<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JULY 10, 1998
-----------------
UNITED RENTALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------------------------
Delaware 1-13663 06-1493538
-----------------------------------------------------------------------------
(State or Other Jurisdiction (Commission file Number) (IRS Employer
of Incorporation) Identification No.)
Four Greenwich Office Park, Greenwich, Connecticut 06830
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 622-3131
--------------
================================================================================
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
On July 10, 1998, United Rentals, Inc. (the "Company") acquired the
equipment rental businesses of the following three affiliated companies
(collectively, "Equipment Supply"): (i) Equipment Supply Company, Inc., (ii)
High Reach Company, Inc. and (iii) Rylan, Inc. This acquisition was effected by
the Company acquiring all of the outstanding stock of each of High Reach
Company, Inc. and Rylan, Inc. and substantially all of the assets of Equipment
Supply Company, Inc. Equipment Supply is an equipment rental company and
operates 21 rental locations in twelve states: Alabama (1), Delaware (1),
Georgia, (1), Indiana (2), Kentucky (2), Maryland (3), Michigan (1), New Jersey
(2), North Carolina (2), Ohio (1) Pennsylvania (4) and Virginia (1). Equipment
Supply leases the land and buildings comprising its rental locations.
The aggregate consideration paid by the Company in respect of the
acquisition described above was $133.7 million and consisted of approximately
$127.5 million of cash and 179,018 shares of the Company's Common Stock. The
consideration for the acquisition was determined through arms-length
negotiations between the Company and the former owners of the business acquired.
The Company funded the cash portion of the consideration from the proceeds of a
$250 million term loan from a group of financial institutions that the Company
received in July 1998.
Item 7. Financial Statement and Pro Forma Financial Information
-------------------------------------------------------
(a) Financial Statements of Businesses Acquired
The following financial statements are included herein:
I. Combined Financial Statements of Equipment Supply Co., Inc. and Affiliates
Report of Independent Certified Public Accountants
Combined Balance Sheets--December 31, 1996 and 1997 and March 31, 1998
(unaudited)
Combined Statements of Income for the Years Ended December 31,
1995, 1996 and 1997 and for the Three Months Ended March 31, 1997 and
1998 (unaudited)
Combined Statements of Stockholders' Equity for the Years Ended December
31, 1995 1996, and 1997 and for the Three Months Ended March 31, 1998
(unaudited)
Combined Statements of Cash Flows for the Years Ended December 31, 1995,
1996 and 1997 and for the Three Months Ended March 31, 1997 and 1998
(unaudited)
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is included herein:
I. Pro Forma Consolidated Financial Statements of United Rentals, Inc.
Introduction
Pro Forma Consolidated Statements of Operations for the Year Ended December
31, 1997, and the Three Months Ended March 31, 1998
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on this 21st day of July, 1998.
UNITED RENTALS, INC.
By: Michael J. Nolan
-------------------------------
Name: Michael J. Nolan
Title: Chief Financial Officer
3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Equipment Supply Co., Inc. and Affiliates
Burlington, New Jersey
We have audited the accompanying combined balance sheets of Equipment Supply
Co., Inc. and Affiliates (see Note 1) as of December 31, 1997 and 1996, and
the related combined statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
combined financial statements are the responsibility of the Company's
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. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Equipment Supply
Co., Inc. and Affiliates as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Philadelphia, Pennsylvania
June 19, 1998,
except for Notes 9 and 15 which
are as of July 10, 1998
F-1
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1996 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 1,038,086 $ 4,015,527 $ 2,253,311
Marketable securities................... -- 1,103,354 --
Accounts receivable, net of allowance
for
possible losses of $2,241,339,
$1,202,790
and $2,241,339......................... 16,087,730 14,592,845 14,599,776
Inventories............................. 3,234,402 3,249,010 3,283,658
Prepaid expenses and other assets....... 2,365,177 389,234 1,474,539
Due from stockholder.................... 4,310,190 1,637,628 4,941,130
Rental equipment, net................... 122,154,888 127,343,198 117,008,554
Property and equipment, net............. 6,548,778 5,401,275 5,544,829
Goodwill and other intangible assets,
net.................................... 3,887,945 4,436,997 3,832,040
------------ ------------ ------------
Total assets........................ $159,627,196 $162,169,068 $152,937,837
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt.................................. $ 94,870,512 $107,460,779 $ 91,322,072
Capital lease obligations............. 8,841,236 11,923,889 8,271,490
Accounts payable...................... 4,909,578 4,116,967 3,476,534
Income taxes payable.................. 1,209,251 1,393,548 1,442,884
Deferred income taxes................. 3,884,669 3,996,763 939,847
Deferred leasing costs................ 4,379,594 -- 5,128,033
Deferred rental income................ 2,404,500 2,016,607 1,929,760
Other liabilities..................... 1,599,427 2,335,963 2,534,049
------------ ------------ ------------
Total liabilities................... 122,098,767 133,244,516 115,044,669
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value
Authorized 2,500 shares;
Issued and outstanding 581 shares.... 1,500 1,500 1,500
Additional paid-in capital............ 363,808 326,294 363,808
Retained earnings..................... 37,163,121 28,596,758 37,527,860
------------ ------------ ------------
Total stockholders' equity.......... 37,528,429 28,924,552 37,893,168
------------ ------------ ------------
Total liabilities and stockholders'
equity............................. $159,627,196 $162,169,068 $152,937,837
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-2
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1997 1996 1995 1998 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Equipment rentals..... $78,141,502 $65,226,201 $40,905,725 $17,169,129 $17,769,357
Sales of rental
equipment............ 8,102,210 11,935,375 7,968,205 1,442,049 1,566,460
Sales of new
equipment,
merchandise and other
revenues............. 8,314,451 10,129,016 5,246,285 2,335,386 2,025,947
----------- ----------- ----------- ----------- -----------
TOTAL REVENUES...... 94,558,163 87,290,592 54,120,215 20,946,564 21,361,764
----------- ----------- ----------- ----------- -----------
COST OF REVENUES
Cost of equipment
rentals, excluding
depreciation......... 23,509,529 19,225,581 14,222,651 6,170,748 4,554,823
Depreciation of rental
equipment............ 20,397,030 15,383,114 7,844,434 5,356,340 5,261,674
Cost of rental
equipment sold....... 5,049,876 9,834,128 3,291,409 638,780 1,417,600
Cost of new equipment
and merchandise...... 6,312,172 6,263,969 2,250,037 2,141,918 1,163,879
----------- ----------- ----------- ----------- -----------
TOTAL COST OF
REVENUES........... 55,268,607 50,706,792 27,608,531 14,307,786 12,397,976
----------- ----------- ----------- ----------- -----------
GROSS PROFIT............ 39,289,556 36,583,800 26,511,684 6,638,778 8,963,788
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
General and
administrative
expenses............. 17,874,879 15,195,802 10,852,925 5,589,848 4,165,441
Nonrental depreciation
and amortization..... 878,342 627,534 237,427 137,119 195,314
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING
EXPENSES........... 18,753,221 15,823,336 11,090,352 5,726,967 4,360,755
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS.. 20,536,335 20,760,464 15,421,332 911,811 4,603,033
INTEREST EXPENSE........ (11,185,934) (7,508,226) (3,691,638) (2,360,419) (2,846,530)
OTHER INCOME (EXPENSE).. 2,858,438 854,658 (28,356) 21,527 461,618
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES.................. 12,208,839 14,106,896 11,701,338 (1,427,081) 2,218,121
PROVISION FOR INCOME TAX
EXPENSE (BENEFIT)...... 1,242,142 2,073,617 1,517,539 (2,637,684) 205,373
----------- ----------- ----------- ----------- -----------
NET INCOME.............. $10,966,697 $12,033,279 $10,183,799 $ 1,210,603 $ 2,012,748
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995.... 581 $1,500 $ -- $14,408,232 $14,409,732
Net income.................. -- -- -- 10,183,799 10,183,799
Stockholders' distributions. -- -- -- (3,861,677) (3,861,677)
Capital contributions....... -- -- 170,406 -- 170,406
--- ------ -------- ----------- -----------
BALANCE, December 31, 1995.. 581 1,500 170,406 20,730,354 20,902,260
Net income.................. -- -- -- 12,033,279 12,033,279
Stockholders' distributions. -- -- -- (4,166,875) (4,166,875)
Capital contributions....... -- -- 155,888 -- 155,888
--- ------ -------- ----------- -----------
BALANCE, December 31, 1996.. 581 1,500 326,294 28,596,758 28,924,552
Net income.................. -- -- -- 10,966,697 10,966,697
Stockholders' distributions. -- -- -- (2,937,557) (2,937,557)
Capital contributions....... -- -- 37,514 -- 37,514
Adjustment related to
affiliate with
different fiscal year...... -- -- -- 537,223 537,223
--- ------ -------- ----------- -----------
BALANCE, December 31, 1997.. 581 1,500 363,808 37,163,121 37,528,429
Net income (unaudited)...... -- -- -- 1,210,603 1,210,603
Stockholders' distributions
(unaudited)................ -- -- -- (845,864) (845,864)
--- ------ -------- ----------- -----------
BALANCE, March 31, 1998 (un-
audited)................... 581 $1,500 $363,808 $37,527,860 $37,893,168
=== ====== ======== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1997 1996 1995 1998 1997
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income............. $ 10,966,697 $ 12,033,279 $ 10,183,799 $ 1,210,603 $ 2,012,748
Adjustments to
reconcile net income
to net cash
flows provided by
operating activities
Depreciation and
amortization........ 21,275,372 16,010,648 8,081,861 5,493,459 5,456,988
Provision for bad
debts............... 1,038,549 374,056 828,734 -- --
Gain on sale of
equipment........... (3,052,334) (2,101,247) (4,555,863) (803,269) (148,859)
Gain on sale of
marketable
securities.......... (390,410) (126,747) (37,345) -- (110,040)
Deferred income
taxes............... (112,094) 743,691 961,861 (2,944,822) (127,772)
Adjustment related to
affiliate with
different fiscal
year................ 537,223 -- -- -- 537,223
Changes in operating
assets and
liabilities:
(Increase) decrease
in accounts
receivable.......... (2,533,434) (4,603,457) (4,789,132) 1,487,954 1,749,552
(Increase) decrease
in inventories...... 14,608 (945,385) (824,220) (49,256) 213,198
(Increase) decrease
in prepaid expenses
and other assets.... (1,975,943) 122,694 587,072 890,638 (383,992)
Increase (decrease)
in accounts payable. 792,611 1,436,552 1,560,529 (1,433,044) 1,239,217
Increase (decrease)
in income taxes
payable............. (184,297) 1,076,242 689,302 233,633 (458,137)
Increase in deferred
leasing costs....... 4,379,594 -- -- 748,439 --
Increase (decrease)
in deferred rental
income.............. 387,893 627,699 499,251 (474,740) (170,403)
Increase (decrease)
in other
liabilities......... (736,536) 914,657 1,015,997 934,622 (1,019,955)
------------ ------------ ------------ ----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES... 30,407,499 25,562,682 14,201,846 5,294,217 8,789,768
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchases of
equipment............. (21,445,901) (73,822,654) (32,957,168) (590,746) (11,204,907)
Acquisitions of
affiliated companies.. -- (11,807,987) (7,829,319) -- --
Proceeds from sale of
equipment............. 8,102,210 11,935,375 7,741,552 2,107,330 1,566,460
Sales (purchases) of
marketable
securities............ 1,493,764 (414,665) 397,153 -- (423,442)
------------ ------------ ------------ ----------- ------------
NET CASH (USED IN)
PROVIDED BY INVESTING
ACTIVITIES............. (11,849,927) (74,109,931) (32,647,782) 1,516,584 (10,061,889)
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from debt..... $ 12,869,925 $ 79,950,621 $ 28,777,004 $ 4,148,509 $ 9,010,170
Repayment of capital
lease obligations..... (3,341,413) (4,419,085) (2,177,919) (569,746) (1,055,125)
Repayment of debt...... (25,460,192) (18,525,872) (4,207,118) (7,696,949) (6,942,171)
Payment of loan
acquisition fees...... (28,728) (299,978) (88,493) (586) (90,223)
(Increase) decrease in
due to/from
stockholders.......... (2,672,562) (1,673,052) 35,425 (630,940) (1,946,412)
Capital contributions.. 37,514 155,887 170,406 -- --
Stockholders'
distributions......... (2,937,557) (4,166,875) (3,861,677) (845,864) (928,530)
------------ ------------ ------------ ----------- ------------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES............. (21,535,013) 51,021,646 18,647,627 (5,595,576) (1,952,291)
------------ ------------ ------------ ----------- ------------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............ (2,977,441) 2,474,397 201,691 1,215,225 (3,224,412)
CASH AND CASH
EQUIVALENTS, beginning
of year................ $ 4,015,527 $ 1,541,130 $ 1,339,439 $ 1,038,086 $ 4,015,527
------------ ------------ ------------ ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
year................... $ 1,038,086 $ 4,015,527 $ 1,541,130 $ 2,253,311 $ 791,115
============ ============ ============ =========== ============
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCIAL ACTIVITIES
Acquisition of
equipment in exchange
for capital lease
obligations........... $ 260,760 $ 7,121,669 $ 6,997,926 $ -- $ --
Goodwill related to
acquisitions.......... $ -- $ -- $ 1,897,761 $ -- $ --
Assets acquired from
purchase of
companies............. $ -- $ 13,165,000 $ 9,524,479 $ -- $ --
Liabilities assumed
from purchase of
companies............. $ -- $ 3,357,013 $ 3,151,101 $ -- $ --
============ ============ ============ =========== ============
OTHER SUPPLEMENTAL
DISCLOSURES
Taxes paid............. $ 2,226,828 $ 315,814 $ 276,960 $ 92,314 $ 817,831
Interest paid.......... $ 11,116,164 $ 7,250,310 $ 3,568,958 $ 2,447,318 $ 2,861,016
============ ============ ============ =========== ============
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include the accounts of Equipment Supply
Co., Inc. ("Equipment Supply") and its affiliated companies: High Reach Co.,
Inc. ("High Reach") and Rylan, Inc. ("Rylan") (collectively the "Company")
which have common ownership and activities. For financial reporting purposes,
Equipment Supply has been treated as the parent company and the purchaser of
both High Reach and Rylan during 1995. The 1995 acquisitions of the stock of
these companies were made by the stockholders of Equipment Supply.
The Company rents, sells and services aerial platform equipment throughout
the mid-Atlantic region of the United States. 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 sheets are presented on an unclassified
basis.
All significant intercompany balances and transactions have been eliminated
in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The combined balance sheet as of March 31, 1998 and the combined statements
of income, stockholders' equity and cash flows for the three months ended
March 31, 1998 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 the
interim periods are not necessarily indicative of results for the full year.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
MARKETABLE SECURITIES
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Debt and Equity Securities" requires investments in debt and equity securities
to be classified into one of three categories based on the Company's intent.
The Company has classified its investments in marketable securities as
available for sale which requires the Company to record these investments at
fair market value and record the unrealized gain or loss on the original
investment as a separate component of stockholders' equity. Such unrealized
gains or losses were not material in any period presented.
INVENTORIES
Inventories consisting of equipment and parts are stated at the lower of
average weighted cost or market.
DEPRECIATION AND AMORTIZATION
All equipment and property is stated at cost. Depreciation of rental
equipment is computed, using an estimated 5% residual value, by the straight-
line method at rates adequate to allocate the cost of rental equipment over
their estimated useful lives, ranging from five to ten years.
F-6
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Depreciation of property and equipment and amortization of leasehold
improvements are computed by the straight-line method at rates adequate to
allocate the cost of applicable assets over their estimated useful lives.
Ordinary maintenance and repair costs are charged to operations as incurred.
DEFERRED FINANCING COSTS
Deferred financing costs, which are incurred by the Company in connection
with debt, are charged to operations over the life of the underlying
indebtedness and are included in goodwill and other intangible assets. The net
book value of deferred financing costs at December 31, 1997 and 1996 and March
31, 1998 is $369,421, $340,693 and $351,508, respectively.
INCOME TAXES
The Company adopted in 1995 the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
No. 109 requires a company to recognize deferred income tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred income tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse.
For all periods presented, Equipment Supply has elected, with the consent of
its stockholders, to be taxed as an S Corporation for federal and certain
state reporting purposes. In lieu of federal and certain state corporation
income taxes, the stockholders are taxed on their proportionate share of the
Company's taxable income. Provision has been made for state income taxes for
those states not recognizing S Corporation status.
During 1998, Rylan elected, with the consent of its stockholders, to be
taxed as an S Corporation for federal and state income tax reporting purposes.
Consequently, all applicable federal and state deferred income taxes have been
reversed during the three months ended March 31, 1998. As a result, the effect
on the 1998 combined statement of income was to increase net income by
approximately $2.8 million.
During 1997, High Reach elected, with the consent of its stockholders, to be
taxed as an S Corporation for federal and state income tax reporting purposes.
Provision has been made for state income taxes for those states not
recognizing S Corporation status. A provision for federal and state income
taxes has been recorded for all periods through September 30, 1997. As of
October 1, 1997, all applicable federal and state deferred income taxes
approximating $81,000 have been reversed in accordance with SFAS 109 and have
been recorded in the statement of income.
ACQUISITIONS
High Reach
On April 1, 1995, the stockholders of Equipment Supply purchased all of the
capital stock of High Reach for an aggregate purchase price of approximately
$3.1 million, of which approximately $2.5 million was paid in cash with the
balance in the form of a note maturing no later than March 31, 1997, bearing
interest at 7% per annum.
F-7
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
The High Reach acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair values. In accordance with SFAS 109,
the Company recorded an additional increase to goodwill of approximately
$737,000 and a corresponding increase to a deferred income tax liability,
representing the difference between the financial and tax bases of certain
assets acquired. The goodwill is being amortized over fifteen years on a
straight-line basis.
The results of operations of High Reach have been included in the Company's
combined financials since the effective date of the acquisition. The
stockholders borrowed approximately $2.5 million from the Company and such
amounts have been recorded as part of the purchase price. Additionally, other
amounts paid by the stockholders in connection with the acquisition have been
treated as additional capital contributions and as part of the purchase price.
During 1995 and 1996, High Reach was combined using its fiscal year end of
September 30. In 1997, the Company reported the results of operations for High
Reach on a calendar year basis. Net income for High Reach's three month period
ended December 31, 1996 has been reflected as an adjustment to stockholders'
equity. No unusual trends or transactions were noted in this three month
period.
Rylan
On April 27, 1995, the stockholders of Equipment Supply purchased all of the
capital stock of Rylan for an aggregate cash purchase price of $4.8 million.
The Rylan acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair values. In accordance with SFAS 109,
the Company recorded an additional increase to goodwill of approximately $1.2
million and a corresponding increase to a deferred income tax liability,
representing the difference between the financial and tax bases of certain
assets acquired.
The results of operations of Rylan have been included in the Company's
combined financial statement since the effective date of the acquisition.
Total goodwill arising from the acquisition, in the amount of approximately
$1.9 million, is being amortized over fifteen years on a straight-line basis.
The stockholders financed the Rylan acquisition in the amount of $4.8
million by obtaining a term loan from a financial institution. Such debt has
been recorded on the Company's financial statements, as the Company has been
making the required principal and interest payments on behalf of the
stockholders and have guaranteed this debt (see Note 9).
Freestate
Effective May 1, 1996, Rylan acquired substantially all of the assets and
assumed certain liabilities of Freestate Industries, Inc. for approximately
$11.8 million in cash. Such amount included payments specified for covenants
not to compete for three key employees. The acquisition was accounted for
using the purchase method of accounting. Accordingly, the purchase price was
allocated to the net assets acquired based on their estimated fair values.
Total goodwill and other intangible assets, amounting to approximately
$2,000,000, are being amortized over a period ranging from five to fifteen
years on a straight-line basis. The results of operations of Freestate have
been included in the Company's combined financial statements since the
effective date of the acquisition.
F-8
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
The Company borrowed approximately $10.8 million to finance a portion of the
purchase price (see Note 9).
REVENUE RECOGNITION
The Company rents equipment to its customers under agreements not exceeding
one month, consequently the rental agreements are classified as operating
leases.
Revenues from rental leases are recognized over the term of the respective
agreements. Revenues from product sales are recognized when the product is
shipped. Revenue from equipment repairs is recognized at the time of service.
Revenues from maintenance contracts are recognized over the term of the
respective contracts as service is provided.
Amounts billed in advance are recorded as prebilled rentals which is
classified as deferred rental income on the combined balance sheet.
DEFERRED LEASING COSTS
The Company receives volume rebates for leasing and purchasing certain
equipment. The rebates related to operating leases are recognized as a
reduction in lease expense over the terms of the respective leases, generally
five years. Rebates related to purchased equipment are treated as a reduction
in the cost of equipment. The Company amortizes the costs of its leases on a
straight-line basis over the respective lease terms.
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.
LONG-LIVED ASSETS
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable based on undiscounted estimated future operating cash
flows. As of December 31, 1997, the Company has determined that no impairment
has occurred.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards which are effective for financial statements for periods
beginning after December 15, 1997.
F-9
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
SFAS No. 131, "Disclosure about Segments of a Business Enterprise and
Related Information," which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company believes that its operations compose a single segment and there
are no components of comprehensive income.
3. FINANCIAL INVESTMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of periodic temporary
investments of excess cash and trade receivables. The Company places its
temporary excess cash investments in high quality short-term money market
instruments and the carrying value approximates market value. A significant
portion of the Company's rental sales and equipment sales are to customers in
the construction industry and, as such, the Company is directly affected by
the well-being of that industry. However, the credit risk associated with
trade receivables is minimal due to the Company's large customer base,
geographical dispersion and ongoing control procedures which monitor the
credit worthiness of its customers.
4. DUE FROM STOCKHOLDERS
From time to time, the Company makes advances to its stockholders.
Generally, there are no formal repayment terms and the amounts are
noninterest-bearing.
5. RENTAL EQUIPMENT
Rental equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
Rental equipment.................... $168,047,372 $156,891,144 $165,411,311
Less accumulated depreciation....... 45,892,484 29,547,946 48,402,757
------------ ------------ ------------
$122,154,888 $127,343,198 $117,008,554
============ ============ ============
</TABLE>
F-10
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Depreciation expense amounted to $18,948,184, $14,385,916, $7,332,808,
$4,947,931 and $4,982,873 for the years ended December 31, 1997, 1996 and 1995
and the three months ended March 31, 1998 and 1997, respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1996 1998 LIVES
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Shop equipment.................. $ 834,355 $ 760,669 $ 517,651 5-7 years
Transportation equipment........ 9,134,757 6,887,232 8,065,840 5 years
Furniture and fixtures.......... 1,288,479 962,474 1,020,384 5-7 year
Building and lease hold improve-
ments.......................... 635,895 590,132 635,895 15-39 years
----------- ---------- -----------
Total......................... 11,893,486 9,200,507 10,239,770
Less accumulated depreciation
and amortization............... 5,344,708 3,799,232 4,694,941
----------- ---------- -----------
$ 6,548,778 $5,401,275 $ 5,544,829
=========== ========== ===========
</TABLE>
Depreciation and amortization amounted to $1,749,408, $1,180,285, $625,324,
$489,037 and $330,505 for the years ended December 31, 1997, 1996 and 1995 and
the three months ended March 31, 1998 and 1997, respectively.
7. CAPITAL LEASE OBLIGATIONS
Capitalized leased assets include machinery and transportation equipment.
Interest on the respective capital lease obligations range from 7.3% to 11.4%
at December 31, 1997 and 1996 and March 31, 1998.
Capital lease obligations, all of which are collateralized by the leased
equipment, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1996 1998
---------- ----------- ----------
<S> <C> <C> <C>
Various equipment capital lease obligations,
lease terms of 60 months with monthly lease
payments of $512 to $52,463 ending April
1999 to June 2001.......................... $6,451,715 $8,807,391 $6,100,436
Various vehicle capital lease obligations,
lease terms of 60 months with monthly lease
payments of $590 to $10,751 ending August
1998 to April 2002......................... 2,204,559 2,826,490 2,016,170
Various vehicle capital lease obligations
lease terms of 48 months with monthly lease
payments of $578 to $4,049 ending January
1999 to June 2000.......................... 184,962 290,008 154,884
---------- ----------- ----------
$8,841,236 $11,923,889 $8,271,490
========== =========== ==========
</TABLE>
F-11
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
The future minimum lease payments under capital leases, together with the
present value of the net minimum lease payments as of December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
YEAR
ENDING
DECEMBER
31, AMOUNT
-------- -----------
<S> <C>
1998........................................................ $ 3,628,913
1999........................................................ 3,416,347
2000........................................................ 2,478,665
2001........................................................ 845,860
2002........................................................ 9,965
-----------
Total minimum lease payments................................. 10,379,750
Less amount representing interest............................ 1,538,514
-----------
Capital lease obligations.................................... $ 8,841,236
===========
</TABLE>
The net book value of equipment under capital leases at December 31, 1997
and 1996 and March 31, 1998 amounted to $11,165,421, $13,800,349 and
$10,719,521, respectively.
8. NOTES PAYABLE, BANK
At March 31, 1998 and December 31, 1997, the Company had a line of credit
with a bank for $1,500,000. Borrowings under the lines bear interest at a rate
of 1/2% above the bank's prime rate (9%, at December 31, 1997 and March 31,
1998) and are secured by certain Company assets. At December 31, 1997 and
March 31, 1998, $-0- and $1,128,250 was outstanding under this line,
respectively.
F-12
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
9. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Notes payable to banks and finance compa-
nies with fixed interest rates ranging
from prime plus .5% to prime plus 2% (9%
and 10.5% at December 31, 1997) due in
monthly installments ranging from $546 to
$211,242 ending in September 1999 to De-
cember 2001 including interest. Collater-
alized either by a specific security in-
terest in equipment, a general lien on
equipment or by all assets owned or here-
after acquired by the Company............ $51,164,326 $ 64,098,599 $50,343,550
Term note payable to a finance company
with interest of 9.93% due in monthly in-
stallments of $221,314, including inter-
est, through April 2002. Collateralized
by a specific security interest in equip-
ment and guaranteed by the President of
the Company. (During 1998, the balance of
the loan was converted to and is included
in the note payable to a finance company
noted below.)............................ 9,310,102 -- --
Note payable, bank, in connection with
Rylan acquisition, due in monthly in-
stallments of $99,519, including interest
at 9.25%: collateralized by certain as-
sets of Rylan and guaranteed by the
stockholders and the Company; final pay-
ment due July 2000....................... 391,362 2,041,928 --
Note payable, sellers in connection with
the High Reach acquisition, due in
monthly installments of $10,213 plus in-
terest at 7% with final payment of
$377,844 made during March 1997.......... -- 408,523 --
Note payable, bank (see Note 8).......... -- -- 1,128,250
Note payable to a finance company with an
interest rate of LIBOR plus 3.25% (9.41%
at December 31, 1997) due in varying
monthly installments. Collateralized by a
specific security interest in equipment
and guaranteed by the President of the
Company.................................. 34,004,722 40,911,729 39,850,272
----------- ------------ -----------
$94,870,512 $107,460,779 $91,322,072
=========== ============ ===========
</TABLE>
F-13
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
At December 31, 1997, the aggregate maturities of debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------------
<S> <C>
1998.......................................................... $ 26,007,808
1999.......................................................... 25,586,393
2000.......................................................... 23,492,367
2001.......................................................... 18,116,590
2002.......................................................... 1,208,650
Thereafter.................................................... 458,704
------------
$ 94,870,512
============
</TABLE>
Certain agreements require the Company to maintain specified minimum net
worth and working capital and certain financial ratios. At December 31, 1997,
the Company was in violation of certain covenants, including obtaining a
specified level of minimum tangible net worth and a debt service coverage
ratio.
From the proceeds of the sale, more fully described in Note 15, the Company
repaid substantially all of its debt.
10. INCOME TAXES
Deferred income taxes reflect the net tax effect of differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Deferred income taxes relate primarily to depreciation and amortization,
differences in the accounting treatment of capital leases and bases of certain
assets of acquired businesses.
The components of income tax expense are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1997 1996 1995 1998 1997
---------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
CURRENT INCOME TAXES
Federal............... $ 482,568 $ 928,915 $ 277,900 $ -- $232,612
State................. 871,648 401,011 277,778 307,138 100,532
---------- ---------- ---------- ----------- --------
TOTAL CURRENT INCOME
TAX EXPENSE........ 1,354,216 1,329,926 555,678 307,138 333,144
---------- ---------- ---------- ----------- --------
DEFERRED INCOME TAXES
(BENEFIT)
Federal............... 393,018 133,507 452,061 -- 311,611
State................. (424,092) 610,184 509,800 (20,000) (439,382)
Reversal of deferred
income taxes relating
to sub S elections... (81,000) -- -- (2,924,822) --
---------- ---------- ---------- ----------- --------
TOTAL DEFERRED
INCOME TAX EXPENSE
(BENEFIT).......... (112,074) 743,691 961,861 (2,944,822) (127,771)
---------- ---------- ---------- ----------- --------
TOTAL INCOME TAX
EXPENSE (BENEFIT).. $1,242,142 $2,073,617 $1,517,539 $(2,637,684) $205,373
========== ========== ========== =========== ========
</TABLE>
F-14
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Differences which give rise to a significant portion of deferred income
taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- -----------
1997 1996 1998
----------- ----------- -----------
<S> <C> <C> <C>
DEFERRED INCOME TAX (ASSETS)
LIABILITIES
Depreciation and amortization....... $ 2,256,399 $ 2,393,302 $ 1,072,381
Reserves and allowances............. (269,491) (294,300) (132,534)
Difference in basis of certain
acquired assets.................... 1,897,761 1,897,761 --
----------- ----------- -----------
$ 3,884,669 $ 3,996,763 $ 939,847
=========== =========== ===========
</TABLE>
The differences between the income tax provision and the tax that would have
resulted from applying federal statutory rates on income before taxes is
primarily due to Equipment Supply being taxed as an S Corporation and High
Reach being taxed as an S Corporation for the three months ended December 31,
1997.
The effect of Rylan's conversion to an S Corporation in 1998 was for the
Company to recognize a deferred income tax benefit of approximately $2.9
million.
11. RETIREMENT PLANS
The Company participates in several defined contribution plans covering
substantially all nonunion employees. The Plans allow matching contributions
based on a percentage of the employees' contributions. The Company
contributions for the years ended December 31, 1997, 1996 and 1995 and the
three months ended March 31, 1998 and 1997 amounted to $139,572, $96,931,
$30,821, $44,951 and $36,023, respectively.
Additionally, the Company participates in a multi-employer plan that
provides defined contributions to the Company's union employees. For
collectively bargained, multi-employer pension plans, contributions are made
in accordance with negotiated labor contracts and generally are based on the
number of hours worked. With the passage of the Multi-Employer Pension Plan
Amendments Act of 1980 (the "Act"), the Company may, under certain
circumstances, become subject to liabilities in excess of contributions made
under collective bargaining agreements. Generally, these liabilities are
contingent upon the termination, withdrawal or partial withdrawal from the
plans. Company contributions for the years ended December 31, 1997, 1996 and
1995 and the three months ended March 31, 1998 and 1997 amounted to $96,737,
$75,930, $62,372, $28,465 and $12,415, respectively.
On January 1, 1998, the Company terminated its defined contribution plans
for Equipment Supply, High Reach and Rylan and established a combined defined
contribution plan covering substantially all nonunion employees. The plan
allows employees to make voluntary contributions processed through payroll
deductions. For the three months ended March 31, 1998, the Company contributed
approximately $51,700 to the Plan.
12. COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company leases various facilities under lease agreements, including
those with related parties. Some of these leases require the Company to pay
property taxes and other related costs.
F-15
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
Future minimum lease payments, by year, and in the aggregate for
noncancelable operating leases, including those with related parties, with
initial or remaining terms of one year or more are as follows at December 31,
1997:
<TABLE>
<CAPTION>
FACILITIES LEASES
YEAR ENDED (SUBSTANTIALLY WITH EQUIPMENT TOTAL OPERATING
DECEMBER 31, RELATED PARTIES) LEASES LEASES
------------ ------------------- ----------- ---------------
<S> <C> <C> <C>
1998....................... $ 2,120,949 $11,035,372 $13,156,321
1999....................... 1,938,559 10,001,175 11,939,734
2000....................... 1,921,804 7,768,161 9,689,965
2001....................... 1,917,196 6,567,617 8,484,813
2002....................... 1,912,170 4,870,393 6,782,563
Thereafter................. 876,000 -- 876,000
----------- ----------- -----------
$10,686,678 $40,242,718 $50,929,396
----------- ----------- -----------
</TABLE>
Rent expense under noncancelable operating leases for the years ended
December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and
1997 amounted to $10,210,657, $6,674,413, $1,179,277, $3,647,863 and
$3,073,931, respectively.
The following related party transactions including rent expense is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- -----------------
1997 1996 1995 1998 1997
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Rent expense................... $963,600 $756,000 $18,168 $264,000 $241,500
Other expense.................. 79,190 109,173 58,689 18,060 29,889
</TABLE>
The Company has guaranteed a personal loan of the stockholders, which is
included as a liability in the financial statements. The loan proceeds were
used to purchase Rylan (see Note 9).
From time to time, the Company is a defendant in various lawsuits incident
to the ordinary course of business. It is not possible to determine with any
precision the probable outcome or the amount of liability, if any, under these
lawsuits; however, in the opinion of the Company and its counsel, the
disposition of these lawsuits will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
13. FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for accounts receivable,
accounts payable and other liabilities approximate fair value due to the
immediate to short-term maturity of these financial instruments. The fair
value of debt approximates cost as interest rates approximate market.
14. SUPPLIER CONCENTRATION
During 1997, two suppliers accounted for approximately 73% of total
purchases and leased equipment costs. During 1996, three suppliers (of which
two were the same in 1997) accounted for approximately 84% of total purchases
and lease costs. During 1995, three suppliers (of which two were the same in
1996 and 1997) accounted for approximately 68% of total purchases and lease
costs.
F-16
<PAGE>
EQUIPMENT SUPPLY CO., INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997 IS UNAUDITED)
During 1997, volume activities with one vendor generated approximately $2
million in marketing rebates. Such amount has been recorded as other income.
15. SUBSEQUENT EVENT
Sale of Business Operations
Subsequent to December 31, 1997, the Company sold its principal business
operations, a substantial portion of its net assets and certain stock for
approximately $225 million.
Additionally, the Company anticipates paying approximately $1.5 million in
bonuses to certain of its employees.
F-17
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma consolidated balance sheet of the Company
as of March 31, 1998 gives effect to the acquisition of Power Rental Co., Inc.
("Power") and Equipment Supply Co., and affiliates ("Equipment Supply")
completed by the Company subsequent to such date and the financing of each such
acquisition, as if all such transactions had occurred on March 31, 1998.
The accompanying unaudited pro forma consolidated statements of operations of
the Company for the year ended December 31, 1997, gives effect to the
acquisition of Access Rentals, Inc. and affiliates, BNR Equipment Ltd. and
affiliates, Mission Valley Rentals, Inc., Power and Equipment Supply (the
"Acquired Companies") and the financing thereof, as if all such transactions had
occurred at the beginning of the period. The unaudited pro forma consolidated
statements of operations of the Company for the three months ended March 31,
1998, gives effect to the acquisition of Access Rentals, Inc. and affiliates,
Power and Equipment Supply and the financing thereof, 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.
F-18
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
EQUIPMENT
UNITED POWER SUPPLY CO., AND PRO FORMA PRO FORMA
RENTALS, INC. RENTAL CO., INC AFFILIATES ADJUSTMENTS CONSOLIDATED
------------- --------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash $ 54,785,007 $ 49,538 $ 2,253,311 $ (53,087,856) (a) $ 4,000,000
equivalents
Accounts receivable, net 31,443,000 6,468,737 14,599,776 52,511,513
Inventory 14,933,813 63,500 3,283,658 18,280,971
Rental equipment, net 140,743,703 37,807,396 117,008,554 (665,688) (b) 294,893,965
Property and equipment,
net 11,900,686 8,154,964 5,544,829 (199,793) (c) 25,400,686
Intangible assets, net 186,314,455 3,832,040 148,706,132 (d) 338,852,627
Prepaid expenses and
other assets 10,006,519 1,959,167 6,415,669 18,381,355
------------ ----------- ------------ ------------ ------------
TOTAL ASSETS $450,127,183 $54,503,302 $152,937,837 $ 94,752,795 $752,321,117
============ =========== ============ ============= ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 28,149,318 $ 3,565,505 $ 3,476,534 $ 35,191,357
Debt 26,494,068 34,932,278 99,593,562 $(134,525,840) (e) 286,948,576
260,454,508 (f)
Accrued expenses and
other liabilities 10,850,519 6,538,653 11,974,573 29,363,745
------------ ----------- ------------ ------------ ------------
TOTAL LIABILITIES 65,493,905 45,036,436 115,044,669 125,928,668 351,503,678
------------ ----------- ------------ ------------- -----------
Stockholders'
Equity
Common stock 333,137 20,010 1,500 (21,510) (g) 339,361
6,224 (h)
Additional paid-in
Capital 381,629,839 522,550 363,808 (886,358) (g) 397,807,776
16,177,937 (h)
Retained earnings
(deficit) 2,670,302 8,924,306 37,527,860 (46,452,166) (g) 2,670,302
------------ ----------- ------------ ------------- ------------
TOTAL STOCKHOLDERS'
EQUITY 384,633,278 9,466,866 37,893,168 (31,175,873) 400,817,439
------------ ----------- ------------ ------------- ------------
Total liabilities and
stockholders' equity $450,127,183 $54,503,302 $152,937,837 $94,752,795 $752,321,117
============ =========== ============ ============= ============
</TABLE>
F-19
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
UNITED ACCESS BNR GROUP MISSION VALLEY POWER
RENTALS, INC. RENTALS, INC. OF COMPANIES RENTALS, INC. RENTAL CO. INC.
-------------- ------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES
Equipment
Rentals $ 7,018,564 $42,316,423 $ 9,402,842 $7,852,751 $35,382,557
Sales of equipment
and merchandise and
other revenue 3,614,834 9,942,738 14,612,355 764,920 5,153,898
------------- ------------ ----------- ----------- -----------
Total revenues 10,633,398 52,259,161 24,015,197 8,617,671 40,536,455
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 3,203,009 12,415,655 4,662,325 3,436,601 12,677,711
Rental equipment
depreciation 1,038,947 8,480,016 1,588,710 1,746,340 9,706,225
Cost of sales and
other operating
expenses 2,580,162 8,861,832 10,360,520 517,661 3,648,399
------------- ----------- ----------- ---------- -----------
Total cost of
revenues 6,822,118 29,757,503 16,611,555 5,700,602 26,032,335
------------- ----------- ---------- ----------- -----------
Gross profit 3,811,280 22,501,658 7,403,642 2,917,069 14,504,120
Selling, general and
administrative
expenses 3,311,669 10,439,727 5,402,206 3,062,607 12,146,632
Non-rental
depreciation and
amortization 262,102 1,354,639 104,486 31,695 1,226,484
------------- ----------- ---------- ----------- -----------
Operating income (loss) 237,509 10,707,292 1,896,950 (177,233) 1,131,004
Interest expense 454,072 3,700,559 501,428 433,972 2,344,269
Other (income)
expense, net (270,701) (809,146) (61,269) (370,604)
------------- ----------- ---------- ----------- -----------
Income (loss) before
provision (benefit) for
income taxes 54,138 7,815,879 1,395,522 (549,936) (842,661)
Provision (benefit) for
income taxes 20,516 2,744,691 458,302 (72,801) 0
------------- ----------- ----------- ---------- -----------
Net income (loss) $ 33,622 $ 5,071,188 $ 937,220 $(477,135) $(842,661)
=========== =========== =========== ========== ===========
Basic earnings per $0.00
share =====
Diluted earnings per $0.00
share =====
</TABLE>
<TABLE>
<CAPTION>
EQUIPMENT
SUPPLY CO. AND PRO FORMA PRO FORMA
AFFILIATES ADJUSTMENTS CONSOLIDATED
--------------- ----------- ------------
<S> <C> <C> <C>
REVENUES
Equipment
Rentals
Sales of equipment
and merchandise and $78,141,502 $180,114,639
other revenue 16,416,661 50,505,406
----------- ------------
TOTAL REVENUES 94,558,163 230,620,045
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 23,509,529 59,904,830
Rental equipment
depreciation
Cost of sales and 20,397,030 $(7,903,828)(a) 35,053,440
other operating
expenses 11,362,048 37,330,622
----------- ------------ ------------
TOTAL COST OF
REVENUES 55,268,607 (7,903,828) 132,288,892
----------- ------------ ------------
Gross profit 39,289,556 7,903,828 98,331,153
Selling, general and
administrative
expenses 17,874,879 (6,591,388)(b) 46,306,551
Non-rental 660,219 (c)
depreciation and
amortization 878,342 5,388,647 (d) 9,246,395
----------- ------------ ------------
Operating income 20,536,335 8,446,350 42,778,207
Interest expense 11,185,934 (17,614,634)(e) 25,283,913
Other (income) 24,278,313 (f)
expense, net (2,858,438) (4,370,158)
----------- ------------ ------------
Income before
provision for
income taxes 12,208,839 1,782,671 21,864,452
Provision for income
taxes 1,242,142 4,571,575 (g) 8,964,425
----------- ------------ ------------
NET INCOME $10,966,697 $ (2,788,904) $ 12,900,027
=========== ============ ============
Basic earnings per $0.52
share =====
Diluted earnings per $0.49
share =====
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-20
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
EQUIPMENT
UNITED ACCESS POWER SUPPLY CO. PRO FORMA PRO FORMA
RENTALS, INC. RENTALS, INC. RENTAL CO., INC. AND AFFILIATES ADJUSTMENTS CONSOLIDATED
-------------- -------------- --------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Equipment
Rentals $26,779,850 $2,312,580 $ 6,294,665 $17,169,129 $52,556,224
Sales of equipment
and merchandise and
other revenue 12,410,316 841,485 1,555,176 3,777,435 18,584,412
---------- ---------- --------- ---------- ---------- ----------
TOTAL REVENUES 39,190,166 3,154,065 7,849,841 20,946,564 71,140,636
Cost of revenues
Cost of equipment
rentals, excluding
depreciation 11,221,504 1,131,353 3,415,560 6,170,748 21,939,165
Rental equipment
depreciation 4,583,832 401,688 2,987,280 5,356,340 $(1,924,998)(a) 11,404,142
Cost of sales and
other operating
expenses 9,231,322 741,458 637,889 2,780,698 13,391,367
---------- ---------- --------- ---------- ---------- ----------
TOTAL COST OF
REVENUES 25,036,658 2,274,499 7,040,729 14,307,786 (1,924,998) 46,734,674
----------- ----------- --------- ---------- ----------- ----------
GROSS PROFIT 14,153,508 879,566 809,112 6,638,778 1,924,998 24,405,962
Selling, general and
administrtive
expenses
Non-rental 7,806,931 835,763 3,200,016 5,589,848 (1,247,565)(b) 16,184,993
depreciation and
amortization
1,086,424 22,892 303,699 137,119 1,064,959 (d) 2,615,093
---------- --------- ---------- ---------- ----------- -----------
Operating income (loss) 5,260,153 20,911 (2,694,603) 911,811 2,107,604 5,605,876
Interest expense 1,172,718 147,387 631,587 2,360,419 (3,139,393)(e) 6,610,960
Other (income) 5,438,242 (f)
expense, net (380,703) (52,224) (94,971) (21,527) (549,425)
--------- --------- ---------- ----------- ----------- -------------
Income (loss) before
provision (benefit) for
income taxes 4,468,138 (74,252) (3,231,219) (1,427,081) (191,245) (455,659)
Provision (benefit) for
income taxes 1,829,787 (2,637,684) 621,077 (g) (186,820)
----------- ----------- ----------- ----------- ----------- -------------
NET INCOME (LOSS) $ 2,638,351 $ (74,252) $(3,231,219) $ 1,210,603 $ (812,322) $ (268,839)
=========== =========== =========== =========== ========== ==========
Basic earnings per
share $0.10 $(0.01)
Diluted earnings per ===== ======
share $0.09 $(0.01)
===== ======
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-21
<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 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 the pro forma consolidated
balance sheet represent the financial position of the Company, Power and
Equipment Supply as of March 31, 1998.
The historical financial data presented for the year ended December 31,
1997 in the pro forma consolidated statements of operations represent the
results of operations of (i) the Company for the period from August 14,
1997 (inception) to December 31, 1997 and (ii) each of the Acquired
Companies for the year ended December 31, 1997.
The historical financial data presented in the pro forma consolidated
statements of operations for the three months ended March 31, 1998
represent the results of operations of (i) the Company, Power and Equipment
Supply for the three months ended March 31, 1998 and (ii) Access Rentals,
Inc. and affiliate for the period from January 1, 1998 to January 21, 1998
(date of acquisition). BNR Group of Companies and Mission were acquired
effective January 1, 1998. Such data is derived from the respective
financial statements of the Company and each of the Acquired 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
The aggregate consideration paid by the Company for Power and Equipment
Supply (the "Acquisition Consideration") was $195.2 million and consisted
of approximately $179.0 million in cash and 496,063 shares of Common Stock.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of Power and Equipment Supply
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
Power and Equipment Supply:
F-22
<PAGE>
<TABLE>
<CAPTION>
EQUIPMENT
POWER SUPPLY CO., AND
RENTAL CO., INC. AFFILIATES TOTAL
--------------- ---------- -----
<S> <C> <C> <C>
Purchase price $61,509,001 $133,691,684 $195,200,685
Net assets acquired 9,466,866 37,893,168 47,360,034
Fair value adjustments:
Rental equipment 2,164,456 (2,830,144) (665,688)
Property and
Equipment (154,964) (44,829) (199,793)
--------------- --------------- ---------------
Intangibles recognized $50,032,643 $ 98,673,489 $148,706,132
=============== =============== ===============
</TABLE>
4. PRO FORMA ADJUSTMENTS
Balance sheet adjustments:
a. Records the portion of the 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 Acquisition Consideration over the estimated fair
value of net assets acquired.
e. Records the repayment of certain indebtedness of Power and Equipment Supply.
f. Records the portion of the Acquisition Consideration and debt repayment
funded by borrowing under the Company's Credit Facility.
g. Records the elimination of the stockholders' equity of Power and Equipment
Supply.
h. Records the portion of the Acquisition Consideration paid in the form of
Common Stock.
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%):
Rental equipment...............................2-10 years
Other property and equipment ..................2-15 years
b. Adjusts the compensation to former owners and executives of the Acquired
Companies to current levels of compensation.
F-23
<PAGE>
c. Adjusts the lease expense for real estate utilized by the Acquired Companies
to current lease agreements.
d. 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.
e. Eliminates interest expense related to the outstanding indebtedness of the
Acquired Companies which was repaid by the Company.
f. Records interest expense relating to the portion of the Acquisition
Consideration funded through borrowing under the Company's Credit Facility
using a rate per annum of 7%.
g. Records a provision for income taxes at an estimated rate of 41%.
5. EARNINGS PER SHARE
Earnings per share is calculated by dividing the net income by the weighted
average outstanding shares during the period. The weighted average
outstanding shares during the periods are calculated as follows:
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
Basic:
Shares outstanding 23,899,119 33,313,708
Shares issued for acquisitions 866,384 496,063
---------- ----------
24,765,503 33,809,771
========== ==========
Dilutive:
Shares outstanding 23,899,119 33,313,708
Shares issued for acquisitions 866,384 496,063
Common stock equivalents (based on the initial public 1,792,942 4,165,446
offering price of $13.50 per share for 1997) ---------- ----------
26,558,445 37,975,217
========== ==========
</TABLE>
F-24
