<PAGE>
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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, 2000
[_] 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.)
Five 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, 2000, there were 70,299,543 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.
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<PAGE>
UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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, 2000 and
December 31, 1999 (unaudited)................................. 4
United Rentals, Inc. Consolidated Statements of Operations for
the Nine and Three Months Ended September 30, 2000 and 1999
(unaudited)................................................... 5
United Rentals, Inc. Consolidated Statement of Stockholders'
Equity for the Nine Months Ended September 30, 2000
(unaudited)................................................... 6
United Rentals, Inc. Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2000 and 1999
(unaudited)................................................... 7
United Rentals (North America), Inc. Consolidated Balance
Sheets as of September 30, 2000
and December 31, 1999 (unaudited)............................. 8
United Rentals (North America), Inc. Consolidated Statements of
Operations for the
Nine and Three Months Ended September 30, 2000 and 1999
(unaudited)................................................... 9
United Rentals (North America), Inc. Consolidated Statement of
Stockholder's Equity for the Nine Months Ended September 30,
2000 (unaudited).............................................. 10
United Rentals (North America), Inc. Consolidated Statements of
Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (unaudited)..... 11
Notes to Unaudited Consolidated Financial Statements........... 12
Management's Discussion and Analysis of Financial Condition and
Item 2 Results of Operations......................................... 23
Item 3 Quantitative and Qualitative Disclosures about Market Risk..... 30
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................. 31
Item 2 Changes in Securities and Use of Proceeds...................... 31
Item 6 Exhibits and Reports on Form 8-K............................... 31
Signatures..................................................... 32
</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," "on-
track," 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
more than 700 locations in 47 states, seven Canadian provinces and Mexico. We
offer for rent over 600 different types of equipment to over 1.2 million
customers, including construction and industrial companies, manufacturers,
utilities, municipalities, homeowners and others. During the third quarter of
2000, we completed more than 2.3 million rental transactions.
We have the largest fleet of rental equipment in the world, with over
500,000 units having an original purchase price of approximately $3.4 billion.
Our fleet includes:
. light to heavy construction and industrial equipment, such as aerial
lifts, backhoes, skid-steer loaders, forklifts, ditching equipment,
earth moving equipment, material handling equipment, compressors, pumps
and generators;
. traffic control equipment, such as barricades, cones, warning lights,
message boards and pavement marking systems;
. trench safety equipment for below ground work, such as trench shields,
aluminum hydraulic shoring systems, slide rails, crossing plates,
construction lasers, and line testing equipment;
. special event equipment used for sporting, corporate and other large
events, such as light towers, air conditioning units, portable power
units, electrical cable, temporary kitchens and tents; and
. general tools and equipment, such as power washers, water pumps, heaters
and hand tools.
In addition to renting equipment, we sell used rental equipment, act as a
dealer for new equipment, and sell related merchandise, parts and service.
Competitive Advantages
We believe that we benefit from the following competitive advantages:
Large and Diverse Rental Fleet. We have the largest and most comprehensive
equipment rental fleet in the industry, which helps us to:
. attract customers by providing "one-stop" shopping;
. serve a diverse customers base and reduce our dependence on any
particular customer or group of customers; and
. serve customers that require assurance that substantial quantities of
different types of equipment will be available on a continuing basis.
Operating Efficiencies. We generally group our branches into clusters of 10
to 30 locations that are in the same geographic area. Our information
technology system allows each branch to access all available equipment
1
<PAGE>
within a cluster. We believe that our cluster strategy produces significant
operating efficiencies by enabling us to: (1) market equipment within a
cluster through multiple branches, (2) cross-market equipment specialties of
different branches within each cluster, and (3) reduce costs by centralizing
common functions such as payroll, accounts payable and credit and collection
into 29 credit offices and three service centers. In the third quarter of
2000, approximately 10.9% of our rental revenue was attributable to equipment
sharing among branches.
Geographic Diversity. We have branches in 47 states, seven Canadian
provinces and Mexico. We believe that our geographic diversity reduces 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 better serve National Account customers,
better serve customers that operate at multiple locations, and access used
equipment re-sale markets across the country.
Customer Diversity. Our customer base is highly diversified and ranges from
Fortune 500 companies to small companies and homeowners. We estimate that our
top ten customers accounted for approximately 1% of our revenues during 1999.
Strong and Motivated Branch Management. Each of our branches has a full-time
branch manager who is supervised by one of our 56 district managers and nine
regional vice presidents. We believe that our managers are among the most
knowledgeable and experienced in the industry, and we empower them--within
budgetary guidelines--to make day-to-day decisions concerning staffing,
pricing, equipment purchasing and other branch matters. Management closely
tracks branch, district and region performance with extensive systems and
controls, including performance benchmarks and detailed monthly operating
reviews. We promote equipment sharing among branches through our profit
sharing program, which directly ties the compensation of branch personnel to
their branch's financial performance and return on assets.
Significant Purchasing Power. We purchase large amounts of equipment and
other items, which enables us to negotiate favorable terms with our vendors.
We are continuing our efforts to increase our purchasing power by narrowing
our vendor base. We estimate that these efforts allowed us to reduce our
equipment purchase costs in 1999 by approximately $50 million, and our goal is
to increase these savings to a total of $150 million in 2000.
National Account Program. Our National Account sales force is dedicated to
establishing and expanding relationships with larger companies, particularly
those with a national or multi-regional presence. We offer our National
Account customers the benefits of a consistent level of service across North
America and a single point of contact for all their equipment needs. Our
National Account team currently includes 49 professionals. Revenues from
National Account customers in the first nine months of this year were $160.2
million and we are on-track to reach our goal of $175 million by the end of
this year. We currently have over 1,100 National Account customers.
Information Technology System. Our information technology system facilitates
rapid and informed decision making and permits us to respond quickly to
changing market conditions. The system provides management with a wide range
of operating and financial data and enables 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. An in-house group
of approximately 123 information technology specialists supports the system
and extends it to new locations. The system includes software developed by our
Wynne Systems(TM) subsidiary, which is the leading provider of proprietary
software for use by equipment rental companies in managing and operating
multiple branch locations.
Risk Management and Safety Programs. We place great emphasis on risk
reduction and safety and believe that we have one of the most comprehensive
risk management and safety programs in the industry. Our risk management
department is staffed by 48 experienced professionals and is responsible for
implementing our safety programs and procedures, developing our employee and
customer training programs, and managing any claims against us. We estimate
that in 1999 we had approximately 19% fewer accidents than comparable
companies, 45% lower workers' compensation claim costs and 50% lower liability
claims, resulting in significant cost savings.
2
<PAGE>
Industry Background
Industry Size and Growth
The U.S. equipment rental industry has grown from about $6 billion in annual
rental revenues in 1989 to over $24 billion in 1999, representing a compound
annual growth rate of approximately 15%. This information is based on data
reported by Manfredi & Associates, Inc. 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;
. access a broad selection of equipment and select the equipment best
suited for each particular job;
. reduce storage and maintenance costs; and
. access the latest technology without investing in new equipment.
Outsourcing. Although growth in the equipment rental industry has to date
been largely driven by an increase in rentals by the construction industry,
we believe that the cost and other advantages of renting, together with the
general trend toward the corporate outsourcing of non-core competencies,
are increasingly leading industrial companies, municipalities, government
agencies, utilities and others to rent equipment.
3
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- ----------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents................ $ 31,715 $ 23,811
Accounts receivable, net of allowance for
doubtful accounts of $59,745 in 2000 and
$50,736 in 1999......................... 549,803 434,985
Inventory................................ 142,078 129,473
Prepaid expenses and other assets........ 145,662 81,457
Rental equipment, net.................... 1,788,079 1,659,733
Property and equipment, net.............. 413,103 304,907
Intangible assets, net of accumulated
amortization of $91,829 in 2000 and
$51,231 in 1999......................... 2,194,710 1,863,372
---------------- ----------------
$ 5,265,150 $ 4,497,738
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable....................... $ 281,352 $ 242,946
Debt................................... 2,801,333 2,266,148
Deferred taxes......................... 163,520 81,229
Accrued expenses and other
liabilities........................... 211,960 209,929
---------------- ----------------
Total liabilities.................... 3,458,165 2,800,252
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.......................... 3 3
Series B perpetual convertible
preferred stock--$150,000 liquidation
preference, 150,000 shares issued and
outstanding.......................... 2 2
Common stock--$.01 par value,
500,000,000 shares authorized,
70,288,918 shares issued and
outstanding in 2000 and 72,051,095 in
1999.................................. 703 721
Additional paid-in capital............. 1,186,380 1,216,968
Retained earnings...................... 319,476 179,475
Accumulated other comprehensive
income................................ 421 317
---------------- ----------------
Total stockholders' equity........... 1,506,985 1,397,486
---------------- ----------------
$ 5,265,150 $ 4,497,738
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- --------------------
2000 1999 2000 1999
---------- ---------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals............... $1,522,131 $1,112,244 $ 610,499 $ 468,942
Sales of rental equipment....... 254,977 159,803 99,806 72,609
Sales of equipment and
merchandise and other
revenues....................... 390,833 292,542 148,728 127,067
---------- ---------- --------- ---------
Total revenues................... 2,167,941 1,564,589 859,033 668,618
Cost of revenues:
Cost of equipment rentals,
excluding depreciation......... 659,876 476,321 263,262 197,175
Depreciation of rental
equipment...................... 246,537 200,761 87,502 76,694
Cost of rental equipment sales.. 149,738 92,457 58,570 42,538
Cost of equipment and
merchandise sales and other
operating costs................ 293,304 220,016 108,995 95,232
---------- ---------- --------- ---------
Total cost of revenues........... 1,349,455 989,555 518,329 411,639
---------- ---------- --------- ---------
Gross profit..................... 818,486 575,034 340,704 256,979
Selling, general and
administrative expenses......... 335,461 248,194 124,492 98,333
Non-rental depreciation and
amortization.................... 62,610 43,208 21,889 16,688
---------- ---------- --------- ---------
Operating income................. 420,415 283,632 194,323 141,958
Interest expense................. 167,268 93,541 61,058 42,235
Preferred dividends of a
subsidiary trust................ 14,625 14,625 4,875 4,875
Other (income) expense, net...... (796) 8,804 (484) (420)
---------- ---------- --------- ---------
Income before provision for
income taxes.................... 239,318 166,662 128,874 95,268
Provision for income taxes....... 99,317 68,343 53,483 39,060
---------- ---------- --------- ---------
Net income....................... $ 140,001 $ 98,319 $ 75,391 $ 56,208
========== ========== ========= =========
Basic earnings per share......... $ 1.96 $ 1.39 $ 1.07 $ 0.78
========== ========== ========= =========
Diluted earnings per share....... $ 1.49 $ 1.06 $ 0.79 $ 0.60
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<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
Shares Amount Shares Amount Shares Amount Capital Earnings
------------ --------- ------------ --------- ---------- ------ ---------- --------
(In thousands, except share data)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1999........... 300,000 $3 150,000 $ 2 72,051,095 $721 $1,216,968 $179,475
Comprehensive
income:
Net income..... 140,001
Other
comprehensive
income:
Foreign
currency
translation
adjustments...
Comprehensive
income.........
Issuance of
common stock... 8,956 150
Exercise of
common
stock options.. 13,882 194
Shares
repurchased and
retired........ (1,785,015) (18) (30,932)
------------ -------- ------------ -------- ---------- ---- ---------- --------
Balance, September 30, 2000.. 300,000 $ 3 150,000 $ 2 70,288,918 $703 $1,186,380 $319,476
============ ======== ============ ======== ========== ==== ========== ========
Accumulated
Other
Comprehensive Comprehensive
Income Income
------------- -------------
<S> <C> <C>
Balance,
December 31,
1999........... $317
Comprehensive
income:
Net income..... $140,001
Other
comprehensive
income:
Foreign
currency
translation
adjustments... 104 104
-------------
Comprehensive
income......... $140,105
=============
Issuance of
common stock...
Exercise of
common
stock options..
Shares
repurchased and
retired........
-------------
Balance, September 30, 2000.. $421
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
--------- -----------
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................................ $ 140,001 $ 98,319
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 309,147 247,091
Gain on sales of rental equipment.................... (105,239) (67,346)
Deferred taxes....................................... 84,419 44,257
Changes in operating assets and liabilities:
Accounts receivable.................................. (68,607) (116,783)
Inventory............................................ 12,444 (23,242)
Prepaid expenses and other assets.................... (49,515) (55,066)
Accounts payable..................................... 17,736 176,425
Accrued expenses and other liabilities............... (47,750) 61,440
--------- -----------
Net cash provided by operating activities........ 292,636 365,095
Cash Flows From Investing Activities:
Purchases of rental equipment......................... (681,099) (580,496)
Purchases of property and equipment................... (112,153) (75,909)
Proceeds from sales of rental equipment............... 254,977 159,803
In-process acquisition costs.......................... (3,157) (2,206)
Payments of contingent purchase price................. (12,748) (7,194)
Purchases of other companies.......................... (304,232) (905,267)
--------- -----------
Net cash used in investing activities............ (858,412) (1,411,269)
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net of
issuance costs....................................... 65,198
Proceeds from issuance of series A perpetual
convertible preferred stock, net of issuance costs... 287,000
Proceeds from issuance of series B perpetual
convertible preferred stock, net of issuance costs... 143,800
Proceeds from debt.................................... 579,080 905,702
Payments of debt...................................... (131,382) (360,683)
Proceeds from sale-leaseback.......................... 165,511
Payments of financing costs........................... (8,862) (11,341)
Proceeds from the exercise of common stock options.... 179 27,020
Shares repurchased and retired........................ (30,950)
--------- -----------
Net cash provided by financing activities........ 573,576 1,056,696
--------- -----------
Effect of foreign exchange rates...................... 104 139
Net increase in cash and cash equivalents............. 7,904 10,661
Cash and cash equivalents at beginning of period...... 23,811 20,410
--------- -----------
Cash and cash equivalents at end of period............ $ 31,715 $ 31,071
========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 179,625 $ 93,867
Cash paid for income taxes............................ $ 67,210 $ 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......................... $ 492,944 $ 1,355,288
Liabilities assumed.................................. (123,515) (440,626)
Less:
Amounts paid through issuance of debt.............. (65,197) (9,395)
--------- -----------
Net cash paid.................................... $ 304,232 $ 905,267
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In thousands, except
share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 31,715 $ 23,811
Accounts receivable, net of allowance for doubtful
accounts of $59,745 in 2000 and $50,736 in 1999.... 549,803 434,985
Inventory........................................... 142,078 129,473
Prepaid expenses and other assets................... 124,031 37,125
Rental equipment, net............................... 1,788,079 1,659,733
Property and equipment, net......................... 373,997 276,524
Intangible assets, net of accumulated amortization
of $91,829 in 2000 and $51,231 in 1999............. 2,194,710 1,863,372
---------- ----------
$5,204,413 $4,425,023
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable.................................. $ 251,120 $ 212,565
Debt.............................................. 2,801,333 2,266,148
Deferred taxes.................................... 163,520 81,229
Accrued expenses and other liabilities............ 188,727 171,807
---------- ----------
Total liabilities............................... 3,404,700 2,731,749
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........................ 1,507,509 1,507,330
Retained earnings................................. 291,783 185,627
Accumulated other comprehensive income............ 421 317
---------- ----------
Total stockholder's equity...................... 1,799,713 1,693,274
---------- ----------
$5,204,413 $4,425,023
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- --------------------
2000 1999 2000 1999
---------- ---------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals............... $1,522,131 $1,112,244 $ 610,499 $ 468,942
Sales of rental equipment....... 254,977 159,803 99,806 72,609
Sales of equipment and
merchandise and other
revenues....................... 390,833 292,542 148,728 127,067
---------- ---------- --------- ---------
Total revenues................... 2,167,941 1,564,589 859,033 668,618
Cost of revenues:
Cost of equipment rentals,
excluding depreciation......... 659,876 476,321 263,262 197,175
Depreciation of rental
equipment...................... 246,537 200,761 87,502 76,694
Cost of rental equipment sales.. 149,738 92,457 58,570 42,538
Cost of equipment and
merchandise sales and other
operating costs................ 293,304 220,016 108,995 95,232
---------- ---------- --------- ---------
Total cost of revenues........... 1,349,455 989,555 518,329 411,639
---------- ---------- --------- ---------
Gross profit..................... 818,486 575,034 340,704 256,979
Selling, general and
administrative expenses......... 335,461 248,194 124,492 98,333
Non-rental depreciation and
amortization.................... 57,100 40,828 19,945 15,971
---------- ---------- --------- ---------
Operating income................. 425,925 286,012 196,267 142,675
Interest expense................. 167,268 93,400 61,058 42,094
Other (income) expense, net...... (796) 8,650 (484) (332)
---------- ---------- --------- ---------
Income before provision for
income taxes ................... 259,453 183,962 135,693 100,913
Provision for income taxes....... 107,722 75,320 56,313 41,360
---------- ---------- --------- ---------
Net income ...................... $ 151,731 $ 108,642 $ 79,380 $ 59,553
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<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,
1999................... 1,000 $1,507,330 $185,627 $317
Comprehensive income:
Net income............. 151,731 $151,731
Other comprehensive
income:
Foreign currency
translation
adjustments.......... 104 104
--------
Comprehensive income.... $151,835
========
Contributed capital from
parent................. 179
Dividend distributions
to parent.............. (45,575)
----- --- ---------- -------- ----
Balance, September 30,
2000................... 1,000 $1,507,509 $291,783 $421
===== === ========== ======== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
--------- -----------
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................................ $ 151,731 $ 108,642
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 303,637 244,553
Gain on sales of rental equipment.................... (105,239) (67,346)
Deferred taxes....................................... 84,419 44,257
Changes in operating assets and liabilities:
Accounts receivable.................................. (68,607) (116,783)
Inventory............................................ 12,444 (23,242)
Prepaid expenses and other assets.................... (76,848) (40,666)
Accounts payable..................................... 17,884 150,292
Accrued expenses and other liabilities............... (34,549) 56,235
--------- -----------
Net cash provided by operating activities.......... 284,872 355,942
Cash Flows From Investing Activities:
Purchases of rental equipment......................... (681,099) (580,496)
Purchases of property and equipment................... (94,544) (46,807)
Proceeds from sales of rental equipment............... 254,977 159,803
Payments of contingent purchase price................. (12,748) (7,194)
Purchases of other companies.......................... (304,232) (905,267)
--------- -----------
Net cash used in investing activities.............. (837,646) (1,379,961)
Cash Flows From Financing Activities:
Proceeds from debt.................................... 579,080 905,702
Payments of debt...................................... (131,382) (360,683)
Proceeds from sale-leaseback.......................... 165,511
Payments of financing costs........................... (7,239) (11,341)
Capital contributions by parent....................... 179 522,969
Dividend distributions to parent...................... (45,575) (14,625)
--------- -----------
Net cash provided by financing activities.......... 560,574 1,042,022
--------- -----------
Effect of foreign exchange rates...................... 104 139
Net increase in cash and cash equivalents............. 7,904 18,142
Cash and cash equivalents at beginning of period...... 23,811 20,410
--------- -----------
Cash and cash equivalents at end of period............ $ 31,715 $ 38,552
========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 165,000 $ 79,242
Cash paid for income taxes............................ $ 67,210 $ 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......................... $ 492,944 $ 1,355,288
Liabilities assumed.................................. (123,515) (440,626)
Less:
Amounts paid through issuance of debt.............. (65,197) (9,395)
--------- -----------
Net cash paid.................................... $ 304,232 $ 905,267
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
General
United Rentals, Inc., is principally a holding company ("Holdings" or the
"Company") and conducts its operations primarily through its wholly owned
subsidiary United Rentals (North America), Inc. ("URI") and subsidiaries of
URI. 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,
2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. 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, 1999.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133". This standard delays the effective date of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", for
one year, to fiscal years beginning after June 15, 2000. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
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.
In June 2000, the FASB issued of SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". This standard amends
SFAS No. 133 and addresses a limited number of issues causing implementation
difficulties. The Company will adopt SFAS No. 138 on January 1, 2001 and it is
not expected to have a material effect on the Company's consolidated financial
position or results of operations.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2000
presentation.
2. Acquisitions
During the nine months ended September 30, 2000, the Company completed 48
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 $313.0 million and
consisted of approximately $247.8 million in cash and $65.2 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 $54.4
million.
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.
12
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes, on an unaudited pro forma basis, the results
of operations of the Company for the nine months ended September 30, 2000 and
1999 as though (i) each acquisition summarized above which was consummated
during the nine months ended September 30, 2000, was made on January 1, 2000,
in the case of the results for the nine months ended September 30, 2000, and
(ii) each acquisition which was consummated during the period January 1, 1999
to September 30, 2000 as described above and in Note 3 to the Notes to
Consolidated Financial Statements included in the Company's 1999 Annual Report
on Form 10-K was made on January 1, 1999 in the case of the results for the
nine months ended September 30, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues............................................ $2,312,213 $2,038,793
Net income.......................................... 144,715 115,976
Basic earnings per share............................ $ 2.03 $ 1.65
Diluted earnings per share.......................... $ 1.54 $ 1.25
</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
The Company has a credit facility (the "Credit Facility") which enables URI
to borrow up to $827.5 million on a revolving basis and 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 $827.5 million). The Credit Facility terminates on
September 26, 2003, at which time all outstanding indebtedness is due. There
was $641.5 million outstanding under the Credit Facility at September 30,
2000.
13
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. 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>
Nine Months Three Months
Ended Ended
September 30, September 30,
----------------- ---------------
2000 1999 2000 1999
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income.................................. $140,001 $ 98,319 $75,391 $56,208
Plus: preferred dividends of a subsidiary
trust, net of taxes........................ 8,544 2,841 2,876
-------- -------- ------- -------
Income available to common stockholders..... $148,545 $ 98,319 $78,232 $59,084
======== ======== ======= =======
Denominator:
Denominator for basic earnings per share--
weighted-average shares.................... 71,319 70,854 70,286 71,936
Effect of dilutive securities:
Employee stock options.................... 1,483 5,346 2,178 4,121
Warrants.................................. 2,729 4,228 3,193 4,012
Series A perpetual convertible preferred
stock.................................... 12,000 12,000 12,000 12,000
Series B perpetual convertible preferred
stock.................................... 5,000 18 5,000 54
Company-obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust........................... 6,876 6,876 6,876
-------- -------- ------- -------
Denominator for diluted earnings per share--
adjusted weighted-average shares........... 99,407 92,446 99,533 98,999
======== ======== ======= =======
Basic earnings per share...................... $ 1.96 $ 1.39 $ 1.07 $ 0.78
======== ======== ======= =======
Diluted earnings per share.................... $ 1.49 $ 1.06 $ 0.79 $ 0.60
======== ======== ======= =======
</TABLE>
14
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. 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). Pursuant to a legal reorganization of URI, certain guarantor
subsidiaries and subsidiaries of URI were combined for the purpose of
simplifying the Company's legal entity structure. As a result of this legal
reorganization, prior period amounts have been reclassified to conform to the
current year presentation. 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, 2000 and
December 31, 1999 and for the nine and three months ended September 30, 2000
and 1999, are presented. The condensed consolidating financial information of
URI and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 2000
---------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equiva-
lents.................. $ 28,221 $ 3,494 $ 31,715
Accounts receivable,
net.................... $ 226,666 287,512 35,625 549,803
Intercompany receivable
(payable).............. 525,331 (292,263) (233,068)
Inventory............... 63,280 71,762 7,036 142,078
Prepaid expenses and
other assets........... 64,678 59,353 124,031
Rental equipment, net... 869,647 796,048 122,384 1,788,079
Property and equipment,
net.................... 135,836 215,810 22,351 373,997
Investment in subsidiar-
ies.................... 2,222,271 $(2,222,271)
Intangible assets, net.. 923,691 1,143,892 127,127 2,194,710
---------- ---------- --------- ----------- ----------
$5,031,400 $2,250,982 $ 144,302 $(2,222,271) $5,204,413
========== ========== ========= =========== ==========
LIABILITIES AND STOCK-
HOLDER'S EQUITY
Liabilities:
Accounts payable....... $ 229,362 $ 9,871 $ 11,887 $ 251,120
Debt................... 2,769,007 4,928 27,398 2,801,333
Deferred income tax-
es.................... 161,121 2,399 163,520
Accrued expenses and
other liabilities..... 92,041 84,887 11,799 188,727
---------- ---------- --------- ----------- ----------
Total liabilities.... 3,251,531 99,686 53,483 3,404,700
Commitments and contin-
gencies
Stockholder's equity:
Common stock...........
Additional paid-in
capital............... 1,488,086 1,830,354 65,651 $(1,876,582) 1,507,509
Retained earnings...... 291,783 320,942 24,747 (345,689) 291,783
Accumulated other com-
prehensive income..... 421 421
---------- ---------- --------- ----------- ----------
Total stockholder's
equity.............. 1,779,869 2,151,296 90,819 (2,222,271) 1,799,713
---------- ---------- --------- ----------- ----------
$5,031,400 $2,250,982 $ 144,302 $(2,222,271) $5,204,413
========== ========== ========= =========== ==========
</TABLE>
15
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equiva-
lents.................. $ 3,689 $ 16,414 $ 3,708 $ 23,811
Accounts receivable,
net.................... 200,419 199,981 34,585 434,985
Intercompany receivable
(payable).............. 142,156 42,906 (185,062)
Inventory............... 56,086 64,253 9,134 129,473
Prepaid expenses and
other assets........... 1,020 18,296 17,809 37,125
Rental equipment, net... 747,232 789,967 122,534 1,659,733
Property and equipment,
net.................... 150,841 106,232 19,451 276,524
Investment in subsidiar-
ies.................... 2,072,115 $(2,072,115)
Intangible assets, net.. 792,198 948,128 123,046 1,863,372
---------- ---------- --------- ----------- ----------
$4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023
========== ========== ========= =========== ==========
Liabilities and Stock-
holder's Equity
Liabilities:
Accounts payable....... $ 71,995 $ 120,511 $ 20,059 $ 212,565
Debt................... 2,231,923 380 33,845 2,266,148
Deferred income tax-
es.................... 80,476 753 81,229
Accrued expenses and
other liabilities..... 107,828 53,177 10,802 171,807
---------- ---------- --------- ----------- ----------
Total liabilities.... 2,492,222 174,068 65,459 2,731,749
Commitments and contin-
gencies
Stockholder's equity:
Common stock...........
Additional paid-in
capital................ 1,487,907 1,830,182 65,644 $(1,876,403) 1,507,330
Retained earnings...... 185,627 181,927 13,785 (195,712) 185,627
Accumulated other com-
prehensive income...... 317 317
---------- ---------- --------- ----------- ----------
Total stockholder's
equity.............. 1,673,534 2,012,109 79,746 (2,072,115) 1,693,274
---------- ---------- --------- ----------- ----------
$4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023
========== ========== ========= =========== ==========
</TABLE>
16
<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, 2000
------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $622,474 $ 817,973 $81,684 $1,522,131
Sales of rental equip-
ment................. 114,596 122,502 17,879 254,977
Sales of equipment and
merchandise and other
revenues............. 195,195 171,551 24,087 390,833
-------- --------- ------- --------- ----------
Total revenues.......... 932,265 1,112,026 123,650 2,167,941
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 260,097 363,522 36,257 659,876
Depreciation of rental
equipment............ 114,571 117,599 14,367 246,537
Cost of rental equip-
ment sales........... 65,711 72,951 11,076 149,738
Cost of equipment and
merchandise sales and
other operating
costs................ 154,807 118,908 19,589 293,304
-------- --------- ------- --------- ----------
Total cost of revenues.. 595,186 672,980 81,289 1,349,455
-------- --------- ------- --------- ----------
Gross profit............ 337,079 439,046 42,361 818,486
Selling, general and ad-
ministrative expenses.. 133,951 183,312 18,198 335,461
Non-rental depreciation
and amortization....... 25,639 27,390 4,071 57,100
-------- --------- ------- --------- ----------
Operating income........ 177,489 228,344 20,092 425,925
Interest expense........ 165,547 224 1,497 167,268
Other (income) expense,
net.................... 8,943 (9,987) 248 (796)
-------- --------- ------- --------- ----------
Income before provision
for income taxes ...... 2,999 238,107 18,347 259,453
Provision for income
taxes.................. 1,245 99,092 7,385 107,722
-------- --------- ------- --------- ----------
Income before equity in
net earnings
of subsidiaries........ 1,754 139,015 10,962 $(149,977) 1,754
Equity in net earnings
of subsidiaries........ 149,977 149,977
-------- --------- ------- --------- ----------
Net income.............. $151,731 $ 139,015 $10,962 $(149,977) $ 151,731
======== ========= ======= ========= ==========
</TABLE>
17
<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..... $431,056 $615,708 $65,480 $1,112,244
Sales of rental equip-
ment................. 69,185 81,430 9,188 159,803
Sales of equipment and
merchandise and other
revenues............. 144,821 123,940 23,781 292,542
-------- -------- ------- -------- ----------
Total revenues.......... 645,062 821,078 98,449 1,564,589
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 186,211 260,137 29,973 476,321
Depreciation of rental
equipment............ 86,130 103,508 11,123 200,761
Cost of rental equip-
ment sales........... 40,271 46,727 5,459 92,457
Cost of equipment and
merchandise sales and
other operating
costs................ 113,403 88,250 18,363 220,016
-------- -------- ------- -------- ----------
Total cost of revenues.. 426,015 498,622 64,918 989,555
-------- -------- ------- -------- ----------
Gross profit............ 219,047 322,456 33,531 575,034
Selling, general and ad-
ministrative expenses.. 77,828 156,143 14,223 248,194
Non-rental depreciation
and amortization....... 18,300 19,984 2,544 40,828
-------- -------- ------- -------- ----------
Operating income........ 122,919 146,329 16,764 286,012
Interest expense........ 92,053 617 730 93,400
Other (income) expense,
net.................... 7,477 1,635 (462) 8,650
-------- -------- ------- -------- ----------
Income before provision
for income taxes....... 23,389 144,077 16,496 183,962
Provision for income
taxes.................. 9,589 58,363 7,368 75,320
-------- -------- ------- -------- ----------
Income before equity in
net earnings
of subsidiaries........ 13,800 85,714 9,128 $(94,842) 13,800
Equity in net earnings
of subsidiaries........ 94,842 94,842
-------- -------- ------- -------- ----------
Net income.............. $108,642 $ 85,714 $ 9,128 $(94,842) $ 108,642
======== ======== ======= ======== ==========
</TABLE>
18
<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, 2000
------------------------------------------------------------
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $243,673 $333,433 $33,393 $610,499
Sales of rental equip-
ment................. 40,112 54,187 5,507 99,806
Sales of equipment and
merchandise and other
revenues............. 83,154 57,350 8,224 148,728
-------- -------- ------- -------- --------
Total revenues.......... 366,939 444,970 47,124 859,033
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 97,780 152,133 13,349 263,262
Depreciation of rental
equipment............ 44,555 37,929 5,018 87,502
Cost of rental equip-
ment sales........... 21,722 33,480 3,368 58,570
Cost of equipment and
merchandise sales and
other operating
costs................ 62,967 39,263 6,765 108,995
-------- -------- ------- -------- --------
Total cost of revenues.. 227,024 262,805 28,500 518,329
-------- -------- ------- -------- --------
Gross profit............ 139,915 182,165 18,624 340,704
Selling, general and ad-
ministrative expenses.. 41,264 76,789 6,439 124,492
Non-rental depreciation
and amortization....... 7,727 10,793 1,425 19,945
-------- -------- ------- -------- --------
Operating income........ 90,924 94,583 10,760 196,267
Interest expense........ 60,930 29 99 61,058
Other (income) expense,
net.................... 5,014 (5,565) 67 (484)
-------- -------- ------- -------- --------
Income before provision
for income taxes ...... 24,980 100,119 10,594 135,693
Provision for income
taxes.................. 10,367 41,827 4,119 56,313
-------- -------- ------- -------- --------
Income before equity in
net earnings
of subsidiaries........ 14,613 58,292 6,475 $(64,767) 14,613
Equity in net earnings
of subsidiaries........ 64,767 64,767
-------- -------- ------- -------- --------
Net income.............. $ 79,380 $ 58,292 $ 6,475 $(64,767) $ 79,380
======== ======== ======= ======== ========
</TABLE>
19
<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..... $184,742 $253,026 $31,174 $468,942
Sales of rental equip-
ment................. 26,156 43,872 2,581 72,609
Sales of equipment and
merchandise and other
revenues............. 60,358 56,839 9,870 127,067
-------- -------- ------- -------- --------
Total revenues.......... 271,256 353,737 43,625 668,618
Cost of revenues:
Cost of equipment
rentals, excluding
depreciation......... 84,838 99,570 12,767 197,175
Depreciation of rental
equipment............ 35,172 36,612 4,910 76,694
Cost of rental equip-
ment sales........... 15,875 25,128 1,535 42,538
Cost of equipment and
merchandise sales and
other operating
costs................ 43,486 44,098 7,648 95,232
-------- -------- ------- -------- --------
Total cost of revenues.. 179,371 205,408 26,860 411,639
-------- -------- ------- -------- --------
Gross profit............ 91,885 148,329 16,765 256,979
Selling, general and ad-
ministrative expenses.. 14,813 78,682 4,838 98,333
Non-rental depreciation
and amortization....... 5,900 9,026 1,045 15,971
-------- -------- ------- -------- --------
Operating income........ 71,172 60,621 10,882 142,675
Interest expense........ 41,527 (10) 577 42,094
Other (income) expense,
net.................... 8,425 (8,720) (37) (332)
-------- -------- ------- -------- --------
Income before provision
for income taxes....... 21,220 69,351 10,342 100,913
Provision for income
taxes.................. 8,700 28,110 4,550 41,360
-------- -------- ------- -------- --------
Income before equity in
net earnings
of subsidiaries........ 12,520 41,241 5,792 $(47,033) 12,520
Equity in net earnings
of subsidiaries........ 47,033 47,033
-------- -------- ------- -------- --------
Net income.............. $ 59,553 $ 41,241 $ 5,792 $(47,033) $ 59,533
======== ======== ======= ======== ========
</TABLE>
20
<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, 2000
----------------------------------------------------------------
Guarantor Non-guarantor
URI Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- ------------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $(152,456) $ 424,504 $ 12,824 $ 284,872
Cash flows from
investing activities:
Purchases of rental
equipment............. (194,651) (467,912) (18,536) (681,099)
Purchases of property
and equipment......... (25,455) (66,152) (2,937) (94,544)
Proceeds from sales of
rental equipment...... 114,596 122,502 17,879 254,977
Payments of contingent
purchase price........ (1,521) (11,227) (12,748)
Purchases of other
companies............. (301,130) (3,102) (304,232)
--------- --------- -------- ------ ---------
Net cash used in
investing
activities.......... (408,161) (422,789) (6,696) (837,646)
Cash flows from
financing activities:
Proceeds from debt..... 554,413 24,667 579,080
Payments of debt....... (110,361) (14,575) (6,446) (131,382)
Proceeds from sale-
leaseback............. 165,511 165,511
Payments of financing
costs................. (7,239) (7,239)
Capital contributions
by parent............. 179 179
Dividend distributions
to parent............. (45,575) (45,575)
--------- --------- -------- ------ ---------
Net cash provided by
(used in)
financing
activities.......... 556,928 10,092 (6,446) 560,574
Effect of foreign
exchange rates........ 104 104
--------- --------- -------- ------ ---------
Net increase
(decrease) in cash
and cash
equivalents........... (3,689) 11,807 (214) 7,904
Cash and cash
equivalents at
beginning of period... $ 3,689 16,414 3,708 23,811
--------- --------- -------- ------ ---------
Cash and cash
equivalents at end of
period................ $ 28,221 $ 3,494 $ 31,715
========= ========= ======== ====== =========
Supplemental disclosure
of cash flow
information:
Cash paid for
interest............ $ 163,192 $ 271 $ 1,537 $ 165,000
Cash paid for income
taxes............... $ 50,284 $ 9,578 $ 7,348 $ 67,210
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.............. $ 488,060 $ 4,884 $ 492,944
Liabilities assumed.... (121,733) (1,782) (123,515)
Less:
Amounts paid through
issuance of debt.... (65,197) (65,197)
--------- --------- -------- ------ ---------
Net cash paid...... $ 301,130 $ 3,102 $ 304,232
========= ========= ======== ====== =========
</TABLE>
21
<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............. $ (141,151) $ 396,108 $ 100,985 $ 355,942
Cash flows from
investing activities:
Purchases of rental
equipment............. (85,008) (426,585) (68,903) (580,496)
Purchases of property
and equipment......... (10,100) (31,344) (5,363) (46,807)
Proceeds from sales of
rental equipment...... 69,185 81,430 9,188 159,803
Payments of contingent
purchase price........ (600) (4,895) (1,699) (7,194)
Purchases of other
companies............. (865,222) (40,045) (905,267)
---------- --------- --------- --- -----------
Net cash used in
investing
activities.......... (891,745) (381,394) (106,822) (1,379,961)
Cash flows from
financing activities:
Proceeds from debt..... 887,588 9,057 9,057 905,702
Payments of debt....... (353,469) (5,410) (1,804) (360,683)
Payments of financing
costs................. (11,341) (11,341)
Capital contributions
by parent............. 522,969 522,969
Dividend distributions
to parent............. (14,625) (14,625)
---------- --------- --------- --- -----------
Net cash provided by
financing
activities.......... 1,031,122 3,647 7,253 1,042,022
Effect of foreign
exchange rates........ 139 139
---------- --------- --------- --- -----------
Net increase
(decrease) 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 for
interest............ $ 78,427 $ 106 $ 709 $ 79,242
Cash paid for income
taxes............... $ 12,587 $ 2,398 $ 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.............. $1,290,333 $ 64,955 $ 1,355,288
Liabilities assumed.... (417,926) (22,700) (440,626)
Less:
Amounts paid through
issuance of debt.... (7,185) (2,210) (9,395)
---------- --------- --------- --- -----------
Net cash paid...... $ 865,222 $ 40,045 $ 905,267
========== ========= ========= === ===========
</TABLE>
6. Subsequent Event
In October 2000, the Company increased its borrowing under an existing term
loan from a financial institution by $100.0 million.
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<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, 2000 and 1999 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 1999 Annual
Report on Form 10-K.
General
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.
The acquisitions completed by the Company during 2000 and 1999 were
accounted for as "purchases" and the results of operations of the acquired
businesses 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 2000 and 1999 were impacted by acquisitions that were
accounted for as purchases, the Company believes that the results of its
operations for such period are not directly comparable.
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 and other revenue.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of rental equipment and equipment and other merchandise 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, (ii) the amortization of deferred financing costs and
(iii) 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, 2000 and 1999
Revenues. Total revenues for the nine months ended September 30, 2000 were
$2,167.9 million, representing an increase of 38.6% over total revenues of
$1,564.6 million for the nine months ended September 30, 1999. The Company's
revenues in the first nine months of 2000 and 1999 were attributable to: (i)
equipment rental ($1,522.1 million, or 70.2% of revenues, in the first nine
months of 2000 compared to $1,112.2 million, or 71.1% of revenues, in the
first nine months of 1999), (ii) sales of rental equipment ($255.0 million, or
11.8% of revenues, in the first nine months of 2000 compared to $159.8
million, or 10.2% of revenues, in the first nine months of 1999) and (iii)
sales of equipment and merchandise and other revenues ($390.8 million, or
18.0% of revenues, in the first nine months of 2000 compared to $292.5
million, or 18.7% of revenues, in the first nine months of 1999).
23
<PAGE>
The 38.6% increase in total revenues in the first nine months of 2000
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 16.0 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 22.6 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 increase in the sale of
related merchandise and parts which was driven by the increase in equipment
rental and sales transactions and (c) 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 $818.5 million in the first nine
months of 2000 from $575.0 million in the first nine months of 1999. 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 2000 and 1999 was: (i) equipment rental
(40.5% in the first nine months of 2000 and 39.1% in the first nine months of
1999), (ii) sales of rental equipment (41.3% in the first nine months of 2000
and 42.1% in the first nine months of 1999) and (iii) sales of equipment and
merchandise and other revenues (25.0% in the first nine months of 2000 and
24.8% in the first nine months of 1999). The increase in the gross profit
margin from rental revenues in the first nine months of 2000 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 2000 reflected the sale of more late-model used
equipment which generally generates lower gross profit margins than older
equipment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $335.5 million, or 15.5% of total
revenues, during the first nine months of 2000 and $248.2 million, or 15.9% of
total revenues, during the first nine months of 1999. SG&A in the first nine
months of 1999 includes an $8.3 million charge primarily due to professional
fees incurred in connection with a terminated tender offer. Excluding this
charge, SG&A as a percentage of revenues was 15.3% in the first nine months of
1999.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $62.6 million, or 2.9% of total revenues, in the first nine
months of 2000 and $43.2 million, or 2.8% of total revenues, in the first nine
months of 1999.
Interest Expense. Interest expense increased to $167.3 million in the first
nine months of 2000 from $93.5 million in the first nine months of 1999. This
increase primarily reflected (i) an increase in the Company's indebtedness,
principally to fund acquisitions, and (ii) an increase in the interest rates
applicable to the Company's variable rate debt.
Preferred Dividends of a Subsidiary Trust. During the first nine months of
2000 and 1999, preferred dividends of a subsidiary trust of Holdings were
$14.6 million.
Other (Income) Expense. Other income was $0.8 million in the first nine
months of 2000 compared to $8.8 million of other expense in the first nine
months of 1999. The other expense in the first nine months of 1999 was
attributable to a $10.0 million charge that principally related to fees paid
by the Company for a $2.0 billion financing commitment that was subsequently
cancelled upon termination of a tender offer made by the Company in 1999.
Income Taxes. Income taxes increased to $99.3 million, or an effective rate
of 41.5%, in the first nine months of 2000 from $68.3 million, or an effective
rate of 41.0%, in the first nine months of 1999.
Three Months Ended September 30, 2000 and 1999
Revenues. Total revenues for the three months ended September 30, 2000 were
$859.0 million, representing an increase of 28.5% over total revenues of
$668.6 million for the three months ended September 30, 1999. The Company's
revenues in the three months ended September 30, 2000 and 1999 were
attributable to: (i) equipment rental ($610.5 million, or 71.1% of revenues,
in the three months September 30, 2000 compared to $468.9 million, or 70.1% of
revenues, in the three months ended
24
<PAGE>
September 30, 1999), (ii) sales of rental equipment ($99.8 million, or 11.6%
of revenues, in the three months ended September 30, 2000 compared to $72.6
million, or 10.9% of revenues, in the three months ended September 30, 1999)
and (iii) sales of equipment and merchandise and other revenues ($148.7
million, or 17.3% of revenues, in the three months ended September 30, 2000
compared to $127.1 million, or 19.0% of revenues, in the three months ended
September 30, 1999).
The 28.5% 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 15.2 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 13.3 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 increase in the sale of
related merchandise and parts which was driven by the increase in equipment
rental and sales transactions and (c) 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 $340.7 million in the three months
ended September 30, 2000 from $257.0 million in the three months ended
September 30, 1999. 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, 2000 and 1999
was: (i) equipment rental (42.5% in the three months ended September 30, 2000
and 41.6% in the three months ended September 30, 1999), (ii) sales of rental
equipment (41.3% in the three months ended September 30, 2000 and 41.4% in the
three months ended September 30, 1999) and (iii) sales of equipment and
merchandise and other revenues (26.7% in the three months ended September 30,
2000 and 25.1% in the three months ended September 30, 1999). The increase in
the gross profit margin from rental revenues in the three months ended
September 30, 2000 was primarily attributable to greater equipment utilization
rates and to economies of scale. The increase in the gross profit margin from
sales of equipment and merchandise and other revenue in the three months ended
September 30, 2000 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 $124.5 million, or 14.5% of total
revenues, during the three months ended September 30, 2000 and $98.3 million,
or 14.7% of total revenues, during the three months ended September 30, 1999.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $21.9 million, or 2.6% of total revenues, in the three months
ended September 30, 2000 and $16.7 million, or 2.5% of total revenues, in the
three months ended September 30, 1999.
Interest Expense. Interest expense increased to $61.1 million in the three
months ended September 30, 2000 from $42.2 million in the three months ended
September 30, 1999. This increase primarily reflected (i) an increase in the
Company's indebtedness, principally to fund acquisitions, and (ii) an
increase in the interest rates applicable to the Company's variable rate debt.
Preferred Dividends of a Subsidiary Trust. During the three months ended
September 30, 2000 and 1999, preferred dividends of a subsidiary trust of
Holdings were $4.9 million.
Other (Income) Expense. Other income was $0.5 million in the three months
ended September 30, 2000 compared with $0.4 million in the three months ended
September 30, 1999.
Income Taxes. Income taxes increased to $53.5 million, or an effective rate
of 41.5%, in the three months ended September 30, 2000 from $39.1 million, or
an effective rate of 41.0%, in the three months ended September 30, 1999.
Liquidity and Capital Resources
Recent Financing
In June 2000, URI obtained a $100.0 million term loan from a financial
institution (the "Term Loan D"). In October 2000, URI obtained an additional
$100.0 million under the existing Term Loan D. The Term Loan D
25
<PAGE>
matures in June 2006. Prior to maturity, quarterly installments of principal
are due on the last day of each calendar quarter, in the amount of $0.25
million on September 30, 2000 and in the amount of $0.5 million commencing
December 31, 2000 to maturity. The amount due at maturity is $188.5 million.
The Term Loan D 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 reference rate) plus a margin of 0.625% per annum, or (b)
the Eurodollar Rate (which is equal to Bank of America's reserve adjusted
eurodollar rate) plus a margin of 2.5% per annum. The Term Loan D is secured
pari passu with the Company's revolving credit facility, and the agreement
governing the Term Loan D contains restrictive covenants substantially similar
to those provided under such credit facility.
Sources and Uses of Cash
During the first nine months of 2000, the Company (i) generated cash from
operations of approximately $292.6 million, (ii) generated cash from the sale
of rental equipment of approximately $255.0 million and (iii) obtained net
proceeds from financing activities of approximately $573.6 million. The
Company used cash during this period principally to (i) pay consideration for
acquisitions (approximately $304.2 million), (ii) purchase rental equipment
(approximately $681.1 million) and (iii) purchase other property and equipment
(approximately $112.2 million).
Certain Balance Sheet Changes
The acquisitions and the equipment purchases made by the Company in the
first nine months of 2000 (and the financing of such acquisitions and
purchases) were the principal reasons for the increase in all asset and
liability accounts at September 30, 2000 compared with December 31, 1999.
Certain Information Concerning the Company's Credit Facility
URI has a revolving credit facility (the "Credit Facility") that enables URI
to borrow up to $827.5 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 $827.5 million). The Credit Facility terminates on
September 26, 2003, at which time all outstanding indebtedness is due. As of
November 8, 2000, there was $575.5 million of indebtedness outstanding under
the Credit Facility (not including undrawn outstanding letters of credit in
the amount of $1.5 million). In May 2000, in connection with certain
amendments to the agreement governing the Credit Facility, the Eurodollar Rate
applicable to borrowings under the Credit Facility was increased by 0.25%.
Cash Requirements Related to Operations
The Company's principal existing sources of cash are borrowings available
under the Credit Facility ($250.5 million available as of November 8, 2000)
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 level of the Company's
expenditures for rental equipment over the next 12 months will depend on a
number of factors, including overall demand for equipment rental, the market
for used equipment, and changes in general economic conditions affecting
construction and industrial activity and interest rates. Based upon the terms
of the Company's currently outstanding indebtedness, the Company is scheduled
to repay debt principal of approximately $24.3 million during the period from
October 1, 2000 to September 30, 2001.
While emphasizing internal growth, the Company may also continue to expand
through a disciplined acquisition program. The Company expects to pay for
future acquisitions using cash, capital stock, notes and/or
26
<PAGE>
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.
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
In prior years, the Company discussed the nature of its plans to become Year
2000 compliant. As a result of those planning and implementation efforts, the
Company experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either with its
equipment, its internal systems, or the products and services of third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the Year 2000.
Seasonality
The Company's business is seasonal with demand for the Company's rental
equipment tending to be lower in the winter months. The seasonality of the
Company's business has been heightened by the Company's acquisition of
businesses that specialize in renting traffic control equipment. These
businesses tend to generate most of their revenues and profits in the second
and third quarters of the year, slow down during the fourth quarter and
operate at a loss during the first quarter.
Inflation
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 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities--
27
<PAGE>
Deferral of the Effective Date of FASB Statement No. 133". This standard
delays the effective date of SFAS No. 133, "Accounting for Derivative
Instrument and Hedging Activities", for one year, to fiscal years beginning
after June 15, 2000. SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities. 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.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". This standard amends
SFAS No. 133 and addresses a limited number of issues causing implementation
difficulties. The Company will adopt SFAS No. 138 on January 1, 2001 and it 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;
. adverse weather conditions which may temporarily affect a particular
region; or
. funding for highway and other construction projects under government
programs, such as the Transportation Equity Act for the 21st Century
("TEA-21"), does not reach expected levels.
Dependence on Additional Capital to Finance Growth
We may require additional capital in order to fully execute our growth
strategy. Capital may be required for, among other purposes, purchasing rental
equipment, completing acquisitions and establishing new rental locations. 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 fully implement our growth strategy could be limited.
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 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.
28
<PAGE>
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;
. our recent acquisition of businesses that specialize in renting traffic
control equipment, which tend to operate at a loss during the first
quarter;
. the timing of expenditures for new equipment and the disposition of used
equipment;
. changes in demand for our equipment or the prices therefor due to
changes in economic conditions, competition or other factors; and
. increases in the interest rates applicable to our floating rate debt.
Certain Risks Relating to Acquisitions
The making of acquisitions entails certain risks, including:
. acquired companies could have hidden liabilities that we fail to
discover during our due diligence investigations;
. we may have difficulty in assimilating the operations and personnel of
the acquired company with our existing operations;
. we may lose key employees of the acquired company; and
. we may have difficulty maintaining uniform standards, controls,
procedures and policies.
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 $1.0 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.
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
29
<PAGE>
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 information technology system. Any disruption
in this system or the failure of this system 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.
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, 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, 1999. There has been no material
change in these market risks since the end of the fiscal year 1999.
30
<PAGE>
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 2000. 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 2000, the Company issued 3,172 shares of common stock to an
executive officer pursuant to an employment agreement.
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. Registration Statement on Form S-3,
No. 333-64463) together with a certificate of amendment thereto
(incorporated by reference to exhibit A of United Rentals, Inc. Proxy
Statement on Schedule 14A 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 (North America),
Inc. 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 (North America), Inc. Report on Form 10-Q for the quarter
ended June 30, 1998).
10(a) Amendment No. 1 to Employment Agreement with Robert Miner, dated as of
August 2, 2000 (incorporated by reference to exhibit 10(e) of the
United Rentals, Inc. Report on Form 10-Q for the quarter ended June
30, 2000)
27* Financial Data Schedule
27.1* Financial Data Schedule
</TABLE>
--------
*Filed herewith.
(b)Reports on Form 8-K: none
31
<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 13, 2000 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: November 13, 2000 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
United Rentals (North America), Inc.
Dated: November 13, 2000 /s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
(Principal Financial Officer)
Dated: November 13, 2000 /s/ Peter R. Borzilleri
By: _________________________________
Peter R. Borzilleri
Vice President, Corporate
Controller
(Chief Accounting Officer)
32
