Class C special shares are presented as
liabilities in the combined financial statements at their redemption amounts.
The excess of their redemption amounts over their paid-up capital amounts of
$3,314,990 has been charged to retained earnings.
(c) The special shares, Class B special shares, Class C special shares and
Class D special shares have no fixed redemption date and are redeemable at the
option of the holder. Dividends on these shares are discretionary. In the
event of liquidation, dissolution, or wind up of the companies, holders of
these shares are entitled to receive, in priority to all other classes, an
amount equal to the redemption amount plus any declared and unpaid dividends.
(d) Between May 8, 1995 and January 18, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 229,725 Class B special shares for $229,725.
Between April 18, 1996 and July 15, 1996, BNR Equipment Limited (BNR
Kitchener) redeemed 110,000 Class B special shares for $110,000.
F-44
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
8. SHARE CAPITAL:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
(UNAUDITED)
# $ # $ # $
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
BNR EQUIPMENT LIMITED (BNR
KITCHENER)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 6,000 13,693 6,000 13,693 6,000 13,693
754643 ONTARIO LIMITED (BNR OT-
TAWA)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 100 100 100 100 100 100
650310 ONTARIO LIMITED (BNR
BARRIE)
Authorized:
Unlimited number of Class A
common shares................
Unlimited number of Class B
convertible common shares
Issued:
Class B convertible common
shares....................... 600 1 600 1 600 1
766903 ONTARIO INC. (BNR OWEN
SOUND)
Authorized:
Unlimited number of Class A
common shares................
Unlimited number of Class B
convertible common shares
Issued:
Class B convertible common
shares....................... 1,000 5 1,000 5 1,000 5
BNR EQUIPMENT INC. (BNR AMHERST)
Authorized:
Unlimited number of common
shares
Issued:
Common shares................. 100 69,520 100 69,520 100 69,520
------ ------ ------
83,319 83,319 83,319
====== ====== ======
</TABLE>
The Class B convertible common shares are convertible into an equivalent
number of Class A common shares for no additional consideration.
F-45
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
9. INCOME TAXES:
The effective income tax rate differs from the statutory rate that would be
obtained by applying the combined basic federal, state and provincial tax rate
to earnings before income taxes. These differences result from the following
items:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
--------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Combined basic federal, state
and provincial tax rate..... 44.6% 44.6% 44.6% 44.6%
Increase (decrease) in income
tax rate resulting from:
Tax reductions to certain
private companies........... (12.0) (9.9) (11.3) (10.0)
Other permanent differences.. (2.2) (1.9) (.6) .5
----- ---- ----- -----
Effective income tax rate.... 30.4% 32.8% 32.7% 35.1%
===== ==== ===== =====
</TABLE>
10. COMMITMENTS:
The companies are committed to payments under operating leases for
equipment, vehicles and buildings. Annual payments over each of the next five
years are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
(UNAUDITED)
<S> <C> <C>
1998............ $ 789,000 $ 620,000
1999............ 446,000 522,000
2000............ 275,000 361,000
2001............ 122,000 238,000
2002............ 54,000 148,000
---------- ----------
$1,686,000 $1,889,000
========== ==========
</TABLE>
11. FINANCIAL INSTRUMENTS:
The carrying value of the companies' trade accounts receivable, bank
indebtedness, accounts payable, accrued liabilities, short-term borrowings and
redeemable shares approximate their fair values due to their demand nature or
relatively short periods to maturity.
The fair value of the companies' long-term debt have been determined to be
equal to their carrying values, as the current financing arrangements
represent the borrowing rate presently available to the companies for loans
with similar terms and maturities.
12. RELATED PARTY TRANSACTIONS:
(a) The companies rent certain premises from officers and stockholders of
the companies.
The following are the amounts that have been expensed in each of the
periods:
<TABLE>
<S> <C>
March 31, 1997.................. $202,081
December 31, 1997 (unaudited)... 164,498
</TABLE>
(b) Included in note 10 are operating lease commitments with a company
controlled by certain stockholders:
The following are the amounts that have been expensed in each of the
periods:
<TABLE>
<S> <C>
March 31, 1997................... $57,523
December 31, 1997 (unaudited).... 57,391
</TABLE>
F-46
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
13. NATURE OF OPERATIONS AND SEGMENT INFORMATION:
The companies only significant activity is the rental and sale of industrial
supplies and power equipment. Geographically segmented information is as
follows:
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
MARCH 31, MARCH 31, MARCH 31,
----------------------- --------------------- -----------------------
YEAR ENDED 1996 1997 1996 1997 1996 1997
------------------------ ----------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $21,812,899 $24,746,282 $ 597,161 $2,744,801 $22,410,060 $27,491,083
Operating earnings
(loss)................. 1,922,641 1,996,754 (158,234) (3,670) 1,764,407 1,993,084
Identifiable net assets. 1,307,530 1,821,554 208,875 569,394 1,516,405 2,390,948
</TABLE>
<TABLE>
<CAPTION>
CANADA UNITED STATES TOTAL
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------- ------------
NINE MONTHS ENDED 1997 1997 1997
------------------------------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues............................. $24,447,526 $3,628,169 $28,075,695
Operating earnings................... 3,137,274 361,202 3,498,476
Identifiable net assets.............. 3,251,422 1,069,005 4,320,427
</TABLE>
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The companies follow Canadian generally accepted accounting principles which
are different in some respects from those applicable in the United States.
(a) Since redemption of the shares described in note 7 is outside the
control of the companies, the shares are classified as liabilities under
Canadian GAAP. For U.S. GAAP purposes, such redeemable shares can be
classified outside stockholders' equity and below liabilities. This
classification difference has no impact on net income or stockholders' equity
for U.S. GAAP purposes.
(b) The income tax provision is based on the deferral method and adjustments
are generally not made for changes in income tax rates. Under U.S. GAAP,
deferred tax liabilities are measured using the enacted tax rate expected to
apply to taxable income in the periods in which the deferred tax liability is
expected to be settled.
The deferred income tax liability under U.S. GAAP as compared to Canadian
GAAP consists of the following temporary differences:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental Equipment and Fixed Assets--
Tax depreciation in excess of book
depreciation--
For U.S. GAAP........................... $1,257,257 $1,518,790 $1,833,228
For Canadian GAAP....................... 681,518 975,570 1,385,392
</TABLE>
(c) The following table presents a reconciliation of net earnings from
Canadian GAAP to U.S. GAAP:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
--------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings under Canadian
GAAP......................... $835,188 $874,543 $1,581,594 $1,933,979
Income tax adjustment under
the asset and liability
method....................... (66,853) 32,519 56,922 95,384
-------- -------- ---------- ----------
Net earnings under U.S. GAAP.. $768,335 $907,062 $1,638,516 $2,029,363
======== ======== ========== ==========
</TABLE>
F-47
<PAGE>
BNR GROUP OF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
(d) The following table presents stockholders' equity under U.S. GAAP:
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Stockholders' equity under Canadian
GAAP.................................. $1,516,405 $2,390,948 $4,320,427
Income tax adjustment under the asset
and liability method.................. (575,739) (543,220) (447,836)
Stockholders' equity under U.S. GAAP... 940,666 1,847,728 3,872,591
</TABLE>
15. SUBSEQUENT EVENT:
On January 22, 1998, all of the outstanding capital stock was acquired by
United Rentals, Inc. All of the shares described in note 7 and all of the
shares described in note 8, except for the shares of the U.S. company BNR
Equipment, Inc. (BNR Amherst) were cancelled and these Canadian companies of
the BNR Group of Companies amalgamated with United Rentals of Canada, Inc. on
January 30, 1998. Subsequent to December 31, 1997 and prior to the acquisition
by United Rentals, Inc., land and buildings with a carrying value of
approximately $500,000 were acquired by certain of the BNR Group of Companies'
stockholders for cash of $665,000 which was used by the companies to repay the
companies' debt. At the same time, the companies entered into operating lease
agreements with the stockholders with respect to these land and buildings.
F-48
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Mission Valley Rentals, Inc.
We have audited the balance sheets of Mission Valley Rentals, Inc. as of
June 30, 1996 and 1997 and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mission Valley Rentals,
Inc. at June 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 23, 1998
F-49
<PAGE>
MISSION VALLEY RENTALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash........................................ $ 144,491 $ 527,922 $ 505,541
Accounts receivable, net.................... 470,736 662,006 721,252
Inventory................................... 37,539 58,949 88,965
Rental equipment, net....................... 3,004,111 5,158,789 5,667,659
Property and equipment, net................. 124,597 155,001 138,343
Prepaid expenses and other assets........... 34,850 180,875 165,599
Intangible assets, net...................... 776,003 765,841
---------- ---------- ----------
Total assets............................ $3,816,324 $7,519,545 $8,053,200
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Accounts payable, accrued expenses and
other liabilities........................ $ 246,536 $ 404,689 $ 805,462
Income taxes payable...................... 53,303 (54,283)
Debt...................................... 1,512,074 5,102,143 5,536,280
Deferred income taxes..................... 188,774 319,869 235,744
---------- ---------- ----------
Total liabilities....................... 2,000,687 5,826,701 6,523,203
Commitments and contingencies
Stockholders' equity:
Common stock, no par value and $1.00
stated value, 10,000 shares authorized,
1,000 issued and outstanding at June 30,
1996 and 1997, and December 31, 1997..... 1,000 1,000 1,000
Retained earnings......................... 1,814,637 1,691,844 1,528,997
---------- ---------- ----------
Total stockholders' equity.............. 1,815,637 1,692,844 1,529,997
---------- ---------- ----------
Total liabilities and stockholders'
equity................................. $3,816,324 $7,519,545 $8,053,200
========== ========== ==========
</TABLE>
See accompanying notes.
F-50
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30 DECEMBER 31
---------------------- ----------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals........... $4,851,942 $6,798,752 $3,365,276 $4,419,275
Sales of rental equipment... 96,987 413,481 346,540 74,642
Sales of parts and supplies. 399,156 558,034 264,193 329,496
---------- ---------- ---------- ----------
Total revenues............ 5,348,085 7,770,267 3,976,009 4,823,413
Cost of revenues:
Cost of equipment rentals,
excluding depreciation..... 1,893,655 2,876,589 1,392,173 1,952,185
Depreciation of rental
equipment.................. 738,229 1,599,457 586,675 733,558
Cost of rental equipment
sales...................... 61,810 413,481 346,540 55,168
Cost of sales of parts and
supplies................... 214,802 377,047 153,444 171,949
---------- ---------- ---------- ----------
Total cost of revenues.... 2,908,496 5,266,574 2,478,832 2,912,860
---------- ---------- ---------- ----------
Gross profit.................. 2,439,589 2,503,693 1,497,177 1,910,553
Selling, general and
administrative expenses...... 1,640,442 2,222,524 1,086,303 1,926,386
Non-rental depreciation....... 25,355 30,154 15,117 16,658
---------- ---------- ---------- ----------
Operating income (loss)....... 773,792 251,015 395,757 (32,491)
Interest expense.............. 139,925 390,047 171,923 215,848
Other (income), net........... (58,767) (62,016) (31,956) (31,209)
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes 692,634 (77,016) 255,790 (217,130)
Provision (benefit) for income
taxes........................ 299,259 45,777 64,295 (54,283)
---------- ---------- ---------- ----------
Net income (loss)............. $ 393,375 $ (122,793) $ 191,495 $ (162,847)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-51
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- RETAINED
SHARES AMOUNTS EARNINGS
------ ------- ----------
<S> <C> <C> <C>
Balance at July 1, 1995.............................. 1,000 $1,000 $1,421,262
Net income......................................... 393,375
----- ------ ----------
Balance at June 30, 1996............................. 1,000 1,000 1,814,637
Net loss........................................... (122,793)
----- ------ ----------
Balance at June 30, 1997............................. 1,000 1,000 1,691,844
Net loss (unaudited)............................... (162,847)
----- ------ ----------
Balance at December 31, 1997 (unaudited)............. 1,000 $1,000 $1,528,997
===== ====== ==========
</TABLE>
See accompanying notes.
F-52
<PAGE>
MISSION VALLEY RENTALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30 DECEMBER 31
--------------------- -------------------
1996 1997 1996 1997
--------- ---------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)................. $ 393,375 $ (122,793) $191,495 $(162,847)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization... 763,584 1,646,105 611,009 760,378
Gain on equipment sales......... (35,177) (19,474)
Deferred taxes.................. 81,859 131,318 87,014 (84,125)
Changes in assets and
liabilities:
Increase in accounts receivable. (81,581) (191,270) (206,289) (59,246)
Increase in inventory........... (10,437) (21,410) (48,417) (30,016)
(Decrease) increase in prepaid
expenses and other assets...... 50,884 (146,248) (104,458) 15,276
Increase in accounts payable,
accrued expenses and other
liabilities.................... 119,054 158,153 65,881 400,773
(Decrease) increase in income
taxes payable.................. 53,303 (53,303) 10,992 (54,283)
--------- ---------- -------- ---------
Total adjustments................. 941,489 1,523,345 415,732 929,283
--------- ---------- -------- ---------
Cash provided by operating
activities..................... 1,334,864 1,400,552 607,227 766,436
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of rental equipment...... (388,116)
Proceeds from sale of rental
equipment........................ 96,987 413,481 346,540 74,642
--------- ---------- -------- ---------
Cash provided by (used in)
investing activities........... (291,129) 413,481 346,540 74,642
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal payments on debt........ (957,424) (4,567,552) (741,982) (863,459)
Principal payments on capital
lease obligations................ (32,258)
Borrowings under credit facility.. 3,169,208
--------- ---------- -------- ---------
Cash used in financing
activities..................... (957,424) (1,430,602) (741,982) (863,459)
--------- ---------- -------- ---------
Increase (decrease) in cash....... 86,311 383,431 211,785 (22,381)
Cash balance at beginning of
year........................... 58,180 144,491 144,491 527,922
--------- ---------- -------- ---------
Cash balance at end of year..... $ 144,491 $ 527,922 $356,276 $ 505,541
========= ========== ======== =========
</TABLE>
See accompanying notes.
F-53
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
(THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE SIX
MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Mission Valley Rentals, Inc. (the "Company") rents, sells and repairs
construction equipment for use by contractor, industrial and homeowner
markets. The rentals are on a daily, weekly or monthly basis. The Company has
four locations in Northern California and its principal market area is the
entire Bay Area and the San Joaquin Valley. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheets are presented on an unclassified basis.
On September 1, 1996, the Company acquired for $2,320,000 a substantial
amount of rental equipment and fixed assets from Rental World, Inc. and
assumed all operations. The Company utilized the funds available under its
line of credit to finance the purchase. The acquisition has been accounted for
as a purchase and, accordingly, at such date the Company recorded the assets
acquired at their estimated fair values.
The acquired assets have been recorded at their estimated fair value at the
date of the acquisition of $1,527,503 with the excess purchase price of
$792,497 being recorded as goodwill.
Interim Financial Statements
The accompanying balance sheet at December 31, 1997 and the statements of
income, stockholders' equity and cash flows for the six-month periods ended
December 31, 1996 and 1997 are unaudited and have been prepared on the same
basis as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consist
solely of normal recurring adjustments. The results of operations for such
interim period are not necessarily indicative of results for the full year.
Inventory
Inventory consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with a 10% salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
F-54
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Intangible assets
Intangible assets are recorded at cost and consist of goodwill, which is
being amortized by the straight line method over its estimated useful life of
forty years. Accumulated amortization at June 30, 1997 and December 31, 1997
is $16,494 and $26,656, respectively.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Company advertises primarily through phone directories and the
distribution of promotional items. All advertising costs are expensed as
incurred. Advertising expenses amounted to approximately $63,800 and $104,500
in the years ended June 30, 1996 and 1997, respectively, and $52,000 and
$42,000 for the six months ended December 31, 1996 and 1997, respectively.
Income Taxes
The Company uses the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, consequently, management believes funds maintained there are secure.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising the Company's customer base
and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment....................... $6,384,287 $9,793,816 $10,454,616
Less accumulated depreciation.......... 3,380,176 4,635,027 4,786,957
---------- ---------- -----------
Rental equipment, net.................. $3,004,111 $5,158,789 $ 5,667,659
========== ========== ===========
</TABLE>
F-55
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30
----------------- DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures..................... $237,744 $273,686 $273,686
Leasehold improvements..................... 268,939 293,557 293,557
-------- -------- --------
506,683 567,243 567,243
Less accumulated depreciation.............. 382,086 412,242 428,900
-------- -------- --------
Total.................................... $124,597 $155,001 $138,343
======== ======== ========
</TABLE>
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
JUNE 30
--------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Ingersoll-Rand--Various notes with combined
monthly payments of $3,514 including
interest from 7.9% to 10%................. $ 53,296 $ 100,980 $ 167,744
Clark Equipment Credit Co.--Various notes
with combined monthly payments of $5,217
including interest from 7.9% to 9.9%...... 35,443 194,304 156,550
Fremont Bank--Various notes with combined
monthly payments of $52,073 including
interest from 8.75% to 9.35%.............. 784,633 2,874,127 3,017,141
Ford Motor Credit--Various notes with
combined monthly payments of $1,908
including interest from 8.75% to 9.25%.... 64,948 333,237 374,384
Ford New Holland--Various notes with
combined monthly payments of $3,849
including interest 10.5%.................. 123,539 79,366 55,493
Orix Credit--Various notes with combined
monthly payments of $3,864 including
interest from 6.3% to 9.3%................ 10,264 71,764 51,293
Case Credit--Various notes with combined
monthly payments of $20,216 including
interest from 7.7% to 7.9%................ 209,397 567,827 486,188
Caterpillar Financial Services--Various
notes with combined monthly payments of
$3,615 including interest of 6.6%......... -- 150,936 133,994
Country Ford--Various leases with combined
monthly payments of $6,685 including
interest of 8.0%.......................... -- 351,683 325,197
John Deere--Three notes with combined
monthly payments of $3,038 including
interest of 4.9%.......................... 14,073 53,471 45,788
Associates--Various notes with combined
monthly payments of $5,314 including
interest from 7.5% to 8.98%............... 147,925 182,165 366,594
GMAC--One note with a monthly payment of
$886 including interest of 9.99%.......... -- 20,627 16,254
AEL Lease--Two notes with a combined
monthly payment of $2,736 including
interest of 8.25%......................... 3,244 40,705 82,129
M.E.L. Enterprises--One note with a monthly
payment of $2,595 including interest of
9.0%...................................... 65,312 38,984 24,909
AT&T Finance Corp.--Three notes with a
combined monthly payment of $4,028
including interest of 7.35%............... -- -- 194,253
Other...................................... -- 41,967 38,369
---------- ---------- ----------
$1,512,074 $5,102,143 $5,536,280
========== ========== ==========
</TABLE>
F-56
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Substantially all rental equipment collateralize the above notes.
Subsequent to June 30, 1997, the Company paid $2,766,372 on certain amounts
outstanding under the debt and capital lease agreements. The remaining balance
of $2,335,771 is scheduled for payment in fiscal year 1998.
6. CAPITAL LEASES
The Company leases certain rental equipment under leases accounted for as
capital leases. The following is an analysis of the leased property.
<TABLE>
<CAPTION>
JUNE 30
1997 DECEMBER 31,
-------- 1997
------------ (UNAUDITED)
<S> <C> <C> <C>
Rental equipment........................ $383,874 $383,874
Less accumulated amortization........... 39,688 59,688
-------- --------
Net................................... $344,186 $324,186
======== ========
</TABLE>
Total depreciation expense on assets under capital leases was $39,688 and
$20,000 in the year ended June 30, 1997 and for the six months ended December
31, 1997, respectively.
The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
June 30, 1997:
<TABLE>
<S> <C>
Year ended June 30, 1998........................................ $ 80,223
1999.......................................................... 80,233
2000.......................................................... 80,223
2001.......................................................... 80,223
2002.......................................................... 80,223
Thereafter.................................................... 33,426
--------
Net minimum lease payment....................................... 434,541
Less amount representing interest............................... 82,858
--------
Present value of net minimum lease payments..................... $351,683
========
</TABLE>
7. OPERATING LEASES
The Company leases four store locations on long term leases. The Company is
responsible for all operating expenses of the facilities including property
taxes, assessments, insurance, repairs and maintenance.
Rent expense under these leases totaled $216,725 and $334,725 for the years
ended June 30, 1996 and 1997 and $166,363 and $169,963 for the six months
ended December 31, 1996 and 1997, respectively. Under the lease agreements,
aggregate rent is payable in monthly installments of approximately $28,560.
Under certain lease agreements, the rent shall be increased annually to
reflect the then current fair market rent for the premises, provided that each
annual increase shall not exceed a specific percentage, as defined in the
agreements, of the previous year's rental rate. Future minimum rent
commitments are $342,725 each for years ended June 30, 1998 to June 30, 2004
and $217,563 and $21,000 for fiscal 2005 and 2006 respectively, provided there
is no increase in fair market rent for the premises.
F-57
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------- ------------------
1996 1997 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:.
Federal................................ $184,790 $(85,541) $(22,719) $ 29,842
State.................................. 32,610 -- --
-------- -------- -------- --------
217,400 (85,541) (22,719) 29,842
Deferred:.
Federal................................ 69,580 111,620 74,407 (71,507)
State.................................. 12,279 19,698 12,607 (12,618)
-------- -------- -------- --------
81,859 131,318 87,014 (84,125)
-------- -------- -------- --------
Total.................................. $299,259 $ 45,777 $ 64,295 $(54,283)
======== ======== ======== ========
</TABLE>
Significant components of the Company's deferred tax liability at June 30,
1996 and 1997 and December 31, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------ DECEMBER 31,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Difference in basis of
accounting............. $(33,025) $(41,185) $ --
Cumulative tax
depreciation in excess
of book................ 188,774 319,869 235,744
-------- -------- --------
Deferred tax liability,
net.................... $155,749 $278,684 $235,744
======== ======== ========
</TABLE>
Deferred tax assets at June 30, 1996 and 1997, are included in prepaid
expenses and other assets on the accompanying balance sheet.
9. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total interest paid was $139,925 and $367,561 and $171,923
and $238,334, respectively.
For the years ended June 30, 1996 and 1997 and the six months ended December
31, 1996 and 1997, total taxes paid were $120,000 and $127,611 and $84,358 and
$ -- , respectively.
For the years ended June 30, 1996 and 1997 and for the six months ended
December 31, 1996 and 1997, the Company purchased $857,779, $3,844,300,
$3,156,404 and $1,297,596, respectively, of equipment which was financed.
For the year ended June 30, 1997 and the six months ended December 31, 1996,
the Company entered into capital lease agreements for rental equipment
totaling $383,874.
10. EMPLOYEE BENEFIT PLAN
On January 1, 1996, the Company established a defined contribution 401(k)
retirement plan which covers substantially all full time employees. The
employees may contribute up to 15% of their weekly gross pay. The Company
matches 20% of the employees contribution. Effective September 1997, the
Company's match
F-58
<PAGE>
MISSION VALLEY RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
increased to 70%. Company contributions to the plan were $7,674, $15,211,
$7,807 and $33,159 for the years ended June 30, 1996 and 1997 and for the six
month periods ended December 31, 1996 and 1997, respectively.
11. SUBSEQUENT EVENT
On January 13, 1998, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-59
<PAGE>
INDEPENDENT AUDITOR'S REPORT
MERCER Equipment Company:
We have audited the accompanying balance sheets of MERCER Equipment Company
as of December 31, 1996 and October 24, 1997 and the related statements of
income and retained earnings and of cash flows for each of the two years in
the period ended December 31, 1996, and for the period from January 1, 1997 to
October 24, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MERCER Equipment Company
as of December 31, 1996, and October 24, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996 and for the period from January 1, 1997 to October 24, 1997
in conformity with generally accepted accounting principles.
/s/ Webster, Duke & Co. PA
Charlotte, North Carolina
January 21, 1998
F-60
<PAGE>
MERCER EQUIPMENT COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
------------ -----------
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 276,639 $ 85,384
Accounts receivable (less allowance for doubtful
accounts: 1996-$182,425, 1997-$254,073)............ 1,819,581 2,398,926
Inventory (Notes 2, 5 and 8)........................ 2,417,425 2,299,512
Miscellaneous receivables........................... 16,604 29,508
Prepaid expenses.................................... - 17,965
----------- -----------
Total current assets.............................. 4,530,249 4,831,295
----------- -----------
RENTAL EQUIPMENT (Notes 2, 5, 8, 9, 10 and 15):
Rental equipment.................................... 14,030,584 15,392,093
Less accumulated depreciation....................... 3,717,218 4,322,744
----------- -----------
Rental equipment, net............................. 10,313,366 11,069,349
----------- -----------
OTHER PROPERTY (Notes 2, 8 and 11):
Other property...................................... 1,003,079 1,091,365
Less accumulated depreciation....................... 395,658 498,962
----------- -----------
Other property, net............................... 607,421 592,403
----------- -----------
OTHER ASSETS (Note 13):
Deposits and other assets........................... 68,639 42,889
Notes receivable-officers........................... 69,980 67,453
----------- -----------
Total other assets................................ 138,619 110,342
----------- -----------
TOTAL............................................. $15,589,655 $16,603,389
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 4)............................. -- --
Note payable-Bank (Note 4).......................... $ 494,245 $ 5,017,953
Short-term equipment notes (Note 5)................. 189,528 3,619,830
Notes payable-individuals (Notes 6 and 13).......... 609,000 142,000
Current portion of long-term debt................... 2,253,562 56,411
Current portion of capital leases................... 167,445 86,597
Accounts payable.................................... 2,161,340 3,174,282
Accrued expenses.................................... 140,361 254,444
----------- -----------
Total current liabilities......................... 6,015,481 12,351,517
----------- -----------
LONG-TERM DEBT (Non-current Portion):
Revolving credit note (Note 7)...................... 2,430,000 --
Notes payable to bank (Note 8)...................... 1,513,000 --
Notes payable on rental equipment (Note 9).......... 2,195,238 --
Capital leases on rental equipment (Note 10)........ 119,183 176,047
Notes payable on other property..................... 138,543 82,208
----------- -----------
Total long-term debt.............................. 6,395,964 258,255
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock (Notes 2 and 12)....................... 500,001 500,001
Retained earnings (Note 8).......................... 2,678,209 3,493,616
----------- -----------
Total stockholders' equity........................ 3,178,210 3,993,617
----------- -----------
TOTAL............................................. $15,589,655 $16,603,389
=========== ===========
</TABLE>
See notes to financial statements.
F-61
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 1997
YEAR ENDED DECEMBER 31, TO OCTOBER 24, 1997
------------------------ ---------------------------
1995 1996 1997
----------- ----------- ---------------------------
<S> <C> <C> <C>
REVENUE:
Sales of new
equipment............. $ 2,479,358 $ 3,415,523 $3,709,356
Sales of supplies and
parts................. 1,558,273 2,067,403 1,831,345
----------- ----------- ----------
Total goods sold..... 4,037,631 5,482,926 5,540,701
Sales of rental
equipment............. 872,621 1,102,621 1,876,001
Rental revenues........ 4,950,614 7,380,137 6,891,972
Service department
revenues.............. 357,039 488,216 764,738
----------- ----------- ----------
Total revenues....... 10,217,905 14,453,900 15,073,412
----------- ----------- ----------
DIRECT COSTS OF REVENUE:
Cost of goods sold..... 3,171,168 4,469,790 4,677,328
Cost of rental
equipment sold, net... 530,102 702,254 1,218,507
Rental department
expenses (including
depreciation of
$1,035,352, $1,492,131
and $1,428,312)....... 2,226,420 3,589,936 3,728,374
Service department
expenses.............. 460,382 648,882 706,958
----------- ----------- ----------
Total direct costs of
revenue............. 6,388,072 9,410,862 10,331,167
----------- ----------- ----------
GROSS MARGIN............. 3,829,833 5,043,038 4,742,245
----------- ----------- ----------
OPERATING EXPENSES:
Sales expenses......... 752,722 1,386,812 1,345,705
Administrative and
general expenses...... 1,930,124 2,247,556 2,014,205
----------- ----------- ----------
Total operating
expenses............ 2,682,846 3,634,368 3,359,910
----------- ----------- ----------
MARGIN FROM OPERATIONS... 1,146,987 1,408,670 1,382,335
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Miscellaneous income... 78,258 110,340 147,362
Interest expense....... (486,976) (813,339) (686,512)
----------- ----------- ----------
Total other income
(expense)........... (408,718) (702,999) (539,150)
----------- ----------- ----------
NET INCOME............... 738,269 705,671 843,185
BEGINNING RETAINED
EARNINGS................ 1,450,936 2,045,871 2,678,209
----------- ----------- ----------
Total................ 2,189,205 2,751,542 3,521,394
LESS DIVIDENDS PAID...... 143,334 73,333 27,778
----------- ----------- ----------
ENDING RETAINED
EARNINGS................ $ 2,045,871 $ 2,678,209 $3,493,616
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-62
<PAGE>
MERCER EQUIPMENT COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 TO
------------------------ OCTOBER 24,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 738,269 $ 705,671 $ 843,185
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 1,117,783 1,610,918 1,542,966
Cost of rental equipment sold, net... 530,102 702,254 1,218,507
Cost of other property sold, net..... 14,800
Changes in assets and liabilities:
Accounts receivable, net........... (418,132) (398,900) (579,345)
Inventory.......................... (900,532) (325,339) 117,913
Miscellaneous receivables.......... (5,437) (4,065) (12,904)
Prepaid expenses................... (17,965)
Other assets....................... (16,000) (24,239) 14,400
Accounts payable................... 651,668 558,903 944,210
Accrued expenses................... 29,098 24,329 114,083
----------- ----------- ----------
Net cash provided by operating
activities...................... 1,726,819 2,864,332 4,185,050
----------- ----------- ----------
CASH FLOWS (TO) INVESTING ACTIVITIES:
Purchase of rental equipment........... (2,466,039) (2,001,083) (1,601,703)
Purchase of other property............. (131,695) (171,319) (81,117)
Increase in other asset................ (1,650)
----------- ----------- ----------
Net cash (to) investing
activities...................... (2,599,384) (2,172,402) (1,682,820)
----------- ----------- ----------
CASH FLOWS FROM (TO) FINANCING
ACTIVITIES:
Repayments of notes receivable--
officers.............................. 2,264 3,019 2,527
Repayments by stockholders............. 220,602
Loans to stockholders.................. (247,729)
Repayments under line of credit........ (125,000) (8,792)
Borrowings under line of credit........ --
Repayments of short-term equipment
notes................................. (130,301) (618,854) (597,500)
Repayments of notes payable--
individuals........................... (52,500) (491,000)
Repayments of long term debt........... (1,051,070) (1,950,688) (1,794,942)
Repayments of capital leases........... (22,009) (150,279)
Net borrowings under note payable--
bank.................................. 465,200 29,045 --
Borrowings under revolving credit
note.................................. 1,000,000 1,700,000 200,000
Proceeds from bank loans............... 1,120,588
Proceeds from notes payable
individuals........................... 305,000 23,000 24,000
Dividends paid......................... (143,334 ) (73,333) (27,778)
----------- ----------- ----------
Net cash from (to) financing
activities...................... 1,173,609 (869,988) (2,693,485)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH.......... 301,044 (178,058) (191,255)
BEGINNING CASH BALANCE................... 153,653 454,697 276,639
----------- ----------- ----------
ENDING CASH BALANCE...................... $ 454,697 $ 276,639 $ 85,384
=========== =========== ==========
</TABLE>
See notes to financial statements
F-63
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND OCTOBER 24, 1997
1. ORGANIZATION AND BUSINESS
Organization--MERCER Equipment Company (MERCER) is a North Carolina
corporation. For income tax purposes, it has elected treatment under
Subchapter S of the Internal Revenue Code of 1986.
Business--MERCER sells, rents, and repairs construction equipment, primarily
to contractors, industry, utilities, and municipalities. MERCER operates two
branches in the Charlotte, North Carolina area and one branch in Greensboro,
North Carolina.
2. ACCOUNTING PRINCIPLES
Basis of Accounting--MERCER prepares its financial statements on the accrual
basis of accounting.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Inventory--Inventory consists of new equipment and merchandise for resale
and of parts for resale or repair of equipment.
MERCER records inventory using the last-in, first-out (LIFO) cost
assumptions. MERCER maintains separate LIFO pools for new equipment,
merchandise, and parts; and uses government indices to determine the cost of
LIFO layers.
At December 31, 1996 and October 24, 1997, the difference between LIFO and
first-in, first-out cost was $310,346 and $347,936 respectively.
Rental Equipment--MERCER records rental equipment at cost and depreciates
that cost using the straight-line method over 60 months (50 months for rental
equipment purchased after December 31, 1995). MERCER estimates the salvage
value on rental equipment to be 28% (50% for rental equipment purchased after
December 31, 1995). (See Note 15).
Other Property--MERCER records other property at cost and depreciates that
cost using the straight-line method over lives of 5 or 7 years.
Notes Receivable--Officers--At December 31, 1996, and October 24, 1997 the
notes receivable from officers are due in monthly payments of $600, including
principal and interest, for 15 years. At December 31, 1995, the notes
receivable from officers were due in quarterly installments of $1,264,
including principal and interest, for 14 years.
Common Stock--MERCER has two classes of common stock: Class A common stock
which has voting rights and Class B common stock which has no voting rights.
The preferences, limitations, and relative rights of classes are the same
except the nonvoting stock has no voting rights other than in those cases in
which nonvoting stock is expressly granted voting rights under North Carolina
law.
F-64
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996 and October 24, 1997, the number of shares authorized
and outstanding of each class of stock was as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Class A, voting....................................... 25,000 16,667
Class B, nonvoting.................................... 175,000 150,000
</TABLE>
Rental Revenue--MERCER generally rents equipment under short-term agreements
of one month or less and accounts for these agreements as operating leases.
Lease Expense--MERCER leases its facilities and certain delivery vehicles
under leases classified as operating leases. MERCER leases certain rental
equipment and new equipment inventory under leases classified as capital
leases.
Income Taxes--MERCER has elected taxation under Subchapter S of the Internal
Revenue Code of 1986 and its stockholders report the taxable income or loss of
the company on their individual income tax returns. For income tax purposes,
MERCER generally uses accelerated depreciation methods (without salvage value)
and deducts bad debts as they are written off.
Statement of Cash Flows--MERCER considers all instruments with a maturity of
three months or less to be cash equivalents. MERCER paid interest expense and
purchase various assets through incurrence of notes payable as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 1997 TO
31 OCTOBER 24,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Interest paid................................ $ 464,090 $ 807,169 $ 683,596
Debt incurred to purchase:
Inventory.................................. 357,306 88,509
Rental equipment........................... 2,300,291 2,530,234 1,801,029
Fixed assets............................... 142,174 163,756 7,169
</TABLE>
3. PURCHASE OF BUSINESS
On September 29, 1995, MERCER acquired the branch retail operations of
Builders Equipment & Tool Co., Inc. (BETCO) in a transaction accounted for as
a purchase. The accompanying financial statements include the results of the
Greensboro operation from that date. MERCER purchased substantially all of the
resale and rental inventory and the fixed assets at the branch. The purchase
price was $600,000. There were no intangible assets purchased nor are there
any contingent payments or commitments.
4. NOTE PAYABLE--BANK
At December 31, 1996, MERCER had a note payable to a bank that is due May
31, 1997. The note provides for monthly payment of interest at the bank's
prime rate plus 1/2%. The original amount of the note was $500,000.
In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
5. SHORT-TERM EQUIPMENT NOTES
MERCER has purchased rental equipment and inventory with short-term (less
than 12 months) notes payable with a nominal interest charge. At December 31,
1996, rental equipment and inventory with a cost of $434,972 and $135,522,
respectively, is pledged as collateral.
F-65
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
6. NOTES PAYABLE--INDIVIDUALS
Notes payable--individuals provide for quarterly interest payments at the
Wall Street prime rate plus one percent and allows MERCER to delay payment of
principal for up to one year and a day after request. At December 31, 1996 and
October 24, 1997, $178,000 and $ -- , respectively, of this amount was due
stockholders.
7. REVOLVING CREDIT NOTES
MERCER has a $3,000,000 revolving credit note with a bank. At December 31,
1996 MERCER had termed the revolver's outstanding balance and will repay the
principal over 36 months beginning in June 1997. The repayment provides for
monthly payment of $45,000 principal plus interest at the bank's prime rate
plus 1/4%. At December 31, 1995 and during 1996, only interest payments were
due on the note (see Note 9 for collateral).
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
8. NOTES PAYABLE TO BANK
MERCER's note payable to bank consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Bank note--8.25%, principal of $49,750 plus interest paid
monthly through November 1998; balance of $635,750 due December
1998........................................................... $1,780,000
Bank note--interest at prime plus 1/2%, principal of $10,000
plus interest paid monthly through August 1998; $250,000 due
September 30, 1998............................................. 450,000
----------
Total........................................................... 2,230,000
Less current portion............................................ 717,000
----------
Noncurrent portion.............................................. $1,513,000
==========
</TABLE>
All accounts receivable and inventory and rental equipment, unless otherwise
encumbered, are given as security for the notes payable to bank.
The loan agreement with the bank provides for maintenance of certain
absolute and ratio amounts relating to working capital, net worth, cash flow
coverage, and debt/equity and limits amounts that can be paid in dividends. At
December 31, 1996, MERCER had obtained a waiver on the cash flow coverage
ratio.
In connection with the purchase of MERCERs common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
9. NOTES PAYABLE ON RENTAL EQUIPMENT
MERCER finances purchases of rental equipment and inventory through various
arrangements with vendors, their related finance entities, and other lenders.
These notes provide for monthly payments of either a fixed principal plus
interest or a level payment of principal and interest.
These note have terms of 36 to 60 months and generally provide for
accelerated repayment if the underlying equipment is sold. At December 31,
1995 and 1996, the weighted interest rates were 10.1%, and 8.6%, respectively.
F-66
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, $480,801 of floor plan notes, which have not yet begun
to require payments of principal or interest, are included in notes payable on
rental equipment. The financial statements assume their conversion upon
expiration of the floor plan period.
At December 31, 1996, rental equipment and inventory of $4,637,033 and
$88,509, respectively, were collateral for all of the above notes.
In connection with the purchase of MERCER's common stock (see Note 16),
substantially all of the outstanding debt at October 24, 1997 was paid off.
10. CAPITAL LEASES
MERCER leases certain rental equipment under leases accounted for as capital
leases. The following is an analysis of the leased property:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
------------ -----------
1996 1997
------------ -----------
<S> <C> <C>
Rental equipment.................................... $408,081 $386,153
Less accumulated amortization....................... 78,561 138,706
-------- --------
Net............................................... $329,520 $247,447
======== ========
</TABLE>
The following is a schedule by years of future lease payments under capital
leases together with the present value of the net minimum lease payments as of
October 24, 1997:
<TABLE>
<S> <C>
Year ended December 31, 1997....................................... $106,795
1998............................................................. 98,730
1999............................................................. 74,158
2000............................................................. 23,177
--------
Net minimum lease payments......................................... 302,860
Less amount representing interest.................................. 40,216
--------
Present value of net minimum lease payments........................ 262,644
Less current portion............................................... 86,597
--------
Long-term portion.................................................. $176,047
========
</TABLE>
11. NOTES PAYABLE ON OTHER PROPERTY
The notes payable on other property provide for monthly payment of principal
and interest at rates from 9.0% to 10.8%. At December 31, 1996 and October 24,
1997, related assets with a cost of $287,430 and $232,599 are collateral for
the notes.
The annual amounts of principal due for the next five years is as follows:
1997--$56,411; 1998--$50,318; 1999--$25,082; and 2000--$6,808.
12. COMMITMENTS AND CONTINGENCIES
As of December 31, 1996 and October 24, 1997, MERCER's cash balance had
$100,000 of FDIC insurance and is at one bank.
F-67
<PAGE>
MERCER EQUIPMENT COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As of October 24, 1997, MERCER leased all of its facilities from a limited
liability company (LLC) whose members own 72% of MERCER's outstanding stock.
The leases provided for initial terms of five to seven years; two of the
leases provide for annual cost of living increases and have renewal options of
five years. MERCER is also responsible for the property taxes, insurance, and
repairs (see Note 13). In connection with the sale of MERCER's common stock
(see Note 16), the leases were rewritten to provide for an initial term of ten
years with two five-year options. The leases provide for minimum rentals of
$28,000 per month, after five years, minimum rents will be adjusted for
changes in the Consumer Price Index. MERCER has also guaranteed debt of
approximately $2,000,000 that the LLC has borrowed against the buildings.
MERCER had a stock repurchase agreement with two stockholders, each owning
30,000 shares of the outstanding Class B common stock. Among other provisions,
the stock repurchase agreement allows MERCER first refusal on a sale of such
shares at no less than the book value per share of the stock. At December 31,
1996 the minimum purchase price under this plan was $1,121,950. MERCER had a
salary continuation agreement with the same two stockholders. MERCER has
agreed to pay these stockholders' beneficiaries an amount equal to twice the
prior year's wages. This amount is payable over 24 months, and at December 31,
1996, the potential obligation under the salary continuation plan was
$672,672. In connection with the Purchase of MERCER's common stock both of
these agreements were canceled. (See Note 16)
13. RELATED PARTIES
At December 31, 1996 and October 24, 1997, other assets includes rental
deposits of $42,889 and $42,889, respectively, with the LLC described in Note
12. For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, MERCER paid building rentals to the LLC
of $149,500, $278,000 and $273,000, respectively.
For the years ended December 31, 1995 and 1996 and for period from January
1, 1997 to October 24, 1997, MERCER paid interest of $17,808, $15,672 and
$14,576, respectively to stockholders on the notes payable--individuals.
14. PROFIT-SHARING PLAN
MERCER has adopted a profit-sharing plan that covers substantially all
employees and provides for discretionary employer and voluntary employee
contributions. For the years ended December 31, 1995, and 1996, and for the
period from January 1, 1997 to October 24, 1997, no profit-sharing
contribution was made. For the years ended December 31, 1995, and 1996, and
for the period from January 1, 1997 to October 24, 1997, MERCER made matching
payments of $21,969, $14,777, and $24,287, respectively under Section 401(k)
of the Internal Revenue Code of 1986.
15. CHANGE IN ACCOUNTING ESTIMATE
In 1996 MERCER changed the depreciable life and estimated salvage value of
its rental equipment purchased after December 31, 1995 from 60 months to 50
months and from 28% to 50%. The effect of these changes in estimated life and
salvage value was to decrease depreciation on rental equipment by $58,859.
16. SUBSEQUENT EVENT
On October 24, 1997, United Rentals, Inc. purchased all of MERCER's issued
and outstanding common stock.
F-68
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
A&A Tool Rentals & Sales, Inc.:
We have audited the accompanying consolidated balance sheets of A&A Tool
Rentals & Sales, Inc. and subsidiary as of October 31, 1995 and 1996 and
October 19, 1997 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended October 31, 1995 and
1996, and the period from November 1, 1996 to October 19, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of A&A Tool
Rentals & Sales, Inc. and subsidiary as of October 31, 1995 and 1996 and
October 19, 1997 and the results of their operations and their cash flows for
the years ended October 31, 1995 and 1996, and the period from November 1,
1996 to October 19, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Sacramento, California
November 20, 1997
F-69
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash............................ $ 336,304 $ 308,331 $ 108,327 $ 187,082
Trade accounts receivable, less
allowance for doubtful accounts
of $85,000 at October 31, 1995,
$80,000 at October 31, 1996 and
at October 19, 1997, and
$94,608 at July 31, 1997
(notes 2 and 3)................ 1,360,476 1,416,142 1,415,775 1,324,684
Merchandise inventory........... 750,556 847,035 862,200 906,969
Rental equipment, primarily ma-
chinery, at cost, net of accu-
mulated depreciation and amor-
tization of $5,388,046 at Octo-
ber 31, 1995, $5,909,751 at Oc-
tober 31, 1996, $6,822,441 at
October 19, 1997, and
$6,727,264 at July 31, 1997
(notes 2 and 3)................ 2,136,948 3,190,093 2,780,854 3,133,863
Operating property and equip-
ment, net of accumulated depre-
ciation and amortization of
$967,822 at October 31, 1995,
$912,230 at October 31, 1996,
$955,007 at October 19, 1997,
and $975,498 at July 31, 1997
(notes 2 and 3)................ 356,336 384,759 281,593 306,415
Due from related party (note
5)............................. 229,485 228,737 332,613 316,364
Prepaid expenses and other as-
sets........................... 183,681 234,976 303,553 152,251
---------- ---------- ---------- ----------
Total assets................ $5,353,786 $6,610,073 $6,084,915 $6,327,628
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Short-term debt (note 2)........ $1,679,244 $ 90,400 $ 449,670 $ 484,700
Accounts payable................ 705,460 766,465 1,040,494 703,583
Accrued liabilities............. 235,258 244,938 203,709 221,763
Income tax payable.............. -- 6,019 12,262 2,992
Long-term debt and capital lease
obligations (note 3)........... 1,723,384 4,351,394 3,463,807 3,868,069
---------- ---------- ---------- ----------
Total liabilities........... 4,343,346 5,459,216 5,169,942 5,281,107
---------- ---------- ---------- ----------
Commitments (notes 6 and 9).....
Stockholders' equity:
Common stock, Class A--voting
par value $.10. Authorized
2,000,000 shares; issued and
outstanding 720,000 shares... 72,000 72,000 72,000 72,000
Common stock, Class B--nonvot-
ing. Authorized 5,000,000
shares; issued and outstand-
ing 335,586 shares at October
31, 1995, 277,172 shares at
October 31, 1996, 272,491
shares at October 19, 1997,
and 275,242 shares at July
31, 1997..................... 457,813 395,201 378,714 393,058
Retained earnings............. 480,627 683,656 464,259 581,463
---------- ---------- ---------- ----------
Total stockholders' equity.. 1,010,440 1,150,857 914,973 1,046,521
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity....... $5,353,786 $6,610,073 $6,084,915 $6,327,628
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-70
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, NINE MONTHS
YEAR ENDED OCTOBER 31, 1996 TO ENDED JULY 31,
------------------------ OCTOBER 19, ----------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $ 4,800,767 $ 5,918,148 $6,022,196 $4,165,881 $4,501,537
New equipment sales... 4,283,294 4,463,117 4,355,965 3,310,409 3,228,472
Sales of parts, sup-
plies and rent-
al equipment......... 848,193 1,027,943 778,141 824,910 657,572
Other................. 237,205 296,926 290,140 198,144 215,542
----------- ----------- ---------- ---------- ----------
Total revenues.......... 10,169,459 11,706,134 11,446,442 8,499,344 8,603,123
----------- ----------- ---------- ---------- ----------
Costs of Revenues:
Cost of equipment
rentals, excluding
equipment rental de-
preciation and
amortization......... 2,049,172 2,542,965 2,583,884 1,976,183 2,097,280
Depreciation and amor-
tization, equipment
rentals.............. 1,040,233 1,382,048 1,465,586 902,347 1,193,986
Cost of new equipment
sales................ 4,054,467 4,304,301 4,148,874 3,234,457 3,016,957
Cost of sales of
parts, supplies, and
equipment............ 598,545 622,956 595,424 330,714 296,725
Other................. 38,358 32,582 31,339 24,337 33,115
----------- ----------- ---------- ---------- ----------
Total costs of
revenues............... 7,780,775 8,884,852 8,825,107 6,468,038 6,638,063
----------- ----------- ---------- ---------- ----------
Gross Profit............ 2,388,684 2,821,282 2,621,335 2,031,306 1,965,060
Selling, general and
administration....... 2,063,730 2,215,936 2,178,383 1,614,263 1,696,104
Non-rental
depreciation and
amortization......... 107,390 120,757 124,648 88,896 95,171
----------- ----------- ---------- ---------- ----------
Operating income
(loss)................. 217,564 484,589 318,304 328,147 173,785
Other income
(expense)............ 50,090 116,539 80,080 61,119 105,777
----------- ----------- ---------- ---------- ----------
Income before interest
and taxes.............. 267,654 601,128 398,384 389,266 279,562
----------- ----------- ---------- ---------- ----------
Interest income....... 56,053 54,993 39,967 51,898 34,590
Interest expense...... (324,957) (401,204) (642,478) (264,613) (410,345)
----------- ----------- ---------- ---------- ----------
Net interest
expense............ (268,904) (346,211) (602,511) (212,715) (375,755)
----------- ----------- ---------- ---------- ----------
Income (loss) before
income taxes........... (1,250) 254,917 (204,127) 176,551 (96,193)
Income tax expense
(note 4)............. (1,600) (7,619) (15,270) (1,600) (6,000)
----------- ----------- ---------- ---------- ----------
Income (loss) from
continuing operations.. (2,850) 247,298 (219,397) 174,951 (102,193)
Loss from operation of
discontinued
subsidiary (note 1).. (55,929) -- -- -- --
Loss from disposal of
discontinued
subsidiary (note 1).. -- (44,269) -- (16,318) --
----------- ----------- ---------- ---------- ----------
Net income (loss)....... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193)
=========== =========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-71
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON
STOCK STOCK
CLASS A CLASS B
--------------- ----------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------- ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 31,
1994................... 720,000 $72,000 363,433 $487,609 $539,406 $1,099,015
Purchase Class B common
stock from ESOP........ -- -- (27,847) (29,796) -- (29,796)
Net loss................ -- -- -- -- (58,779) (58,779)
------- ------- ------- -------- -------- ----------
Balances at October 31,
1995................... 720,000 72,000 335,586 457,813 480,627 1,010,440
Purchase Class B common
stock from ESOP........ -- -- (58,414) (62,612) -- (62,612)
Net income.............. -- -- -- -- 203,029 203,029
------- ------- ------- -------- -------- ----------
Balances at October 31,
1996................... 720,000 72,000 277,172 395,201 683,656 1,150,857
Purchase Class B common
stock from ESOP........ -- -- (4,681) (16,487) -- (16,487)
Net loss................ -- -- -- -- (219,397) (219,397)
------- ------- ------- -------- -------- ----------
Balances at October 19,
1997................... 720,000 $72,000 272,491 $378,714 $464,259 $ 914,973
======= ======= ======= ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-72
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 31, NOVEMBER 1, 1996 NINE MONTHS ENDED JULY 31,
------------------------ TO OCTOBER 19, ----------------------------
1995 1996 1997 1996 1997
----------- ----------- ---------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ (58,779) $ 203,029 $ (219,397) $ 158,633 $ (102,193)
Adjustments to recon-
cile net income (loss)
to net cash provided
by operating activi-
ties:
Depreciation and
amortization.......... 1,147,623 1,502,805 1,590,234 991,243 1,289,157
Provision for bad
debts................. 71,600 96,216 73,894 52,515 59,985
Provision for write-
down of inventory..... 31,709 -- 35,403 -- 35,403
Gain on sale of equip-
ment.................. (213,049) (364,504) (220,017) (196,325) (167,944)
Changes in operating
assets:
(Increase) decrease
in trade accounts
receivable........... (282,115) (151,882) (73,527) (190,069) 31,473
(Increase) decrease
in related party re-
ceivables............ (54,741) 748 (103,876) (30,385) (87,627)
(Increase) decrease
in merchandise in-
ventory.............. 38,955 (96,479) (50,568) (348,187) (95,337)
(Increase) decrease
in prepaid expenses
and other assets..... (29,102) 10,934 (174,821) (42,445) (50,309)
Increase (decrease)
in accounts payable,
trade................ 18,196 61,005 274,029 114,982 (62,882)
Increase (decrease)
in accrued liabili-
ties................. 52,801 9,680 (41,229) (39,228) (23,175)
Decrease in deferred
revenue.............. (4,440) -- -- -- --
Increase (decrease)
in income tax pay-
able................. -- 6,019 6,243 -- (3,027)
----------- ----------- ---------- ----------- ----------
Net cash provided by
operating
activities.......... 718,658 1,277,571 1,096,368 470,734 823,524
----------- ----------- ---------- ----------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from the sale
of rental equipment
and operating property
and equipment......... 277,390 469,489 348,374 245,232 213,013
Purchases of rental
equipment and operat-
ing property
and equipment......... (1,620,011) (2,689,358) (1,206,186) (2,042,083) (1,199,652)
Proceeds from sale of
marketable securi-
ties.................. 4,954 2,514 -- 2,514 --
----------- ----------- ---------- ----------- ----------
Net cash used in
investing
activities.......... (1,337,667) (2,217,355) (857,812) (1,794,337) (986,639)
----------- ----------- ---------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings on long-term
debt.................. 788,967 3,062,482 855,435 3,224,342 828,345
Payments on long-term
debt.................. (574,595) (1,121,435) (1,743,022) (572,655) (1,311,670)
Net borrowings (pay-
ments) on short-term
debt.................. 513,771 (901,881) 359,270 (1,553,999) 394,300
Premiums paid for offi-
cers' life insurance.. (60,042) (64,743) (93,756) (50,799) (66,966)
Drawings on cash sur-
render value of offi-
cers' life insurance.. -- -- 200,000 -- 200,000
Purchase of Class B
common stock.......... (29,796) (62,612) (16,487) (59,590) (2,143)
----------- ----------- ---------- ----------- ----------
Net cash provided by
(used in) financing
activities.......... 638,305 911,811 (438,560) 987,299 41,866
----------- ----------- ---------- ----------- ----------
Net increase (de-
crease) in cash..... 19,296 (27,973) (200,004) (336,304) (121,249)
Cash at beginning of
period................. 317,008 336,304 308,331 336,304 308,331
----------- ----------- ---------- ----------- ----------
Cash at end of period... $ 336,304 $ 308,331 $ 108,327 $ -- $ 187,082
=========== =========== ========== =========== ==========
SUPPLEMENTAL SCHEDULE OF
CASH FLOW INFORMATION:
Cash paid during the
period for:
Interest............... $ 324,957 $ 401,204 $ 516,307 $ 264,613 $ 410,345
=========== =========== ========== =========== ==========
Income taxes........... $ 1,600 $ 1,600 $ 4,606 $ 1,600 $ 10,627
=========== =========== ========== =========== ==========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Sale of property and
equipment for
promissory note....... $ 10,000 $ -- $ -- $ -- $ --
=========== =========== ========== =========== ==========
Conversion of short-
term debt to long-term
debt.................. $ -- $ 686,963 $ -- $ -- $ --
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-73
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995 AND 1996 AND PERIOD FROM NOVEMBER 1, 1996 TO OCTOBER 19, 1997
(THE INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE MONTHS ENDED JULY 31,
1997 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary Operations Management Systems,
Inc. (OMS). The Company rents and sells construction and industrial supplies
and power equipment in Northern California. OMS marketed and sold computer
hardware and software to construction related businesses. All significant
intercompany accounts and transactions were eliminated in consolidation. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance
sheets are presented on an unclassified basis.
As of October 31, 1995, the Company decided to discontinue the operations of
its subsidiary, OMS. Certain assets of OMS were sold as of October 31, 1995.
The Company disposed of the remaining assets and liabilities of OMS, which
included cash, accounts receivable, inventory, property and equipment,
accounts payable and accrued liabilities, during fiscal year 1996. The Company
recognized a loss on disposal of the remaining assets. The loss from the
disposal of OMS assets was $44,269 for the year ended October 31, 1996 and
$16,318 for the nine months ended July 31, 1996. The loss from the operations
of OMS was $55,929 for the year ending October 31, 1995.
(b) Interim Financial Statements
The accompanying consolidated balance sheet at July 31, 1997 and the
consolidated statements of operations, stockholders' equity and cash flows for
the nine month periods ended July 31, 1996 and 1997 are unaudited and have
been prepared on the same basis as the audited consolidated financial
statements included herein. In the opinion of management, such unaudited
consolidated financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim periods are
not necessarily indicative of results for the full year.
(c) Merchandise Inventory
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the weighted-average method.
(d) Revenue Recognition
Revenue related to the sale of construction and industrial supplies and
power equipment is recognized at the point of sale. Revenue related to the
rental of construction and industrial power equipment is recognized at the
time of return for rentals of twenty-eight days or less, and ratably over the
contract term for rentals in excess of twenty-eight days.
(e) Property and Equipment
Property and equipment are stated at cost and consist of rental equipment
and operating property and equipment. Property and equipment under capital
leases are stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated using an accelerated
method.
F-74
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation for property and equipment is taken over the asset's useful
life of 5 years, except for leasehold improvements which are amortized over 10
to 20 years.
(f) Other Assets
Other assets consist primarily of the cash surrender value of officers' life
insurance net of loans against the cash surrender value of the policies and
unbilled rental revenue. The loans outstanding were $410,000 at October 31,
1995 and 1996, and $610,000 at October 19, 1997 and July 31, 1997. The Company
is named beneficiary under the life insurance policy. Unbilled rental revenue
represents the revenue recognized on contracts over twenty-eight days, but not
billed. At October 19, 1997 unbilled rental revenue was $180,178.
(g) Income Taxes
The Company accounts for income taxes using the asset and liability method
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under the asset
and liability method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on November 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
(j) Reclassifications
Certain amounts in the 1995 and 1996 consolidated financial statements have
been reclassified to conform to the 1997 consolidated financial statement
presentation.
(2) SHORT-TERM DEBT
As of October 31, 1995 and 1996, the Company had borrowed $255,525 and
$90,400, respectively, on a credit facility that allows the Company to borrow
up to $500,000 at the bank's prime rate (9.25% and 8.25% at October 31, 1995
and 1996, respectively) plus 2%. Borrowings under this facility are
collateralized by trade
F-75
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounts receivable. As of October 31, 1995, the Company had also borrowed
$1,303,719 on three additional credit facilities that allowed borrowing up to
$1,800,000 bearing interest at the bank's prime rate (9.25% at October 31,
1995) plus 2%. Borrowings under these facilities were collateralized by
equipment. In addition, as of October 31, 1995, the Company had borrowed
$120,000 on an additional credit facility that allowed borrowings of up to
$200,000 bearing interest at the bank's prime rate (9.25% at October 31, 1995)
plus 2%. Borrowings under this facility were unsecured.
In 1997, the Company had borrowed on a credit facility that allows the
Company to borrow up to $500,000 at the bank's prime rate (8.5% at October 19,
1997 and July 31, 1997) plus 2%. At October 19, 1997 and July 31, 1997, the
amounts outstanding were $449,670 and $484,700, respectively.
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT PAYOR AND TERMS
Union Safe Deposit Bank--
Various notes with combined
monthly payments of $54,592
including interest at prime
plus 2%, due from 1996
through 1999. Collateralized
by equipment and accounts
receivable.................. $ 62,547 $1,382,482 $851,741 $989,334
American Equipment Leasing--
Various leases with combined
monthly payments of $24,149
including interest ranging
from 11.5% to 12%, due from
1997 through 1998.
Collateralized by
equipment................... 351,766 510,567 377,619 381,122
Atlas Copco, Inc.--Various
notes with a combined
monthly payment of $22,212
including interest ranging
from 8.5% to 12.36%, due
from 1996 through 1998.
Collateralized by
equipment................... 190,310 352,446 257,875 323,727
Clark Equipment Credit Co.--
Various notes with a
combined monthly payment of
$3,546 including interest
ranging from 8.7% to 12.39%,
due from 1996 through 1999.
Collateralized by
equipment................... 236,363 105,889 39,083 45,433
Ingersoll-Rand--One note with
a monthly payment of $3,254
including interest at 9.75%,
due in 1999. Collateralized
by equipment................ -- 91,121 52,069 61,832
Prospect Leasing--Two leases
with a combined monthly
payment of $1,798 including
interest at 10%, due in
1998. Collateralized by
equipment................... -- 36,364 18,712 24,106
</TABLE>
F-76
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT PAYOR AND TERMS--
(CONTINUED)
Miller Electric Finance--Two
notes with a combined monthly
payment of $3,964 including
interest ranging from 10.25%
to 11.3%, due in 1999.
Collateralized by equipment.. -- 72,746 89,813 101,704
The Associates--Various notes
and leases with a combined
monthly payment of $35,365
including interest ranging
from 9% to 13.5%, due from
1996 through 2000.
Collateralized by equipment.. 609,507 924,064 1,002,327 1,175,627
JI Case Credit Corporation--
Three notes with combined
monthly payments of $14,428
including interest ranging
from 6.9% to 8.2%, due from
1997 through 2000.
Collateralized by equipment.. 268,365 515,184 349,235 346,540
Orix Credit--One note with a
monthly payment of $1,835
including interest at 9.5%,
due in 1996. Collateralized
by equipment................. 14,681 -- -- --
John Deere--One note with a
monthly payment of $885
including interest at 8.75%,
due in 1998. Collateralized
by equipment................. 24,779 14,159 3,540 6,195
Caterpillar Financial
Services--Various notes with
a combined monthly payment of
$12,279 including interest
ranging from 9.4% to 11.3%,
due from 1998 through 2001.
Collateralized by equipment.. 65,842 546,420 458,438 493,833
Colonial Pacific Leasing--One
note with a monthly payment
of $1,323 including interest
at 10%, due in 1997.
Collateralized by equipment.. 21,171 5,293 -- --
Newcourt Financial--Two notes
with a combined monthly
payment of $4,207 including
interest ranging from 10% to
11%, due in 1998 and 2001.
Collateralized by equipment.. 50,638 196,194 148,508 158,329
Other......................... 30,730 80,773 62,181 105,030
---------- ---------- ---------- ----------
Total long-term debt.......... 1,926,699 4,833,702 3,711,141 4,212,812
Less amounts representing
interest..................... 203,315 482,308 247,334 344,743
---------- ---------- ---------- ----------
Long-term debt, net of
interest..................... $1,723,384 $4,351,394 $3,463,807 $3,868,069
========== ========== ========== ==========
</TABLE>
Subsequent to October 19, 1997, all amounts outstanding under the long-term
debt agreements and capital lease agreements were paid except for $18,546
which is scheduled for payment in fiscal year 1998.
F-77
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED NOVEMBER 1, NINE MONTHS
OCTOBER 31, 1996 TO ENDED JULY 31,
------------- OCTOBER 19, ---------------
1995 1996 1997 1996 1997
------ ------ ----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current............................ $1,600 $7,619 $15,270 $ 1,600 $ 6,000
Deferred........................... -- -- -- -- --
------ ------ ------- ------- -------
$1,600 $7,619 $15,270 $ 1,600 $ 6,000
====== ====== ======= ======= =======
</TABLE>
Deferred tax assets and deferred tax liabilities are comprised of the
following:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- OCTOBER 19, JULY 31,
1995 1996 1997 1997
--------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current deferred tax assets:
Allowance for bad debts..... $ 36,800 $ 34,600 $ 34,600 $ 41,000
Inventory reserve........... 13,800 -- 6,600 --
Noncurrent deferred tax
assets:
Depreciation and
amortization expense....... 12,700 12,000 14,000 11,300
Net operating loss.......... 285,400 188,300 236,800 198,800
Alternative minimum taxes... 12,300 25,500 39,000 29,900
--------- --------- --------- ---------
Total deferred tax assets... 361,000 260,400 331,000 281,000
Less: Valuation allowance... (361,000) (260,400) (331,000) (281,000)
--------- --------- --------- ---------
Total deferred tax assets... -- -- -- --
Total deferred tax
liabilities................ -- -- -- --
--------- --------- --------- ---------
Net deferred tax
asset/liability.......... $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
The effective rate for income tax expense differs from the statutory tax
rate of 34% when applied to income (loss) from continuing operations before
income taxes as a result of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
------------ OCTOBER 19, JULY 31,
1995 1996 1997 1997
----- ----- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Expected U.S. Federal income tax...... (34%) 34% (34%) (34%)
State franchise tax, net.............. 128% 1% -- 2%
Net operating loss carryforward....... -- (34%) -- --
Effect of valuation allowance......... 34% -- 34% 34%
Alternative minimum tax............... -- 2% 7% 4%
----- ----- --- ----
Total............................. 128% 3% 7% 6%
===== ===== === ====
</TABLE>
F-78
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net change in the total valuation allowance for the year ended October
31, 1995 and 1996 and the period from November 1, 1996 to October 19, 1997 was
an increase of $8,000, a decrease of $100,600 and an increase of $70,600,
respectively.
(5) RELATED PARTY TRANSACTIONS
Building
The Company leased its Stockton, California premises from officers and
stockholders of the Company. The Company executed a new five year lease on
June 1, 1993 with monthly rent of $21,500. On October 20, 1997, this lease was
amended for an additional five years with monthly rent of $17,000. In
addition, the Company as lessee is to pay all taxes and insurance relating to
the property. At October 19, 1997, the remaining commitment under this lease,
as amended, is $1,020,000 plus property taxes and insurance.
Due From Related Party
Due from related party comprise the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- OCTOBER 19, JULY 31,
DUE FROM 1995 1996 1997 1997
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
President and shareholder.......... $206,296 $228,737 $317,613 $316,364
Vice president and shareholder..... 23,189 -- 15,000 --
-------- -------- -------- --------
$229,485 $228,737 $332,613 $316,364
======== ======== ======== ========
</TABLE>
The amounts due from related parties were paid subsequent to October 19,
1997.
(6) OPERATING LEASES
The Company leases vehicles from various unrelated companies through 1999.
The vehicle leases, as well as the lease for the Company's business premises,
are classified as operating leases. At October 19, 1997, future minimum lease
payments under the operating leases including amounts amended as discussed in
note (5) are:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31
----------------------
<S> <C>
1998............................................................ $ 442,636
1999............................................................ 305,036
2000............................................................ 204,000
2001............................................................ 204,000
2002............................................................ 204,000
----------
$1,359,672
==========
</TABLE>
Operating lease expense aggregated $520,210, $533,619 and $501,473 in 1995,
1996 and for the period from November 1, 1996 to October 19, 1997,
respectively, and $167,032 and $359,378 for the nine months ended July 31,
1996 and 1997, respectively.
(7) EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 31, 1972, the Company established an Employee Stock
Ownership Plan (ESOP) for the benefit of its eligible employees. The ESOP is
designed to invest primarily in the stock of the Company. Contributions to the
ESOP are determined annually by the Board of Directors, however, in no case
may the
F-79
<PAGE>
A & A TOOL RENTALS & SALES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contribution exceed the lesser of (a) fifteen percent (15%) of the
compensation of eligible employees, or (b) $30,000 for each participant. No
contributions were made in the years ended October 31, 1995 and 1996 or the
period from November 1, 1996 to October 19, 1997.
The ESOP measures compensation for Plan purposes as the Company's
contribution to the Plan. No compensation cost was recognized by the Plan for
the years ended October 31, 1995 and 1996, or the period from November 1, 1996
to October 19, 1997.
The ESOP held 335,586, 277,172, 272,491 and 275,242 allocated shares at
October 31, 1995 and 1996, October 19, 1997, and July 31, 1997, respectively.
No committed-to-be-released or suspense shares were held by the ESOP at
October 31, 1995 and 1996, October 19, 1997, or at July 31, 1997.
Following termination of employment, participants receive a distribution of
their vested ESOP account balance in the form of cash or Company shares in
accordance with the provisions of the ESOP. If shares are distributed to the
participant, the participant has the right to sell the shares back to the
Company, for a limited period of time, at the fair market value of the shares.
(8) PROFIT SHARING PLAN
In August 1995, the Company established a Profit Sharing/401(k) Savings Plan
(Plan) under Section 401 and 501 of the Internal Revenue Code. Substantially
all employees are eligible for the Plan. Yearly employer contributions to the
Plan are discretionary. Employees may also elect to contribute to the Plan.
For the years ended October 31, 1995 and 1996, and the period from November 1,
1996 to October 19, 1997, the Company contributed $8,245, $27,422, and
$27,064, respectively to the Plan and $19,780 and $19,779 for the nine months
ended July 31, 1996 and 1997.
(9) COMMITMENTS
Litigation, contingent liabilities, and claims, all arising in the ordinary
course of business, are not expected to involve any amounts that could be
material to the Company's financial position or results of operations.
(10) SUBSEQUENT EVENT
On October 17, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. (United). The transaction closed on October 20, 1997
and under the terms of the stock purchase agreement, United purchased all of
the issued and outstanding common stock of the Company.
F-80
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
J & J Rental Services, Inc.
We have audited the balance sheets of the predecessor companies to J & J
Rental Services, Inc. (see Note 1) as of December 31, 1996 and for J&J Rental
Services, Inc. as of October 22, 1997 and the related statements of income,
stockholders' equity and partners' capital and cash flows for each of the two
years in the period ended December 31, 1996, the six months ended June 30,
1997 and for the period from July 1, 1997 to October 22, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the predecessor companies
to J & J Rental Services, Inc. at December 31, 1996, and for J&J Rental
Services, Inc. as of October 22, 1997 and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1996, the six months ended June 30, 1997 and for the period from July 1, 1997
to October 22, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 23, 1998
F-81
<PAGE>
J & J RENTAL SERVICES, INC.
BALANCE SHEETS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------ -----------
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
Cash................................................. $ 666,153 $ 1,431,287
Accounts receivable, net of allowance for doubtful
accounts of $428,270, and $226,273 at 1996 and 1997,
respectively........................................ 1,502,119 1,470,608
Trade notes receivable, net of allowance for doubtful
accounts of $93,337 at 1996......................... 37,081
Rental equipment, net................................ 6,669,365 7,961,850
Property and equipment, net.......................... 467,460 319,219
Investments in marketable equity securities.......... 81,175
Due from Predecessor Stockholder..................... 120,000
Due from Related Party............................... 354,388
Prepaid expenses and other assets.................... 126,221 4,006
Intangible assets, net............................... 3,270,614
---------- -----------
Total assets................................... $9,669,574 $14,811,972
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL
Liabilities:
Accounts payable................................... $ 628,252 $ 936,725
Accrued expenses................................... 336,884 360,990
Income tax payable................................. 24,814
Deferred tax liability............................. 430,000
Debt............................................... 5,766,651 14,078,932
Due to Predecessor Stockholder..................... 336,498
---------- -----------
Total liabilities.............................. 7,523,099 15,376,647
Commitments and contingencies
Stockholders' equity and partners' capital:
Stockholder's equity--J & J Equipment, Inc.
Common stock, $1.00 par value, 50,000 shares
authorized, issued and outstanding.............. 50,000
Unrealized gain on marketable equity securities.. 1,165
Retained earnings................................ 981,955
----------
1,033,120
Partners' capital--Tri-Star Rentals, Ltd........... 1,113,355
----------
Stockholders' equity--J & J Rental Services, Inc.
Common stock, no par value, 1,000,000 shares au-
thorized, 77,500 shares issued and outstanding.. 1,000
Accumulated deficit.............................. (565,675)
-----------
Total stockholders' equity (deficit) and partners'
capital............................................. 2,146,475 (564,675)
---------- -----------
Total liabilities and stockholders' equity and
partners' capital............................... $9,669,574 $14,811,972
========== ===========
</TABLE>
See accompanying notes.
F-82
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------------ ---------------
THE PERIOD FROM
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JULY 1, TO
------------------------ JUNE 30, OCTOBER 22,
1995 1996 1997 1997
----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals................................................. $7,573,784 $7,769,716 $3,823,790 $2,544,233
Sales of equipment and parts...................................... 1,810,400 1,243,297 573,450 129,963
----------- ----------- ---------- ----------
Total revenues.................................................. 9,384,184 9,013,013 4,397,240 2,674,196
Cost of revenues:
Cost of revenues, excluding depreciation.......................... 3,906,336 3,544,040 1,629,299 1,363,085
Depreciation, equipment rentals................................... 2,048,619 2,389,929 1,171,685 359,672
Cost of revenues of equipment and parts........................... 898,190 452,522 326,847 46,653
----------- ----------- ---------- ----------
Total cost of revenues.......................................... 6,853,145 6,386,491 3,127,831 1,769,410
----------- ----------- ---------- ----------
Gross profit........................................................ 2,531,039 2,626,522 1,269,409 904,786
Selling, general and administrative expenses........................ 1,840,973 1,521,562 713,488 786,907
Non-rental depreciation............................................. 125,004 123,971 78,643 7,629
----------- ----------- ---------- ----------
Operating income................................................ 565,062 980,989 477,278 110,250
Interest expense.................................................... 411,731 478,341 180,769 378,231
Other (income), net................................................. (45,103) (27,523) (11,418) (26,306)
----------- ----------- ---------- ----------
Income (loss) before provision for income taxes................. 198,434 530,171 307,927 (241,675)
Provision for income taxes.......................................... 35,678 49,685 98,000 --
----------- ----------- ---------- ----------
Net income (loss)............................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675)
- --------------------------------------------------
=========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-83
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(NOTE 1)
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN ON
COMMON STOCK MARKETABLE RETAINED PARTNERS'
SHARES AMOUNT SECURITIES EARNINGS CAPITAL
------ ------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Predecessors:
Balance at January 1,
1995................... 50,000 $50,000 $(6,500) $ 796,096 $ 927,272
Net income.............. 75,762 86,994
Distributions paid to
partners............... (169,741)
Unrealized gain on
marketable securities.. 9,250
------ ------- ------- ---------- ---------
Balance at December 31,
1995................... 50,000 50,000 2,750 871,858 844,525
Net income.............. 110,097 370,389
Distributions paid to
partners............... (101,559)
Unrealized loss on
marketable securities.. (1,585)
------ ------- ------- ---------- ---------
Balance at December 31,
1996................... 50,000 50,000 1,165 981,955 1,113,355
Net income (loss) from
January 1, 1997 to June
30, 1997............... 311,262 (101,335)
Distributions paid to
partners............... (50,500)
------ ------- ------- ---------- ---------
Balance at June 30,
1997................... 50,000 $50,000 $ 1,165 $1,293,217 $ 961,520
====== ======= ======= ========== =========
Company:
Issuance of common
stock.................. 77,500 $ 1,000
Net loss from July 1,
1997 to October 22,
1997................... $ (241,675)
Basis adjustment........ (324,000)
------ ------- ------- ---------- ---------
Balance at October 22,
1997................... 77,500 $ 1,000 $ (565,675)
====== ======= ======= ========== =========
</TABLE>
See accompanying notes.
F-84
<PAGE>
J & J RENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
PREDECESSORS COMPANY
------------------------------------ -----------
THE PERIOD
SIX MONTHS FROM JULY 1
YEAR ENDED DECEMBER 31, ENDED TO
------------------------ JUNE 30, OCTOBER 22,
1995 1996 1997 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................................... $ 162,756 $ 480,486 $ 209,927 $ (241,675)
Adjustments to reconcile net income to net cash provided by (used in) op-
erating activities:
Depreciation and amortization............................................. 2,173,623 2,513,900 1,250,328 396,823
Bad debt expense (recovery)............................................... 128,092 (57,621) 7,214 226,273
Gain on sale of rental equipment.......................................... (396,704) (369,379) (210,390) (43,878)
Gain on sale of property and equipment.................................... (2,809) (6,591) -- --
Deferred taxes............................................................ 23,000 12,000 -- --
Changes in assets and liabilities:
Increase in accounts receivable.......................................... (64,895) (10,430) (512,942) (1,696,881)
(Increase) decrease in trade notes receivable............................ (170,337) 39,859 37,081 --
Increase in prepaid expenses and other assets............................ (31,561) (84,918) (26,028) (4,006)
Increase (decrease) in accounts payable.................................. 46,476 (41,052) 372,230 936,725
Increase in accrued expenses............................................. 53,632 1,919 123,765 360,990
Increase in income tax payable........................................... 7,613 17,201 73,186 --
Increase in Related Party receivable..................................... (354,388)
----------- ----------- ---------- ----------
Cash provided by (used in) operating activities......................... 1,928,886 2,495,374 1,324,371 (420,017)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment..................................... (270,369) (195,823) (614,414) (548,346)
Proceeds from sale of rental equipment.................................... 930,860 755,122 1,227,501 232,148
Proceeds from sale of property and equipment.............................. 24,634 74,585 -- --
Purchase of other company, net of cash acquired........................... (7,238,924)
Unrealized gain/(loss) on marketable securities........................... 9,250 (1,585) -- --
Purchase of marketable securities......................................... (9,250) (28,425) -- --
Payments on loans to Predecessor Stockholder.............................. (21,573) (73,724) (79,254) --
Proceeds received on Predecessor Stockholder loans........................ 94,857 -- 6,884 --
Loan to Predecessor Stockholder........................................... (120,000) -- -- --
----------- ----------- ---------- ----------
Cash provided by (used in) investing activities......................... 638,409 530,150 540,717 (7,555,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under credit facilities......................................... 871,496 351,958 -- 10,000,000
Principal payments on debt................................................ (3,117,926) (3,171,213) (1,920,472) (593,574)
Distributions paid........................................................ (169,741) (101,559) (50,500) --
----------- ----------- ---------- ----------
Cash provided by (used in) financing activities......................... (2,416,171) (2,920,814) (1,970,972) 9,406,426
----------- ----------- ---------- ----------
Increase (decrease) in cash ............................................... 151,124 104,710 (105,884) 1,431,287
Cash at beginning of year.................................................. 410,319 561,443 666,153 --
----------- ----------- ---------- ----------
Cash at end of year..................................................... $ 561,443 $ 666,153 $ 560,269 $1,431,287
- --------------------------------------------------
=========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-85
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
AND OCTOBER 22, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
J & J Rental Services, Inc. (the "Company") was formed in May 1997, and
pursuant to the terms of an Asset Purchase Agreement (the "Agreement"), on
June 30, 1997 acquired all of the rental equipment and property and equipment
from J & J Equipment, Inc. ("J & J"), and Tri-Star Rentals, Ltd. ("Tri-Star")
(collectively, the "Predecessors") and assumed all operations of the
Predecessors (the "Acquisition"). The purchase price of $10,700,000 consisted
of cash of $7,200,000 and a promissory note payable for $3,500,000. The sole
stockholder and partner of J & J and Tri-Star, respectively, (the "Predecessor
Stockholder") has, on a fully-diluted basis, a 9% ownership interest in the
outstanding common stock of the Company, and has continued in a management
role as chief operating officer.
The accompanying financial statements as of December 31, 1996 and for the
years ended December 31, 1995 and 1996, and for the six month period ended
June 30, 1997 present the accounts and results of operations of the
Predecessors on a combined, historical cost basis. Although the financial
statements of the Predecessors have been combined, the balance sheets and
statements of income and cash flows do not represent those of a single legal
entity. All significant intercompany accounts and transactions have been
eliminated in combination.
The financial statements as of October 22, 1997 and for the period from July
1 to October 22, 1997 present the accounts and results of operations of the
Company since the Acquisition.
The Acquisition has been accounted for as a purchase effective July 1, 1997
and, accordingly, at such date the Company recorded the assets acquired at
their estimated fair values, adjusted for the impact of the Predecessor
Stockholder's continuing residual interest as described below. The assets
acquired have been reduced by $324,000 representing the Predecessor
Stockholder's continuing residual interest in the Company with a corresponding
charge against the Company's retained earnings.
The adjusted purchase price and the preliminary allocation of the adjusted
purchase price to the historical assets of the Company as of July 1, 1997 are
as follows:
<TABLE>
<S> <C>
Purchase price.................................................. $10,739,000
Adjustment necessary to value Predecessor Stockholder's
continuing residual interest at Predecessor's basis............ 324,000
-----------
Adjusted purchase price......................................... $10,415,000
===========
Allocation of adjusted purchase price:
Net assets acquired, at fair values........................... $ 7,115,000
Covenant not to compete....................................... 50,000
Goodwill...................................................... 3,250,000
-----------
Total adjusted purchase price allocation.................... $10,415,000
===========
</TABLE>
Business Activity
The Company rents and sells light weight and heavy off-road construction
equipment for use by construction and maintenance companies, and has ancillary
sales of parts and supplies. The rentals are on a daily,
F-86
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
weekly or monthly basis. The Company has two locations in Houston, Texas and
its principal market area is the state of Texas. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the balance sheets are presented on an unclassified basis.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over estimated useful lives of three
to five years through June 30, 1997 and two to ten years subsequent to June
30, 1997 with no salvage value. Rental equipment costing less than $500 is
immediately expensed at the date of purchase. Equipment rental revenue is
recorded as earned under the operating method. Equipment rental revenue in the
statements of operations includes revenues earned on equipment rentals, and
related fuel sales and rental equipment delivery fees. Proceeds from the
disposal and the related net book value of the equipment are recognized in the
period of disposal and reported as revenue from rental equipment sales in the
statements of operations. Ordinary maintenance and repair costs are charged to
operations as incurred.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations. Ordinary maintenance and repair costs
are charged to operations as incurred.
Advertising Costs
The Company advertises primarily through trade journals, phone directories
and the distribution of promotional items. All advertising costs are expensed
as incurred. Advertising expenses amounted to approximately $40,095 and
$52,483 in the years ended December 31, 1995 and 1996, respectively, $1,297 in
the six months ended June 30, 1997, and $9,433 from July 1 to October 22,
1997.
Income Taxes
J & J applied an asset and liability approach to accounting for income
taxes. Deferred income tax assets and liabilities arise from differences
between the tax basis of an asset or liability and its reported amount in the
financial statements. Deferred tax balances are determined by using tax rates
expected to be in effect when the taxes will actually be paid or refunds
received. Under federal and state income tax law, Tri-Star, a partnership, is
not a taxable entity and, therefore, incurs no income tax liability. Any
profits and losses of Tri-Star flow through to the individual partners.
Investments
The Company's investments consist of marketable equity securities and are
classified as available for sale. Any unrealized gains or losses are excluded
from income and are presented as a component of stockholders' equity.
Intangible assets
Intangible assets are recorded at cost and consist of goodwill of $3,250,134
and covenant not to compete of $50,000. Goodwill is being amortized by the
straight-line method over its estimated useful life of forty years. The
covenant not to compete reflects an agreement made regarding confidentiality
and restricting competitive activity and is being amortized by the straight-
line method over the period of the agreement, which is 5 years. Amortization
expense was $29,520 for the period from July 1 to October 22, 1997.
F-87
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Rental equipment.................................... $12,520,482 $8,313,840
Less accumulated depreciation....................... 5,851,117 351,990
----------- ----------
Rental equipment, net............................... $ 6,669,365 $7,961,850
=========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Transportation equipment............................ $ 763,402 $166,003
Furniture, fixtures and office equipment............ 92,082 59,760
Shop equipment...................................... 39,356
Leasehold improvements.............................. 38,386
Construction in progress............................ 101,085
--------- --------
933,226 326,848
Less accumulated depreciation....................... 465,766 7,629
--------- --------
Total............................................... $ 467,460 $319,219
========= ========
</TABLE>
F-88
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
CIT Group--Various notes dated from September 21,
1995 through August 5, 1997, with annual interest
rates ranging from 8% to 9.4% due in monthly
payments ranging from $867 to $43,987. ............. $ 1,246,231 $637,956
The Associates--Note dated April 1, 1996, with annual
interest of 8.8% due in monthly payments of
$3,609. ............................................ 110,450
Case Power & Equipment--Various notes dated from
January 1, 1992 through December 30, 1996, with
annual interest rates ranging from 5.5% to 7.9% due
in monthly payments ranging from $408 to $7,747. ... 795,344
Sterling Bank--Various notes dated from January 26,
1994 through December 20, 1996, with annual interest
rates ranging from 8% to 11% due in monthly payments
ranging from $582 to $2,084. ....................... 306,708
KDC Financial--Various notes dated from June 14, 1993
through December 31, 1996, with annual interest
rates ranging from 4.5% to 9.5% due in monthly
payments ranging from $840 to $4,691. .............. 1,443,971
John Deere Financial--Notes dated December 31, 1995
and September 10, 1996, with annual interest rates
of 7.9% and 6.9% due in monthly payments of $807 and
$1,083. ............................................ 69,247
Frost National Bank--Various notes dated from January
25, 1995 through August 15, 1995, with annual
interest rates ranging from 8.75% to 9.5% due in
monthly principal payments ranging from $582 to
$8,492. ............................................ 101,771
Citicorp--Note dated June 15, 1993, with an annual
interest rate of 5.9% due in monthly payments of
$921. .............................................. 5,433
First Prosperity Bank--Various notes dated from
September 8, 1994 through December 13, 1996, with
annual interest ranging from 7.25% through 9.9% due
in monthly payments ranging from $354 to $1,039. ... 55,139
CAT Financial--Notes dated June 2, 1995 and December
31, 1994, with annual interest rates of 9.69% and
9.5% due in monthly payments of $4,227 and
$3,036. ............................................ 152,293
CAT Financial--Notes dated October 11, 1996 and
November 25, 1996, non-interest bearing, with
monthly payments of $1,205 and $3,522. ............. 161,102
Chase/Clark Credit--Various notes dated from March
17, 1994 through September 28, 1994, with annual
interest rates ranging from 9.75% to 12.765% due in
monthly installments ranging from $194 to $1,430. .. 30,232
First Prosperity--Various notes dated from August 16,
1993 through December 13, 1996, with annual interest
rates ranging from 6.4% to 11% due in monthly
installments ranging from $423 to $4,205............ 171,518
Associates Commercial Credit Corp.--Various notes
dated from May 16, 1994 through July 8, 1996, with
annual interest rates ranging from 7.75% to 11.25%
due in monthly installments ranging from $912 to
$6,656.............................................. 246,570
</TABLE>
F-89
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 22,
1996 1997
------------ -----------
<S> <C> <C>
Ingersoll-Rand Company--Various notes dated from June
30, 1992 through September 8, 1996 with annual
interest rates ranging from 7% to 9.5% due in
monthly installments ranging from $301 to $7,794.... 316,003
Wacker Corporation--Various notes dated from January
7, 1994 through May 25, 1996, with annual interest
rates ranging from 6.25% to 10.25% due in monthly
installments ranging from $854 to $2,889............ 99,666
AEL Leasing Co., Inc.--Various notes dated from April
21, 1994 through May 20, 1996, with annual interest
rates ranging from 8.72% to 12.93% due in monthly
installments ranging from $371 to $4,883............ 261,043
AEL Leasing Co., Inc.--Various non-interest bearing
notes dated from April 21, 1994 through February 26,
1996, due in 12 principal installments ranging from
$8,022 to $18,249................................... 36,498
Shandee--Note dated August 31, 1995, with an annual
interest rate of 11.25% due in monthly installments
of $2,803........................................... 21,510
Sterling Bank--Note dated January 2, 1996, with an
annual interest rate of 9.5% due in 24 principal
installments of $4,118.............................. 53,538
Miller Financing--Various notes dated from February
15, 1996 through June 1, 1996, with annual interest
rates ranging from 9.25 % to 10.25% due in monthly
installments ranging from $375 to $2,922............ 82,384
Toyota Motor Credit Corp.--Notes dated July 12 and
August 28, 1997, with annual interest rates of 5.4%
and 6.9%, respectively, due in monthly installments
of $543 and $ 561, respectively..................... 47,460
AEL Leasing Co., Inc.--Note dated October 10, 1997
with annual interest of 9.33% due in monthly
payments of $3,345.................................. 157,807
Case Credit--Various notes dated June 30, 1997 with
an annual interest rate of 7.9% due in monthly
installments ranging from $1,685 to $2,254.......... 290,260
Case Credit--Term note dated June 30, 1997, with
interest due monthly at prime plus .75% (9.25% at
September 30, 1997). Principal is due June 30, 2002.
This note is secured by all of the Company's rental
assets and property, plant and equipment, and is
personally guaranteed by the majority owners of the
Company............................................. 7,445,449
J & J and Tri-Star--Promissory note dated June 30,
1997 with an annual interest rate of 7.5%. Principal
payments of $175,000 are due quarterly beginning
October 1, 2000..................................... 3,500,000
Equus II Incorporated--Senior subordinated note dated
June 30, 1997, with interest to be paid monthly on
the unpaid principal balance at a variable rate not
to exceed 10% (10% at September 30, 1997). Principal
is to be paid in four annual installments of
$500,000 beginning June 30, 2001.................... 2,000,000
---------- -----------
$5,766,651 $14,078,932
========== ===========
</TABLE>
Substantially all rental equipment collateralize the above notes.
All debt at October 22, 1997, except for $200,000 of the J & J and Tri-Star
note, were paid off by October 31, 1997 as a result of the acquisition
discussed in Note 10.
F-90
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES
The provision for income taxes relates to the operating results of J & J
before July 1, 1997 and consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE
--------------- 30,
1995 1996 1997
------- ------- ----------
<S> <C> <C> <C>
Current:
Federal............................................ $ 7,216 $32,054 $86,500
State.............................................. 5,462 5,631 11,500
------- ------- -------
12,678 37,685 98,000
Deferred:
Federal............................................ 20,300 10,600 --
State.............................................. 2,700 1,400 --
------- ------- -------
23,000 12,000 --
------- ------- -------
Total............................................ $35,678 $49,685 $98,000
======= ======= =======
</TABLE>
Tri-Star is a pass-through entity and, therefore incurs no tax liability.
Significant components of J & J's deferred tax liability at December 31, 1996
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C> <C>
Difference in basis of accounting......................... $221,000
Cumulative tax depreciation in excess of book............. 209,000
--------
Deferred tax liability $430,000
========
</TABLE>
Effective July 1, 1997, the Company and its shareholders have elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
federal tax purposes. Under those provisions the Company does not pay federal
income taxes; instead, the shareholders are liable for individual income taxes
on the Company's profit. Therefore, no provision for federal income taxes is
included in the Company's financial statements for the period from July 1 to
October 22, 1997.
7. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total interest paid
was $411,731 and $478,341; $180,769; and $259,705, respectively.
For the years ended December 31, 1995 and 1996; the six months ended June
30, 1997; and the period from July 1 to October 22, 1997, total income taxes
paid was $ -- and $ --; $24,814; and $ --, respectively.
During the years ended December 31, 1995 and 1996, and the six months ended
June 30, 1997, and for the period from July 1 to October 22, 1997 the Company
purchased $3,738,807, and $3,160,914; $1,172,917; and $1,172,506,
respectively, of equipment which was financed.
F-91
<PAGE>
J & J RENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Predecessor sponsored a defined contribution 401(k) retirement plan,
which was implemented during 1995 and covers substantially all full time
employees. The Predecessor matched a portion of the participants'
contributions. Predecessor contributions to the plan were $9,272, $6,395, $--,
and $ -- for the years ended December 31, 1995, and 1996, for the six month
period ended June 30, 1997 and for the period from July 1 to October 22, 1997,
respectively.
9. RELATED PARTY TRANSACTIONS
On November 27, 1995, Tri-Star loaned $120,000 to the Predecessor
Stockholder. This non-interest bearing note is unsecured, and is due on
demand. The outstanding balance on this note receivable at December 31, 1996
was $120,000.
On November 30, 1995, Tri-Star issued a $100,000 note payable to the
Predecessor Stockholder, which bears interest at 11.4% per annum, requires
monthly principal and interest payments of $6,097, and is unsecured. The
outstanding balance on this note at December 31, 1996 was $79,254.
J & J has a note payable outstanding to the Predecessor Stockholder, which
required interest to be paid quarterly at 6.5% per annum, and is due on
January 1, 1998. The outstanding balance on this note payable at December 31,
1996 was $257,244.
During the period from July 1 to October 22, 1997 the Company made payments
of $354,388 on behalf of another Company owned by the Company's Stockholder.
The Company leases its operating facilities from the Predecessor
Stockholder, and paid monthly rent of $8,600 through June 30, 1997. These
leases are month-to-month and can be canceled by either party.
10. SUBSEQUENT EVENT
On October 23, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-92
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Coran Enterprises, Inc.
and
Monterey Bay Equipment Rental, Inc.
We have audited the accompanying combined statements of earnings,
stockholders' equity, and cash flows of Coran Enterprises, Inc., dba A-1
Rents, and Monterey Bay Equipment Rental, Inc. for the years ended
December 31, 1995 and 1996. We have also audited the combined statement of
earnings, stockholders' equity, and cash flows for the period January 1, 1997
through October 24, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and combined cash
flows of Coran Enterprises, Inc. dba A-1 Rents, and Monterey Bay Equipment
Rental, Inc. for the years ended December 31, 1995 and 1996, and also for the
period January 1, 1997 through October 24, 1997 in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
San Jose, California
January 21, 1998
F-93
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
1997
YEAR ENDED DECEMBER 31, THROUGH
----------------------- OCTOBER 24,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Equipment rentals........................ $ 6,962,130 $ 7,679,713 $6,743,497
Sales of parts, supplies and rental
equipment............................... 565,586 738,330 974,713
----------- ----------- ----------
Total revenues......................... 7,527,716 8,418,043 7,718,210
Costs
Cost of equipment rentals................ 3,835,982 4,254,243 3,764,346
Rental equipment depreciation............ 611,577 1,304,847 1,328,193
Cost of sales of supplies................ 200,746 257,500 204,248
Other.................................... 49,523 115,758 53,590
----------- ----------- ----------
Total costs............................ 4,697,828 5,932,348 5,350,377
----------- ----------- ----------
Gross margin........................... 2,829,888 2,485,695 2,367,833
Selling, general and administrative........ 1,786,650 2,062,246 1,768,439
Non-rental depreciation.................... 28,435 17,202 15,370
----------- ----------- ----------
Operating Income....................... 1,014,803 406,247 584,024
Interest expense........................... 21,120 96,464 170,183
----------- ----------- ----------
Earnings before income taxes........... 993,683 309,783 413,841
Provision for income taxes................. 12,275 8,221 276,383
----------- ----------- ----------
Net earnings............................. $ 981,408 $ 301,562 $ 137,458
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-94
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES ISSUED
-------------
CEI MBERI
------ ------ ADDITIONAL
$1 PAR NO PAR COMMON PAID-IN RETAINED
VALUE VALUE STOCK CAPITAL EARNINGS TOTAL
------ ------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 75,000 10,000 $275,000 $37,920 $1,691,541 $2,004,461
Net earnings.......... -- -- -- -- 981,408 981,408
------ ------ -------- ------- ---------- ----------
Balance at December 31,
1995................... 75,000 10,000 275,000 37,920 2,672,949 2,985,869
Net earnings.......... -- -- -- -- 301,562 301,562
Dividends paid to
stockholders......... -- -- -- -- (750,000) (750,000)
------ ------ -------- ------- ---------- ----------
Balance at December 31,
1996................... 75,000 10,000 275,000 37,920 2,224,511 2,537,431
Net earnings January
1, 1997 through
October 24, 1997..... -- -- -- -- 137,458 137,458
Dividends paid to
stockholders......... -- -- -- -- (781,852) (781,852)
Stock redemption...... -- (2,500) (50,000) -- (200,000) (250,000)
------ ------ -------- ------- ---------- ----------
Balance at October 24,
1997................... 75,000 7,500 $225,000 $37,920 $1,380,117 $1,643,037
====== ====== ======== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-95
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND MONTEREY BAY EQUIPMENT RENTAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
YEAR ENDED 1997
DECEMBER 31, THROUGH
---------------------- OCTOBER 24,
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................. $ 981,408 $ 301,562 $ 137,458
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization............ 640,012 1,322,049 1,343,563
Gain on sale of equipment................ (85,747) (163,753) (446,621)
Change in assets and liabilities:
Accounts receivable..................... (210,091) 60,246 (61,976)
Other assets............................ 5,220 (3,108) 59,276
Accounts payable and accrued
liabilities............................ 36,638 32,355 625,287
--------- ----------- -----------
Net cash provided by operating
activities............................ 1,367,440 1,549,351 1,656,987
Cash flows from investing activities:
Purchases of rental equipment............ (633,519) (4,017,946) (315,346)
Proceeds from sale of equipment.......... 110,273 205,639 492,977
--------- ----------- -----------
Net cash provided by (used in)
investing activities.................. (523,246) (3,812,307) 177,631
Cash flows from financing activities:
Change in bank overdraft................. (15,760) -- --
Borrowings on equipment loans............ 244,235 1,096,820 --
Payments on equipment loans.............. (46,853) (158,893) (42,649)
Payment of dividends..................... -- (750,000) (781,853)
Stock redemption......................... -- -- (250,000)
Borrowings on notes payable--
stockholders............................ -- 1,249,988 --
Payments on notes payable--stockholders.. (95,888) -- (538,156)
--------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 85,734 1,437,915 (1,612,658)
--------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... 929,928 (825,041) 221,960
Cash and cash equivalents--beginning of
period................................... 35,259 965,187 140,146
--------- ----------- -----------
Cash and cash equivalents--end of period.. $ 965,187 $ 140,146 $ 362,106
========= =========== ===========
Supplementary disclosures of cash flow
information:
Cash paid during the period for:
Interest................................. $ 21,120 $ 95,958 $ 151,792
========= =========== ===========
Income taxes............................. $ 1,600 $ 23,047 $ 800
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-96
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS ANDMONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
NOTE A--SUMMARY OF ACCOUNTING POLICIES
1. Nature of Business and Basis of Presentation
The combined financial statements include the accounts of Coran Enterprises,
Inc. and Monterey Bay Equipment Rental, Inc. (collectively the "Company").
Coran Enterprises, Inc. ("CEI") and Monterey Bay Equipment Rental, Inc.
("MBERI") are combined due to common ownership and operations which are
complimentary. All significant intercompany balances and transactions have
been eliminated in combination.
The Company leases equipment for home and contractors' use under short-term
rental agreements principally in the Northern California area.
2. Property and Equipment
The Company provides for depreciation in amounts sufficient to relate the
costs of depreciable assets to operations over their estimated service lives
using the double-declining balance method. Leasehold improvements are
amortized on a straight-line basis over the lives of the improvements or the
term of the lease, whichever is shorter. Maintenance and repairs costs are
expensed as incurred. Supplies and replacement parts are expensed when
purchased.
3. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
4. Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B--RELATED PARTY TRANSACTIONS
The Company leases facilities from its stockholders on a month-to-month
basis. Total rent expense on the facilities was $662,880 and $667,638 for the
years ended December 31, 1995 and 1996. Total rent expense for the period from
January 1, 1997 through October 24, 1997 was $545,702.
The Company incurred interest expense of $17,755 and $27,627, respectively,
for the years ended December 31, 1995 and 1996, related to notes payable to
stockholders. For the period from January 1, 1997 through October 24, 1997 the
interest expense related to the stockholder notes was $80,693.
NOTE C--INCOME TAXES
The stockholders of the Company have elected "S" Corporation status for
income tax purposes. Therefore, income or loss for federal and California
state income tax purposes is reported on the shareholders' individual income
tax returns. Although the "S" Corporation tax treatment is recognized by the
State of California, the net corporate income is subject to a 1.5% corporate
surtax. (See Note E)
F-97
<PAGE>
CORAN ENTERPRISES, INC.
DBA A-1 RENTS AND
MONTEREY BAY EQUIPMENT RENTAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 24, 1997
NOTE D -- EQUIPMENT LOANS
Equipment loans consist of notes payable, collateralized by equipment, due
in monthly installments ranging from $1,095 to $5,375 with interest rates from
5.75% to 8.75%. These loans were paid in full as of October 31, 1997. Interest
expense on the equipment loans aggregated $3,365 and $68,837, respectively,
for the years ended December 31, 1995 and 1996. Interest expense on the
equipment loans was $89,455 for the period January 1, 1997 through October 24,
1997.
NOTE E--CHANGE IN OWNERSHIP
Effective October 24, 1997, the stockholders of CEI and MBERI sold 100% of
the outstanding shares of each company to United Rentals, Inc. The Company
provided $270,000 for state income taxes resulting from the stock sale.
F-98
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Bronco Hi-Lift, Inc.
We have audited the balance sheets of Bronco Hi-Lift, Inc. as of December
31, 1996 and October 24, 1997 and the related statements of income,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996, and the period from January 1, 1997 to October 24, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1995 and 1996, and the period
from January 1, 1997 to October 24, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
January 19, 1998
F-99
<PAGE>
BRONCO HI-LIFT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER
1996 24, 1997
------------ ----------
<S> <C> <C>
ASSETS
Cash................................................... $ 305,506 $ 180,745
Accounts receivable, net............................... 826,849 998,467
Unbilled receivables................................... 40,722 283,865
Inventory.............................................. 67,825 273,119
Rental equipment, net.................................. 1,972,910 2,725,464
Property and equipment, net............................ 234,914 423,918
Due from related party................................. -- --
Prepaid expenses and other assets...................... 13,530 44,273
---------- ----------
Total assets....................................... $3,462,256 $4,929,851
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabili-
ties................................................ $ 90,584 $ 277,651
Debt................................................. 3,051,711 3,473,516
---------- ----------
Total liabilities.................................. 3,142,295 3,751,167
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value and $1.00 stated value,
100,000 shares authorized, 10,000 issued and out-
standing at December 31, 1996, and October 24, 1997. 10,000 10,000
Additional paid-in capital........................... 598,000 598,000
Notes receivable from stockholders................... (300,000) --
Retained earnings.................................... 11,961 570,684
---------- ----------
Total stockholders' equity......................... 319,961 1,178,684
---------- ----------
Total liabilities and stockholders' equity......... $3,462,256 $4,929,851
========== ==========
</TABLE>
See accompanying notes.
F-100
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD
FROM
JANUARY 1,
YEAR ENDED DECEMBER 31 1997 TO
------------------------ OCTOBER
1995 1996 24, 1997
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Equipment rentals...................... $ 3,427,596 $ 4,313,855 $4,330,000
New equipment sales.................... 266,308 611,033 533,370
Sales of parts, supplies and rental
equipment............................. 155,331 410,957 375,451
Other.................................. 147,214 194,469 182,355
----------- ----------- ----------
Total revenues....................... 3,996,449 5,530,314 5,421,176
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.......................... 335,028 699,455 374,845
Depreciation, equipment rentals........ 637,766 736,525 660,598
Cost of new equipment sales............ 206,268 479,920 412,592
Cost of sales of parts, supplies and
equipment............................. 107,989 293,987 148,464
Other.................................. 32,418 119,315 112,107
----------- ----------- ----------
Total cost of revenues............... 1,319,469 2,329,202 1,708,606
----------- ----------- ----------
Gross profit............................. 2,676,980 3,201,112 3,712,570
Selling, general and administrative
expenses................................ 2,540,699 2,359,326 2,353,924
Non-rental depreciation.................. 84,463 99,669 85,707
----------- ----------- ----------
Operating income..................... 51,818 742,117 1,272,939
Interest expense......................... 171,305 334,035 229,154
Other (income), net...................... (26,575) (46,175) (29,938)
----------- ----------- ----------
Net income (loss).................... $ (92,912) $ 454,257 $1,073,723
=========== =========== ==========
</TABLE>
See accompanying notes.
F-101
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES RECEIVABLE RETAINED
----------------- PAID-IN FROM EARNINGS
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT)
------- -------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 20,000 $ 20,000 $ 345,020 $ -- $ 693,596
Purchase and
retirement of common
stock................ (12,000) (12,000) (345,020) (1,042,980)
Issuance of common
stock................ 2,000 2,000 598,000 (500,000)
Net loss.............. (92,912)
------- -------- --------- -------- -----------
Balance at December 31,
1995................... 10,000 10,000 598,000 (500,000) (442,296)
Payment on notes
receivable from
stockholders......... 200,000
Net income............ 454,257
------- -------- --------- -------- -----------
Balance at December 31,
1996................... 10,000 10,000 598,000 (300,000) 11,961
Payments on notes
receivable from
stockholders......... 300,000
Net income............ 1,073,723
Dividends paid........ (515,000)
------- -------- --------- -------- -----------
Balance at October 24,
1997................... 10,000 $ 10,000 $ 598,000 $ -- $ 570,684
======= ======== ========= ======== ===========
</TABLE>
See accompanying notes.
F-102
<PAGE>
BRONCO HI-LIFT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31 1997 TO
------------------------ OCTOBER 24,
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................... $ (92,912) $ 454,257 $ 1,073,723
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Depreciation........................... 722,229 836,194 746,305
Gain on equipment sales................ (317,871) (302,777) (355,159)
Interest expense not requiring cash.... 17,500
Changes in assets and liabilities:
Increase in accounts receivable....... (132,976) (235,655) (171,618)
Decrease (increase) in unbilled re-
ceivables............................ 5,646 27,632 (243,143)
(Increase) decrease in inventory...... (102,542) 89,645 (205,294)
Decrease (increase) in prepaid ex-
penses and other assets.............. 30,774 20,171 (30,743)
(Decrease) increase in accounts
payable, accrued expenses and other
liabilities.......................... (60,113) (14,377) 187,067
---------- ------------ -----------
Total adjustments.................... 145,147 438,333 (72,585)
---------- ------------ -----------
Cash provided by operating
activities.......................... 52,235 892,590 1,001,138
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of rental equipment........... (92,727) (1,368,253) (1,631,309)
Proceeds from sale of rental equip-
ment.................................. 350,739 745,687 573,316
Purchases of property and equipment,
net................................... (101,985) (90,932) (304,711)
---------- ------------ -----------
Cash provided by (used in) investing
activities.......................... 156,027 (713,498) (1,362,704)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid.................... (485,000)
Issuance of stock...................... 100,000
Re-payments on notes due from stock-
holders............................... 200,000 300,000
Principal payments on debt............. (742,891) (802,358) (278,195)
Principal payments on capital lease ob-
ligations............................. (32,711)
Advances to related party.............. (412,113)
Borrowings under credit facility....... 900,000 500,000 700,000
---------- ------------ -----------
Cash provided by (used) in financing
activities.......................... (187,715) (102,358) 236,805
---------- ------------ -----------
Increase (decrease) in cash............ 20,547 76,734 (124,761)
Cash balance at beginning period..... 208,225 228,772 305,506
---------- ------------ -----------
Cash balance at end of period........ $ 228,772 $ 305,506 $ 180,745
========== ============ ===========
</TABLE>
See accompanying notes.
F-103
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND OCTOBER 24, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Bronco Hi-Lift, Inc. (the "Company") rents, sells and repairs aerial lift
equipment for use by construction companies and maintenance and media crews.
The rentals are on a daily, weekly or monthly basis. The Company is located in
Denver, Colorado and its principal market area is the state of Colorado. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the balance sheets are presented on an
unclassified basis.
Inventory
Inventories consists primarily of general replacement parts and fuel for the
equipment and are stated at the lower of cost, determined under the first-in,
first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost. Depreciation for rental equipment is
computed using the straight-line method over an estimated five-year useful
life with no salvage value.
Ordinary maintenance and repair costs are charged to operations as incurred.
Proceeds from the disposal and the related net book value of the equipment are
recognized in the period of disposal and reported as revenue from sales of
equipment and cost of sales of equipment, respectively, in the statements of
operations.
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over estimated useful lives
of 5 to 10 years.
Ordinary maintenance and repair costs are charged to operations as incurred.
The cost of assets sold, retired, or otherwise disposed of, and the related
accumulated depreciation is eliminated from the accounts and any resulting
gain or loss is included in operations.
Rental Revenue
Rental revenue is recorded as earned under the operating method.
Advertising Costs
The Company advertises primarily through trade journals, trade associations
and phone directories. All advertising costs are expensed as incurred.
Advertising expenses amounted to approximately $74,400 and $43,000 in the
years ended December 31, 1995 and 1996, respectively, and $49,500 in the
period from January 1, 1997 to October 24, 1997.
Income Taxes
The Company has elected, by unanimous consent of its shareholders, to be
taxed under the provisions of Subchapter S of the Internal Revenue Code for
both federal and state purposes. Under those provisions the Company does not
pay federal or state income taxes; instead, the shareholders are liable for
individual income taxes on the Company's profits. Therefore, no provision for
federal or state income taxes is included in the accompanying financial
statements.
F-104
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances with a quality financial institution
and, accordingly, management believes this mitigates the amount of credit
risk. Concentrations of credit risk with respect to customer receivables are
limited due to the large number of customers comprising the Company's customer
base and its credit policy.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consisted of the
following:
<TABLE>
<CAPTION>
OCTOBER
DECEMBER 31, 24,
1996 1997
------------ ----------
<S> <C> <C>
Rental equipment.................................... $5,176,658 $5,943,569
Less accumulated depreciation....................... 3,203,748 3,218,105
---------- ----------
Rental equipment, net............................... $1,972,910 $2,725,464
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 24,
1996 1997
------------ -----------
<S> <C> <C>
Furniture and fixtures.............................. $ 59,572 $172,839
Transportation equipment............................ 520,356 664,543
Shop equipment...................................... 37,591 37,591
-------- --------
617,519 874,973
Less accumulated depreciation....................... 382,605 451,055
-------- --------
Total............................................. $234,914 $423,918
======== ========
</TABLE>
F-105
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER
DECEMBER 31 24,
1996 1997
----------- ----------
<S> <C> <C>
Citicorp Dealer Finance Agreement.................... $1,585,000 $2,135,000
GMAC note dated October 27, 1994 paid in full in
August 1997......................................... 17,564 --
Kenworth/Trial-EZE dated July 11, 1994 paid in full
in September 1997................................... 49,147 --
Notes payable to a former shareholder for $900,000
and $500,000 at an annual interest rate of 9%. The
$900,000 note requires monthly interest payments
through January 31, 1998 at which time the note is
due in full. The $500,000 note requires monthly
interest payments through January 31, 1997.
Beginning February 1, 1997, the note is payable in
60 monthly installments of principal and interest of
$10,379 through December 31, 2001. The above
$500,000 note is subordinated to the Citicorp Dealer
Finance Agreement................................... 1,400,000 1,338,516
---------- ----------
$3,051,711 $3,473,516
========== ==========
</TABLE>
Substantially all of the Company's assets collateralize the debt outstanding
under the Financing Agreement. All debt at October 24, 1997 was paid off in
connection with the acquisition discussed in Note 10.
6. OPERATING LEASES
During 1994, the Company leased 7,000 square feet of office and shop space
on a twelve month lease, renewable annually. For the period from January 1,
1995 to April 30, 1995, the Company leased approximately 7,000 square feet of
office and shop space under a new month to month lease. Effective May 1, 1995,
the Company moved to a new location and entered into a lease agreement with a
related party, Coyote Investments, LLC ("Coyote") (see Note 9). The facility
consists of 17,000 square feet of office and shop area located on 1.8 acres.
The 15 year lease expires April 30, 2010. The Company is responsible for all
operating expenses of the facility including property taxes, assessments,
insurance, repairs and maintenance.
Rent expense under these leases totaled $52,000 and $78,000 for the years
ended December 31, 1995 and 1996 and $65,000 for the period from January 1,
1997 to October 24, 1997. Under the lease agreement with Coyote, rent is
payable in monthly installments of $6,500 for the first two years of the
lease. Thereafter the rent shall be increased annually to reflect the then
current fair market rent for the premises, provided that each annual increase
shall not exceed 10% of the previous year's rental rate. Future minimum rent
commitments are $78,000 each for years ended December 31, 1998 to December 31,
2009 and $26,000 for January 1, 2010 to April 30, 2010, provided there is no
increase in fair market rent for the premises.
7. COMMITMENTS
The Company has employment agreements, which expire in 1998, with three
officers which grant certain severance pay rights to these officers provided
that certain conditions of employment are met. Under terms of the employment
agreements, the officers received approximately $253,000, $703,000, and
$521,000 for the years ended December 31, 1995 and 1996 and for the period
from January 1, 1997 to October 24, 1997, respectively.
F-106
<PAGE>
BRONCO HI-LIFT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Additional compensation to be paid to the officers, until the agreements
expire, amounts to approximately $100,000 for the two months ended December
31, 1997 and $270,000 during 1998.
The Company guarantees Coyote's debt on the building leased by the Company
(see Note 9).
8. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1995 and 1996 and for the period from
January 1, 1997 to October 24, 1997, total interest paid was $171,305,
$335,686 and $224,016, respectively.
During 1995, the Company purchased $726,355, of equipment which was
financed. There were no purchases in 1996 or for the period from January 1,
1997 to October 24, 1997.
On December 20, 1995, the Company purchased and retired 12,000 shares of its
stock for two notes totaling $1,400,000. On December 21, 1995, the Company
issued 2,000 shares of its stock to two officers of the Company in exchange
for $100,000 cash and $500,000 of notes receivable from these officers. During
1996, the officers repaid $200,000 in accordance with the note agreements. In
October of 1997, the notes were repaid in full.
During 1997, the Company paid dividends of $515,000, of which $30,000
represented a non-cash transfer of a fixed asset.
9. RELATED PARTY TRANSACTIONS
Coyote is owned by the shareholders of the Company. The Company leases its
office and shop facility from Coyote (see Note 6). All stockholders and the
Company have guaranteed Coyote's debt on the facility. The amount of debt
principal on the facility was $555,080 at December 31, 1996 and $540,200 at
October 24, 1997.
Advances to Coyote were $412,113 at December 31, 1995. Coyote paid $3,434 of
interest to the Company during 1996. As part of the Citicorp Amendment No. 1
Refinancing Agreement, the Company owed Coyote $152,187, which it paid with
interest of $7,990 during August 1996. These obligations were fulfilled with a
non-cash transaction in connection with the above mentioned amended agreement.
On December 21, 1995 the Company issued 2,000 shares to two officers of the
Company in exchange for $100,000 cash and two notes for $250,000 each. The
notes bear interest at 9% per annum and are payable bi-annually. Principal on
each note is payable $100,000 in 1996, $100,000 in 1997 and $50,000 in 1998.
Interest paid to the Company during 1996 by these stockholders was $42,400. In
October of 1997, the notes were repaid in full.
10. SUBSEQUENT EVENT
On October 24, 1997, the Company entered into a stock purchase agreement
with United Rentals, Inc. ("United"). Under the terms of the stock purchase
agreement, United purchased all of the issued and outstanding capital stock of
the Company.
F-107
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Registrant in connection with the distribution of the
securities being registered hereunder are set forth below and will be borne by
the Registrant:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 93,959
Printing expenses................................................ 3,000
Accounting fees and expenses..................................... 20,000
Legal fees and expenses.......................................... 25,000
Miscellaneous.................................................... 26,000
--------
Total............................................................ $167,959
========
</TABLE>
All amounts except the registration fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation (the "Certificate") of the Company provides
that a director will not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (the "Delaware
Law"), which concerns unlawful payments of dividends, stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware Law is subsequently amended to
permit further limitation of the personal liability of directors, the
liability of a director of the Company will be eliminated or limited to the
fullest extent permitted by the Delaware Law as amended.
The Registrant, as a Delaware corporation, is empowered by Section 145 of
the Delaware Law, subject to the procedures and limitation stated therein, to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or
having been a director, officer, employee or agent of the Registrant. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors,
or otherwise. The Company has entered into indemnification agreements with
each of its directors and officers. In general, these agreements require the
Company to indemnify each of such persons against expenses, judgments, fines,
settlements and other liabilities incurred in connection with any proceeding
(including a derivative action) to which such person may be made a party by
reason of the fact that such person is or was a director, officer or employee
of the Company or guaranteed any obligations of the Company, provided that the
right of an indemnitee to receive indemnification is subject to the following
limitations: (i) an indemnitee is not entitled to indemnification unless he
acted in good faith and in a manner that he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such conduct
was unlawful and (ii) in the case of a derivative action, an indemnitee is not
entitled to indemnification in the event that he is judged in a final non-
appealable decision of a court of competent jurisdiction to be liable to the
Company due to willful misconduct in the performance of his duties to the
Company (unless and only to the extent that the court determines that the
indemnitee is fairly and reasonably entitled to indemnification).
Pursuant to Section 145 of the Delaware Law, the Registrant has purchased
insurance on behalf of its present and former directors and officers against
any liability asserted against or incurred by them in such capacity or arising
out of their status as such.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is a listing of all sales by the Company of unregistered
securities since the Company was incorporated on August 14, 1997. All such
sales were exempt from registration under the Securities Act of 1933, as
amended (the "Act"), pursuant to Section 4(2) of the Act (and, in the case of
the private placement described in paragraph 3 below, Regulation D
thereunder), as they were transactions not involving a public offering. The
Company believes that each of the issuances made pursuant to Section 4(2) was
made to a sophisticated investor, who had the financial resources to bear the
risk of the investment and who had the means and opportunity to obtain
information concerning the Company. The consideration paid to the Company in
respect of each issuance was cash, unless otherwise indicated. All sales
described below were made by the Company without the assistance of any
underwriters.
1. In September, October, November and December 1997, the Company issued
an aggregate of 12,910,714 shares of Common Stock and 6,342,858 warrants to
certain officers of the Company (including, in certain cases, one or more
entities controlled by the officer) for an aggregate amount of $46.01
million (not including 240,000 shares that were issued in the private
placement described in paragraph 3 below to a person who subsequently
became a director). See "Management--Capital Contributions by Officers and
Directors" in the prospectus which is part of this Registration Statement.
2. In October 1997, the Company sold an aggregate of 118,572 shares of
Common Stock to five employees of the Company and one consultant at a price
of $3.50 per share.
3. In September 1997, the Company in a private placement sold an
aggregate of 2,496,121 shares of Common Stock, at a price of $3.50 per
share, to 51 accredited investors. Such sale was made in accordance with
Regulation D promulgated under the Act.
4. In October 1997, the Company issued 318,712 shares of Common Stock as
part of the consideration for the acquisition by the Company of one of the
Initial Acquired Companies.
5. In October 1997, the Company issued, in connection with certain
acquisitions, a convertible note in the principal amount of $300,000 and a
convertible note in the principal of $200,000.
6. Options with respect to 931,333 shares of Common Stock were granted to
employees of the Company. Such options have exercise prices ranging from
$10.00 per share to $30.00 per share and a weighted average exercise price
of $13.06 per share.
7. In November 1997, the Company issued (i) 5,000 shares of Common Stock
as compensation for certain recruiting services and (ii) a warrant to
purchase 1,200 shares of Common Stock (at a $10.00 per share exercise
price) as compensation for certain consulting services.
8. In January 1998, the Company issued (i) as part of the consideration
for certain acquisitions, an aggregate of 804,875 shares of Common Stock
and a warrant to purchase 30,000 shares of Common Stock at an exercise
price of $13.50 per share, (ii) as compensation to certain persons
providing consulting services to the Company, warrants to purchase an
aggregate of 110,000 shares of Common Stock at an exercise price of $13.50
per share, (iii) as part of the consideration payable under the lease for
one of the Company's facilities, warrants to purchase an aggregate of
35,000 shares of Common Stock at an exercise price of $18.50 per share and
(iv) upon conversion of the $200,000 convertible note referred to in
paragraph 5 above, 14,814 shares of Common Stock.
II-2
<PAGE>
ITEM 16. EXHIBITS.
Unless otherwise indicated, all exhibits are incorporated by reference to
the correspondingly numbered exhibit to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-39117).
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ------
<C> <S> <C>
3(a) Amended and Restated Certificate of Incorporation of the
Company, in effect as of the date hereof
3(b) By-laws of the Company, in effect as of the date hereof
4 Form of Common Stock Certificate
5* Opinion of Ehrenreich Eilenberg Krause & Zivian LLP
10(a) $155 Million Revolving Credit Facility, dated as of December
24, 1997, between the Company, various financial
institutions, and Bank of America National Trust and Savings
Association, as agent (incorporated by reference to the
correspondingly numbered Exhibit to the Registrant's
Registration Statement on Form S-1, Registration No. 333-
45605)
10(b) 1997 Stock Option Plan
10(c) Form of Warrant Agreement(1)
10(d) Form of Private Placement Purchase Agreement entered into by
certain officers of the Company in connection with purchasing
shares and warrants from the Company(2)
10(e) Form of Subscription Agreement for September 1997 Private
Placement(3)
10(f) Form of Indemnification Agreement for Officers and Directors
of the Company
10(g) Employment Agreement between the Company and Bradley S.
Jacobs, dated as of September 19, 1997
10(h) Employment Agreement between the Company and John N. Milne,
dated as of September 19, 1997
10(i) Employment Agreement between the Company and Michael J.
Nolan, dated as of October 14, 1997
10(j) Employment Agreement between the Company and Robert P. Miner,
dated as of October 10, 1997
10(k) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and the shareholders of Mercer Equipment Company+
10(l) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and the shareholders of Bronco Hi-Lift Inc.+
10(m) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and Coran Enterprises, Inc., Monterey Bay
Equipment Rentals, Inc., James M. Shade, Carol A. Shade,
James M. Shade and Carol Anne Shade, Trustees under the James
M. Shade and Carol A. Shade Trust Agreement dated September
14, 1982, Randall Shade and Corey Shade.+
10(n) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and the shareholders of Rent-It Center, Inc.+
10(o) Stock Purchase Agreement, dated as of October 20, 1997, among
the Company and A&A Tool Rentals & Sales, Inc., Joseph E.
Doran, Patrick J. Doran, and A&A Tool Rentals & Sales, Inc.
Employee Stock Ownership Plan.+
10(p) Agreement and Plan of Merger, dated as of October 23, 1997,
among the Company, UR Acquisition Subsidiary, Inc. and J&J
Rental Services, Inc.+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ------
<C> <S> <C>
10(q) Convertible Note dated October 24, 1997
10(r) Subscription Agreement dated November 14, 1997, between
Wayland R. Hicks and the Company
10(s) Agreement dated November 14, 1997, between the Company and
Wayland R. Hicks
10(t) Purchase Agreement, dated as of January 22, 1998, among the
Company, United Rentals of Canada, Inc., Access Rentals,
Inc., Reinhart Leasing, LLC and the Stockholders of Access
Rentals, Inc. (incorporated by reference to Exhibit 10(t) to
the Registrant's Registration Statement on Form S-1,
Registration No. 333-45605)+
10(u) Stock Purchase Agreement, dated as of January 13, 1998, among
the Company, Mission Valley Rentals, Inc., Charles F. Journey
and Connie J. Journey (incorporated by reference to Exhibit
10(u) to the Registrant's Registration Statement on Form S-1,
Registration No. 333-45605)+
10(v) Stock Purchase Agreement, dated as of January 22, 1998, among
the Company, United Rentals of Canada, Inc. and BNR Equipment
Limited and Affiliates (incorporated by reference to Exhibit
10(x) to the Registrant's Registration Statement on Form S-1,
Registration No. 333-45605)+
10(w) Form of U.S. Purchase Agreement for the Offering
(incorporated by reference to Exhibit 1(a) to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-45605)
10(x) Form of International Repurchase Agreement for the Offering
(incorporated by reference to Exhibit 1(b) to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-45605)
10(y) Form of U.S. Purchase Agreement for initial public offering
(incorporated by reference to Exhibit 1(a) to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-39117)
10(z) Form of International Purchase Agreement for the initial
public offering (incorporated by reference to Exhibit 1(b) to
the Registrant's Registration Statement on Form S-1,
Registration No. 333-39117)
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to the Registrant's Registration Statement on Form
S-1, Registration No. 333-45605)
23(a) Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included
in opinion filed as Exhibit 5)
23(c)** Consent of Ernst & Young LLP
23(d)** Consent of Ernst & Young LLP
23(e)** Consent of Ernst & Young LLP
23(f)** Consent of Ernst & Young LLP
23(g)** Consent of KPMG Peat Marwick LLP
23(h)** Consent of KPMG
23(i)** Consent of Webster Duke & Co. PA
23(j)** Consent of Grant Thornton LLP
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ------
<C> <S> <C>
23(k)** Consent of Battaglia, Andrews & Moag, P.C.
23(l) Consent of Wayland R. Hicks (incorporated by reference to
Exhibit 23(l) to the Registrant's Registration Statement on
Form S-1, Registration No. 333-39117)
24 Power of Attorney (included in Part II of the original
Registration Statement under the caption "Signatures")
</TABLE>
- --------
* Previously filed.
** Filed herewith.
+ Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
(1) The Company issued a warrant in this form to the following officers of the
Company (or in certain cases to an entity controlled by such officer) for
the number of shares indicated: Bradley S. Jacobs (5,000,000); John N.
Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857);
Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby
(50,000); and Richard A. Volonino (50,000).
(2) Each officer of the Company who purchased securities prior to the date
hereof, other than Messrs. Jacobs and Hicks, entered into a Private
Placement Purchase Agreement in this form (modified, in the case of
Messrs. Barker and Imig, to reflect the fact that said officers did not
purchase Warrants) with respect to the shares of Common Stock and Warrants
purchased by such officer from the Company as described under
"Management--Capital Contributions by Officers and Directors."
(3) Each purchaser of shares of Common Stock in the Company's September 1997
private placement entered into a Subscription Agreement in this form with
respect to the shares purchased.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 and the information required to
be included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the Registrant pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF NEW YORK, STATE OF NEW YORK, MARCH 5, 1998.
United Rentals, Inc.
/s/ Michael J. Nolan
By: _________________________________
MICHAEL J. NOLAN
CHIEF FINANCIAL OFFICER
SIGNATURE TITLE DATE
/s/ * Chairman, Chief
- ------------------------------------- Executive Officer March 5, 1998
BRADLEY S. JACOBS and Director
(Principal
Executive Officer)
/s/ * Director
- ------------------------------------- March 5, 1998
JOHN N. MILNE
/s/ * Director
- ------------------------------------- March 5, 1998
RONALD M. DEFEO
Director
- ------------------------------------- March 1998
RICHARD J. HECKMANN
Director
- ------------------------------------- March 1998
GERALD TSAI, JR.
/s/ Michael J. Nolan Chief Financial
- ------------------------------------- Officer (Principal March 5, 1998
MICHAEL J. NOLAN Financial Officer)
/s/ Sandra E. Welwood Vice President,
- ------------------------------------- Corporate March 5, 1998
SANDRA E. WELWOOD Controller
(Principal
Accounting Officer)
Michael J. Nolan
*By__________________________________
MICHAEL J. NOLAN
ATTORNEY-IN-FACT
II-7
<PAGE>
EXHIBIT INDEX
Unless otherwise indicated, all exhibits are incorporated by reference to
the correspondingly numbered exhibit to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-39117).
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ------
<C> <S> <C>
3(a) Amended and Restated Certificate of Incorporation of the
Company, in effect as of the date hereof
3(b) By-laws of the Company, in effect as of the date hereof
4 Form of Common Stock Certificate
5* Opinion of Ehrenreich Eilenberg Krause & Zivian LLP
10(a) $155 Million Revolving Credit Facility, dated as of December
24, 1997, between the Company, various financial
institutions, and Bank of America National Trust and Savings
Association, as agent (incorporated by reference to the
correspondingly numbered Exhibit to the Registrant's
Registration Statement on Form S-1, Registration No. 333-
45605)
10(b) 1997 Stock Option Plan
10(c) Form of Warrant Agreement(1)
10(d) Form of Private Placement Purchase Agreement entered into by
certain officers of the Company in connection with purchasing
shares and warrants from the Company(2)
10(e) Form of Subscription Agreement for September 1997 Private
Placement(3)
10(f) Form of Indemnification Agreement for Officers and Directors
of the Company
10(g) Employment Agreement between the Company and Bradley S.
Jacobs, dated as of September 19, 1997
10(h) Employment Agreement between the Company and John N. Milne,
dated as of September 19, 1997
10(i) Employment Agreement between the Company and Michael J.
Nolan, dated as of October 14, 1997
10(j) Employment Agreement between the Company and Robert P. Miner,
dated as of October 10, 1997
10(k) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and the shareholders of Mercer Equipment Company+
10(l) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and the shareholders of Bronco Hi-Lift Inc.+
10(m) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and Coran Enterprises, Inc., Monterey Bay
Equipment Rentals, Inc., James M. Shade, Carol A. Shade,
James M. Shade and Carol Anne Shade, Trustees under the James
M. Shade and Carol A. Shade Trust Agreement dated September
14, 1982, Randall Shade and Corey Shade.+
10(n) Stock Purchase Agreement, dated as of October 24, 1997, among
the Company and the shareholders of Rent-It Center, Inc.+
10(o) Stock Purchase Agreement, dated as of October 20, 1997, among
the Company and A&A Tool Rentals & Sales, Inc., Joseph E.
Doran, Patrick J. Doran, and A&A Tool Rentals & Sales, Inc.
Employee Stock Ownership Plan.+
10(p) Agreement and Plan of Merger, dated as of October 23, 1997,
among the Company, UR Acquisition Subsidiary, Inc. and J&J
Rental Services, Inc.+
10(q) Convertible Note dated October 24, 1997
10(r) Subscription Agreement dated November 14, 1997, between
Wayland R. Hicks and the Company
10(s) Agreement dated November 14, 1997, between the Company and
Wayland R. Hicks
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ------
<C> <S> <C>
10(t) Purchase Agreement, dated as of January 22, 1998, among the
Company, United Rentals of Canada, Inc., Access Rentals,
Inc., Reinhart Leasing, LLC and the Stockholders of Access
Rentals, Inc. (incorporated by reference to Exhibit 10(t) to
the Registrant's Registration Statement on Form S-1,
Registration No. 333-45605)+
10(u) Stock Purchase Agreement, dated as of January 13, 1998, among
the Company, Mission Valley Rentals, Inc., Charles F. Journey
and Connie J. Journey (incorporated by reference to Exhibit
10(u) to the Registrant's Registration Statement on Form S-1,
Registration No. 333-45605)+
10(v) Stock Purchase Agreement, dated as of January 22, 1998, among
the Company, United Rentals of Canada, Inc. and BNR Equipment
Limited and Affiliates (incorporated by reference to Exhibit
10(x) to the Registrant's Registration Statement on Form S-1,
Registration No. 333-45605)+
10(w) Form of U.S. Purchase Agreement for the Offering
(incorporated by reference to Exhibit 1(a) to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-45605)
10(x) Form of International Repurchase Agreement for the Offering
(incorporated by reference to Exhibit 1(b) to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-45605)
10(y) Form of U.S. Purchase Agreement for initial public offering
(incorporated by reference to Exhibit 1(a) to the
Registrant's Registration Statement on Form S-1, Registration
No. 333-39117)
10(z) Form of International Purchase Agreement for the initial
public offering (incorporated by reference to Exhibit 1(b) to
the Registrant's Registration Statement on Form S-1,
Registration No. 333-39117)
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to the Registrant's Registration Statement on Form
S-1, Registration No. 333-45605)
23(a) Consent of Ehrenreich Eilenberg Krause & Zivian LLP (included
in opinion filed as Exhibit 5)
23(c)** Consent of Ernst & Young LLP
23(d)** Consent of Ernst & Young LLP
23(e)** Consent of Ernst & Young LLP
23(f)** Consent of Ernst & Young LLP
23(g)** Consent of KPMG Peat Marwick LLP
23(h)** Consent of KPMG
23(i)** Consent of Webster Duke & Co. PA
23(j)** Consent of Grant Thornton LLP
23(k)** Consent of Battaglia, Andrews & Moag, P.C.
23(l) Consent of Wayland R. Hicks (incorporated by reference to
Exhibit 23(l) to the Registrant's Registration Statement on
Form S-1, Registration No. 333-39117)
24 Power of Attorney (included in Part II of the original
Registration Statement under the caption "Signatures")
</TABLE>
- --------
* Previously filed.
** Filed herewith.
+ Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
<PAGE>
(1) The Company issued a warrant in this form to the following officers of the
Company (or in certain cases to an entity controlled by such officer) for
the number of shares indicated: Bradley S. Jacobs (5,000,000); John N.
Milne (714,286); Michael J. Nolan (285,715); Robert P. Miner (142,857);
Sandra E. Welwood (50,000); Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby
(50,000); and Richard A. Volonino (50,000).
(2) Each officer of the Company who purchased securities prior to the date
hereof, other than Messrs. Jacobs and Hicks, entered into a Private
Placement Purchase Agreement in this form (modified, in the case of
Messrs. Barker and Imig, to reflect the fact that said officers did not
purchase Warrants) with respect to the shares of Common Stock and Warrants
purchased by such officer from the Company as described under
"Management--Capital Contributions by Officers and Directors."
(3) Each purchaser of shares of Common Stock in the Company's September 1997
private placement entered into a Subscription Agreement in this form with
respect to the shares purchased.
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 30, 1998, with respect to the consolidated
financial statements of United Rentals, Inc. in Post-Effective Amendment No. 1
to the Registration Statement (Form S-1 No. 333-41419) and the related
Prospectus of United Rentals, Inc. for the registration of 22,211,696 shares
of its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 4, 1998
<PAGE>
EXHIBIT 23(d)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 23, 1998, with respect to the financial
statements of J&J Rental Services, Inc. in Post-Effective Amendment No. 1 to
the Registration Statement (Form S-1 No. 333-41419) and the related Prospectus
of United Rentals, Inc. for the registration of 22,211,696 shares of its
common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 4, 1998
<PAGE>
EXHIBIT 23(e)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 19, 1998, with respect to the financial
statements of Bronco Hi-Lift, Inc., in Post-Effective Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-41419) and the related Prospectus of
United Rentals, Inc. for the registration of 22,211,696 shares of its common
stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 4, 1998
<PAGE>
EXHIBIT 23(f)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 23, 1998, with respect to the financial
statements of Mission Valley Rentals, Inc., in Post-Effective Amendment No. 1
to the Registration Statement (Form S-1 No. 333-41419) and the related
Prospectus of United Rentals, Inc. for the registration of 22,211,696 shares of
its common stock.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 4, 1998
<PAGE>
EXHIBIT 23(g)
The Board of Directors
A&A Tool Rentals & Sales, Inc.:
We consent to the use of our report dated November 20, 1997, with respect to
the financial statements of A&A Tool Rentals & Sales, Inc. included herein and
to the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Sacramento, California
March 4, 1998
<PAGE>
EXHIBIT 23(h)
Board of Directors
The BNR Group of Companies:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG
Waterloo, Canada
March 5, 1998
<PAGE>
EXHIBIT 23(i)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 21, 1998, with respect to the financial
statements of MERCER Equipment Company in the Registration Statement (Form S-1
No. 333-41419) and the related Prospectus of United Rentals, Inc. for the
registration of 22,211,696 shares of its common stock filed with the
Securities and Exchange Commission.
/s/ Webster, Duke & Co. PA
Charlotte, North Carolina
March 5, 1998
<PAGE>
EXHIBIT 23(j)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 21, 1998, accompanying the combined
financial statements of Coran Enterprises, Inc., dba A-1 Rents, and Monterey
Bay Equipment Rental, Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, on Form S-1 (File No. 333-41419), and
to the use of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
San Jose, California
March 4, 1998
<PAGE>
EXHIBIT 23(k)
INDEPENDENT PUBLIC ACCOUNTANTS' CONSENT
We hereby consent to the use in the Registration Statement on Form S-1-No.
333-41419 of our report dated January 22, 1998 relating to the financial
statements of Access Rentals, Inc., and Subsidiary and Affiliate. We also
consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ BATTAGLIA, ANDREWS & MOAG, P.C.
Batavia, New York
March 5, 1998
