<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________to___________________
Commission File No. 1-14387
United Rentals, Inc.
Commission File No. 1-13663
United Rentals (North America), Inc.
(Exact names of registrants as specified in their charters)
<TABLE>
<S> <C>
Delaware 06-1522496
Delaware 06-1493538
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Nos.)
Four Greenwich Office Park,
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
</TABLE>
(203) 622-3131
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
X Yes No___
---
As of November 1, 1999, there were 72,050,170 shares of the United Rentals,
Inc. common stock, $.01 par value, outstanding. There is no market for the
common stock of United Rentals (North America), Inc., all outstanding shares
of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and
(ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary
of United Rentals, Inc.). United Rentals (North America), Inc. meets the
conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and
is therefore filing this form with the reduced disclosure format permitted by
such instruction.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1 Unaudited Consolidated Financial Statements
United Rentals, Inc. Consolidated Balance Sheets as of
September 30, 1999 and
December 31, 1998 (unaudited)................................. 5
United Rentals, Inc. Consolidated Statements of Operations for
the Nine and Three Months Ended September 30, 1999 and 1998
(unaudited)................................................... 6
United Rentals, Inc. Consolidated Statement of Stockholders'
Equity for the Nine Months Ended September 30, 1999
(unaudited)................................................... 7
United Rentals, Inc. Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1999 and 1998
(unaudited)................................................... 8
United Rentals (North America), Inc. Consolidated Balance
Sheets as of September 30, 1999
and December 31, 1998 (unaudited)............................. 9
United Rentals (North America), Inc. Consolidated Statements of
Operations for the
Nine and Three Months Ended September 30, 1999 and 1998
(unaudited)................................................... 10
United Rentals (North America), Inc. Consolidated Statement of
Stockholder's Equity for the Nine Months Ended September 30,
1999 (unaudited).............................................. 11
United Rentals (North America), Inc. Consolidated Statements of
Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 (unaudited)..... 12
Notes to Unaudited Consolidated Financial Statements........... 13
Management's Discussion and Analysis of Financial Condition and
Item 2 Results of Operations......................................... 25
Item 3 Quantitative and Qualitative Disclosures about Market Risk..... 36
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................. 36
Item 2 Changes in Securities and Use of Proceeds...................... 36
Item 4 Submission of Matters to a Vote of Security Holders............ 39
Item 6 Exhibits and Reports on Form 8-K............................... 40
Signatures..................................................... 42
</TABLE>
<PAGE>
Certain of the statements contained in this Report are forward looking in
nature. Such statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy. You are cautioned that our business and operations
are subject to a variety of risks and uncertainties and, consequently, our
actual results may materially differ from those projected by any forward-
looking statements. Certain of these factors are discussed in Item 2 of Part I
of this Report under the caption "--Factors that May Influence Future Results
and Accuracy of Forward-Looking Statements." We make no commitment to revise
or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.
UNITED RENTALS
United Rentals is the largest equipment rental company in North America with
664 branch locations in 44 states, six Canadian provinces and Mexico. We offer
for rent over 600 different types of equipment on a daily, weekly or monthly
basis and serve customers that include construction industry participants,
industrial companies and homeowners. We also sell used rental equipment, act
as a dealer for many types of new equipment, and sell related merchandise and
parts. In the past year, we have served over one million customers.
We have one of the most comprehensive and newest fleets in the equipment
rental industry. The types of equipment that we offer include a broad range of
light to heavy construction and industrial equipment, such as backhoes, aerial
lifts, skid-steer loaders, forklifts, compressors, pumps and generators, as
well as a variety of smaller tools and equipment. Our equipment fleet has an
original purchase price of approximately $2.8 billion and a weighted average
age of approximately 25 months (based on original purchase price).
We began operations in October 1997 and have grown through a combination of
internal growth, acquisitions and the opening of new rental locations. We have
an ongoing acquisition program and have completed 182 acquisitions through
October 28, 1999, including our merger with U.S. Rentals, Inc. ("U.S.
Rentals") in September 1998. At the time of the merger, U.S. Rentals was the
second largest equipment rental company in the United States based on 1997
rental revenues.
COMPETITIVE ADVANTAGES
We believe that we benefit from the following competitive advantages:
Full Range of Rental Equipment. We have the largest and most comprehensive
equipment rental fleet in the industry, which enables us to:
. attract customers by providing the benefit of "one-stop" shopping;
. serve a diverse customer base, which reduces our dependence on any
particular customer or group of customers;
. serve large customers that require assurance that substantial quantities
of different types of equipment will be available as required on a
continuing basis;
. minimize lost sales due to equipment being unavailable; and
. serve attractive specialty equipment rental markets, such as aerial work
platforms, trench shoring and highway safety.
Operating Efficiencies. We generally group our branches into clusters of 10
to 30 locations that are in the same geographic area. Our information
technology systems enable each branch to track equipment at other branches and
to access all available equipment within a cluster. We believe that our
cluster strategy produces significant operating efficiencies by enabling us
to:
. market the equipment within a cluster through multiple branches, rather
than a single branch, which increases our equipment utilization rate;
. cross-market the equipment specialties of different branches within each
cluster, which increases revenues without increasing marketing expenses;
1
<PAGE>
. reduce costs by centralizing common functions such as payroll, accounts
payable and credit and collection into 36 credit offices and service
centers; and
. consolidate overlapping operations to better serve our customers.
In the third quarter of 1999, approximately 9.5% of our rental revenue was
attributable to equipment sharing among branches.
Significant Purchasing Power. We have significant purchasing power because
of our volume purchases. As a result, we can generally buy new equipment and
related merchandise and parts at prices that are significantly lower than
prices paid by smaller companies. We can also buy many other products and
services--such as insurance, telephone and fuel--at attractive rates.
Information Technology Systems. We have modern information technology
systems which facilitate decision-making and enable us to respond to changing
market conditions. These systems provide management with a wide range of
operating and financial data, including reports on inventory, receivables,
customers, vendors, fleet utilization and price and sales trends. These
systems are designed to enable branch personnel to search for needed equipment
throughout a geographic region, determine its closest location and arrange for
delivery to a customer's work site. These systems include software developed
by our Wynne Systems subsidiary, which is the leading provider of proprietary
software for use by equipment rental companies in managing and operating
multiple branch locations. We have an in-house staff of specialists that
supports our information technology systems and extends the systems to new
locations.
Customer Diversity. Our customer base is highly diversified and ranges from
Fortune 100 companies to small contractors and homeowners. We estimate that
our top ten customers accounted for approximately 1% of our revenues during
1998 (on a pro forma basis as if the acquisitions that we completed in 1998
and 1999 had been completed at the beginning of 1998).
Geographic Diversity. We have branches in 44 states, six Canadian provinces
and Mexico. We believe that our geographic diversity should reduce the impact
that fluctuations in regional economic conditions have on our overall
financial performance. Our geographic diversity and large network of branch
locations also give us the ability to serve national accounts and access used
equipment re-sale markets across the country.
Experienced Senior Management. Our senior management combines individuals
who have extensive operating experience in the equipment rental industry--
including former executives and managers of U.S. Rentals--with executives who
have proven track records in a number of other industries.
Strong and Motivated Branch Management. Each of our branches has a full-time
branch manager who is supervised by one of our 53 district managers and eight
regional vice presidents. We believe that our branch and district managers,
who average over 20 years of experience in the equipment rental industry, are
among the most knowledgeable and experienced in the industry. We encourage
entrepreneurship at the branch level by giving branch managers a high degree
of autonomy relating to day-to-day operations. For example, each branch
manager is empowered to make decisions--within budgetary guidelines--
concerning staffing, pricing and equipment purchasing. We also promote
entrepreneurship at the branch level, as well as equipment sharing among
branches, through our profit sharing program which directly ties the
compensation of branch personnel to their branch's financial performance. We
balance the autonomy that we grant branch managers with systems and controls,
including detailed monthly operating reviews, through which senior management
closely tracks branch performance. We also share information across branches
so that each branch can measure its operating performance relative to other
branches and benefit from the best practices developed throughout our
organization.
Professional Acquisition Team. Our 25-person acquisition team is engaged in
identifying and evaluating acquisition candidates and executing our
acquisition program. The core of this group consists of seasoned acquisition
professionals. The team also includes former owners of businesses that we
acquired, who have extensive industry experience and contacts with potential
acquisition candidates.
2
<PAGE>
GROWTH STRATEGY
Our plan for future growth includes the following key elements:
Continue Strong Internal Growth. We are seeking to sustain our strong
internal growth by:
. increasing the cross-marketing of our equipment specialties at different
locations;
. increasing our advertising and marketing--which become increasingly
cost-effective as we grow because the benefits are spread over a larger
number of branches;
. expanding our national accounts program--which dedicates a portion of
our sales force to establishing and expanding relationships with large
customers that have a national or multi-regional presence;
. increasing our rentals to industrial companies by developing a
comprehensive marketing program specifically aimed at this sector; and
. expanding and modernizing our equipment fleet.
Execute Disciplined Acquisition Program. We intend to continue our
disciplined acquisition program. We generally seek to acquire multiple
locations within the regions that we enter, with the goal of creating clusters
of locations that can share various resources, including equipment, marketing
resources, back office functions and certain equipment delivery. We are
seeking to acquire companies of varying sizes, including relatively large
companies to serve as platforms for new regional clusters and smaller
companies to complement existing or anticipated locations. In considering
whether to buy a company, we evaluate a number of factors, including purchase
price, anticipated impact on earnings, 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.
Open New Rental Locations. Because most of the businesses that we acquired
grew through developing start-up rental locations, many of our managers have
substantial experience in this area. We intend to leverage this experience by
selectively opening new rental locations in attractive markets where there are
no suitable acquisition targets available or where the economics of a start-up
location are more attractive than buying an existing business.
Increase Cost Savings. We work to reduce costs by efficiently integrating
new and existing operations, eliminating duplicative costs, centralizing
common functions, consolidating locations that serve the same areas, and using
our purchasing power to negotiate discounts from suppliers.
Continue to Emphasize Management Systems and Controls. We intend to further
strengthen our management systems and controls, which currently include:
. an audit group that is responsible for ensuring that we have adequate
financial, operating, and management information controls throughout our
organization;
. a team of regional and district controllers that monitors each branch
for compliance with financial and accounting procedures established at
corporate headquarters; and
. a risk management and safety department that is responsible for: (1)
developing and implementing safety programs and procedures, (2)
developing our customer and employee training programs and (3)
investigating and managing any claims that may be asserted against us.
INDUSTRY BACKGROUND
Industry Size and Growth
We estimate that the U.S. equipment rental industry generates annual rental
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 25.2% from 1993 through 1998 (based upon
revenues,
3
<PAGE>
reported by the Rental Equipment Register, an industry trade publication). In
addition to reflecting general economic growth, we believe that the growth in
the equipment rental industry is being driven by the following trends:
Recognition of Advantages of Renting. Equipment users are increasingly
recognizing the many advantages that equipment rental may offer compared
with ownership. They recognize that by renting they can:
. avoid the large capital investment required for equipment purchases;
. reduce storage and maintenance costs;
. supplement owned equipment thereby increasing the range and number
of jobs that can be worked on;
. access a broad selection of equipment and select the equipment best
suited for each particular job;
. obtain equipment as needed and minimize the costs associated with
idle equipment; and
. access the latest technology without investing in new equipment.
These advantages frequently allow equipment users to reduce their overall
costs by renting rather than buying equipment.
Increase in Rentals by Contractors. 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.
Outsourcing by Industrial and Other Equipment Users. Although growth in
the equipment rental industry has to date been largely driven by the
increase in rentals by the construction industry, we believe that other
equipment users may increasingly contribute to future industry growth. For
example, many industrial companies require equipment for operating,
repairing, maintaining and upgrading their facilities, and renting this
equipment will often be more cost-effective than purchasing because
typically this equipment is not used full-time. We believe that the cost
and other advantages of renting, together with the general trend toward the
corporate outsourcing of non-core competencies, may increasingly lead
industrial companies to rent equipment. We also believe that these same
considerations may lead other equipment users--such as municipalities,
government agencies and utilities--to increasingly rent equipment. Because
the penetration of these markets by the equipment rental industry is very
low in comparison to its penetration of the construction market, we believe
there is significant potential for additional growth in these markets.
Industry Fragmentation
The equipment rental industry remains highly fragmented. It consists of a
small number of multi-location regional or national operators and a large
number of relatively small, independent businesses that serve discrete local
markets. This fragmentation is reflected in the following data:
. in 1998, there were only 12 equipment rental companies that had
equipment rental revenues in excess of $100 million and approximately
100 equipment rental companies that had equipment rental revenues
between $5 million and $100 million (based upon rental revenues for 1998
as provided by the Rental Equipment Register, an industry trade
publication);
. we estimate that there are more than 20,000 companies with annual
equipment rental revenues of less than $5 million; and
. we estimate that the 100 largest equipment rental companies combined
have less than a 25% share of the market.
We believe 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. We also
believe that our management team's extensive experience in acquiring and
effectively integrating acquisition targets should enable us to capitalize on
these opportunities.
4
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- ----------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............. $ 31,071 $ 20,410
Accounts receivable, net of allowance
for doubtful accounts of $56,170 in
1999 and $41,201 in 1998.............. 455,791 233,282
Inventory.............................. 160,287 70,994
Prepaid expenses and other assets...... 132,675 59,395
Rental equipment, net.................. 1,771,209 1,143,006
Property and equipment, net............ 286,983 185,511
Intangible assets, net of accumulated
amortization of $40,889 in 1999 and
$14,520 in 1998....................... 1,687,934 922,065
---------------- ----------------
$ 4,525,950 $ 2,634,663
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable..................... $ 353,470 $ 121,940
Debt................................. 2,214,589 1,314,574
Deferred income taxes................ 89,123 43,560
Accrued expenses and other
liabilities......................... 215,560 128,359
---------------- ----------------
Total liabilities.................. 2,872,742 1,608,433
Commitments and contingencies
Company-obligated mandatorily
redeemable convertible preferred
securities of a subsidiary trust...... 300,000 300,000
Stockholders' equity:
Preferred stock--$.01 par value,
5,000,000 shares authorized:........
Series A perpetual convertible
preferred stock--$300,000
liquidation preference, 300,000
shares issued and outstanding in
1999............................... 3
Series B perpetual convertible
preferred stock--$150,000
liquidation preference, 150,000
shares issued and outstanding in
1999............................... 2
Common stock--$.01 par value,
500,000,000 shares authorized in
1999 and 1998, 72,048,272 in 1999
and 68,427,999 in 1998 shares issued
and outstanding..................... 720 684
Additional paid-in capital........... 1,217,497 689,018
Retained earnings.................... 135,128 36,809
Accumulated other comprehensive
income.............................. (142) (281)
---------------- ----------------
Total stockholders' equity......... 1,353,208 726,230
---------------- ----------------
$ 4,525,950 $ 2,634,663
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
---------- --------- -------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals.................. $1,112,244 $ 592,502 $468,942 $ 282,818
Sales of rental equipment.......... 159,803 73,703 72,609 30,481
Sales of equipment and merchandise
and other revenues................ 292,542 138,057 127,067 65,775
---------- --------- -------- ---------
Total revenues...................... 1,564,589 804,262 668,618 379,074
Cost of revenues:
Cost of equipment rentals,
excluding depreciation............ 476,321 263,529 197,175 119,594
Depreciation of rental equipment... 200,761 119,970 76,694 52,953
Cost of rental equipment sales..... 92,457 39,820 42,538 17,261
Cost of equipment and merchandise
sales and other operating costs... 220,016 106,893 95,232 50,549
---------- --------- -------- ---------
Total cost of revenues.............. 989,555 530,212 411,639 240,357
---------- --------- -------- ---------
Gross profit........................ 575,034 274,050 256,979 138,717
Selling, general and administrative
expenses........................... 248,194 128,763 98,333 60,413
Merger-related expenses ............ 42,216 42,216
Non-rental depreciation and
amortization....................... 43,208 23,693 16,688 11,201
---------- --------- -------- ---------
Operating income.................... 283,632 79,378 141,958 24,887
Interest expense.................... 93,541 39,170 42,235 23,924
Preferred dividends of a subsidiary
trust.............................. 14,625 2,979 4,875 2,979
Other (income) expense, net......... 8,804 (4,524) (420) (291)
---------- --------- -------- ---------
Income (loss) before provision for
income taxes and extraordinary
item............................... 166,662 41,753 95,268 (1,725)
Provision for income taxes.......... 68,343 25,229 39,060 8,431
---------- --------- -------- ---------
Income (loss) before extraordinary
item............................... 98,319 16,524 $ 56,208 (10,156)
Extraordinary item, net of income
taxes of $14,255................... 21,337 21,337
---------- --------- -------- ---------
Net income (loss)................... $ 98,319 $ (4,813) $ 56,208 $ (31,493)
========== ========= ======== =========
Basic earnings per share:
Income (loss) before extraordinary
item.............................. $ 1.39 $ 0.26 $ 0.78 $ (0.15)
Extraordinary item, net............ (0.33) (0.31)
---------- --------- -------- ---------
Net income (loss).................. $ 1.39 $ (0.07) $ 0.78 $ (0.46)
========== ========= ======== =========
Diluted earnings per share:
Income (loss) before extraordinary
item.............................. $ 1.06 $ 0.23 $ 0.60 $ (0.13)
Extraordinary item, net............ (0.30) (0.28)
---------- --------- -------- ---------
Net income (loss).................. $ 1.06 $ (0.07) $ 0.60 $ (0.41)
========== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Series A Series B
Perpetual Convertible Perpetual Convertible
Preferred Stock Preferred Stock Common Stock
---------------------- --------------------- -----------------
Additional
Number of Number of Number of Paid-in Retained Comprehensive
Shares Amount Shares Amount Shares Amount Capital Earnings Income
------------ --------- ------------ --------- ---------- ------ ---------- -------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1998........... 68,427,999 $684 $ 689,018 $ 36,809
Comprehensive
income:
Net income..... 98,319 $98,319
Other
comprehensive
income:
Foreign
currency
translation
adjustments... 139
-------
Comprehensive
income......... $98,458
=======
Issuance of
Series A
perpetual
convertible
preferred
stock.......... 300,000 $ 3 286,997
Issuance of
Series B
perpetual
convertible
preferred
stock.......... 150,000 $ 2 143,798
Issuance of
common stock... 2,289,670 23 65,225
Exercise of
common
stock options.. 1,330,603 13 32,459
----------- --------- ----------- --------- ---------- ---- ---------- --------
Balance, September 30, 1999.. 300,000 $ 3 150,000 $ 2 72,048,272 $720 $1,217,497 $135,128
=========== ========= =========== ========= ========== ==== ========== ========
<CAPTION>
Accumulated
Other
Comprehensive
Income
-------------
<S> <C>
Balance,
December 31,
1998........... $(281)
Comprehensive
income:
Net income.....
Other
comprehensive
income:
Foreign
currency
translation
adjustments... 139
Comprehensive
income.........
Issuance of
Series A
perpetual
convertible
preferred
stock..........
Issuance of
Series B
perpetual
convertible
preferred
stock..........
Issuance of
common stock...
Exercise of
common
stock options..
-------------
Balance, September 30, 1999.. $(142)
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)..................................... $ 98,319 $ (4,813)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 243,969 143,663
Amortization of original issue discount and deferred
financing fees...................................... 3,122 527
Gain on sale of rental equipment..................... (67,346) (33,883)
Gain on sale of business............................. (3,644)
Extraordinary item................................... 35,592
Write down of assets held for sale................... 4,040
Deferred income taxes................................ 44,257 402
Changes in operating assets and liabilities:
Accounts receivable.................................. (116,783) (59,718)
Inventory............................................ (23,242) (9,414)
Prepaid expenses and other assets.................... (55,066) 10,272
Accounts payable..................................... 176,425 68,161
Accrued expenses and other liabilities............... 61,440 53,269
---------- ----------
Net cash provided by operating activities........ 365,095 204,454
Cash Flows From Investing Activities:
Purchases of rental equipment......................... (580,496) (423,073)
Purchases of property and equipment................... (75,770) (66,134)
Proceeds from sale of rental equipment................ 159,803 73,703
In-process acquisition costs.......................... (2,206) (4,413)
Payments of contingent purchase price................. (7,194) (2,617)
Purchases of other companies.......................... (905,267) (833,297)
---------- ----------
Net cash used in investing activities............ (1,411,130) (1,255,831)
Cash Flows From Financing Activities:
Proceeds from the issuance of common stock, net of
issuance costs....................................... 65,198 206,456
Proceeds from the issuance of Series A Preferred, net
of issuance costs.................................... 287,000
Proceeds from the issuance of Series B Preferred, net
of issuance costs.................................... 143,800
Proceeds from the issuance of redeemable convertible
preferred securities................................. 300,000
Proceeds from debt.................................... 2,105,702 1,934,137
Payments of debt...................................... (1,560,683) (1,410,122)
Payments of debt financing costs...................... (11,341) (26,711)
Proceeds from the exercise of common stock options.... 27,020 537
Subchapter S distributions of a pooled entity......... (3,536)
---------- ----------
Net cash provided by financing activities........ 1,056,696 1,000,761
---------- ----------
Net increase (decrease) in cash and cash equivalents.. 10,661 (50,616)
Cash and cash equivalents at beginning of period...... 20,410 72,411
---------- ----------
Cash and cash equivalents at end of period............ $ 31,071 $ 21,795
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 79,242 $ 17,795
Cash paid for income taxes............................ $ 15,870 $ 9,679
Supplemental disclosure 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......................... $1,355,288 $1,335,091
Liabilities assumed.................................. (440,626) (441,120)
Less:
Amounts paid in common stock and warrants.......... (60,674)
Amounts paid through issuance of debt.............. (9,395)
---------- ----------
Net cash paid.................................... $ 905,267 $ 833,297
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(In thousands, except
share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 38,552 $ 20,410
Accounts receivable, net of allowance for doubtful
accounts of $56,170 in 1999 and $41,201 in 1998.... 455,791 233,282
Inventory........................................... 160,287 70,994
Prepaid expenses and other assets................... 79,326 43,176
Rental equipment, net............................... 1,771,209 1,143,006
Property and equipment, net......................... 265,969 170,537
Intangible assets, net of accumulated amortization
of $40,889 in 1999 and $14,520 in 1998............. 1,687,934 922,065
---------- ----------
$4,459,068 $2,603,470
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable.................................. $ 313,823 $ 108,426
Debt.............................................. 2,214,589 1,314,574
Deferred income taxes............................. 89,123 43,560
Accrued expenses and other liabilities............ 203,056 115,558
---------- ----------
Total liabilities............................... 2,820,591 1,582,118
Commitments and contingencies
Stockholder's equity:
Common stock--$0.01 par value, 3,000 shares
authorized, 1,000 shares issued and outstanding..
Additional paid-in capital........................ 1,507,314 984,345
Retained earnings................................. 131,305 37,288
Accumulated other comprehensive income............ (142) (281)
---------- ----------
Total stockholder's equity...................... 1,638,477 1,021,352
---------- ----------
$4,459,068 $2,603,470
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- --------------------
1999 1998 1999 1998
---------- -------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals................. $1,112,244 $592,502 $ 468,942 $ 282,818
Sales of rental equipment......... 159,803 73,703 72,609 30,481
Sales of equipment and merchandise
and other revenues............... 292,542 138,057 127,067 65,775
---------- -------- --------- ---------
Total revenues..................... 1,564,589 804,262 668,618 379,074
Cost of revenues:
Cost of equipment rentals,
excluding depreciation........... 476,321 263,529 197,175 119,594
Depreciation of rental equipment.. 200,761 119,970 76,694 52,953
Cost of rental equipment sales.... 92,457 39,820 42,538 17,261
Cost of equipment and merchandise
sales and other operating costs.. 220,016 106,893 95,232 50,549
---------- -------- --------- ---------
Total cost of revenues............. 989,555 530,212 411,639 240,357
---------- -------- --------- ---------
Gross profit....................... 575,034 274,050 256,979 138,717
Selling, general and administrative
expenses.......................... 248,194 128,763 98,333 60,413
Merger-related expenses............ 42,216 42,216
Non-rental depreciation
amortization...................... 40,828 23,693 15,971 11,201
---------- -------- --------- ---------
Operating income................... 286,012 79,378 142,675 24,887
Interest expense................... 93,400 39,170 42,094 23,924
Other (income) expense, net........ 8,650 (4,524) (332) (291)
---------- -------- --------- ---------
Income before provision for income
taxes and extraordinary item...... 183,962 44,732 100,913 1,254
Provision for income taxes......... 75,320 26,450 41,360 9,652
---------- -------- --------- ---------
Income (loss) before extraordinary
item.............................. 108,642 18,282 59,553 (8,398)
Extraordinary item, net of income
taxes of $14,255.................. 21,337 21,337
---------- -------- --------- ---------
Net income (loss).................. $ 108,642 $ (3,055) $ 59,553 $ (29,735)
========== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
---------------- Additional Accumulated
Number Paid-In Retained Comprehensive Other Comprehensive
of Shares Amount Capital Earnings Income Income
--------- ------ ---------- -------- ------------- -------------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998................... 1,000 $ 984,345 $ 37,288 $(281)
Comprehensive income:
Net income............. 108,642 $108,642
Other comprehensive
income:
Foreign currency
translation
adjustments.......... 139 139
--------
Comprehensive income.... $108,781
========
Contributed capital from
parent................. 522,969
Dividend distributions
to parent.............. (14,625)
----- --- ---------- -------- -----
Balance, September 30,
1999................... 1,000 $1,507,314 $131,305 $(142)
===== === ========== ======== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)................................... $ 108,642 $ (3,055)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization...................... 241,589 143,663
Amortization of original issue discount and
deferred financing fees........................... 2,964 527
Gain on sale of rental equipment................... (67,346) (33,883)
Gain on sale of business........................... (3,644)
Extraordinary item................................. 35,592
Writedown of assets held for sale.................. 4,040
Deferred income taxes.............................. 44,257 402
Changes in operating assets and liabilities:
Accounts receivable................................ (116,783) (59,718)
Inventory.......................................... (23,242) (9,414)
Prepaid expenses and other assets.................. (38,460) 24,932
Accounts payable................................... 150,292 58,039
Accrued expenses and other liabilities............. 56,235 43,906
----------- -----------
Net cash provided by operating activities........ 358,148 201,387
Cash Flows From Investing Activities:
Purchases of rental equipment....................... (580,496) (423,073)
Purchases of property and equipment................. (46,668) (53,997)
Proceeds from sale of rental equipment.............. 159,803 73,703
In-process acquisition costs........................ (2,206) (4,413)
Payments of contingent purchase price............... (7,194) (2,617)
Purchases of other companies........................ (905,267) (833,297)
----------- -----------
Net cash used in investing activities............ (1,382,028) (1,243,694)
Cash Flows From Financing Activities:
Proceeds from debt.................................. 2,105,702 1,934,137
Payments of debt.................................... (1,560,683) (1,410,122)
Payments of debt financing costs.................... (11,341) (26,711)
Capital contributions by parent..................... 522,969 497,921
Dividend distributions to parent.................... (14,625)
Subchapter S distributions of a pooled entity....... (3,536)
----------- -----------
Net cash provided by financing activities........ 1,042,022 991,689
----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 18,142 (50,618)
Cash and cash equivalents at beginning of period.... 20,410 72,411
----------- -----------
Cash and cash equivalents at end of period.......... $ 38,552 $ 21,793
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest.............................. $ 79,242 $ 17,795
Cash paid for income taxes.......................... $ 15,870 $ 9,679
Supplemental disclosure 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....................... $ 1,355,288 $ 1,335,091
Liabilities assumed................................ (440,626) (441,120)
Less:
Amounts paid in common stock and warrants........ (60,674)
Amounts paid through issuance of debt............ (9,395)
----------- -----------
Net cash paid.................................. $ 905,267 $ 833,297
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
General
United Rentals, Inc., is principally a holding company ("Holdings") and
conducts its operations primarily through its wholly owned subsidiary United
Rentals (North America), Inc. ("URI") and subsidiaries of URI. URI was
incorporated in August 1997, initially capitalized in September 1997 and
commenced equipment rental operations in October 1997. Holdings was
incorporated in July 1998 and became the parent of URI on August 5, 1998,
pursuant to the reorganization of the legal structure of URI. Prior to such
reorganization, the name of URI was United Rentals, Inc. References herein to
"United Rentals" or the "Company" refer to Holdings and its subsidiaries, with
respect to periods following the reorganization, and to URI and its
subsidiaries, with respect to periods prior to the reorganization. Separate
footnote information is not presented for the financial statements of URI and
subsidiaries as that information is substantially equivalent to that presented
below. Earnings per share data is not provided for the operating results of
URI and its subsidiaries as they are wholly owned subsidiaries of Holdings.
The Consolidated Financial Statements of the Company included herein are
unaudited and, in the opinion of management, such financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the results of the interim periods presented. Interim financial
statements do not require all disclosures normally presented in year-end
financial statements, and, accordingly, certain disclosures have been omitted.
Results of operations for the nine and three month periods ended September 30,
1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. The Consolidated Financial Statements
included herein should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities. The Company is required to
adopt SFAS No. 133 beginning January 1, 2001. The adoption of SFAS No. 133 is
not expected to have a material effect on the Company's consolidated financial
position or results of operations.
2.Acquisitions
Acquisitions Accounted for as Poolings-of-Interests
On August 24, 1998, the Company issued 2,744,368 shares of its common stock
for all of the outstanding shares of common stock of Rental Tools and
Equipment Co. This transaction was accounted for as a pooling-of-interests.
On September 24, 1998, the Company issued 1,456,997 shares of its common
stock for all of the outstanding shares of common stock of Wynne Systems, Inc.
This transaction was accounted for as a pooling-of-interests; however, this
transaction was not material to the Company's consolidated operations and
financial position and, therefore, the Company's financial statements have not
been restated for this transaction but have been combined beginning July 1,
1998.
On September 29, 1998, a merger (the "Merger") of United Rentals, Inc. and
U.S. Rentals, Inc. ("U.S. Rentals") was completed. The Merger was effected by
having a wholly owned subsidiary of United Rentals, Inc. merge with and into
U.S. Rentals. Following the Merger, United Rentals, Inc. contributed the
capital stock
13
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of U.S. Rentals to URI, a wholly owned subsidiary of United Rentals, Inc.
Pursuant to the Merger, each outstanding share of common stock of U.S. Rentals
was converted into the right to receive 0.9625 of a share of common stock of
United Rentals, Inc. An aggregate of approximately 29.6 million shares of
United Rentals, Inc. common stock were issued in the Merger in exchange for
the outstanding shares of U.S. Rentals common stock. The Merger was accounted
for as a pooling-of-interests.
Acquisitions Accounted for as Purchases
During the nine months ended September 30, 1999, the Company completed 89
acquisitions that were accounted for as purchases. The results of operations
of the businesses acquired in these acquisitions have been included in the
Company's results of operations from their respective acquisition dates.
The aggregate initial consideration paid by the Company for such
acquisitions that were accounted for as purchases was $832.5 million and
consisted of approximately $823.1 million in cash and $9.4 million in seller
notes. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in such acquisitions in the aggregate amount of $350.4
million. The Company also agreed in connection with three of such acquisitions
to pay additional amounts to the former owners based upon specified future
revenues and/or new store openings. Such amounts are limited to a specified
maximum amount which varies from $100,000 to $200,000, with the average being
$133,000.
The purchase prices for such acquisitions have been allocated to the assets
acquired and liabilities assumed based on their respective fair values at
their respective acquisition dates. However, the Company has not completed its
valuation of all of its purchases and, accordingly, 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 results
of operations of the Company for the nine months ended September 30, 1999 and
1998 as though (i) each acquisition summarized above which was consummated
during the nine months ended September 30, 1999, was made on January 1, 1999,
in the case of the results for the nine months ended September 30, 1999, and
(ii) each acquisition which was consummated during the period January 1, 1998
to September 30, 1999 as described above and in Note 3 to the Notes to
Consolidated Financial Statements included in the Company's 1998 Annual Report
on Form 10-K was made on January 1, 1998 in the case of the results for the
nine months ended September 30, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues............................................ $1,879,556 $1,601,945
Income before extraordinary item.................... 103,032 38,918
Basic earnings per share............................ $ 1.45 $ 0.57
Diluted earnings per share.......................... $ 1.11 $ 0.52
</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.
3. Revolving Credit Facility
URI obtained a credit facility (the "Credit Facility") dated as of September
29, 1998, with a group of financial institutions. The Credit Facility enables
URI to borrow up to $772.5 million on a revolving basis and
14
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
permits a Canadian subsidiary of URI to directly borrow up to $40 million
under the Credit Facility (provided that the aggregate borrowings of URI and
the Canadian subsidiary do not exceed $772.5 million). The Credit Facility
terminates on September 26, 2003, at which time all outstanding indebtedness
is due. The amount of indebtedness outstanding under the Credit Facility was
$499.0 million at September 30, 1999.
4. Term Loan
URI obtained a $450 million term loan dated as of July 15, 1999 from a group
of financial institutions (the "Term Loan C"). The Term Loan C was increased
to $600 million in November 1999 and matures in June 2006. URI used the net
proceeds from the Term Loan C to repay a portion of the outstanding
indebtedness under the Company's Credit Facility. Prior to maturity, quarterly
installments of principal in the amount of $1.5 million are due on the last
day of each calendar quarter, commencing September 30, 2000. The amount due at
maturity is $565.5 million. The Term Loan C accrues interest, at URI's option,
at either (a) the Base Rate (which is equal to the greater of (i) the Federal
Funds Rate plus 0.5% or (ii) Bank of America's referenced rate) plus a margin
of 0.625% per annum, or (b) the Eurodollar Rate (which for borrowings by URI
is equal to Bank of America's reserve adjusted eurodollar rate) plus a margin
of 2.50% per annum.
5.Senior Subordinated Notes
On March 23, 1999, URI issued $250 million aggregate principal amount of 9%
Senior Subordinated Notes which are due April 1, 2009. URI used approximately
$102.0 million of the net proceeds from the sale of such notes to repay all of
the then outstanding indebtedness under the Credit Facility and used the
balance of such net proceeds from this offering for acquisitions, capital
expenditures and general corporate purposes.
6. Series A Perpetual Convertible Preferred Stock
On January 7, 1999, Holdings sold 300,000 shares of its Series A Perpetual
Convertible Preferred Stock ("Series A Preferred"). The net proceeds from the
sale of the Series A Preferred were approximately $287.0 million. Holdings
contributed such net proceeds to URI and URI used such net proceeds to repay
all of the then outstanding indebtedness under the Credit Facility. The Series
A Preferred is convertible into 12,000,000 shares of Holdings common stock at
$25 per share based upon the liquidation preference of $1,000 per share of
Series A Preferred, subject to adjustment.
7. Series B Perpetual Convertible Preferred Stock
On September 30, 1999, Holdings sold 150,000 shares of its Series B
Perpetual Convertible Preferred Stock ("Series B Preferred"). The net proceeds
from the sale of the Series B Preferred were approximately $143.8 million.
Holdings contributed such net proceeds to URI and URI used such net proceeds
to repay outstanding indebtedness under the Credit Facility. The Series B
Preferred is convertible into 5,000,000 shares of Holding's common stock at
$30 per share based upon a liquidation preference of $1,000 per share of
Series B Preferred, subject to adjustment.
8. Common Stock
On March 9, 1999, Holdings completed a public offering of 2,290,000 shares
of common stock. The net proceeds to the Company from this offering were
approximately $64.8 million (after deducting underwriting discounts and
offering expenses). Holdings contributed such net proceeds to URI and URI used
such net proceeds to repay outstanding indebtedness under the Credit Facility.
15
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months
Nine Months Ended Ended
September 30, September 30,
------------------ ----------------
1999 1998 1999 1998
--------- -------- ------- --------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item............. $ 98,319 $ 16,524 $56,208 $(10,156)
Plus: preferred dividends of a subsidiary
trust, net of taxes................................ 2,876
--------- -------- ------- --------
Income (loss) available to common
stockholders....................................... $ 98,319 $ 16,524 $59,084 $(10,156)
========= ======== ======= ========
Denominator:
Denominator for basic earnings per share
weighted-average shares............................ 70,854 64,363 71,936 68,415
Effect of dilutive securities:
Employee stock options............................ 5,346 2,335 4,121 2,720
Warrants.......................................... 4,228 4,296 4,012 4,437
Series A Preferred................................ 12,000 12,000
Series B Preferred................................ 18 54
Company-obligated mandatorily redeemable convertible
preferred securities of a
subsidiary trust................................... 6,876
--------- -------- ------- --------
Denominator for diluted earnings per share--adjusted
weighted-average shares............................ 92,446 70,994 98,999 75,572
========= ======== ======= ========
Basic earnings per share before extraordinary item.... $ 1.39 $ 0.26 $ 0.78 $ (0.15)
========= ======== ======= ========
Diluted earnings per share before extraordinary item.. $ 1.06 $ 0.23 $ 0.60 $ (0.13)
========= ======== ======= ========
</TABLE>
16
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Condensed Consolidating Financial Information of Guarantor Subsidiaries
Certain indebtedness of URI is guaranteed by URI's United States
subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's
foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor
subsidiaries are all wholly owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination
provisions and subject to a standard limitation which provides that the
maximum amount guaranteed by each guarantor will not exceed the maximum amount
that can be guaranteed without making the guarantee void under fraudulent
conveyance laws). All expenses incurred by URI have been charged by URI to its
guarantor and non guarantor subsidiaries. Separate consolidated financial
statements of the guarantor subsidiaries have not been presented because
management has determined that such information would not be material to
investors. However, condensed consolidating financial information as of
September 30, 1999 and December 31, 1998 and for the nine and three months
ended September 30, 1999 and 1998, are presented. The condensed consolidating
financial information of URI and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equiva-
lents.................. $ 34,618 $ 3,934 $ 38,552
Accounts receivable,
net.................... 421,043 34,748 455,791
Intercompany receivable
(payable).............. $1,709,643 (1,463,045) (246,598)
Inventory............... 136,739 23,548 160,287
Prepaid expenses and
other assets........... 39,722 33,663 5,941 79,326
Rental equipment, net... 1,645,858 125,351 1,771,209
Property and equipment,
net.................... 249,823 16,146 265,969
Investment in subsidiar-
ies.................... 2,168,916 $(2,168,916)
Intangible assets, net.. 1,542,295 145,639 1,687,934
---------- ---------- -------- ----------- ----------
$3,918,281 $2,600,994 $108,709 $(2,168,916) $4,459,068
========== ========== ======== =========== ==========
LIABILITIES AND STOCK-
HOLDER'S EQUITY
Liabilities:
Accounts payable....... $ 13,333 $ 276,496 $ 23,994 $ 313,823
Debt................... 2,154,794 51,746 8,049 2,214,589
Deferred income tax-
es.................... 79,319 9,804 89,123
Accrued expenses and
other liabilities..... 130,909 69,257 2,890 203,056
---------- ---------- -------- ----------- ----------
Total liabilities.... 2,299,036 476,818 44,737 2,820,591
Commitments and contin-
gencies
Stockholder's equity:
Common stock...........
Additional paid-in
capital............... 1,487,940 2,007,029 49,956 $(2,037,611) 1,507,314
Retained earnings...... 131,305 117,147 14,158 (131,305) 131,305
Accumulated other com-
prehensive income..... (142) (142)
---------- ---------- -------- ----------- ----------
Total stockholder's
equity.............. 1,619,245 2,124,176 63,972 (2,168,916) 1,638,477
---------- ---------- -------- ----------- ----------
$3,918,281 $2,600,994 $108,709 $(2,168,916) $4,459,068
========== ========== ======== =========== ==========
</TABLE>
17
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equiva-
lents.................. $ 1,774 $ 16,257 $ 2,379 $ 20,410
Accounts receivable,
net.................... 218,285 14,997 233,282
Intercompany receivable
(payable).............. 898,641 (820,958) (77,683)
Inventory............... 65,401 5,593 70,994
Prepaid expenses and
other assets........... 30,963 10,816 1,397 43,176
Rental equipment, net... 1,099,539 43,467 1,143,006
Property and equipment,
net.................... 165,803 4,734 170,537
Investment in subsidiar-
ies.................... 1,390,706 $(1,390,706)
Intangible assets, net.. 29 867,061 54,975 922,065
---------- ---------- ------- ----------- ----------
$2,322,113 $1,622,204 $49,859 $(1,390,706) $2,603,470
========== ========== ======= =========== ==========
LIABILITIES AND STOCK-
HOLDER'S EQUITY
Liabilities:
Accounts payable....... $ 3,250 $ 98,680 $ 6,496 $ 108,426
Debt................... 1,286,118 23,976 4,480 1,314,574
Deferred income tax-
es.................... 43,560 43,560
Accrued expenses and
other liabilities..... 30,535 82,112 2,911 115,558
---------- ---------- ------- ----------- ----------
Total liabilities.... 1,319,903 248,328 13,887 1,582,118
Commitments and contin-
gencies
Stockholder's equity:
Common stock...........
Additional paid-in
capital................ 964,922 1,338,576 34,265 $(1,353,418) 984,345
Retained earnings...... 37,288 35,300 1,988 (37,288) 37,288
Accumulated other com-
prehensive income...... (281) (281)
---------- ---------- ------- ----------- ----------
Total stockholder's
equity.............. 1,002,210 1,373,876 35,972 (1,390,706) 1,021,352
---------- ---------- ------- ----------- ----------
$2,322,113 $1,622,204 $49,859 $(1,390,706) $2,603,470
========== ========== ======= =========== ==========
</TABLE>
18
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1999
------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $1,046,764 $65,480 $1,112,244
Sales of rental equip-
ment................. 150,615 9,188 159,803
Sales of equipment and
merchandise and other
revenues............. 268,761 23,781 292,542
-------- ---------- ------- --------- ----------
Total revenues.......... 1,466,140 98,449 1,564,589
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 446,348 29,973 476,321
Depreciation of rental
equipment............ 189,638 11,123 200,761
Cost of rental equip-
ment sales........... 86,998 5,459 92,457
Cost of equipment and
merchandise sales and
other operating
costs................ 201,653 18,363 220,016
-------- ---------- ------- --------- ----------
Total cost of revenues.. 924,637 64,918 989,555
-------- ---------- ------- --------- ----------
Gross profit............ 541,503 33,531 575,034
Selling, general and ad-
ministrative
expenses............... 233,971 14,223 248,194
Non-rental depreciation
and amortization....... 38,284 2,544 40,828
-------- ---------- ------- --------- ----------
Operating income........ 269,248 16,764 286,012
Interest expense........ 92,670 730 93,400
Other (income) expense,
net.................... 9,112 (462) 8,650
-------- ---------- ------- --------- ----------
Income before provision
for income taxes ...... 167,466 16,496 183,962
Provision for income
taxes.................. 67,952 7,368 75,320
-------- ---------- ------- --------- ----------
Income before equity in
net earnings
of subsidiaries........ 99,514 9,128 $(108,642)
Equity in net earnings
of subsidiaries........ $108,642 108,642
-------- ---------- ------- --------- ----------
Net income.............. $108,642 $ 99,514 $ 9,128 $(108,642) $ 108,642
======== ========== ======= ========= ==========
</TABLE>
19
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1998
------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $572,884 $ 19,618 $592,502
Sales of rental equip-
ment................. 71,019 2,684 73,703
Sales of equipment and
merchandise and other
revenues............. 127,216 10,841 138,057
------- -------- -------- ------ --------
Total revenues.......... 771,119 33,143 804,262
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 255,345 8,184 263,529
Depreciation of rental
equipment............ 116,974 2,996 119,970
Cost of rental equip-
ment sales........... 38,235 1,585 39,820
Cost of equipment and
merchandise sales and
other operating
costs................ 98,157 8,736 106,893
------- -------- -------- ------ --------
Total cost of revenues.. 508,711 21,501 530,212
------- -------- -------- ------ --------
Gross profit............ 262,408 11,642 274,050
Selling, general and ad-
ministrative
expenses............... 123,129 5,634 128,763
Merger-related ex-
penses................. 42,216 42,216
Non-rental depreciation
and amortization....... 22,932 761 23,693
------- -------- -------- ------ --------
Operating income........ 74,131 5,247 79,378
Interest expense........ 38,931 239 39,170
Other (income) expense,
net.................... (4,491) (33) (4,524)
------- -------- -------- ------ --------
Income before provision
for
income taxes and ex-
traordinary item....... 39,691 5,041 44,732
Provision for income
taxes.................. 24,182 2,268 26,450
------- -------- -------- ------ --------
Income before
extraordinary item and
equity in net earnings
of subsidiaries........ 15,509 2,773 18,282
Extraordinary item,
net.................... 21,337 21,337
------- -------- -------- ------ --------
Income (loss) before
equity in net earnings
of subsidiaries........ (5,828) 2,773 $3,055
Equity in net earnings
of subsidiaries........ $(3,055) (3,055)
------- -------- -------- ------ --------
Net income (loss)....... $(3,055) $ (5,828) $ 2,773 $3,055 $ (3,055)
======= ======== ======== ====== ========
</TABLE>
20
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1999
-----------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $437,768 $31,174 $468,942
Sales of rental equip-
ment................. 70,028 2,581 72,609
Sales of equipment and
merchandise and other
revenues............. 117,197 9,870 127,067
------- -------- ------- -------- --------
Total revenues.......... 624,993 43,625 668,618
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 184,408 12,767 197,175
Depreciation of rental
equipment............ 71,784 4,910 76,694
Cost of rental equip-
ment sales........... 41,003 1,535 42,538
Cost of equipment and
merchandise sales and
other operating
costs................ 87,584 7,648 95,232
------- -------- ------- -------- --------
Total cost of revenues.. 384,779 26,860 411,639
------- -------- ------- -------- --------
Gross profit............ 240,214 16,765 256,979
Selling, general and ad-
ministrative
expenses............... 93,495 4,838 98,333
Non-rental depreciation
and amortization....... 14,926 1,045 15,971
------- -------- ------- -------- --------
Operating income........ 131,793 10,882 142,675
Interest expense........ 41,517 577 42,094
Other (income) expense,
net.................... (295) (37) (332)
------- -------- ------- -------- --------
Income before provision
for income taxes ...... 90,571 10,342 100,913
Provision for income
taxes.................. 36,810 4,550 41,360
------- -------- ------- -------- --------
Income before equity in
net earnings
of subsidiaries........ 53,761 5,792 $(59,553)
Equity in net earnings
of subsidiaries........ $59,553 59,553
------- -------- ------- -------- --------
Net income.............. $59,553 $ 53,761 $ 5,792 $(59,553) $ 59,553
======= ======== ======= ======== ========
</TABLE>
21
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1998
--------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $ 270,920 $ 11,898 $ 282,818
Sales of rental equip-
ment................. 29,417 1,064 30,481
Sales of equipment and
merchandise and other
revenues............. 60,155 5,620 65,775
--------- --------- -------- -------- ---------
Total revenues.......... 360,492 18,582 379,074
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 114,649 4,945 119,594
Depreciation of rental
equipment............ 51,207 1,746 52,953
Cost of rental equip-
ment sales........... 16,714 547 17,261
Cost of equipment and
merchandise sales and
other operating
costs................ 46,381 4,168 50,549
--------- --------- -------- -------- ---------
Total cost of revenues.. 228,951 11,406 240,357
--------- --------- -------- -------- ---------
Gross profit............ 131,541 7,176 138,717
Selling, general and ad-
ministrative
expenses............... 56,758 3,655 60,413
Merger-related ex-
penses................. 42,216 42,216
Non-rental depreciation
and amortization....... 10,691 510 11,201
--------- --------- -------- -------- ---------
Operating income........ 21,876 3,011 24,887
Interest expense........ 23,781 143 23,924
Other (income) expense,
net.................... (278) (13) (291)
--------- --------- -------- -------- ---------
Income (loss) before
provision for
income taxes and ex-
traordinary item....... (1,627) 2,881 1,254
Provision for income
taxes.................. 8,365 1,287 9,652
--------- --------- -------- -------- ---------
Income (loss) before
extraordinary items
and equity in net
earnings of
subsidiaries........... (9,992) 1,594 (8,398)
Extraordinary item,
net.................... 21,337 21,337
--------- --------- -------- -------- ---------
Income (loss) before
equity in net earnings
of subsidiaries........ (31,329) 1,594 29,735
Equity in net earnings
of subsidiaries........ $ (29,735) (29,735)
--------- --------- -------- -------- ---------
Net income (loss)....... $ (29,735) $ (31,329) $ 1,594 $ 29,735 $ (29,735)
========= ========= ======== ======== =========
</TABLE>
22
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1999
------------------------------------------------------------------
Guarantor Non-guarantor
URI Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------- ------------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ (138,529) $428,484 $68,193 $ 358,148
Cash flows from
investing activities:
Purchase of rental
equipment............. (511,593) (68,903) (580,496)
Purchase of property
and equipment......... (41,444) (5,224) (46,668)
Proceeds from sales of
rental equipment...... 150,615 9,188 159,803
In-process acquisition
costs................. (2,206) (2,206)
Payment of contingent
purchase price........ (5,495) (1,699) (7,194)
Purchase of other
companies............. (905,267) (905,267)
----------- -------- ------- ------ ----------
Net cash used in
investing
activities.......... (905,267) (410,123) (66,638) (1,382,028)
Cash flows from
financing activities:
Proceeds from debt..... 2,105,702 2,105,702
Payments of debt....... (1,560,683) (1,560,683)
Payment of debt
financing costs....... (11,341) (11,341)
Capital contribution
by parent............. 522,969 522,969
Dividend distribution
to parent............. (14,625) (14,625)
----------- -------- ------- ------ ----------
Net cash provided by
financing
activities.......... 1,042,022 1,042,022
Net increase in cash
and cash
equivalents........... (1,774) 18,361 1,555 18,142
Cash and cash
equivalents at
beginning of period... 1,774 16,257 2,379 20,410
----------- -------- ------- ------ ----------
Cash and cash
equivalents at end of
period................ $ $ 34,618 $ 3,934 $ 38,552
=========== ======== ======= ====== ==========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period:
Interest............. $ 79,242 $ 79,242
Income taxes......... $ 14,985 $ 885 15,870
Supplemental disclosure
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.............. $ 1,355,288 $1,355,288
Liabilities assumed.... (440,626) (440,626)
Less:
Amounts paid through
issuance of debt.... (9,395) (9,395)
----------- -------- ------- ------ ----------
Net cash paid...... $ 905,267 $ 905,267
=========== ======== ======= ====== ==========
</TABLE>
23
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1998
-----------------------------------------------------------------
Guarantor Non-guarantor
URI Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------- ------------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ (452,125) $648,222 $ 5,290 $ 201,387
Cash flows from
investing activities:
Purchase of rental
equipment............. (414,538) (8,535) (423,073)
Purchase of property
and equipment......... (53,354) (643) (53,997)
Proceeds from sales of
rental equipment...... 71,019 2,684 73,703
In-process acquisition
costs................. (4,413) (4,413)
Payments of contingent
purchase price........ (2,111) (506) (2,617)
Purchase of other
companies............. (820,787) (12,510) (833,297)
---------- -------- ------- ---- ----------
Net cash used in
investing
activities.......... (820,787) (415,907) (7,000) (1,243,694)
Cash flows from
financing activities:
Proceeds from debt..... 1,896,086 10,187 27,864 1,934,137
Payments of debt....... (1,156,677) (230,685) (22,760) (1,410,122)
Payment of debt
financing costs....... (26,711) (26,711)
Capital contribution
by parent............. 497,921 497,921
Subchapter S
distributions of a
pooled entity......... (3,536) (3,536)
---------- -------- ------- ---- ----------
Net cash provided by
financing
activities.......... 1,210,619 (224,034) 5,104 991,689
Net increase
(decrease) in cash
and cash
equivalents........... (62,293) 8,281 3,394 (50,618)
Cash and cash
equivalents at
beginning of period... 67,200 5,211 72,411
---------- -------- ------- ---- ----------
Cash and cash
equivalents at end of
period................ $ 4,907 $ 13,492 $ 3,394 $ 21,793
========== ======== ======= ==== ==========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period:
Interest............. $ 6,630 $ 11,098 $ 67 $ 17,795
Income taxes......... $ 7,434 $ 2,245 $ 9,679
Supplemental disclosure
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.............. $1,322,581 $ 12,510 $1,335,091
Liabilities assumed.... (441,120) (441,120)
Less:
Amounts paid in
common stock and
warrants............ (60,674) (60,674)
---------- -------- ------- ---- ----------
Net cash paid...... $ 820,787 $ 12,510 $ 833,297
========== ======== ======= ==== ==========
</TABLE>
11. Subsequent Events
Completed Acquisitions
Subsequent to September 30, 1999 (through October 28, 1999), the Company
completed the acquisitions of three equipment rental companies. The aggregate
consideration paid by the Company for these acquisitions was $26.6 million in
cash. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in such acquisitions in the aggregate amount of $6.7
million. The Company funded the consideration for these acquisitions with
borrowings under the Company's Credit Facility.
24
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion reviews the Company's operations for the nine and
three months ended September 30, 1999 and 1998 and should be read in
conjunction with the Unaudited Consolidated Financial Statements and related
Notes thereto of the Company included herein and the Consolidated Financial
Statements and related Notes thereto included in the Company's 1998 Annual
Report on Form 10-K.
Introduction
The Company commenced equipment rental operations in October 1997 and has
completed 182 acquisitions (through October 28, 1999), including a merger with
U.S. Rentals (the "U.S. Rentals Merger") which was completed in September
1998.
Three of the acquisitions completed by the Company (including the U.S.
Rentals Merger) were accounted for as "poolings-of-interests," and the
Company's financial statements have been restated to include the accounts of
two of the companies acquired in such transactions (but were not restated for
one that was not material, which has been combined with the Company effective
July 1, 1998). See Note 2 of the Notes to the Unaudited Consolidated Financial
Statements of the Company included elsewhere herein. The other 179
acquisitions completed by the Company were accounted for as "purchases". The
results of operations of the businesses acquired in these acquisitions are
included in the Company's financial statements only from their respective
dates of acquisition. In view of the fact that the Company's operating results
for 1999 and 1998 were impacted by acquisitions that were accounted for as
purchases, the Company believes that the results of its operations for such
periods are not directly comparable.
United Rentals, Inc. ("Holdings") is principally a holding company and
primarily conducts its operations through its wholly owned subsidiary, United
Rentals (North America), Inc. ("URI"), and subsidiaries of URI.
General
The Company primarily derives 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 rental equipment, (iii) the sale of equipment and (iv) the sale of related
merchandise and parts.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of rental and equipment sold, personnel costs, occupancy costs and
supplies.
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 expenses primarily include sales
commissions, 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 amortization expense associated with
leasehold improvements and (ii) the amortization of intangible assets. The
Company's intangible assets include non-compete agreements and goodwill, which
represents the excess of the purchase price of acquired companies over the
estimated fair market value of the net assets acquired.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
Revenues. Total revenues for the nine months ended September 30, 1999 were
$1,564.6 million, representing an increase of 94.5% over total revenues of
$804.3 million for the nine months ended September 30, 1998. The Company's
revenues in the first nine months of 1999 and 1998 were attributable to: (i)
equipment rental ($1,112.2 million, or 71.1% of revenues, in the first nine
months of 1999 compared to $592.5 million, or
25
<PAGE>
73.7% of revenues, in the first nine months of 1998), (ii) sales of rental
equipment ($159.8 million, or 10.2% of revenues, in the first nine months of
1999 compared to $73.7 million, or 9.2% of revenues, in the first nine months
of 1998) and (iii) sales of equipment and merchandise and other revenues
($292.5 million, or 18.7% of revenues, in the first nine months of 1999
compared to $138.1 million, or 17.1% of revenues, in the first nine months of
1998).
The 94.5% increase in total revenues in the first nine months of 1999
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 22.7 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 71.8 percentage points). The increase in
revenues at locations open more than one year primarily reflected (a) an
increase in the volume of rental transactions, (b) an expansion of the product
lines offered by the Company for sale, (c) an increase in the sale of related
merchandise and parts which was driven by the increase in equipment rental and
sales transactions and (d) an increase in the sale of used equipment in order
to maintain the quality of the Company's rental fleet.
Gross Profit. Gross profit increased to $575.0 million in the first nine
months of 1999 from $274.1 million in the first nine months of 1998. This
increase in gross profit was primarily attributable to the increase in
revenues described above. The Company's gross profit margin by source of
revenue in the first nine months of 1999 and 1998 was: (i) equipment rental
(39.1% in the first nine months of 1999 and 35.3% in the first nine months of
1998), (ii) sales of rental equipment (42.1% in the first nine months of 1999
and 46.0% in the first nine months of 1998) and (iii) sales of equipment and
merchandise and other revenues (24.8% in the first nine months of 1999 and
22.6% in the first nine months of 1998). The increase in the gross profit
margin from rental revenues in the first nine months of 1999 was primarily
attributable to greater equipment utilization rates and to economies of scale.
The decrease in the gross profit margin from the sales of rental equipment in
the first nine months of 1999 primarily reflected a shift in mix towards the
sale of more late-model used equipment which generally generates lower gross
profit margins than older equipment. The increase in the gross profit margin
from sales of equipment and merchandise and other revenue in the first nine
months of 1999 primarily reflected the benefits of greater purchasing power
and a shift in the sales mix to higher margin items.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $248.2 million, or 15.9% of total
revenues, during the first nine months of 1999 and $128.8 million, or 16.0% of
total revenues, during the first nine months of 1998. SG&A in the first nine
months of 1999 includes an $8.3 million charge primarily due to professional
fees incurred in connection with the Company's terminated tender offer and
consent and proxy solicitation for Rental Service Corporation, ("RSC").
Excluding this charge, SG&A as a percentage of revenues decreased to 15.3% in
the first nine months of 1999, primarily due to certain economies of scale
relating to the increase in revenues described above.
Merger-related Expenses. The Company incurred merger-related expenses in the
first nine months of 1998 of $42.2 million ($29.5 million after-tax) in
connection with three acquisitions completed by the Company in 1998 that were
accounted for as poolings-of-interests. These expenses consisted of (i) $18.5
million for investment banking, legal, accounting services and other merger
costs, (ii) $14.5 million of expenses relating to the closing of duplicate
facilities, (iii) $6.3 million for employee severance and (iv) $2.9 million in
other expenses.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $43.2 million, or 2.8% of total revenues, in the first nine
months of 1999 and $23.7 million, or 2.9% of total revenues, in the first nine
months of 1998. Non-rental depreciation and amortization primarily consists of
(i) depreciation expense attributable to equipment not offered for rent, (ii)
depreciation of rental facilities and (iii) amortization of goodwill. The
decrease in non-rental depreciation as a percentage of revenues in 1999
primarily reflected economies of scale related to the increase in revenues
described above.
Interest Expense. Interest expense increased to $93.5 million in the first
nine months of 1999 from $39.2 million in the first nine months of 1998. This
increase primarily reflected the fact that the Company's indebtedness
significantly increased in 1999, principally to fund acquisitions.
26
<PAGE>
Preferred Dividends of a Subsidiary Trust. Preferred dividends of a
subsidiary trust of Holdings were $14.6 million in the first nine months of
1999 compared with $3.0 million in the first nine months of 1998. These
dividends relate to preferred securities issued in August 1998 by such
subsidiary trust.
Other (Income) Expense. Other expense was $8.8 million in the first nine
months of 1999 compared with $4.5 million in other income in the first nine
months of 1998. The increase in other expense in the first nine months of 1999
primarily reflected a $10.0 million charge that was principally due to
commitment fees incurred in connection with a $2.0 billion financing
commitment that was cancelled upon the termination of the Company's tender
offer for RSC.
Income Taxes. Income taxes increased to $68.3 million, or an effective rate
of 41.0%, in the first nine months of 1999 from $25.2 million, or an effective
rate of 60.4%, in the first nine months of 1998. During 1998 the Company's
high effective tax rate reflected the following: (i) certain merger-related
expenses incurred in 1998 were not deductible for income tax purposes and (ii)
in connection with an acquisition in 1998 that was accounted for as a pooling-
of-interests, the Company recorded a $4.8 million charge to recognize deferred
tax liabilities of the acquired company which had been taxed as a Subchapter S
Corporation prior to being acquired.
Extraordinary Item. The Company recorded an extraordinary charge of $35.6
million ($21.3 million net of taxes) in the first nine months of 1998. The
charge was incurred in connection with the early extinguishment of certain
debt and primarily reflected prepayment penalties on certain debt of U.S.
Rentals.
Three Months Ended September 30, 1999 and 1998
Revenues. Total revenues for the three months ended September 30, 1999 were
$668.6 million, representing an increase of 76.4% over total revenues of
$379.1 million for the three months ended September 30, 1998. The Company's
revenues in the three months ended September 30, 1999 and 1998 were
attributable to: (i) equipment rental ($468.9 million, or 70.1% of revenues,
in the three months September 30, 1999 compared to $282.8 million, or 74.6% of
revenues, in the three months ended September 30, 1998), (ii) sales of rental
equipment ($72.6 million, or 10.9% of revenues, in the three months ended
September 30, 1999 compared to $30.5 million, or 8.0% of revenues, in the
three months ended September 30, 1998) and (iii) sales of equipment and
merchandise and other revenues ($127.1 million, or 19.0% of revenues, in the
three months ended September 30, 1999 compared to $65.8 million, or 17.4% of
revenues, in the three months ended September 30, 1998).
The 76.4% increase in total revenues in the three months ended September 30,
1999 reflected (i) increased revenues at locations open more than one year
(which accounted for approximately 21.4 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 55.0 percentage points). The increase in
revenues at locations open more than one year primarily reflected (a) an
increase in the volume of rental transactions, (b) an expansion of the product
lines offered by the Company for sale, (c) an increase in the sale of related
merchandise and parts which was driven by the increase in equipment rental and
sales transactions and (d) an increase in the sale of used equipment in order
to maintain the quality of the Company's rental fleet.
Gross Profit. Gross profit increased to $257.0 million in the three months
ended September 30, 1999 from $138.7 million in the three months ended
September 30, 1998. This increase in gross profit was primarily attributable
to the increase in revenues described above. The Company's gross profit margin
by source of revenue in the three months ended September 30, 1999 and 1998
was: (i) equipment rental (41.6% in the three months ended September 30, 1999
and 39% in the three months ended September 30, 1998), (ii) sales of rental
equipment (41.4% in the three months ended September 30, 1999 and 43.4% in the
three months ended September 30, 1998) and (iii) sales of equipment and
merchandise and other revenues (25.1% in the three months ended September 30,
1999 and 23.1% in the three months ended September 30, 1998). The increase in
the gross profit margin from rental revenues in the three months ended
September 30, 1999 was primarily attributable to greater equipment utilization
rates and to economies of scale. The decrease in the gross profit margin from
the
27
<PAGE>
sales of rental equipment in the three months ended September 30, 1999
primarily reflected a shift in mix towards the sale of more late-model used
equipment which generally generates lower gross profit margins than older
equipment. The increase in the gross profit margin from sales of new
equipment, merchandise and other revenue in the three months ended September
30, 1999 primarily reflected the benefits of greater purchasing power and a
shift in the sales mix to higher margin items.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $98.3 million, or 14.7% of total
revenues, during the three months ended September 30, 1999 and $60.4 million,
or 15.9% of total revenues, during the three months ended September 30, 1998.
The decrease in SG&A as a percentage of revenues in the three months ended
September 30, 1999, principally reflected certain economies of scale related
to the increase in revenues.
Merger-related Expenses. The Company incurred merger-related expenses in the
three months ended September 30, 1998 of $42.2 million ($29.5 million after-
tax) in connection with three acquisitions completed by the Company in such
period that were accounted for as poolings-of-interests. These expenses
consisted of (i) $18.5 million for investment banking, legal, accounting
services and other merger costs, (ii) $14.5 million of expenses relating to
the closing of duplicate facilities, (iii) $6.3 million for employee severance
and (iv) $2.9 million in other expenses.
Non-rental Depreciation and Amortization. Non-rental depreciation was $16.7
million, or 2.5% of total revenues, in the three months ended September 30,
1999 and $11.2 million, or 3.0% of total revenues, in the three months ended
September 30, 1998. Non-rental depreciation and amortization primarily
consists of (i) depreciation expense attributable to equipment not offered for
rent, (ii) depreciation of rental facilities and (iii) amortization of
goodwill. The decrease in non-rental depreciation as a percentage of revenues
in 1999 primarily reflected economies of scale related to the increase in
revenues described above.
Interest Expense. Interest expense increased to $42.2 million in the three
months ended September 30, 1999 from $23.9 million in the three months ended
September 30, 1998. This increase primarily reflected the fact that the
Company's indebtedness significantly increased in 1999, principally to fund
acquisitions.
Preferred Dividends of a Subsidiary Trust. Preferred dividends of a
subsidiary trust of Holdings were $4.9 million in the three months ended
September 30, 1999 compared with $3.0 million in the three months ended
September 30, 1998. These dividends relate to preferred securities issued in
August 1998 by such subsidiary trust.
Other (Income) Expense. Other income was $0.4 million in the three months
ended September 30, 1999 compared with $0.3 million in the three months ended
September 30, 1998.
Income Taxes. Income taxes increased to $39.1 million, or an effective rate
of 41.0%, in the three months ended September 30, 1999 from $8.4 million in
the three months ended September 30, 1998. During 1998, the Company recorded a
provision for income taxes despite a pretax loss because: (i) certain merger-
related expenses incurred in 1998 were not deductible for income tax purposes
and (ii) in connection with an acquisition in 1998 that was accounted for as a
pooling-of-interests, the Company recorded a $4.8 million charge to recognize
deferred tax liabilities of the acquired company which had been taxed as a
Subchapter S Corporation prior to being acquired.
Extraordinary Item. The Company recorded an extraordinary charge of $35.6
million ($21.3 million net of taxes) during the three months ended September
30, 1998. Such charge was incurred in connection with the early extinguishment
of certain debt and primarily reflected prepayment penalties on certain debt
of U.S. Rentals.
Liquidity and Capital Resources
Recent Financings
Set forth below is certain information concerning certain financing
transactions entered into by the Company during 1999.
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Series A Perpetual Convertible Preferred Stock. In January 1999, Holdings
sold 300,000 shares of its Series A Perpetual Convertible Preferred Stock
("Series A Preferred") to Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P. (collectively "Apollo"). The net proceeds from the sale of
the Series A Preferred were approximately $287.0 million (after deducting
issuance fees and expenses).
Common Stock. In March 1999, Holdings completed a public offering of
2,290,000 shares of its common stock. The net proceeds to the Company from
this offering were approximately $64.8 million (after deducting underwriting
discounts and offering expenses).
9% Senior Subordinated Notes. In March 1999, URI sold $250 million aggregate
principal amount of 9% Senior Subordinated Notes Due 2009 ("9% Notes") for
aggregate consideration of $245.0 million (after deducting the initial
purchaser's discount and offering expenses). The 9% Notes are unsecured. URI
may, at its option, redeem the 9% Notes on or after April 1, 2004 at specified
redemption prices which range from 104.50% in 2004 to 100.00% in 2007 and
thereafter. In addition, on or prior to April 1, 2002, URI may, at its option,
use the proceeds of a public equity offering by Holdings to redeem up to 35%
of the outstanding 9% Notes, at a redemption price of 109.00%. The indenture
governing the 9% Notes contains certain restrictive covenants, including (i)
limitations on additional indebtedness, (ii) limitations on restricted
payments, (iii) limitations on liens, (iv) limitations on dividends and other
payment restrictions, (v) limitations on preferred stock of certain
subsidiaries, (vi) limitations on transactions with affiliates, (vii)
limitations on the disposition of proceeds of asset sales and (viii)
limitations on the ability of the Company to consolidate, merge or sell all or
substantially all of its assets.
Series B Perpetual Convertible Preferred Stock. In September 1999, Holdings
sold 100,000 shares of its Series B Perpetual Convertible Preferred Stock
("Series B Preferred") to Apollo and 50,000 shares of its Series B Preferred
to Chase Equity Associates, L.P. ("Chase"). The net proceeds from the sale of
Series B Preferred to Apollo and Chase were approximately $143.8 million
(after deducting issuance fees and expenses). For additional information
concerning the Series B Preferred see Item 2 of Part II of this Report.
Term Loan. URI obtained a $450 million term loan dated as of July 15, 1999
from a group of financial institutions (the "Term Loan C"). The Term Loan C
was increased to $600 million in November 1999. URI used the net proceeds from
the Term Loan C to repay a portion of the outstanding indebtedness under the
Company's revolving credit facility (the "Credit Facility"). The Term Loan C
matures in June 2006. Prior to maturity, quarterly installments of principal
in the amount of $1.5 million are due on the last day of each calendar
quarter, commencing September 30, 2000. The amount due at maturity is $565.5
million. The Term Loan C accrues interest, at URI's option, at either (a) the
Base Rate (which is equal to the greater of (i) the Federal Funds Rate plus
0.5% or (ii) Bank of America's referenced rate) plus a margin of 0.625% per
annum, or (b) the Eurodollar Rate (which for borrowings by URI is equal to
Bank of America's reserve adjusted eurodollar rate) plus a margin of 2.50% per
annum. If at any time an event of default exists, the interest rate applicable
to URI's existing term loan and the Term Loan C will increase by 2% per annum.
The Term Loan C is secured pari passu with the Credit Facility and URI's
existing term loan, and the agreement governing the Term Loan C contains
restrictive covenants substantially similar to those provided by the Credit
Facility and URI's existing term loan.
Sources and Uses of Cash
During the first nine months of 1999, the Company (i) generated cash from
operations of approximately $365.1 million, (ii) generated cash from the sale
of rental equipment of approximately $159.8 million, (iii) received net
proceeds of $287.0 million from the sale of the Series A Preferred, (iv)
received net proceeds of $143.8 million from the sale of the Series B
Preferred, (v) obtained a $450 million term loan, (vi) received net proceeds
of $65.2 million from the issuance of common stock and (vii) received net
proceeds of $245.0 million from the sale of the 9% Notes. The Company used
cash during this period principally to (i) pay consideration for acquisitions
(approximately $905.3 million), (ii) purchase rental equipment (approximately
$580.5 million) and (iii) purchase other property and equipment (approximately
$75.8 million).
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Certain Balance Sheet Changes
The acquisitions and the equipment purchases made by the Company in the
first nine months of 1999 (and the financing of such acquisitions and
purchases) were the principal reasons for the increase in the following items
at September 30, 1999 compared with December 31, 1998: accounts receivable,
inventory, prepaid expenses and other assets, rental equipment, property and
equipment, intangible assets, accounts payable, debt and accrued expenses and
other liabilities. The financing transactions completed by the Company during
the first nine months of 1999 were the principal reasons for the increase in
cash, debt and additional paid-in capital at September 30, 1999, compared with
December 31, 1998.
Certain Information Concerning the Company's Credit Facility
URI has a revolving credit facility (the "Credit Facility") that enables URI
to borrow up to $772.5 million on a revolving basis and permits a Canadian
subsidiary of URI to directly borrow up to $40.0 million under the Credit
Facility (provided that the aggregate borrowings of URI and the Canadian
subsidiary do not exceed $772.5 million). The Credit Facility terminates on
September 26, 2003, at which time all outstanding indebtedness is due. As of
November 5, 1999, there was $523.0 million of indebtedness outstanding under
the Credit Facility (not including undrawn outstanding letters of credit in
the amount of $1.4 million).
Cash Requirements Related to Operations
The Company's principal existing sources of cash are borrowings available
under the Credit Facility ($248.1 million available as of November 5, 1999)
and cash generated from operations.
The Company expects that its principal needs for cash relating to its
existing operations over the next 12 months will be to fund (i) operating
activities and working capital, (ii) the purchase of rental equipment and
inventory of items offered for sale and (iii) debt service. The Company plans
to fund such cash requirements relating to its existing operations from its
existing sources of cash described above.
The Company estimates that equipment expenditures over the next 12 months
will be approximately $700 million for the existing operations of the Company.
These expenditures are comprised of approximately $385 million of expenditures
to maintain the average age of the Company's rental fleet and $315 million of
discretionary expenditures to increase the size of the Company's rental fleet.
The Company expects that it will fund such expenditures from a combination of
approximately $300 million of proceeds expected to be generated from the sale
of used equipment, cash generated from operations and, if required, borrowings
available under the Credit Facility. In addition, the Company expects that it
will be required to make equipment expenditures in connection with new
acquisitions. The Company cannot quantify the amount of equipment expenditures
that will be required in connection with new acquisitions.
Principal elements of the Company's strategy include continued 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. To the extent that the
Company's existing sources of cash described above are not sufficient to fund
such future acquisitions, the Company will require additional financing and,
consequently, the Company's indebtedness may increase as the Company
implements its growth strategy. There can be no assurance, however, that any
additional financing will be available or, if available, will be on terms
satisfactory to the Company.
Based upon the terms of the Company's currently outstanding indebtedness,
the Company is scheduled to repay debt principal of approximately $22.5
million over the next 12 months.
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Relationship Between Holdings and URI
Holdings is principally a holding company and primarily conducts its
operations through its wholly owned subsidiary URI and subsidiaries of URI.
Holdings provides certain services to URI in connection with its operations.
These services principally include: (i) senior management services, (ii)
finance related services and support, (iii) information technology systems and
support and (iv) acquisition related services. In addition, Holdings leases
certain equipment and real property that are made available for use by URI and
its subsidiaries. URI has made, and expects to continue to make, certain
payments to Holdings in respect of the services provided by Holdings to the
Company. The expenses relating to URI's payments to Holdings are reflected on
URI's financial statements as selling, general and administrative expenses. In
addition, although not legally obligated to do so, URI has in the past, and
expects that it will in the future, make distributions to Holdings to, among
other things, enable Holdings to pay dividends on certain preferred securities
(the "Trust Preferred Securities") that were issued by a subsidiary trust of
Holdings in August 1998.
The Trust Preferred Securities are the obligation of a subsidiary trust of
Holdings and are not the obligation of URI. As a result, the dividends payable
on these securities are reflected as an expense on the consolidated financial
statements of Holdings, but are not reflected as an expense on the
consolidated financial statements of URI. This is the principal reason why the
net income reported on the consolidated financial statements of URI is higher
than the net income reported on the consolidated financial statements of
Holdings.
Year 2000 Compliance
The Company has been informed by its software vendors that the Company's
recently installed information technology systems are year 2000 compliant. The
Company has, therefore, not developed any contingency plans relating to year
2000 issues and has not budgeted any funds for year 2000 issues. Although the
Company believes that its systems are year 2000 compliant, there can be no
assurance that unanticipated year 2000 problems will not arise which,
depending on the nature and magnitude of the problem, could have a material
adverse effect on the Company's business and financial condition. Furthermore,
year 2000 problems involving third parties may have a negative impact on the
Company's customers or suppliers, the general economy or on the ability of
businesses generally to receive essential services (such as
telecommunications, banking services, etc.). Any such problem could have a
material adverse effect on the Company's business and financial condition. The
Company is unable at this time to assess the possible impact on its business
of year 2000 problems involving any third party.
Fluctuations in Operating Results
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter or over the longer term 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; changes in demand for the
Company's equipment or the prices therefor due to changes in economic
conditions, competition or other 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 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.
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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, and expenses in connection with 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 changes in construction and industrial
activity, or increases in interest rates, or (ii) adverse weather conditions
that may temporarily decrease construction and industrial activity in a
particular geographic area. 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 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities. The Company will adopt SFAS
No. 133 beginning January 1, 2001. The adoption of SFAS No. 133 is not
expected to have a material effect on the Company's consolidated financial
position or results of operations.
Factors that May Influence Future Results and Accuracy of Forward-Looking
Statements
Sensitivity to Changes in Construction and Industrial Activities
Our equipment is principally used in connection with construction and
industrial activities. Consequently, a downturn in construction or industrial
activity may lead to a decrease in demand for our equipment, which could
adversely affect our business. We have identified below certain of the factors
which may cause such a downturn, either temporarily or long-term:
.a general slow-down of the economy;
.an increase in interest rates; or
.adverse weather conditions which may temporarily affect a particular
region.
Acquired Companies not Historically Operated as a Combined Business
The businesses that we acquired have been in existence an average of 22
years and some have been in existence for more than 50 years. However, these
businesses were not historically managed or operated as a single business.
Although we believe that we can successfully manage and operate the acquired
businesses as a single business, we cannot be certain of this.
Limited Operating History
We commenced equipment rental operations in October 1997 and have grown
through a combination of internal growth and the acquisition of 182 companies
(through October 28, 1999), including a merger in September 1998 with U.S.
Rentals. Due to the relatively recent commencement of our operations, we have
only a limited history upon which you can base an assessment of our business
and prospects.
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Risks Relating to Growth Strategy
Key elements of our growth strategy are to continue to expand through a
combination of internal growth, a disciplined acquisition program and the
opening of new rental locations. We have identified below some of the risks
relating to our growth strategy:
Availability of Acquisition Targets and Sites for Start-Up Locations. We may
encounter substantial competition in our efforts to acquire additional rental
companies and sites for start-up locations. Such competition could have the
effect of increasing the prices that we will have to pay in order to acquire
such businesses and sites. We cannot guarantee that any additional businesses
or sites that we may wish to acquire will be available to us on terms that are
acceptable to us.
Need to Integrate New Operations. Our ability to realize the expected
benefits from completed and future acquisitions depends, in large part, on our
ability to integrate new operations with our existing operations in a timely
and effective manner. Accordingly, we devote substantial efforts to the
integration of new operations. We cannot, however, guarantee that these
efforts will always be successful. In addition, under certain circumstances,
these efforts could adversely affect our existing operations.
Debt Covenants. Certain of the agreements governing our outstanding
indebtedness provide that we may not make acquisitions unless certain
financial conditions are satisfied or the consent of the lenders is obtained.
Our ability to grow through acquisitions may be constrained as a result of
these provisions.
Certain Risks Related to Start-Up Locations. We expect that start-up
locations may initially have a negative impact on our results of operations
and margins for a number of reasons, including that (1) we will incur
significant start-up expenses in connection with establishing each start-up
location and (2) it will generally take some time following the commencement
of operations for a start-up location to become profitable. Although we
believe that start-ups can generate long-term growth, we cannot guarantee that
any start-up location will become profitable within any specific time period,
if at all.
Dependence on Additional Capital to Finance Growth
We will require substantial capital in order to execute our growth strategy.
We will require capital for, among other purposes, completing acquisitions,
establishing new rental locations, and acquiring rental equipment. If the cash
that we generate from our business, together with cash that we may borrow
under our credit facility, is not sufficient to fund our capital requirements,
we will require additional debt and/or equity financing. We cannot, however,
be certain that any additional financing will be available or, if available,
will be available on terms that are satisfactory to us. If we are unable to
obtain sufficient additional capital in the future, our ability to implement
our growth strategy could be limited.
Possible Undiscovered Liabilities of Acquired Companies
Prior to making an acquisition, we seek to assess the liabilities of the
target company that we will become responsible for as a result of the
acquisition. Nevertheless, we may fail to discover certain of such
liabilities. We seek to reduce our risk relating to these possible hidden
liabilities by generally obtaining the agreement of the seller to idemnify and
reimburse us in the event that we discover any material hidden liabilities.
However, this type of agreement, if obtained, may not fully protect us against
hidden liabilities because (1) the seller's obligation to reimburse us is
generally limited in duration and/or amount and (2) the seller may not have
sufficient financial resources to reimburse us. Furthermore, when we acquire a
public company (such as when we acquired U.S. Rentals) we generally do not
obtain this type of agreement.
Dependence on Management
We are highly dependent upon our senior management team. Consequently, our
business could be adversely affected in the event that we lose the services of
any member of senior management. Furthermore, if we lose the services of
certain members of senior management, it is an event of default under the
agreements governing our
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credit facility and certain of our other indebtedness, unless we appoint
replacement officers satisfactory to the lenders within 30 days. We do not
maintain "key man" life insurance with respect to members of senior
management.
Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include small, independent businesses with one or two
rental locations; regional competitors which operate in one or more states;
public companies or divisions of public companies; and equipment vendors and
dealers who both sell and rent equipment directly to customers. We may in the
future encounter increased competition from our existing competitors or from
new companies. In addition, certain equipment manufacturers may commence (or
increase their existing efforts relating to) renting and selling equipment
directly to our customers.
Fluctuations of Operating Results
We expect that our revenues and operating results may fluctuate from quarter
to quarter or over the longer term due to a number of factors, including:
. seasonal rental patterns of our customers--with rental activity tending
to be lower in the winter;
. changes in general economic conditions in our markets, including changes
in construction and industrial activities;
. the timing of acquisitions, new location openings, and related
expenditures;
. the effect of the integration of acquired businesses and start-up
locations;
. if we determine that a potential acquisition will not be consummated,
the need to charge against earnings any expenditures relating to such
transaction (such as financing commitment fees, merger and acquisition
advisory fees and professional fees) previously capitalized;
. the timing of expenditures for new equipment and the disposition of used
equipment; and
. changes in demand for our equipment or the prices therefor due to
changes in economic conditions, competition or other factors.
Liability and Insurance
We are exposed to various possible claims relating to our business. These
include claims relating to (1) personal injury or death caused by equipment
rented or sold by us, (2) motor vehicle accidents involving our delivery and
service personnel and (3) employment related claims. We carry a broad range of
insurance for the protection of our assets and operations. However, such
insurance may not fully protect us for a number of reasons, including:
. our coverage is subject to a deductible of $0.5 million and limited to a
maximum of $97 million per occurrence;
. we do not maintain coverage for environmental liability, since we
believe that the cost for such coverage is high relative to the benefit
that it provides; and
. 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 our insurance.
We cannot be certain that insurance will continue to be available to us on
economically reasonable terms, if at all.
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Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing
environmental protection and occupational health and safety matters. These
include laws and regulations that govern wastewater discharges, the use,
treatment, storage and disposal of solid and hazardous wastes and materials,
air quality and the remediation of contamination associated with the release
of hazardous substances. Under these laws, an owner or lessee of real estate
may be liable for, among other things, (1) the costs of removal or remediation
of hazardous or toxic substances located on, in, or emanating from, the real
estate, as well as related costs of investigation and property damage and
substantial penalties, and (2) environmental contamination at facilities where
its waste is or has been disposed. These laws often impose liability whether
or not the owner or lessee knew of the presence of the hazardous or toxic
substances and whether or not the owner or lessee was responsible for these
substances. Our activities that are or may be affected by these laws include
our use of hazardous materials to clean and maintain equipment and our
disposal of solid and hazardous waste and wastewater from equipment washing.
We also dispense petroleum products from underground and above-ground storage
tanks located at certain rental locations, and at times we must remove or
upgrade tanks to comply with applicable laws. Furthermore, we have acquired or
lease certain locations which have or may have been contaminated by leakage
from underground tanks or other sources and are in the process of assessing
the nature of the required remediation. Based on the conditions currently
known to us, we believe that any unreserved environmental remediation and
compliance costs required with respect to those conditions will not have a
material adverse effect on our business. However, we cannot be certain that we
will not identify adverse environmental conditions that are not currently
known to us, that all potential releases from underground storage tanks
removed in the past have been identified, or that environmental and safety
requirements will not become more stringent or be interpreted and applied more
stringently in the future. If we are required to incur environmental
compliance or remediation costs that are not currently anticipated by us, our
business could be adversely affected depending on the magnitude of the cost.
Risks Related to International Operations
Our operations outside the United States are subject to risks normally
associated with international operations. These include the need to convert
currencies, which could result in a gain or loss depending on fluctuations in
exchange rates, and the need to comply with foreign laws.
Dependence on Information Technology Systems
Our ability to monitor and control our operations depends to a large extent
on the proper functioning of our recently-installed information technology
systems. Any disruption in these systems or the failure of these systems to
operate as expected could, depending on the magnitude and duration of the
problem, adversely affect our business and our ability to implement our growth
strategy.
Year 2000 Issues
Our software vendors have informed us that our recently-installed
information technology systems are year 2000 compliant. We have, therefore,
not developed any contingency plans relating to year 2000 issues and have not
budgeted any funds for year 2000 issues. Although we believe that our systems
are year 2000 compliant, unanticipated year 2000 problems may arise which,
depending on the nature and magnitude of the problem, could adversely affect
our business. Furthermore, year 2000 problems involving third parties may have
a negative impact on our customers or suppliers, the general economy or on the
ability of businesses generally to receive essential services (such as
telecommunications, banking services, etc.). Any such problem could adversely
affect our business. We are unable at this time to assess the possible impact
on our business of year 2000 problems involving any third party.
Restrictive Covenants
The agreements governing our existing long-term indebtedness contain, and
future agreements governing our long-term indebtedness may also contain,
certain restrictive financial and operating covenants which affect,
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and in many respects significantly limit or prohibit, among other things, our
ability to incur indebtedness, make prepayments of certain indebtedness, make
investments, create liens, make acquisitions, sell assets and engage in
mergers and consolidations. These covenants may significantly limit our
operating and financial flexibility.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to changes in interest rates and foreign currency
exchanges rates were reported in Item 7A of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. There has been no material
change in these market risks since the end of the fiscal year 1998.
PART II OTHER INFORMATION
Item 1. 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 effect on the business or financial
condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
Sale of Unregistered Securities
Set forth below is certain information concerning sales by the Company of
unregistered securities during the third quarter of 1999. The issuances by the
Company of the securities sold in the transactions referenced below were not
registered under the Securities Act of 1933, pursuant to the exemption
contemplated by Section 4(2) thereof for transactions not involving a public
offering.
1. In July 1999, the Company issued 1,749 shares of common stock to an
executive officer pursuant to an employment agreement.
2. In July 1999, the Company issued, in connection with one acquisition,
8,602 shares of common stock as part of the consideration for such
acquisition.
3. In August 1999, the Company issued, in connection with one acquisition,
50,000 warrants with an exercise price of $28.96 per share.
4. In September 1999, Holdings sold 100,000 shares of its Series B
Perpetual Convertible Preferred Stock ("Series B Preferred") to Apollo
and 50,000 shares of its Series B Preferred to Chase Equity Associates,
L.P. ("Chase"). The net proceeds from the sale of Series B Preferred to
Apollo and Chase were approximately $143.8 million (after deducting
issuance fees and expenses).
Certain Information Concerning Series B Preferred
Holdings has designated 500,000 shares of Preferred Stock as Series B
Perpetual Convertible Preferred Stock consisting of 450,000 shares designated
as Class B-1 Perpetual Convertible Preferred Stock (the "B-1 Preferred Stock")
and 50,000 shares designated as Class B-2 Perpetual Convertible Preferred
Stock (the "B-2 Preferred Stock"). A complete description of the terms of the
Series B Preferred is set forth in the Certificate of Designation therefor
("Designation"), which is an exhibit to this Report. Set forth below is a
summary of certain terms of the Series B Preferred, which summary is qualified
in its entirety by reference to the Designation.
Except where otherwise indicated, (1) the terms set forth below apply to
both the B-1 Preferred and B-2 Preferred and (2) each reference to the Series
B Preferred includes both the B-1 Preferred and B-2 Preferred.
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Ranking
The Series B Preferred ranks (1) senior to the Common Stock with respect to
distributions upon the liquidation, winding-up or dissolution of Holdings and
(2) the same as the Series A Perpetual Convertible Preferred Stock ("Series A
Preferred") with respect to such distributions.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
Holdings or reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of Holding's
capital stock, the holders of Series B Preferred will be entitled to payment
out of the assets of Holdings available for distribution of an amount equal to
$1,000 per share of Series B Preferred (the "Liquidation Preference"), plus
accrued and unpaid dividends, if any, to the date fixed for liquidation,
dissolution, winding-up or reduction or decrease in capital stock, before any
distribution is made on the Common Stock. After payment in full of the
Liquidation Preference and such dividends, if any, to which holders of Series
B Preferred are entitled, such holders will not be entitled to any further
participation in any distribution of assets of Holdings.
Dividends
The Series B Preferred bears no stated dividend. However, in the event that
Holdings declares or pays any dividends or other distributions upon the Common
Stock, Holdings must (subject to certain exceptions) also declare and pay to
the holders of the Series B Preferred, at the same time that it declares and
pays such dividends or other distributions to the holders of the Common Stock,
the dividends or distributions which would have been declared and paid with
respect to the Common Stock issuable upon conversion of the Series B Preferred
had all of the outstanding shares of Series B Preferred been converted
immediately prior to the record date for such dividend or distribution, or if
no record date is fixed, the date as of which the record holders of Common
Stock entitled to such dividends or distributions are determined.
Conversion Rights
Subject to possible adjustment as described below, each share of Series B
Preferred is convertible into 33 1/3 shares of Common Stock (representing a
conversion price of $30 per share of Common Stock based on the Liquidation
Preference of $1,000 per share of Series B Preferred).
The Designation provides that the conversion price is subject to specified
adjustments upon the occurrence of any of the following events:
. a distribution in the form of Common Stock is made on any class of
capital stock of Holdings (see subsection 3(d)(v) of the Designation);
or
. a person other than Holdings or a subsidiary purchases in a tender offer
not opposed by Holdings more than 20% and less than 50% of Holdings's
outstanding Common Stock and the tender offer price is less than the
conversion price in effect on the day the tender offer is concluded (see
subsection 3(d)(vi) of the Designation); or
. Holdings issues certain rights, options or warrants to all holders of
Common Stock entitling them to acquire shares of Common Stock at a price
that is less than the then current market price for the Common Stock
(see subsection 3(d)(vii) of the Designation); or
. the outstanding shares of Common Stock are subdivided into a greater
number of shares of Common Stock (see subsection 3(d)(viii) of the
Designation); or
. Holdings or any subsidiary makes a tender or exchange offer for any of
the Common Stock and the consideration paid per share of Common Stock is
greater than the market price for the Common Stock as of the trading day
next succeeding the expiration of the offer (see subsection 3(d)(ix) of
the Designation); or
37
<PAGE>
. Holdings issues to an affiliate (subject to certain exceptions) Common
Stock at a price per share that is less than the market price of the
Common Stock on the date of such issuance.
Redemption; Automatic Conversion
If a Change in Control (as defined in the Designation) with respect to
Holdings occurs (or Holdings enters into a binding agreement relating
thereto), the following provisions will apply:
Transaction Not Accounted For as Pooling-of Interests. If the Change of
Control is not in connection with an acquisition that is accounted for under
the "pooling-of-interests" method of generally accepted accounting principles,
Holdings must offer to purchase, within 10 business days after the Change of
Control, all of the then outstanding shares of Series B Preferred at a
purchase price per share, in cash, equal to the Liquidation Preference thereof
plus an amount equal to 6.25% of the Liquidation Preference, compounded
annually from the date of issuance of such share to the purchase date (the
"Call Price").
Transaction Accounted For as Pooling-of Interests. If the Change of Control
is an acquisition that is accounted for under the "pooling-of-interests"
method of generally accepted accounting principles, then, upon the occurrence
of the Change in Control, all of the then outstanding Series B Preferred Stock
will be automatically converted into Common Stock having a market value equal
to 109.5% of the Call Price, valued at the closing price of the Common Stock
at the close of business on the business day prior to the date of the Change
in Control.
Redemption Relating to Certain Issuances of Securities
If, after 2 1/2 years following the date of the issuance of the Series B
Preferred, Holdings issues for cash, Common Stock or a series of preferred
stock convertible into Common Stock, in either a public offering or a bona
fide private financing, for a price for the Common Stock (including any amount
payable upon conversion of preferred stock) below the conversion price then in
effect for the Series B Preferred (each such offering being referred to as a
"Reduced Price Offering"), then Holdings will be required to make an offer to
purchase the outstanding shares of Series B Preferred as follows:
If Offer to Purchase Series A Preferred is Not Required. If the Reduced
Price Offering is at a price that is not below the conversion price of the
Series A Preferred of $25, subject to adjustment (i.e., it does not also
trigger an obligation to offer to repurchase Series A Preferred), then
Holdings will be required to offer to apply towards the purchase of Series B
Preferred at the Call Price an amount equal to 40% of the Specified Amount (as
hereinafter defined) with respect to such offering. The "Specified Amount"
with respect to any Reduced Price Offering shall equal the amount by which the
net cash proceeds from such Reduced Price Offering and for all other Reduced
Price Offerings consummated during the preceding 12 months (but excluding any
Reduced Price Offering prior to December 31, 2001) exceeds an aggregate of $50
million, less a credit for all amounts theretofore paid to the holders of the
Series A Preferred and the Series B Preferred for such purchases during such
12-month period.
If Offer to purchase Series A Preferred Stock is Also Required. If the
Reduced Price Offering is at a price that is below the conversion price of the
Series A Preferred of $25, subject to adjustment (i.e., it also triggers an
obligation to offer to purchase Series A Preferred), then Holdings will be
required to offer to apply the Call Percentage (as defined below) of the
Specified Amount towards the purchase of both Series B Preferred and Series A
Preferred. In such event, the Specified Amount shall be allocated to the
purchase of Series B Preferred and Series A Preferred in proportion to the
aggregate liquidation amount of each such series of preferred stock (provided
that, if the aggregate liquidation amount of the Series B Preferred is in
excess of $500 million, such excess shall be ignored in calculating such
proportion). Any such purchase of Series B Preferred will be at the Call Price
and any purchase of Series A Preferred will be at the price specified in the
certificate of designation for the Series A Preferred.
38
<PAGE>
For purposes of the preceding paragraph, the "Call Percentage" will be a
function of the aggregate liquidation amount of the Series A Preferred and
Series B Preferred as set forth in the following table:
<TABLE>
<CAPTION>
Aggregate
Liquidation Call
Amount Percentage
----------- ----------
<S> <C>
up to and including $500 million.............................. 40%
more than $500 million to and including $550 million.......... 43%
more than $550 million to and including $600 million.......... 46%
more than $600 million to and including $650 million.......... 50%
more than $650 million to and including $700 million.......... 53%
more than $700 million to and including $750 million.......... 56%
more than $750 million........................................ 60%
</TABLE>
Voting
General Voting Rights
B-1 Preferred. Except as otherwise required by applicable law, the holders
of B-1 Preferred are entitled to vote together with the holders of the Common
Stock as a single class on all matters submitted to stockholders of Holdings
for a vote. Each share of B-1 Preferred is entitled to one vote for each share
of Common Stock issuable upon conversion of such share of B-1 Preferred.
B-2 Preferred. Except as provided below under "--Class Voting Rights," the
holders of the B-2 Preferred are not entitled to vote on any matter to be
voted on by stockholders of Holdings.
Class Voting Rights
Holdings may not, without the affirmative vote or consent of the holders of
at least a majority of the shares of Series B Preferred then outstanding
voting or consenting as the case may be, as a separate class, take certain
actions specified in the Designation, including, among others, the declaration
or payment of an Extraordinary Dividend (as defined in the Designation).
Right to Exchange Between Classes of Series B Preferred
Subject to certain limitations set forth in the Designation, certain holders
of shares of B-2 Preferred shall be entitled, without the payment of any
additional consideration, to convert at any time and from time to time any or
all shares of B-2 Preferred held by such holder into the same number of shares
of B-1 Preferred and vice versa.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Stockholders was held on August 9, 1999. The holders of
71,594,208 common shares and 300,000 Series A Preferred shares were present
either in person or by proxy. There were no broker non-votes at the meeting.
The following two matters were voted on and approved at such meeting.
1. Approval of the sale by the Company of 100,000 shares of Series B
Preferred stock to Apollo.
<TABLE>
<CAPTION>
For Abstain Against
---------- ------- ---------
<S> <C> <C>
66,588,592 10,941 2,310,023
2. Approval of an amendment to the Certificate of Designation of the Series
A Preferred stock in order to eliminate an inconsistency between the
terms of the Series B Preferred and the Series A Preferred (as well as
add an exception to the provision requiring that the conversion price be
adjusted under certain circumstances).
<CAPTION>
For Abstain Against
---------- ------- ---------
<S> <C> <C>
67,237,732 13,324 1,658,505
</TABLE>
39
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<C> <S>
(a) Exhibits:
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
3(a) Amended and Restated Certificate of Incorporation of United Rentals,
Inc., in effect as of the date hereof (incorporated by reference to
exhibit 3.1 of United Rentals, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
3(b) Certificate of Amendment to the United Rentals, Inc. Certificate of
Incorporation dated September 29, 1998 (incorporated by reference to
Exhibit 4.2 to the United Rentals, Inc. Registration Statement on Form
S-3, No. 333-70151).
3(c) By-laws of United Rentals, Inc., in effect as of the date hereof
(incorporated by reference to exhibit 3.2 of United Rentals, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
3(d) Form of Certificate of Designation for Series A Perpetual Convertible
Preferred Stock (incorporated by reference to Exhibit 4(k) to the
United Rentals, Inc. Amendment No. 1 on Form S-3 to Registration
Statement on Form S-1, No. 333-64463) together with a certificate of
amendment thereto (incorporated by reference to exhibit A of United
Rental, Inc. Proxy Statement dated July 22, 1999).
3(e) Form of Certificate of Designation for Series B Perpetual Convertible
Preferred Stock (incorporated by reference to exhibit B of United
Rentals, Inc. Proxy Statement on Schedule 14A dated July 22, 1999).
3(f) Amended and Restated Certificate of Incorporation of United Rentals
(North America), Inc., in effect as of the date hereof (incorporated
by reference to Exhibit 3.3 of the United Rentals, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998).
3(g) By-laws of United Rentals (North America), Inc., in effect as of the
date hereof (incorporated by reference to Exhibit 3.4 of the United
Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
10(a) Preferred Stock Purchase Agreement, Series B Perpetual Convertible
Preferred Stock dated July 16, 1999 between United Rentals, Inc. and
Chase Equity Associates, L.P. including Form of Registration Rights
Agreement (incorporated by reference to exhibit 10(c) of the United
Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10(b) Term Loan Agreement dated as of July 15, 1999 among United Rentals,
Inc., United Rentals (North America), Inc., various financial
institutions, Goldman Sachs Credit Partners L.P., as Syndication Agent
and Bank of America National Trust and Savings Association, as
Administrative Agent (incorporated by reference to exhibit 10(d) of
the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10(c) First Amendment dated as of August 12, 1999, to Term Loan Agreement
dated as of July 15, 1999 among United Rentals, Inc., United Rentals
(North America), Inc., various financial institutions, Goldman Sachs
Credit Partners L.P., as syndication Agent and Bank of America
National Trust and Savings Association, as administrative Agent
(incorporated by reference to exhibit 10(e) of the United Rentals,
Inc. Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).
10(d) Second Amendment dated as of July 14, 1999, to Term Loan Agreement
dated as of July 10, 1998 among United Rentals, Inc., United Rentals
(North America), Inc., various financial institutions and Bank of
America National Trust and Savings Association, as Agent (incorporated
by reference to exhibit 10(f) of the United Rentals, Inc. Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999).
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10(e) Second Amendment dated as of July 14, 1999, to Credit Agreement dated
as of September 29, 1998, between United Rentals, Inc., United Rentals
(North America), Inc., various financial institutions,
Bank of America Canada, as Canadian agent, and Bank of America
National Trust and Savings Association, as U.S. Agent (incorporated by
reference to exhibit 10(g) of the United Rentals, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10(f) Preferred Stock Purchase Agreement, Series B Perpetual Convertible
Preferred Stock, dated June 28, 1999, among United Rentals, Inc.,
Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.,
together with an Amendment dated as of July 16, 1999 (incorporated by
reference to exhibit B of United Rental, Inc. Proxy Statement dated
July 22, 1999)
27* Financial Data Schedule
27.1* Financial Data Schedule
</TABLE>
- --------
*Filed herewith.
(b)Reports on Form 8-K: none
41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
United Rentals, Inc.
Dated: November 12, 1999 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: November 12, 1999 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
United Rentals (North America), Inc.
Dated: November 12, 1999 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: November 12, 1999 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001067701
<NAME> UNITED RENTALS INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 31,071
<SECURITIES> 0
<RECEIVABLES> 511,961
<ALLOWANCES> 56,170
<INVENTORY> 160,287
<CURRENT-ASSETS> 0
<PP&E> 2,598,027
<DEPRECIATION> 539,835
<TOTAL-ASSETS> 4,525,950
<CURRENT-LIABILITIES> 0
<BONDS> 2,214,589
300,000
5
<COMMON> 720
<OTHER-SE> 1,352,483
<TOTAL-LIABILITY-AND-EQUITY> 4,525,950
<SALES> 1,564,589
<TOTAL-REVENUES> 1,564,589
<CGS> 312,473
<TOTAL-COSTS> 989,555
<OTHER-EXPENSES> 8,804
<LOSS-PROVISION> 34,706
<INTEREST-EXPENSE> 93,541
<INCOME-PRETAX> 166,662
<INCOME-TAX> 68,343
<INCOME-CONTINUING> 98,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,319
<EPS-BASIC> 1.39
<EPS-DILUTED> 1.06
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001047166
<NAME> UNITED RENTALS (NORTH AMERCIA), INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 38,552
<SECURITIES> 0
<RECEIVABLES> 511,961
<ALLOWANCES> 56,170
<INVENTORY> 160,287
<CURRENT-ASSETS> 0
<PP&E> 2,573,942
<DEPRECIATION> 536,764
<TOTAL-ASSETS> 4,459,068
<CURRENT-LIABILITIES> 0
<BONDS> 2,214,589
0
0
<COMMON> 0
<OTHER-SE> 1,638,477
<TOTAL-LIABILITY-AND-EQUITY> 4,459,068
<SALES> 1,564,589
<TOTAL-REVENUES> 1,564,589
<CGS> 312,473
<TOTAL-COSTS> 989,555
<OTHER-EXPENSES> 8,650
<LOSS-PROVISION> 34,706
<INTEREST-EXPENSE> 93,400
<INCOME-PRETAX> 183,962
<INCOME-TAX> 75,320
<INCOME-CONTINUING> 108,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,642
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
